KEY POINTS:
Investment in Uruguay and a booming dairy sector have boosted profits at listed rural services company PGG Wrightson.
Net profit for the six months ending December 31 was $34.6 million, up from $20.6 million. Revenue was $609.2 million, up from $523.1 million.
Chief executive Barry Brook said benefits
from the dairying boom were helping offset the impact from the difficulties faced by sheep and beef farmers.
"If the exchange rate holds where it currently is then sheep and beef farm profitability is the lowest in real terms it's been for more than 20 years," Brook said.
Earnings before interest and tax were up from $23.5 million last year to $48.3 million, including management and performance fees of $11.9 million and a share appreciation of $9 million related to NZ Farming Systems Uruguay.
Performance fees would not be finalised until the full year.
NZ Farming Systems, which floated on the stock exchange in December, was set up by PGG Wrightson to develop dairy farm operations in Uruguay and at the time of listing had bought up 30,980ha of land, holds 20 farms and could expand to 50,000ha at current land prices.
Brook said PGG Wrightson was looking to develop more of a full service agribusiness in Uruguay.
"So we've got a number of acquisitions that we are working our way through and contemplating just how we will implement that strategy."
Chairman Craig Norgate said the overall outlook was very positive, although the dry weather would impact on second-half results.
"Those long-term fundamentals remain strong with world demand for agricultural commodities continuing to increase," Norgate said. "There has been no let off in the last 12 months in terms of the factors that have driven, for example, the dairy boom."
The impact of reduced milk production in New Zealand was likely to affect the balance of global markets and help maintain high prices over the next year or more, Norgate said.
The company reaffirmed previous full year guidance for net profit of about $60 million, compared to $26.2 million the previous year.
Shares closed up 10c yesterday at $2.10
Goldman Sachs JBWere analyst Rodney Deacon said the underlying business had shown a relatively good increase in performance.
"The actual guidance for the end of the year is exactly the same as what they've given before and therefore pretty similar to what I think most people were previously expecting," Deacon said.
"They make a lot of their profits in the second half of the year so there's quite a bit of scope for them to do well, but it swings both ways - there's a bit of scope for them to also not do as well if things don't quite go their way."
Norgate said the half-year result reflected improved performance in most of the business, offsetting the impact of poor sheep returns.
The fully imputed interim dividend was increased from 4c to 5c a share.
Considering the returns to sheep farmers it was a "no brainer" to support the sort of changes being discussed in the industry, he said.
Last week meat processor Alliance Group proposed creating a single entity to manage 80 per cent of the national livestock.
"We've been I guess making a lot of noise ourselves for the last year in that regard and we're very supportive of some of the things that are being talked about."
PGG WRIGHTSON
Six months ending December 31
Revenue
2007: $609.2m
2006: $523.1m
Ebit
2007: $48.3m
2006: $23.5m
Net profit
2007: $34.6m
2006: $20.6m