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PGG Wrightson 1H earnings beat expectations; full-year outlook upgraded

Tuesday 27th February 2018

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PGG Wrightson said first-half earnings beat expectations and upgraded its outlook for the full year as its agricultural businesses traded better than anticipated.

Operating earnings before interest, tax, depreciation and amortisation increased to $34.2 million in the six months ended Dec. 31, 2017, from $26 million in the year-earlier period, the Christchurch-based company said in a statement. It forecast full-year ebitda of $65 million to $70 million, an improvement from its previous forecast for full-year earnings to be in line with last year's $64.5 million. 

"We advised in October last year that against a backdrop of higher commodity prices, lower agricultural production and a delayed start to spring we expected our operating ebitda to be at a similar level to 2017," PGG Wrightson chair Alan Lai said. "It is pleasing to be able to report that the business has achieved a first half performance at an operating ebitda level that is stronger than last year. Furthermore, we expect this strength to continue and anticipate operating ebitda to exceed 2017’s result."

The company said first-half net profit slipped to $14.6 million, or 1.9 cents per share, from $15 million, or 2 cents, a year earlier. An improved trading performance meant it now expected full-year net profit would be about 20 percent lower than last year's $46.3 million, an upgrade from its previous forecast for full-year profit to fall about 30 percent due to one-time gains from property sales in 2017.

PGG Wrightson said the improved performance was achieved due to most of its businesses trading well through the first half.

The company's largest retail and water unit, which includes its rural supplies and Fruitfed retail operations, PGG Wrightson water, AgNZ (Consulting), Agritrade and ancillary sales support, supply chain and marketing functions, lifted first-half operating ebitda 25 percent to $23.6 million, largely due to its retail business.

"The retail business performed extremely well during a period when they look to deliver more than 85 percent of their full year operating ebitda," said PGG Wrightson chief executive Ian Glasson.

"It was pleasing to see that they finished with operating ebitda higher than the same period last year despite some challenges with weather. Wet growing conditions in spring were followed by dry conditions in November and December. The impact on horticulture was the advance of harvest dates. This resulted in spray programme applications being brought forward and as a consequence some of the sales that were planned for January occurred during December. All three retail business areas (Rural Supplies, Fruitfed Supplies and Agritrade) contributed to the pleasing result."

Glasson said the water business continued to be challenged by the lack of on farm development but had seen opportunities in other areas, successfully tendering to supply irrigation to the Royal Auckland and Grange Golf Club, and Millbrook developments.

The company's second-largest unit, including its seed and grain operations across Australia, New Zealand and South America, lifted operating ebitda by 26 percent to $10.8 million.

"The New Zealand seed and grain business had a strong result due to favourable weather conditions in spring, compared to the same period last year," Glasson said. "Recovery in the grain and forage seeds market along with a lift in performance in international shipments due to high yields resulted in an increased operating ebitda in New Zealand.

"However, a reduction in spring sales increased closing inventory levels in both the Australian and South American businesses. Initiatives are in place to alleviate working capital demands across the seed and grain group and we expect that to improve as the Australian business performance is traditionally focused in the second six months of the financial year."

The outlook for the seed and grain business remained positive for the second half of the financial year, subject to favourable autumn planting and climatic conditions, he said.

Meanwhile, the company's agency unit, which includes rural livestock trading, export livestock, wool, insurance, real estate and finance commission, more than doubled operating ebitda to $4.6 million from $2 million.

"The livestock business benefited from strong international demand for protein and reduced tallies which combined to push up livestock prices across New Zealand," Glasson said, adding its livestock supply chain products continue to perform well.

Glasson noted its wool procurement and brokering business improved despite reduced demand for global crossbred wool, and said the real estate business had a "challenging" first six months but maintained market share and remains well positioned when market conditions improve.

He said the company is optimistic that the positive trading environment will continue through the second half of the year in New Zealand, although he noted this depended on how autumn conditions impacted its business as it moved into the key planting and harvesting periods.

While confidence in the dairy market had increased, farmers remained cautious, he said. Elsewhere, the company expected strong lamb and beef commodity demand and pricing to continue. 

PGG Wrightson said debt was likely to be $30 million higher at the end of this financial year as it increased working capital across its seed and grain, retail and water, and Go livestock receivables. It noted a strategic review of its business, growth opportunities, capital and balance sheet requirements and shareholding structure was continuing with an update likely later in the year.

The company will pay an interim dividend of 1.75 cents per share on April 5, unchanged from the year-earlier period.

Its shares last traded at 61 cents, having increased 13 percent over the past year.


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