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Wrightson earnings slide as gloomy farmers cut spending

Tuesday 13th August 2019

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A skinnier PGG Wrightson reported a 29 percent slide in annual earnings from its remaining businesses as the Mycoplasma bovis outbreak curbed spending by farmers.

Operating earnings before interest, tax, depreciation and amortisation were $24.4 million in the 12 months ended June 30, down from $34.5 million a year earlier and short of the $25-30 million guidance range provided in May. Revenue from Wrightson's continuing operations edged up 0.1 percent to $809.3 million.

"Farmer confidence in parts of the agriculture sector remains subdued, constraining farm spending and therefore our revenue growth over the year. This has also been evident in recent months with a discernible tightening in the credit environment," chair Rodger Finlay said. 

The result comes a day after Fonterra Cooperative Group said it will report an annual loss of up to $675 million after writing down the value of assets around the world by more than $800 million. As a result, Fonterra won't pay a dividend to its farmer shareholders or shareholders' fund unitholders this year. 

On top of that, the twice-yearly Federated Farmers survey of farm confidence found farmers were increasingly pessimistic about the outlook for the economy as global trade ructions and the uncertainty surrounding Brexit threaten New Zealand's export markets. Fewer farmers expect to lift production and spending plans have also been dialled back, with a growing number of farmers planning to repay debt. 

Despite the tough year at an operating level, Wrightson's $434 million sale of its seeds division to DLF Seeds provided a massive gain for the rural services firm's bottom line. It reported a record net profit of $131.8 million, up from $18.9 million a year earlier. 

The company will complete a $234 million capital return via a scheme of arrangement and 1-for-10 share consolidation tomorrow. Cornerstone shareholder Agria Corp will pocket $104 million of the proceeds. 

Wrightson's board went through a reshuffle earlier this year after Agria ceded a controlling stake and the Cushing family increased its influence on the country's biggest rural services provider. 

A corporate structure review has been completed and is expected to trim $2.5 million of expenditure in the upcoming financial year, although the board and management are still reassessing the company's strategy and examining ways to grow the business. 

Finlay said the impact of M.bovis on the dairy and beef sectors and the uncertainty about the government's plans for agriculture continue to sap farmer confidence and is leading to more cautious investment intentions. 

In saying that, he said the board and management still expect global demand for protein and increased confidence in the management of the M.bovis outbreak will flow through to better trading for Wrightson. 

"We are also buoyed by the ongoing confidence in the horticulture sector and we anticipate that the Fruitfed business will continue to go from strength to strength as this sector grows," he said. 

Wrightson expects to report operating ebtida of more than $30 million in the June 2020 financial year as it cuts corporate costs to fit the smaller business. That also assumes a more normal trading year and continuing confidence in commodity prices. The company says it will be better placed to provide guidance at the annual meeting in October. 

The board declared a final dividend of 7.5 cents per share to be paid on Oct. 2 to shareholders registered on Sept. 11. After accounting for the share consolidation, that effectively takes the annual return to 15 cents, or $11.3 million. The 3 cents per share paid in the prior year amounted to $22.6 million due to the greater number of shares on issue. 

Wrightson shares will resume trading today after being halted for the share consolidation and have been quoted at $2.40. 

Independent director Ronald Seah will retire from the board at the end of August, ending a seven-year spell with Wrightson. The board doesn't intend to replace him. 


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