Wrightson back in profit, warns tough grind ahead

PGG Wrightson's new chairman, John Anderson. Photo / Mark Mitchell

PGG Wrightson, New Zealand's biggest rural services group, returned to profit after impairments in the previous year, while warning that conditions in the farming sector remain tough and will restrict earnings growth. The shares fell about 1.8 per cent.

Profit was $23.3 million, or 4 cents a share in the 12 months ended June 30, from a loss of $66.4 million, or 22 cents a year earlier, the company said in a statement today.

Sales fell 10 per cent to$1.15 billion. In the previous year, Wrightson took one-time charges of $96 million to settle its failed merger with Silver Fern Farms and write down the value of its stake in NZ Farming Systems Uruguay.

The company has been transformed over the past two years in terms of officers, business units and capital after installing Tim Miles as chief executive, banking sector heavyweight John Anderson as chairman and raising about $250 million to slash debt in an offer that installed China's Agria Corp. as biggest shareholder.

That's put the company in better shape as it faces continued subdued conditions in the rural sector. It didn't declare a final dividend.

"I guess the market is disappointed that no dividend is going to be paid, but then again that is not entirely unexpected in this economy," said Alan Moore, who helps manage $600 million for Milford Asset Management.

"The most important thing is the outlook for next year, and I don't know if it is particularly exciting. The best you can hope for is that they will get close to what the market consensus is, but again, don't expect anything notable."

Wrightson stock dropped 1 cent to 55 cents, the lowest since August 2. In the past month, the shares have gained about 12 per cent.

The seeds and grain operation of its AgriTech division was the standout in the latest year, with revenue climbing about 6 per cent to $254.6 million an EBITDA up 5.7 per cent to $33.6 million. That helped make up for a 47 per cent slump in earnings to $5.2 million at Agrifeeds and 11 per cent decline in EBITDA from South America at $5.5 million.

In the AgriServices division, the bigger of the two units by sales, revenue from its largest business of merchandising sank 19 per cent to $541.7 million, while EBITDA fell 15 per cent to $22.2 million. Livestock sales rose 15 per cent to $87.3 million and earnings rose 1.6 per cent to $12.9 million. The company's Finance business posted little-changed revenue of $59.7 million while EBITDA rose 22 per cent to $13.3 million.

Bank debt, excluding the Finance business, was reduced by 54 per cent, or $243 million.

Net cash flow from operations rose by $31 million to $43.3 million while cash flow from investing was a positive $18.4 million from a year-earlier deficit of $99.7 million. The company was in compliance with its bank covenants, with ratio covers "comfortably within agreed parameters," chairman Anderson said.

"The balance sheet has been substantially strengthened, with the depth and capacity to see the group through foreseeable market and trading conditions, whilst the group continued to be focused on cash flows and further debt reductions," Anderson said.

Results in the latest year were weaker than its prospectus forecasts. EBITDA of $70.5 million compared with a forecast of $73.4 million.

The company said business conditions in the rural sector "are expected to remain muted in the short and medium term as a result of tighter liquidity and market volatility."

"We appreciate that our businesses are commercially linked to the fortunes of our growers and farming partners, and there are no short cuts to improved financial; performance," it said.