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Wrightson profit plunges 99% with continuing business down 24%

Wednesday 27th February 2019

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PGG Wrightson’s first-half profit plunged 99 percent as it booked an $8.7 million loss on the seeds business it is in the process of selling and operating profit from the businesses it is keeping sank 24 percent.

Net profit attributable to shareholders for the six months ended December fell to $140,000 from $18 million in the same six months a year earlier while earnings before interest, tax, depreciation and amortisation (ebitda) from continuing businesses fell to $17.8 million from $23.4 million.

Wrightson was coming off record earnings in the 2018 financial year. 

“While this result is back on the previous year it is slightly ahead of first-half operating ebitda for the rural services businesses for the 2017 financial year,” chief executive Ian Glasson says in a statement.

“The factors impacting performance have been felt across the rural sector and we have confidence that we have held, and in some cases grown, our market share,” he says.

Glasson says he’s confident the sale of the seed business to Danish co-operative DLF Seeds for $434 million will settle in the near future and so that business has been treated as a discontinued operation in the accounts.

The sale is awaiting Overseas Investment Office approval and the completion of regulatory filings in Uruguay and Wrightson is planning to distribute the about $120 million cash proceeds to shareholders.

Glasson is forecasting full-year ebitda will be $25-30 million, similar to 2017.

“Late last year, we advised that while our rural services businesses had been trading solidly for the first six months of full-year 2019, we signalled that it was likely the half-year result would be behind the same period last year,” Glasson says.

“That prediction has proven to be accurate. This softer result was largely due to a later start to spring sales and a delayed recovery following an unseasonally wet period in the last few months of 2018 across the country,” he says.

Many eastern and inland parts of the South Island recorded double their normal rainfall for that time of year and those wet conditions favoured milk and beef production which increased 6 percent, largely because of strong pasture growth.

“In contrast, wet growing conditions in most regions have delayed pasture renovation and the establishment of both arable and winter feed crops. These wet conditions were felt across most of our rural services businesses, impacting the sales mix,” and some spending was delayed, Glasson says.

The result was hurt by costs relating to a defective spray supplied to Wrightson and resold to fruit growers. While fruit growers were fully compensated, the compensation paid to Wrightson fell about $1.8 million short of what it actually cost the company, he says.

The outlook for the rest of the 2019 financial year is “somewhat mixed,” Glasson says.

“Given the weather-affected spring we’ve had, there should be some pent-up demand for agricultural inputs to come through this coming autumn and spring. Milk, beef and particularly lamb prices are strong versus long-term averages, suggesting that farm profitability should remain robust,” he says.

“Horticulture continues to go from strength to strength” and the Ministry for Primary Industries expects it to be the fastest-growing export sector with revenues up 12 percent for this financial year.

Countering those positive factors, farmer confidence surveys reflect a degree of pessimism and much of the country has been drier than usual recently, particularly Taranaki and Tasman, Glasson says.

Mycoplasma bovis remains a risk factor for the beef and dairy sectors and global facts such as Brexit and the China-United States trade dispute could potential disrupt New Zealand’s exports.

“On balance, we are cautious for the remainder of the year. Weather and commodity prices will continue to be risk factors for the business, particularly during the months of May and June which are important contributors to the earnings of our livestock business.”

The board has decided to pay a fully tax-paid first-half dividend of 0.75 cents per share, down from 1.75 cents last year.


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