Norgate defends lacklustre performance

Board members Brian Jolliffe (left) and Craig Norgate have a chat before yesterday's meeting in Auckland. Picture / Greg Bowker

Craig Norgate yesterday defended PGG Wrightson's performance after the rural services giant he created missed its $30 million forecast profit by $3 million.

If the company had not made unbudgeted net gains of $7 million from property and business sales, profit would have been even lower, at around $20 million.

"I think the team has done a good job," Norgate said.

The $27 million net profit was consistent with advice PGG Wrightson gave to the market in July.

PGG Wrightson said the results reflected trading conditions "materially less favourable" than those prevailing at the time of the merger of several regional rural services companies - driven by former Fonterra boss Norgate - which created the country's largest rural services company.

Revenue of $849 million was well down on the $912 million tipped in the investment statement and prospectus, while underlying earnings were down $17 million.

But Norgate, a PGG Wrightson director, said merger activity had gone ahead with virtually no loss in market share and the poorer-than-forecast profit performance could be attributed to the downturn in the rural services sector.

"It really is about what happens this year and whether we get a fair wind in terms of market conditions to make sure that all gets reflected on the bottom line."

Livestock, rural supplies and seeds and grain were most affected by the trading conditions. Livestock trading was lower than expected due to unusual weather and reduced prices. This cut pre-tax net profit by $3.9 million from what was budgeted, while reduced average animal values cut earnings by another $1.7 million.

Sheep and beef farm net incomes dropped almost 30 per cent, hitting the rural supplies business.

However, finance and real estate performed well, significantly increasing revenue and market share.

CEO Barry Brook said annualised synergy benefits from the merger were $25 million, about $5 million more than budgeted for.

He said the top priority for this year - with improved trading conditions expected - was to lift the underlying operating performance.

The lower dollar was expected to help sheep and beef prices recover, improve horticulture returns and keep dairying returns stable.

Chairman Bill Baylis said PGG Wrightson was not making a formal profit forecast for 2006-07 because there were too many variables beyond the company's control.

But he said he had no cause to challenge analysts' projections of $45 million to $55 million net profit, after tax but before amortisation.

One analyst said this indicated the company was happy with that range and therefore expecting only modest growth.

"There's nothing there that suggests they're going to shoot the lights out," the analyst said.

PGG Wrightson shares closed down 2c at $1.72.