Elders Rural's accounts tagged as struggling parent looks to exit unprofitable unit

Friday 5th April 2013

Elders Rural Holdings, the unprofitable rural services company, had its annual accounts tagged by its auditor because of uncertainties including its ability to continue to rely on financial support of 50 percent owner Elders Ltd.

The net loss narrowed to $5.89 million in the 12 months ended Sept. 30, from a loss of $10 million a year earlier, the Auckland-based company's annual report shows. Sales fell to $121 million from $132 million.

Notes to the accounts say that based on cashflow forecasts, the company is dependent on continued financial support from ASX-listed Elders Ltd, its ultimate controlling company.

The Adelaide-based company has undertaken to provide that support for 12 months though it "has also incurred losses and is dependent on continued support from its bank to continue as a going concern," the notes say. "This creates some doubt as to the ultimate parent's ability to provide support to the group."

Adding to the uncertainty, Elders put its entire Rural Services division, which includes the Elders Rural group in New Zealand, up for sale last October. Directors of the New Zealand business made the judgment that a new owner would provide continued support, the notes say.

Auditor Ernst & Young listed three fundamental uncertainties when it signed off on Elders Rural's latest accounts, including the uncertainty of continued support from the parent, its ability to recover $6.29 million of deferred tax assets if a sale goes ahead and the ability of the parent to recover $48.9 million in receivables from subsidiaries.

The Australian Competition & Consumer Commission last month began an informal proposal from Elders Ltd's larger rival Ruralco to acquire Elders Rural Services though the company says no takeover offer has yet been received. It was in talks with several parties.

Shares of Elders Ltd last traded on the ASX at 10.5 Australian cents, valuing the company at A$47.1 million, and have dropped 60 percent in the past six months.

The other 50 percent of Elders Rural is owned by closely held Sredle New Zealand, whose owners include Elders Rural director Stuart Chapman.

Despite the loss, non-controlling interests were paid a dividend of $500,000 in the period.

BusinessDesk.co.nz

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