PGG tackles muddy terrain

Rural services company Pyne Gould Guinness has flagged a potential slowdown in insurance and real estate, but is upbeat about the year ahead.

Releasing its annual results yesterday, Pyne Gould chairman Bill Baylis forecast slower sales within a difficult-to-predict real estate market. And the insurance division, which improved its profit contribution for the seventh consecutive year, may also see slower growth.

Last year insurance and real estate accounted for more than 16 per cent of total contribution.

However, Baylis said the outlook for the coming year remained positive.

"We clearly wouldn't want to be perceived as complacent or too optimistic but we think there are some really good building blocks ... which are starting to pay regular dividends for us."

He said strong commodity prices had compensated for a strong dollar and that outlook was unlikely to change dramatically.

The company said livestock performance was helped by relatively high prices and the wool division had benefited from joint logistics venture New Zealand Wool Handlers.

The seeds business matched last year's contribution despite a second year of drought in Australia, which was unlikely to continue.

Pyne Gould's results for the year to June 30 showed profit of $17 million, down from $17.8 million last year, on revenue of $308.3 million, up $19 million. A final dividend of 5c a share brings the annual total to 9c.

Baylis said that although the bottom line was down, profit excluding the sale of surplus properties during the past two years was up 4.3 per cent on 2004. A special dividend of 2c recognised gains from the sale.

The result was driven by solid performances across several divisions.

"There's huge differences obviously between livestock and finance, or real estate and insurance. And every one of those sectors, with the exception of irrigation and pumping, has done well."

Although sales in irrigation and pumping held up, increased costs and falling margins had made the division a "major disappointment".

"It was something that was quite different to what we'd done before and it has taken longer for us to integrate it into our way of doing things than we had anticipated."

Mark Lister, analyst at ABN Amro Craigs, said the result was good and steady, if uninspiring.

"I think the market won't be particularly interested, just for the sole reason that it's focusing much more on what's going to happen with the merger."

Last month, Pyne Gould and rural services rival Wrightson said they intended to merge. Wrightson's full-year results last month showed net profit had doubled to $20.5 million.

"There's definitely some positives we can take out of both [results] and when we add them together they bode well for the merged company," Lister said.

Pyne Gould shares closed up 6c to $2.25 yesterday.

Baylis said the two companies' results made the proposed merger a more attractive proposition.

The merged company, called PGG Wrightson, would generate revenue of more than $1 billion and savings of $10 million in the first year, offset by costs, and at least $20 million in the second.

Depending on Commerce Commission and shareholder approval, legal completion of the merger is expected by the end of September.

Another special dividend of 2.75c will be paid if the merger proceeds.