PGG Wrightson cuts earnings outlook

Two large dairy loans were behind an increase in PGG Finance's loan provisioning. Photo / Sarah Ivey

PGG Wrightson has cut its earnings outlook following difficult first half trading conditions.

The company today said it was projecting net profit for the year to June 30, 2011 of between $15 million and $18 million. That compares with the $23.3m net profit for the year to June this year.

The projection for ebitda (earnings before interest, tax, depreciation and amortisation) was put at $58m to $61m, after adjusting for disposal of the management contract with NZ Farming Systems Uruguay (NZFSU). That compares to $70.5m earnings in the June 2010 year.

In October, the company had said it expected trading performance for the current financial year to be largely in line with that for the previous year, with an upside at net profit level taking into account reduced interest costs.

Today it said it had revised its outlook to reflect difficult trading conditions in the first half of the financial year and a slower than planned recovery in the agriculture sector.

Disposal of the management contract with NZFSU, announced in August, removed $3.9m ebitda when comparing year-on-year performance, the company said.

PGG Wrightson Finance was also forecast to increase provisioning, with two large dairy loans representing most of the provisions taken, while maintaining positive earnings for the year.

It said its business was seasonal, with more than 70 per cent of revenues and profit accruing in the second half of the year.

First half ebitda performance was projected to be behind the same period last year by about 40 per cent, while the second half showed group performance in line with the same period last year.

Trading conditions in the sector had been difficult, with poor weather conditions at the start of the first quarter slowing on-farm expenditure. Fonterra's milk price forecast for the 2010/11, which was lifted to $6.90 last week, had yet to be felt in terms of inputs and capital expenditure, PGG Wrightson said.

Bank debt at the end of the first quarter was $157m, after the company received $19.7m from Olam's takeover offer of NZFSU.

Debt would reduce further on settlement of outstanding NZFSU performance fees and the management contract internalisation. That would see debt reduced to about $133m by the end of 2010.

Results for the half year to December 31 would be announced on February 23.

PGG Wrightson shares were down 4c to a year low 44c in late morning trading.

- NZPA