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PGG Wrightson returns to profit, auditor tags goodwill assumptions

Wednesday 22nd August 2012

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PGG Wrightson, the country's biggest rural technology and services provider, returned to profit in the 2012 financial year off a 40 percent gain in earnings from its services unit, though its auditor queried the board's assumptions in valuing goodwill.

Net profit was $24.5 million, or 0.03 cents per share, in the 12 months ended June 30, turning around a loss of $30.7 million, or 0.04 cents a share, a year earlier, the Christchurch-based company announced. Earnings before interest, tax, depreciation and amortisation climbed 12 percent to $55.2 million, falling short of Forsyth Barr analyst John Cairns' forecast for $61.9 million.

"With the exception of climatic impacts on certain businesses, we're pleased with the overall performance of the group," managing director George Gould said. "We also remain of the view that the agri-tech business holds the potential to generate growth" and improved earnings for the coming financial year are anticipated.

Wrightson spent last year exiting assets it no longer considered part of its core business, the biggest of which was the sale of its finance unit to would-be bank Heartland New Zealand, after China's Agria Corp took control of the firm in a $144 million deal.

The company's agri-services sector underpinned the result, lifting sales 9.3 percent to $897.2 million with a 40 percent jump in ebitda to $46 million. The agri-tech unit, which has been building its seeds business, increased revenue 3.6 percent to $435 million, though earnings fell 21 percent to $30.1 million.

Auditor KPMG tagged the report without qualifying its opinion, saying the key assumptions for Wrightson's goodwill valuation holds a "reasonable possibility of change that would cause the carrying amount of goodwill to exceed the recoverable amount."

Wrightson based its goodwill assumptions on the prospect of modest growth in its livestock over the next two years, continued growth in agriservices, a recovery in its Australian agritech market with significant expansion in South America.

"The directors believe that the planned growth per year for each cash generating unit, for the next three years is reasonably achievable and is consistent with the medium term growth rates for the industry," the statements said.

The statements said there were five key assumptions that could prompt the carrying value of goodwill to exceed the recoverable amount, without identifying them.

The board didn't declare a dividend. The shares rose 3.2 percent to 32 cents in trading yesterday, and have shed 18 percent this year. The stock is rated an average 'outperform' based on five analyst recommendations compiled by Reuters, with a median target price of 42 cents.

Since the June 30 balance date, Wrightson entered into a joint venture to create a molasses supply chain to import, transport and distribute molasses with International Nutritionals. The partner company is itself a joint venture between Fonterra Cooperative Group's RD1 and Australia's Wilmar Gavilon.

Wrightson flagged a $44.3 million guarantee contingent liability on certain loans sold to Heartland. The value of the loans was $29 million as at June 30, and has since reduced to $23 million. The guarantee relies on individual loans becoming impaired and put back to Wrightson in a three-year timeframe.

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