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Wrightson cuts profit forecast on real estate

Wednesday 17th December 2008

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PGG Wrightson, New Zealand's biggest rural services company, cut its profit forecast, citing a loss at its real estate business, the economic downturn and a writedown of its stake in NZ Farming Systems Uruguay.

Profit in the year ending June 30 is likely to be in a range of $39 million to $45 million, the company said in a statement. That's down from the $46 million to $51 million forecast range it gave shareholders at their annual meeting in October. The shares fell 0.6% to $1.59.

"The real estate business is performing as well as could be expected in extremely difficult conditions, with continuing growth in market share and substantial cost reductions," the company said. The operating performance of most of the group's other businesses "remains strong despite the difficult economic environment" and the company has not yet seen any impact from farmers of the drop in commodity prices, it said.

New Zealand's economy will shrink 0.2% in the 12 months ending March 31, the weakest since 1992 on a slump in housing and rising unemployment, according to a survey by New Zealand Institute of Economic Research, released yesterday.

Economists in the survey cut their average estimate from the growth of 0.2% they were predicting three months ago. The economy will resume its expansion in 2011, with a 3% annual pace, according to the survey, posted on the NZIER website.

Wrightson's reduction in forecast profit would still represents a gain of as much as 15% on last year's $39.2 million earnings.

The performance of its real estate business is now expected to be $11 million below last year. Total farm sales for the year to date are 39% below the same period in 2007.

This year's earning will also reflect costs associated with the termination of its agreement to buy a half stake in meat company Silver Fern Farms, it said. It will also mark to market the value of interest rate hedges.

In October, Wrightson said it was unable to settle the $220 million acquisition of a half stake in Silver Fern Farms because of the global credit squeeze.

By Jonathan Underhill

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