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Elders' viability called into question

20 Nov, 2012 09:13 AM
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Malcolm Jackman.
Malcolm Jackman.

ELDERS managing director Malcolm Jackman has rejected suggestions the struggling rural services group has embarked on a fire sale as its auditors raise concerns about the value of its assets and its ability to continue as a going concern.

Without qualifying the accounts lodged with the Australian Securities Exchange on Monday, Ernst & Young partner Mark Phelps warned Elders was reliant on securing financing and it was unclear how much the company could achieve from its planned asset sales and whether those sales would be timely.

"There is material uncertainty over whether Elders Ltd will continue as a going concern and meet its obligations as and when they fall due," Mr Phelps wrote in the accounts.

Mr Jackman strongly defended Elders's position, saying its banks remained fully supportive of the company, which was in the final stages of renegotiating its facilities to mature with the completion of the asset sales, The Australian Financial Review reports.

The sale of its rural services division, automotive arm and remaining forestry assets was expected to be completed by June 2013.

He said Elders had an in principle agreement with its banks, subject to approval from their credit departments.

Each of its five lenders recommended the deal to the credit committees, he said.

"We unequivocally have the support of our bankers," Mr Jackman said. "I don't think they [the auditors] are calling in to question the health of the company. They are highlighting that there are issues that shareholders need to be aware of. The auditors are saying what does this business look like in 12 months time and until we understand what the possible [sale] transactions look like it is hard to determine. If there had been a genuine concern they would have qualified the accounts."

The directors acknowledge material uncertainties surrounding the group but said they believed Elders would secure fresh financing and could achieve asset sales within expected time frames and for sufficient values.

Elders narrowed its annual loss in the 12 months to September 30 to $60.6 million, compared with a $395.4 million loss a year ago. The loss was largely driven by write-downs and provisions for onerous contracts within its forestry division.

Excluding write-downs, restructuring costs and tax gains, underlying net profit was $13.2 million, up from $9 million, while net debt fell to $295.3 million, from $345.4 million.

Mr Jackman said Elders had received about 30 inquiries for its rural services arm from a mix of trade and financial players and it was taking a disciplined approach to selling the business. It was not running a fire sale, he said.

Mr Jackman's pay decreased $5,043 to $1.2 million due to fewer share rights being awarded. His base salary increased by $60,588 to $1.1 million.

One analyst who declined to be named said if Elders did not achieve good prices for its rural services and automotive divisions there was a risk its banks could put the group into administration. "The big concern here is what is left for equity holders [after the asset sales]?" said another analyst, who also declined to be named.

Dennison Hambling, who oversees about 12 per cent of Elders' hybrid debt for First Samuel clients, said he was encouraged by the results.

"They have made this business better than it was a year ago," Mr Hambling said.

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The Australian Financial ReviewSource: http://www.afr.com
Date: Newest first | Oldest first

READER COMMENTS

Realist
20/11/2012 6:14:31 PM

The auditor reiterated "there is material uncertainty over whether Elder Ltd will continue as a going concern and meet its obligations as and and when they fall due". Insolvency is when a company cannot pay its accounts as and when they fall due. Sounds like a qualification in any corporate language. As a ex director it is time to call in the administrators, unless they have information unknown to shareholders.
Stacey
26/11/2012 11:13:21 AM

Make you wonder why they would be suing two hard working former franchise owners at great expense to all concerned.

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