PGG Wrightson first-half result boosted but uncertainty remains

Farm services company PGG Wrightson saw its first-half profit boosted 55% to $4.8 million, but ongoing uncertainties in the agricultural sector prevail for the remainder of the year.

PGG Wrightson saw its cashflow boosted from $6 million a year ago to $24.4 million, from operating and investing activities, which aided it in almost halving its debt during the past 12 months. Managing director George Gould credited the improvement to stronger operating earnings across all the company's major businesses, along with working capital efficiencies and collection of the Crafar Farms debt in December, worth about $25 million.

After a 2.2c dividend was declared yesterday, shares in PGG Wrightson rose 1c to 42c.

''The tougher conditions being faced by farmers clearly impact on some areas of our business, but overall our businesses have performed strongly and most have lifted earnings year-on-year,'' Mr Gould said in a market statement.

Craigs Investment Partners broker Peter McIntyre described the result as ''meeting market expectation'', but because of ongoing uncertainty in the beef and lamb sectors, PGG Wrightson was some way off completing a ''turnaround''.

''It's pleasing for investors, with the dividend, but not much more as progress still has to be made over the next couple of quarters,'' Mr Mcintyre said.

Forsyth Barr broker Peter Young remained positive on PGG Wrightson's outlook in general and the brokerage was likely to retain its ''accumulate'' stock recommendationHowever, he cautioned that good rain during autumn in New Zealand and Australia was needed, to aid planting conditions, which was now ''key'' to driving a good second-half result from the company's top seeds and grains division.

Mr Gould was pleased with ''sizable gains'' having been booked by New Zealand divisions' seed, retail, wool and irrigation and pumping businesses.

He was also pleased with progress by PGG Wrightson Rural Supplies and Fruitfed Supplies, both retail businesses facing intense competition from farmer-owned co-operatives.

Mr McIntyre said much of the 55% boost to profit was from less depreciation and interest costs being down by $3.2 million on the previous year's result.

The seeds division remained the ''jewel in the crown'', he said.

During the past year, the company's debt due within a year had declined from $98.9 million to $49.7 million and long-term debt was down from $130 million to $82.6 million.

Mr McIntyre said these were ''good reductions'', and gave PGG Wrightson

more flexibility, should it decide to fund business improvements.

Mr McIntyre said operating revenues were down about 15%, from $693.7 million to $589.1 million; PGG Wrightson having noted a $91.2 million revenue decline because some transactions in retail were done as agents, not principal seller.

Mr Young said net debt for the period finished at $103 million, which was pleasing given the first half was the seasonal high point for debt for the company.

''We expect this to continue to fall, given the focus that management has had on debt reduction over the past three years,'' he said. Payment of the outstanding Crafar Farms loans of about $25 million was slightly above earlier expectations and represented settlement of the debt, subject to small residual cashflow receipts, PGG Wrightson said yesterday.

Crafar Farms was placed in receivership in 2009 to a syndicate of lenders including PGG-Wrightson, followed by a protracted sale process. All proceeds have now been distributed to the lenders. The properties were sold to China's Shanghai Pengxin Group.


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