Farming services company PGG Wrightson yesterday reported a disappointing profit for the year ended June, and indicated its debt facilities were being renegotiated again.
The company said its net operating earnings after tax were $30 million for the year, down from $32.9 million in the previous corresponding period.
The profit was significantly reduced by one-off items, mainly non-cash items totalling $96.4 million - the impact of the fair value adjustments and a provision for expenses incurred in the settlement with Silver Fern Farms.
The two major parts of that were $39.2 million related to the revaluation to market price at June 30 of the group's shareholding in NZ Farming Systems Uruguay and $49.6 million related to the settlement of the failed joint-venture bid with Silver Fern Farms.
Managing director Tim Miles said despite the challenges in a very difficult operating environment, the result confirmed the underlying strength in the business.
However, ABN Amro Craigs broker Peter McIntyre said the result was not a good one.
Earnings before interest and tax were down on forecasts and the banking covenants had been breached.
No outlook had been provided, indicating the market had got tough.
No dividend was paid and the likelihood of one being paid in the next two years was remote, he said.
The share price fell 6% on the report to the NZX and remained down for the rest of the day.
A further fall in the share price could see the company become a target for well-capitalised Australian corporates interested in the rural sector.
Net debt at the balance date was $480 million.
Debt facilities were being renegotiated, including the $200 million due to be repaid entirely by March 2010.
South Canterbury Finance had agreed to extend its debt until February 2013.
The company had hired advisers to look at possible asset sales and a potential equity-raising, which might include the introduction of a cornerstone shareholder, Mr McIntyre said.
"They will be wanting to get their debt sorted sooner rather than later.
"Market conditions are expected to remain difficult, farmer sentiment has fallen, the New Zealand dollar has risen in value, and guidance given in June has effectively been withdrawn."
The company acknowledged it was unable to provide a reliable prediction of earnings, he said.
Mr Miles said that while the medium-term international agricultural sector outlook remained robust, the ongoing global recession was dampening farmer confidence, leading to restricted spending.
Sheep and beef farm incomes had improved to their best levels in recent years, but that had not yet been reflected in expenditure, which had been kept to a minimum given the past poor returns.
"The company remains confident that the rural sector will play a significant part in leading New Zealand out of the recession and that the business is performing well in very difficult conditions."
PGG Wrightson was focused on further improving its performance and was well placed to take advantage of improvements in the economic situation when they occurred.
With any improvement in operating conditions, given the changes that the company had undertaken at a strategic and management level, there should be a positive impact on earnings, he said.
