In its heyday Futuris was seen as a possible rival to Wesfarmers, but in recent years it has disappointed investors. Mark Beyer spoke to chief executive Les Wozniczka.
DIVERSIFIED industrial company Futuris has been through some major changes over the years, and investors should probably prepare for more to come.
While the company’s original core business was brick manufacturing, via Bristile, followed by a move into auto accessories, via Air International, its main focus, increasingly, is rural.
The Elders rural services business is the group’s powerhouse and it is focused on building its rural interests.
The man in charge is Adelaide-based Les Wozniczka, who succeeded long running Perth-based chief executive Alan Newman last July.
In Perth last week to address a farming conference, Mr Wozniczka was musing on the group’s future direction.
“What kind of company do we want to be?” he asked rhetorically.
“We want to be a diversified industrial.
“Maybe in the future we might want to be a diversified agricultural enterprise, but I think the Australian market has got a long way to go before that sort of entity would get the rating and the status in the market that it would need to build a business in the long term.
“One of the problems is that the market here is still too small and too volatile.
“To build businesses over a long period you have got to give comfort to staff that they have got a future over the long period.
“When you see some of the share price movements that do take place, that can be fairly destabilising for staff.”
Futuris’ own share price has swung widely over the past year, rising as high as $1.84 on the back of speculation of an AWB takeover and sinking as low as $1.32 last month.
The takeover speculation disappeared when AWB, which retains a 14 per cent shareholding in Futuris, surprised the market by purchasing the rival Landmark rural services business from Wesfarmers.
Mr Wozniczka is keen for Futuris to be seen as a long-term business builder but he also sees some value in being tagged an asset trader.
“I think that’s a healthy thing to have in the sense that, if the market can see us coming in every direction, then we are hardly going to maximise opportunities for shareholders,” Mr Wozniczka said.
The challenge for the company over the past two to three years has been achieving sustainable growth in earnings.
Elders’ earnings were battered by last year’s drought, while Air International has suffered from falling margins at a time of rapid sales growth.
The group also incurred one-off losses of $44.2 million after writing off its investment in German company BWK, owner of the Geelong wool scouring plant that was shut down last year, and raising provisions to cover its exposure to failed livestock exporter Fares Group.
As a result of these losses, the group turned an ‘underlying’ profit of $21.4 million into a net loss of $17.6 million for the six months to December 2003.
Brokers are divided on the company’s prospects.
DJ Carmichael’s Steven Piotrowski takes a negative view, putting a price target of just $1.35 on the stock and rating it as a ‘sell’.
He said the positives were the improved underlying profit in most of Elders’ businesses, particularly insurance and the half-owned Elders Rural Bank, which performed well.
This was more than offset by non-recurring losses, while “management attempts to improve margins in the Air International business have been unsuccessful to date”.
Bell Potter Securities has a neutral rating on the stock, which it values at $1.50, a little below the current price of $1.70.
Patersons Securities is cautiously positive, with a $1.98 price target and a short-term ‘buy’ recommendation.
Analyst Robert Gee expects a full-year 2004 profit (before abnormal items) of $63 million, in line with the current range of analyst expectations.
He said Elders was clearly positioned for profitable growth, while changes at Air International, designed to lift margins, are likely, though not certain, to lift profits in 2005.
“There is clearly a lot of scope for much higher earnings in both Elders and Air [International],” Mr Gee said. “The timber and property divisions provide useful add-on profits in the short term.”
The potential for higher earnings at Elders comes from running the existing business more efficiently and widening its range of services.
The latest move was this month’s decision to relaunch wealth management and risk insurance services under the Elders Trustees brand.
A more contentious move was last year’s $11.5 million investment in second tier telco Amcom Telecommunications.
Most market observers see this as purely opportunistic, but Mr Wozniczka said it was a good strategic move that fitted with a possible move into telecommunications services.
“For a start, the business itself is a good business,” he said.
“But faced with a choice of hiring the big consultant and paying several million dollars for a report or investing in a business where we’ve got access to very good knowledge and very good management, I think for us that’s a better deal.
Futuris has been building its grain trading activities and Mr Wozniczka sees more potential in that area.
“We’ve traditionally been in livestock and wool, and grain is the other half of Australian agriculture, so that is a pretty ambitious growth perspective on its own,” he said.
“The other major growth area we identified is the dairy industry.”
Mr Wozniczka concedes the company misjudged its investment in BWK but remains committed to the wool industry.
“The real message is, I don’t believe we can provide leadership to wool growers just by being a selling agent for wool,” he said.
“Those days are well and truly gone.”
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