Shares in rural servicing company PGG Wrightson fell 4c yesterday before recovering slightly, after the company announced a cut to its earnings forecast on the back of difficult first-half trading conditions.
It has lowered forecast full-year earnings before interest, tax, depreciation and amortisation (ebitda) and after adjusting for the management contract with New Zealand Farming Systems Uruguay (NZFSU), to between $58 and $61 million.
This compared with ebitda of $70.5 million for the 2009-10 year.
Subsequently, it has revised its forecast net profit after tax from $23.3 million in 2009-10 to a forecast range from $15 million to $18 million.
In a statement to the New Zealand Stock Exchange, PGG Wrightson (PGGW) said the August announcement of an end to its management contract with NZFSU, would remove $3.9 million from ebitda.
In addition, PGGW Finance has increased provisions, with two large loans for dairy farms accounting for the majority of that.
The company expected Finance to report positive full year earnings.
Although 70% of PGGW's revenue and profit was generated in the second half of the financial year, first-half ebitda was projected to be behind the corresponding period last year by 40%.
"The second half shows PGW Group performance in line with the same period last year."
Poor weather conditions in the first quarter have made trading conditions difficult and Fonterra raising its forecast milk price from $6 a kg of milk solids to $6.90 a kg/ms has yet to be felt in extra inputs and capital expenditure.
The performance of the company's highly regarded seeds divisions was weighted towards spring and autumn, and the company said prospects were positive in New Zealand, Australian and South American markets.
Bank debt has fallen to $157 million, assisted by $19.7 million in proceeds from Olam's takeover of NZFSU, and there would be further reduction to an estimated $133 million by the end of this month on settlement of the outstanding performance and management fees with NZFSU.
PGGW continued to comply with banking covenants, the company statement said.
A replacement chief executive for Tim Myles was expected to be named in the first quarter of next year.
Earlier, PGGW announced the expansion of its Australian seeds business with the acquisition of Keith Seeds in South Australia, an area considered the centre of the largest small seeds production area in the southern hemisphere.
This followed the earlier purchase of the Corson Grain maize seed business in Gisborne.
PGGW AgriTech division manager, John McKenzie, described the Keith Seeds purchase as building on PGGW's 75-year presence in Australia.
The business would be built around three market segments: pasture seed production and marketing, food grade pulses and seed processing.
