Elders' Australian parent props up unprofitable NZ unit with tagged accounts

Thursday 29th April 2010

Elders Rural Holdings relies on its battling Australian parent for financial support and may have to sell assets if that support is withdrawn, notes to the New Zealand company’s accounts say.

Adelaide-based Elders, which owns 50% of rural services group Elders Rural, has pledged 12 months’ support, according to notes to the New Zealand firm’s accounts.

That support makes up for a forecast shortage of cash flow at Elders Rural, which posted a net loss of $8.98 million in the 15 months to Sept. 30, the second straight loss.

Elders Australia made an unsecured $63.6 million advance to Elders Rural in the latest period, charging 7.25% interest. Elders Rural is launching its Just Shorn branded wool into the US market, one of several initiatives to squeeze more margin out of the fibre in a divided industry that has walked away from research as returns dwindle.

Rival Wool Partners International, which has Theresa Gattung as chairwoman, owns the Laneve mark. Both groups are inking supply deals with US manufacturers.

Elders of Australia posted a loss of A$466 million in the latest 15 months, reflecting writedowns on assets and a downturn in business. Its ability to support its local unit “is dependent on (the parent’s) ability to achieve revenue forecasts which is uncertain,” the note says.

Elders Australia managing director Malcolm Jackman says the clause is standard given the losses and cash flow shortfall and his firm’s accounts have carried a similar tag.

“We’re in turnaround mode in Australia and New Zealand,” Jackman told BusinessWire.

“We’re very committed to New Zealand. It is a long-term investment.”

Elders in Australia had the support of its banking syndicate and was complying with its banking covenants, Jackman said.

“All of us are finding the world challenging,” he said. Still, “it’s much better this year than last. Soft commodities are treating us better. The Australian economy is very strong.”

Against that, exchange rates were still “very ugly” for both countries, he said.

Both companies changed their balance date from June 30 and reported an odd year to make the adjustment. Once 12 months is up, “if the group were unable to continue in operational existence, adjustments would have to be made,” the note on the kiwi company’s accounts said.

“Assets may need to be realised other than in the normal course of business and at amounts which could differ significantly“ from their value on the balance sheet. The company may also have to recognise costs associated with asset realisations, the note said.

Elders Rural has diverse assets that run from farm supply stores to real estate, insurance, finance, wool and veterinary services.

Businesswire.co.nz

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