eld debt looking forward, page-21

A reminder of how full of sh@t Jackman is:


Elders' reputation in tatters
Bryan Frith
June 22, 2010 11:00PM
How could Elders get it so wrong, in such a short time span?
The rural company yesterday brought forward a trading update, which had earlier been promised in July, after the close of the June quarter, and it was a tale of woe. Yet on May 17 -- a mere five weeks ago -- when Elders released its results for the half year to March 31, everything was coming up roses.
Elders has been a serial underperformer, but this was supposed to be a turnaround year after $700 million worth of asset sales and a $550m recapitalisation late last year to reduce debt and repair the balance sheet.
Shareholders were told that Elders had an agenda for change to drive shareholder value, with a new management team focused on financial returns and cash generation.

In the prospectus for the capital raising, the directors forecast after-tax profit of $55.7m for the year to September 30.
However, the company recently modified that forecast after reduced sales of Elders Forestry's MIS schemes in the wake of the collapse of Timbercorp and Great Southern and the lurch into administration of Forest Enterprises Australia, which forced Elders to write down its 13.5 per cent shareholding by $32.4m to zero.
Compounding its difficulties, Elders Forestry was unable to secure finance from Rural Bank for its MIS projects, for which it previously had an in-principle agreement, and as a result reduced the forecast EBIT for Elders Forestry by $11m, to $3.1m.
Last month shareholders were told that everything was on track, with a sharp turnaround in earnings and cash generation for the March half year.
Elders reported an underlying EBIT of $21.3m, up from $1.6m, and an underlying profit of $1.1m, compared with a loss of $21.8m for the same period last year.
Moreover, the company said it anticipated a "substantial" lift in earnings in the second half, given suitable rains in WA and suitable market conditions, which was expected to be sufficient to support the achievement of the prospectus forecasts for underlying earnings and profit (as modified for the forestry adjustment).
Elders CEO Malcolm Jackman was upbeat at the time.
"There is a very real sense that our turnaround plans are gaining momentum," he said.
He also said that the key performance measures showed Elders was performing better and that each of the operating businesses made progress in their target areas of margin, cash generation and costs.
In the rural services division, lower prices for major agricultural chemicals and fertiliser products had more than offset volume, but the impact had largely been absorbed by improving margins and reducing costs.
But yesterday Jackman said the earnings guidance had been brought forward because it was apparent from results to May that insufficient revenue was being earned from the key rural services sale to achieve guidance, especially after the downgrade to the forestry MIS sales forecast.
Elders had recorded a break-even underlying profit for the eight months to May, which was well ahead of the $16.8m underlying loss for the same previous period, but well behind budgeted earnings of $25m.
The company was now expecting an underlying loss of between $8m and $14m for the year to September compared with the prospectus forecast of $55.7m, and the underlying profit of $1.1m for the first half.
Elders has now decided that its cost-to-sales ratio is unsustainable in the current market and has decided to slash costs by $45m, or 11 per cent, including a 10 per cent reduction in the workforce through natural attrition and "leaner" management.
The COO Mike Guerin has gone, his position "no longer viable". So has the head of Australian network, John Molenaar, while Jackman has personally taken responsibility for management of Elders Rural Service performance.
According to Jackman there have been fundamental changes in the rural service and forestry markets this financial year that have overwhelmed the improvements in operations and cash and cost management.
There has been a shift by cash-strapped farmers from branded items to low-price generic products, with the result that sufficient revenues are not being generated. As a result, the company needs to reduce costs. It also intends to scale back its MIS activities.
Elders' results are very seasonal, with the June quarter traditionally the most important. Nevertheless, when Elders reported last month that it was still on track to achieve its 2010 forecast, the June quarter was already half over. If management really didn't know by that stage that the company was performing poorly it is disturbing, because it suggests they don't really have a handle on things.
This is not the first time that Elders has failed to live up to earnings forecasts.
In February last year the company said it was "comfortable" with the range of market expectations for an underlying profit for 2009 of $39m to $45m, only to downgrade the forecast in May to a full-year loss in the range of $5m to $15m.
The reason proffered for the downgrade? A squeeze on margins from a combination of lower prices and volumes in the rural services market.
No wonder Jackman yesterday apologised to shareholders and conceded that Elders was getting a reputation as a company that only reports bad news.
The market yesterday responded to the latest downgrade by almost halving the share price. It plunged 38c, or 46 per cent, to 44c on hefty turnover of 94.4 million shares, or more than 20 per cent of the capital.
That's actually much worse than it appears.
Elders share price dropped from $1.30 in October 2008 to 33c by May last year, when the company downgraded its 2009 earnings forecast, and was at 24.5c in September when Elders announced a $400m institutional placement at 15c a share and a $150m SPP (share purchase plan). Shareholders were allowed to acquire $20,000 of shares (above the normal limit of $15,000), and to take up additional shares from those who didn't subscribe. The SPP was oversubscribed.
The placement meant that Elders issued more than 3.67 billion shares and took its issued capital to 4.48 billion shares. In January there was a share consolidation on a 10 for 1 basis, taking the issued capital back to 448 million shares.
On a comparable basis that would mean the share price was $13 in October 2008 and was down to $2.50 at the time of the placement and SPP.
On that basis, yesterday's closing price of 44c is equivalent to only 4.4c a share. It means that almost $390m of the $550m raised from institutions and shareholders has been wiped out -- value destruction on a massive scale. Elders claimed that after the equity raising it was "refocused, recapitalised and re-energised". Given his track record of over-promising and under-performing, it must be wondered whether Jackman may be the next to go.
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