Plenty of work ahead for PGG Wrightson

PGG Wrightson has put the lid on a poor result despite one of the best years for farming in 40 years and its management team is looking for a much better performance this year.

The rural services company – now half owned by Chinese interests – today posted a full year loss of $30.7 million for the year to June after accounting for one off items and impairments, compared to a $23.3 million net profit last year.

Operating revenue was up 12% at $1.24 billion but earnings before interest, tax, depreciation and amortisation (ebitda) fell from $57.2 million in 2010 to $49.4 million this year.

PGG Wrightson described the underlying performance as broadly in line with expectations but investors marked the stock down 2.2% to 45c in NZX trading.

One-off and fair value adjustments totaling $47 million included an $18.3 million valuation downgrade of the company's wool interests (see story on covenant breach here) and a $9.6 million provision against a supply contract with Silver Fern Farms.

There was also $8.5 million of restructuring costs and a net provision of $6.7 million against the loans being retained from PGG Wrightson Finance, in the process of being sold to Heartland New Zealand.

Under that deal, expected to be ticked off today, Heartland will acquire selected PGG Wrightson Finance assets totaling approximately $400 to $430 million.



About $95 million of certain loans will be transferred to a wholly owned PGG Wrightson special purpose vehicle, which will try and realise or refinance in the short to medium term.



In addition, about $30 million of PGG Wrightson Finance’s receivables would be subject to a guarantee from PGG Wrightson.

PGG Wrightson managing director George Gould said he considered the provisions made were more than enough.

“The reason for that provision isn’t to say that they were not adequately provisioned before because they were within PGW Finance, it is simply because now they are being retained by PGW which has exited finance, the timeframe for realising those loans over time has changed.”

Better times ahead?
Chairman Sir John Anderson said PGG Wrightson’s livestock and rural supplies businesses performed well but the group results reflected the impact of extreme wet spring and summer conditions in Australia, the Canterbury earthquakes and a number of restructuring costs.

Asked about any resumption of dividend payments to shareholders, Sir John said the board hoped to be in a position by the end of this year.

“The board is very keen with the company going back to quality earnings that we move back to a dividend strategy. I’m not prepared to commit to as to whether it will occur this year but would like something to occur by the end of the year.

“But definitely on the year’s ahead from there should be on a position to definitely be paying dividends.” 

Chief Financial officer Rob Woodgate said the drop in ebitda came mainly through the Australian business but noted some margin pressure coming through both the agri feeds division and in New Zealand.

In the livestock area Mr Gould said the company was budgeting for an improvement in ebitda going into 2012 financial year.

“The huge increase in prices in the year just past have the effect of increasing the numbers through the sale yards. And we’ve benefited from that.

“To the extent that that is sustainable we are not yet certain. But the combination of price and volume leads us to budget an increased profit for the year ahead in livestock.”

Mr Gould said farmer confidence in the pastoral scene is as strong as it’s ever been and in many cases farmers had had the best year of their lives.

One concern was bank attitude to finance and to debt levels, which is more conservative than in the past.

“That will be a good opportunity for Heartland,” Mr Gould said.

“It will be a good opportunity for our clients to benefit from Heartland’s liquidity post the PGG Wrightson Finance sale.”