Cautious assessment hurts PGG

Negativity about the outlook for the rural sector cast a shadow over half-year results for PGG Wrightson yesterday.

Chief executive Barry Brook warned that climate and economic conditions had become less favourable during the period.

The biggest impact was on the livestock business, where numbers were down by about 12 per cent as farmers chose to hold on to stock rather than sell because of falling market prices.

"The strength of the dollar reduced prices for livestock and wool. Lower wool prices slowed sales and reduced revenue," Brook said.

The rural services giant reported a profit of $5.05 million for the period to December 31.

Its shares dropped 6c to close at $1.90.

The numbers themselves weren't too bad, said ABN Amro Craigs analyst Mark Lister. First-half numbers were never particularly significant for the rural services companies because the nature of the agricultural season meant most trading was done in the second half of the year.

But the market reacted negatively to the cautious tone of the company's commentary. In short, it was looking like farmers would have less money to spend this year and that was bad news, Lister said.

The company was sticking to its forecast profit of about $30 million for the full year.

But that now included a number of one-off gains from property sales so it was possible to interpret it as something of a downgrade, Lister said.

The bright spot in the results was the progress the company was making with the merger process.

Last year, the country's two biggest rural services companies, Wrightson and Pyne Gould Guinness, merged to form PGG Wrightson. Yesterday's result included six months trading for the former Pyne Gould Guinness and three months for Wrightson.

Related merger costs of $5 million had weighed on the result, but it was significant that the company was now talking about long-term merger benefits of $25 million rather than $20 million, Lister said.

It was a good sign that they had come out so early with such a positive number. It showed they were confident about the way the merger was progressing, he said.

Brook said the strength of the merger had put the business in a good position to adapt to the tough economic conditions.

PGG Wrightson's finance loan book grew to $318 million, 27 per cent higher than the combined total for PGG and Wrightson as at December 31, 2004.

A fully imputed interim dividend of 4c a share was declared and will be paid on March 31.