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Elders reports a half-billion-dollar loss

Struggling rural services company Elders (ASX: ELD) has reported a statutory loss of $505.2 million for the financial year ending 30 September 2013. The reported loss includes non-cash impairment charges and other non-recurring items that totalled $442.2 million. Excluding these items Elders underlying loss was $63 million and compares to an underlying loss in the prior year of $10.6 million.

It’s tough for shareholders to find too much joy in Elders’ results except for the acknowledgement that with the final stage of the five-year restructuring and turn-around program underway Elders can now be considered a “pure-play” agribusiness. (There is still some work to do to complete the wind-down and asset divestment of the forestry division.) Management also announced that they continued to make in-roads on reducing the company’s debt with net debt declining a further $40.1 million over the year to $255.2 million.

Elder’s woes have provided very poor investment returns for shareholders. Interestingly, the rural services space has in general also been a difficult sector for investors, particularly when compared with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which is up nearly 24% over the past 12 months.

For comparison, Elders shares are down around 22% in the past year, while its closest listed peer, Ruralco Holdings (ASX: RHL), which has also previously approached Elders with a buy-out offer, is up just 3.8%. Meanwhile stock feed and animal feed supplement producer Ridley Corp’s (ASX: RIC) share price is down nearly 22% and Incitec Pivot (ASX: IPL), which has a large fertiliser division (but which is also heavily influenced by the mining sector given its explosives division) is down 9%.

Foolish takeaway

The performance of companies that supply inputs to the agricultural industry is a reminder to investors that not all companies are created equally. While food producers such as Tassal (ASX: TGR) and Bega Cheese (ASX: BGA) are seeing their share prices hit multi-year highs, their leverage and profitability to growing demands for food are such that these firms are much better placed than the input suppliers to boost their profits.

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Motley Fool contributor Tim McArthur owns shares in Tassal.

 

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