PGG Wrightson full-year profit up despite unexpected wet weather

PGG Wrightson says it will probably take “a few years” for its water business to return to the levels of profitability enjoyed in 2013-14 after recording a loss in the 2017 year in the face of lower demand and increased environmental concerns.

The Christchurch-based company declined to detail the size of the loss from its irrigation activities. The business has been restructured, with an impairment against inventory.

In the 2017 accounts, Wrightson’s rural services division was split into two segments – agency and retail and water. Retail and water earnings before interest, tax, depreciation and amortisation fell to $18.3 million from $20 million in the full year, while sales gained to $562 million from $550 million.

Chief executive Mark Dewdney said on a conference call that the company’s irrigation pipeline “has more forward activity than this time last year but it was back on levels of activity in the pipeline three or four years ago.”

Back then, South Canterbury irrigation projects were “at full speed,” there was “slightly less focus” on environmental issues and dairy farmers were enjoying higher milk prices, he said. Wrightson was confident water would be back in profit in the current year but “probably not back to the levels of 2013-14 for a few years.”

He noted that the Ruantaniwha project, for example, looked “increasingly unlikely”.

So far this year, the government's irrigation project funding agency Crown Irrigation Investments has provided $7.4 million of funding for irrigation schemes, the largest being up to $3.4 million in the Hurunui Water Project, which aims to irrigate up to 21,000 hectares on the south side of the Hurunui River in North Canterbury and has a total estimated cost of $200 million.

Wrightson today posted a 5.7 percent gain in full-year profit, meeting its guidance, as the rural services company benefitted from lower interest costs, offsetting stalled growth in revenue.

Profit rose to $46.3 million in the 12 months ended June 30, from $43.8 million a year earlier, it said in a statement. Sales fell to $1.13 billion from $1.18 billion.

The company warned investors in June that earnings would be at the low end of guidance thanks to wet autumn conditions that hampered the harvest in New Zealand and weighed on the performance of Wrightson's seed and grain business. Today chairman Alan Lai said the company had been bracing for the impact of lower commodity prices but hadn't banked on unfavourable weather.

"We thought this year was going to be more challenging than FY2016 as we expected lower commodity prices to lead to reduced farmer spending," Lai said. "What we could not foresee was the impact of the very wet conditions in New Zealand over the final quarter."

Still, he was upbeat about the current 2018 year, saying market conditions "are improving", with higher pretax earnings, although net profit "should reduce to a more normalised level as we will not have gains from the divestment of properties."

Full-year operating ebitda fell to $64.5 million from $70.2 million, slightly better than its June forecast for ebitda to be in the bottom half of its earlier guidance for earnings of between $62 million and $68 million.

Operating ebitda for seed and grain, its biggest business, fell to $37 million from about $42 million as sales slid 5.4 percent to $428.7 million. Agency ebitda fell to about $18 million from $18.2 million as sales dropped to $197 million from $228 million.

The company will pay a fully imputed dividend of 2 cents a share on Oct. 4, bringing total payments for the year to 3.75 cents, unchanged from 2016.

Its shares rose 1.7 percent to 61 cents and have gained 21 percent this year. Wrightson is 50.2 percent owned by Agria Corp.

(BusinessDesk)