15 November 2010 Company Announcements Office Australian Securities Exchange 2010 Full Year Results Presentation Attached is a presentation to be made at the briefing on Elders Limited s results for the full year ended 30 September 2010 to be held at 8.30am Eastern Summer Time today (Monday 15 November 2010). The briefing will be webcast via the Company s website (www.elders.com.au) and open to a conference call using the telephone numbers advised in the Company s release of Friday 12 May 2010. Peter Hastings Company Secretary Elders Limited ABN 34 004 336 636 Registered office: Level 3, 27 Currie Street, Adelaide, South Australia 5000. Postal Address: GPO Box 1176, Adelaide, South Australia 5001. Telephone: (08) 8425 4000 Facsimile: (08) 8410 1597
FY2010 Financial Results for the 12 months to 30 September 2010 15 November 2010
2010 FINANCIAL RESULTS Overview and Financial Results 2
Executive Summary Mixed earnings results, but improved cash generation and gearing reduced significantly Sales and EBIT declines year on year, however, results in line with June 22 guidance EBIT declined from $37.0m in 2009 to $34.0m in 2010, driven by mixed results across business units: Rural services: lower farm supply prices more than offset volume growth; lower market activity in real estate, New Zealand and Indonesian live export; and Forestry: difficult market conditions driving reduced demand; offset by Auto: strong market recovery and business development Underlying NPAT of $3.0m significant increase from FY09 loss of $(24.4)m Improvement in interest expense driven by recapitalisation undertaken in first half Reported Net loss after tax of $(217.6) million compared to FY09 loss of $(432.7)m Impacted primarily by forestry in addition to other non-recurring items Outlook is positive with initiatives transforming the structure and cost to sales ratio to allow Elders to lift performance and profitability in the current low-price, low-margin environment Immediate reduction in cost to serve of 11% (on an annualised basis) by Dec 10 Accelerated development and implementation of Go-to-Client sales capability upgrade (1) Strong cash turnaround driven by Rural Services $170m cash flow improvement compared to FY09 (excluding one-off impact of trade debtor finance (2) ) Rural Bank sale has provided basis for further debt reduction and finance restructuring Pro-forma gearing to be reduced to 27% by proceeds from sale completion 1. A scheduled but new reformation and investment in Elders day to day sales effectiveness and practice 2. Trade debtor finance was brought on balance sheet during FY10 3
Group Financial Snapshot Interest reduction drives improvement in underlying NPAT 12 months to 30 September: 2010 2009 ($m) ($m) Mvt Sales revenue from continuing operations 2,069.1 2,341.2 2-12% Underlying EBIT 34.0 37.0-8% Net underlying interest (30.0) (76.9) -61% Underlying PBT 4.0 (39.9) +110% Tax credit 4.0 14.1-72% Non-controlling interests (5.0) 1.4 Na Underlying NPAT attributable to shareholders 3.0 (24.4) +112% Non-recurring items after tax (220.6) (408.3) -46% Reported Net Loss after Tax (217.6) (432.7) +50% Underlying operating cash flow (1) 0.7 (169.6) +101% Gearing % - as at 30 September 43% 124% - Pro Forma inclusive of Rural Bank sale 27% 124% 1. Excludes one-off impact of trade debtor finance being brought on balance sheet during FY10 4
Divisional Financial Snapshot Auto turnaround offsets reduced EBIT in other operations 12 months to 30 September 2010 ($m) 2009 ($m) Mvt Key drivers Rural Services EBIT 23.4 36.5-13.1 Change to insurance distribution model (1) in addition to lower farm supply prices and volumes in real estate Forestry EBIT 8.5 13.8-5.3 Lower MIS sales Automotive EBIT 15.0 (3.5) +18.5 Industry recovery and operational performance Investment & other (12.9) (9.8) -3.1 Underlying EBIT 34.0 37.0-3.0 Net underlying interest (30.0) (76.9) +46.9 Lower debt, lower interest rates: benefits of recap/refi enabled by Insurance / Timber deals Underlying PBT 40 4.0 (39.9) 9) +43.9 1. Comprised of distribution revenue net of costs earned in 2009 of $31.3m vs 2010 cost recovery and insurance joint venture income totalling $10.4m. Year on year EBIT impact of $(20.9)m 5
Non-recurring Items Significant one-off off items, driven principally from Forestry 12 months to 30 September H1 10 FY10 Mvt Source of second half movement Rural Services 7.0 (10.0) (17.0) Impairment of NZ assets, redundancy and restructure costs Recognition of Central Queensland re-plant as non- Forestry (163.1) (166.5) (3.4) recurring offset by fair value uplift on Albany Chip Terminal Automotive 0.0 0.8 0.8 Impairment reversal Corporate (18.2) (40.0) (21.8) Writedown of discontinued assets, project and refinance costs, legal settlement Tax effect (net) 7.3 (4.9) (12.2) Mainly due to not recognising a deferred tax asset for current year losses Total (167.0) (220.6) (53.6) Non-recurring items are detailed in the Management Discussion and Analysis lodged with the ASX 15 November 2010 6
Cash Flow from Operations Break-even even cash flow before trade debtor impact 12 months to 30 September 2010 ($m) 2009 ($m) Mvt Rural Services 69.1 (97.7) +166.8 Forestry (29.3) (62.3) +33.0 Automotive 35.6 31.8 +3.8 Corporate & other (ex. trade debtor financing) i (74.7) 7) (41.4) 4) -33.3 3 Operating cash flow (ex. trade debtor financing) 0.7 (169.6) +170.3 Trade debtor financing (1) (111.2) n/a (111.2) Cash flow from operating activities (110.5) (169.6) +59.1 1. Trade debtor financing is reported within the Corporate division 7
Key Balance sheet items Strengthened balance sheet 12 months to 30 September 2010 2009 ($m) ($m) Movement Inventory 226.0 269.3 (43.3) Trade debtors 471.2 535.8 (64.6) 6) Trade creditors 357.0 362.7 (5.7) Working capital 340.2 442.3 (102.1) Cash 80.0 367.9 (287.9) Trade debtor financing 111.2-111.2 Other current borrowings 168.3 854.1 (685.8) Non-current borrowings 218.1 345.2 (127.1) Gross Borrowings 497.6 1,199.3 (701.7) Hybrid equity 145.2 145.2 - Shareholders Equity 1,006.1 701.7 304.4 Net debt 435.1 869.5 (434.4) Gearing % 43% 124% 8
Finance Refinancing of company debt underway Operated within current covenants throughout FY10 with no breaches Lazard assisting with the restructure post sale of 40% holding of Rural Bank Restructure of finance facilities post deleveraging primarily aimed at: Resetting covenants Extending MCK Plexicor Facility maturity Extending March 2011 maturing seasonal finance facilities Introducing new financier 30 September 2010 Covenant positions (per finance documents): Covenant Metric Sept 2010 Actuals Sept 2010 Covenant Leverage ratio Gross Debt / EBITDA 5.24x <6.0x Interest cover ratio EBITDA / Interest 2.22x >1.2x Gearing ratio Gearing (Gross Debt / Equity) 31% <60% 9
2010 Financial Results OPERATIONS PERFORMANCE 10
Seasonal conditions: rainfall year to September Great for the East, Centre and North, poor in the West Above average for eastern Australia and central Australia Strong positive conditions for cropping and livestock Poor in south-west Western Australia 11
Rural Services Lower prices offset cost and efficiency gains 12 months to 30 September 2010 2009 Network results affected by impact of low farm supply ($m) ($m) prices Sales 1,711.9 2,005.4 Average AgChem price down -24% Gross margin 338.9 364.5 Average Fert price down -23% However, AgChem and eastern fert / volumes Operating costs 315.5 328.0 increased Underlying EBIT 23.4 36.5 AgChem volumes +11% East coast solid Fert vol +11% Operating cash flow 69.1 (97.7) WA Fert volumes down 46% on new model and poor season Movement in sales revenue ($m 2010 vs 2009) Reduction in financial i services income driven by loss of insurance distribution income 50 +5% Recouped through equity income (not included 0 in sales revenue) plus interest savings at the -50-7% -15% -6% group level -5% -100 Trading impacted by Indonesian market restrictions with associated costs -150 Strong cash flow improvement -200-250 -300-24% Farm Livestock supplies & wool Real Estate Financial services NZ Trading Outlook is positive Business has been reconfigured for low-cost low-margin environment Responding well to changes and initiatives 12
Rural Services Underlying EBIT movement FY10 below expectations, however, still like-for-like improvement on previous year ($m) 40 35 30 Comparable Underlying EBIT increase from $21.2m to $23.5m (11%) 25 20 36.5 20.9 5.6 1.0 2.9 1.9 0.8 1.8 3.7 3.6 1.2 15 10 21.2 23.5 5 0 Underlying EBIT FY09 Insurance Distribution Debtor Financing FY09 Comparable EBIT Farm Supplies Livestock Wool Real Estate Elders New Zealand Trading S,G&A Equity Earnings Underlying EBIT FY10 13
Elders Forestry Underlying EBIT solid despite MIS challenges Significant adverse one-off items impacts Reported EBIT 12 months to 30 September 2010 ($m) 2009 ($m) Key drivers Continuing Sales Revenue 100.3 111.2 Lower MIS sales, increased harvest & port income MIS sales 1.6 23.8 Industry contracted 90% from 2008, unavailability of bank finance for growers Underlying EBIT 8.5 13.8 Non-recurring items (167.1) (112.1) Central Qld & Esperance writedowns, FEA, SmartFibre writeback Reported EBIT (158.6) (98.3) Operating cash flow (29.3) (62.3) Release of 2009 MIS funds from trust, reduced costs, increased cash revenue from harvest and port fees Underlying result shows impact of contraction of MIS market over 2009 and 2010 Effect mitigated by growth in harvest and port revenue Statutory t t result impacted by non-recurring items announced in first half: FEA Liquidation, termination of fungus-affected Qld plantations & reduced production estimates for rainfall affected Esperance plantations MIS market sub-economic without grower financier support Business rationalised to focus on plantation management and harvest, handling shipping Acquired 100% of Albany Woodchip Terminal Seeking to attract partner with investment mandate that matches Elders Forestry profile 14
Futuris Automotive Strong performance on an earnings and cash flow perspective supported by a significant market recovery 12 months to 30 September 2010 ($m) 2009 ($m) Sales 256.9 224.6 Underlying EBITDA 29.8 11.7 Depreciation & Amortisation (14.8) (15.2) Outperformed expectations due to recovery in Australian and global markets Australian volumes up 14% calendar YTD China, South Asia growth 30%+ YTD Both Australian and China operations profitable and cash flow positive Underlying EBIT: Further impetus to the business recovery being provided by new contract wins, including: Futuris Automotive 15.4 0.2 GMH double shift Associates (equity acc) (0.4) (3.7) Cruze locally built for GMH (Feb 2011) Police Cruiser export for USA (CCPV) Underlying EBIT 15.0 (3.5) JAC in China Non-recurring rring items 08 0.8 (59.6) Thailand (GMH, Ford, and cut and sew for Futuris Australian contracts) Reported EBIT 15.9 (63.1) Futuris Feltex South Africa (GMH, Ford, Mercedes & BMW carpets) Operating cash flow 35.6 31.8 Holden Commodore M14 North American business Business development proceeding according to strategy 15
2010 Financial Results MANAGEMENT INITIATIVES 16
Dealing with the issues presented by 2010 Elders is re-aligning its costs, balance sheet and implementing a client-centric culture to become a High Performance Sales Organisation Cost to Serve Balance sheet Revenue growth Management structure Debt reduction Go to Client Natural attrition Working Capital Cost to serve Refinance Salesplus+ 17
Cost-to-Serve progress and targets On track for $45 million reduction 3,000 2,750 2,500 2,796 202 EMPLOYEE FTEs (excl. Auto & JVs) 2,594 54 2,540 52 2,488 Savings A$m Personnel 18.7 2,250 26.5 Non-Personnel 2,000 24 Jun July - Sept 30 Sept 10 September 31 Oct Future Target 2010 2010 Months FTEs Savings A$m Savings By Financial Year $m 3.4 50.00 40.0 37.5 4.5 45.2 Network New Zealand 4.3 19.7 30.0 20.0 Trading Support 10.5 10.0 0.0 3.2 Forestry Corporate 3.6 3.8 FY10 FY11 FY12 Total 18
Net Debt Significant reduction in net debt as a result of refinancing 12 months to 30 September 2010 ($m) 2009 ($m) Mvt Bank debt 313.7 1,185.3 74% Trade debtor financing # * 111.2 - Na Plexicor debt* 64.3 - Na Other non bank debt* 8.4 14.0 40% Gross debt 497.6 1,199.3 59% Derivatives 17.5 38.1 54% Cash 80.00 367.9 78% Net debt 435.1 869.5 50% Gearing 43% 124% 81% # mainly farm supplies (livestock excluded) * Not included in covenant testing 19
GTC Program overview Go to Client Re-orienting the organisation to a client-centric centric focus Right size & restructure networks Network Structure Administration & Technical Hubs Gap locations Go to Client Management Remuneration & Benefits Branchise Building Sustainable Competitive Advantage Inside Sales Zone/Regional managers Sales Performance Managers Livestock, Wool, Farm Supplies, Banking Insurance Zone Co-ordination Sales Performance Monitor Revised short term incentive and sales commission structures to reward performance Elders Equity Model Align Branch Manager for value creation Build best understanding of client needs Align platform, capability & product around needs Enabling a high performance sales culture
Hardwiring sales effectiveness into Elders daily activity Optimise time spent selling to clients Client Lists Weekly Action Plans AIMs Weekly Review Sessions Optimise the effectiveness of the time spent with clients Structured Selling Activity Selling stories Sales training Coaching 21
2010 Financial Results POSITION AND OUTLOOK 22
Dashboard Progress being made across the business with Elders becoming increasingly efficient and focussed, supported by the ongoing g deleveraging g Capital Operations Financial Management Strategy Consolidating Reduced risk Better performance Reconfiguring for difficult markets Improving the business essentials Advancing steadily Balance a sheet Dealing with market Focussing on the Debt change fundamentals: Covenant performance Aligning business: Structure Financiers Structure Costs Costs working capital Focus cash flow Rural Services operating efficiency Forestry Auto Execution & simplifying: Core business Financial Services Real Estate Logical bolt-ons eg Killara, Albany gap areas 23
Outlook Progress is being made and improved results are expected in 2011 2011 has begun well with strong results in October and November to date Improved sales performance capitalising on seasonal conditions Elders anticipates stronger performance in FY2011 with earnings improvement expected from: Reduced cost to serve: $45 million annualised by December Improved sales performance to flow from roll out of SalesPlus + to 600 staff pre-christmas and 600 post-christmas Further interest savings from debt reductions post Rural Bank sale. 24
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