PGG Wrightson downgrades earnings expectations

PGG Wrightson has revised down its projected full-year earnings, due to global recession and a dairy sector slowdown.

The company said today net operating earnings for the year to the end of June were likely to range from $30 million to $32 million, rather than the previous guidance of $36m to $42m.

"The key factor in the revised outlook for the full 2009 year is the impact of the global recession on the rural sector and a significant recent slowdown in dairy activity during our peak trading period," PGG Wrightson said.

During the first half of the financial year, the company recorded a strong operating result, reflecting the resilience of the agricultural sector.

"However, earnings are heavily weighted towards the second half year and market conditions both here and overseas have become significantly tougher as the recession deepened and farmer confidence deteriorated," the company said.

"This has been particularly apparent in the current quarter with dairy farmers in both New Zealand and Australia exercising extreme caution in their expenditure commitments.

"While the international agricultural sector outlook overall remains robust, the ongoing global recession and Fonterra's recent announcement regarding its reduced payout are dampening farmer confidence restricting spending in the autumn season.

"In New Zealand this has been compounded this year by the impact of Fonterra's requirement for farmers to 'share up', resulting in discretionary production being artificially curtailed," PGG Wrightson said.

While many of its businesses had performed well, those exposed to dairy, in particular, had suffered both in this country and Australia.

An improvement in sheep and beef farm incomes, to their best levels in recent years, had not yet been reflected in spending which had been kept to a minimum given past poor returns.

As previously reported, net earnings for the year to June 30 would also be affected by non-trading items.

Those included any further writedown in the value of the 11 per cent shareholding in NZ Farming Systems Uruguay, the 'marking to market' of interest rate hedges, adjustment of defined benefit superannuation scheme surpluses, and costs associated with the settlement of the partnership agreement with Silver Fern Farms.

Progress was being made on various cost, working capital and other initiatives to improve cashflow, the company said.

It remained on track to achieve scheduled amortisation under its bank facilities and remained compliant with bank covenants.

While there was significant economic uncertainty at present, the board anticipated initiatives taken by management would help improve next year's earnings, with net operating earnings expected to be in a range of $33m to $39m.

- NZPA