PGG Wrightson says earnings growth to stall in 2018, begins strategic review

PGG Wrightson said earnings growth will stall this year after a wet winter and spring and said it will embark on a strategic review following the appointment of new chief executive Ian Glasson.

Operating earnings before interest, tax, depreciation and amortisation for the coming year are expected to be in line with the $64.5 million reported for the year ended June 30, the Christchurch-based company said in a statement. Net profit would fall about 30 percent, mainly reflecting one-time gains from property sales in 2017 that won't be repeated in the current financial year, it said.

"Generally wet conditions through winter and early spring is delaying the key spring sales season," the statement from deputy chair Trevor Burt said. "While the delay is not yet significant enough to suggest lost sales, the risk of a poorer spring for PGW is somewhat heightened compared to a few months ago. Currently, PGW is around $2 million behind the same time last year but there is confidence of making up this ground as the spring season accelerates."

Wrightson named Glasson as CEO last week and he begins in the role tomorrow. Burt said with Glasson in place, "the board considers that the time is right to commence a strategic review and has made a joint appointment of Credit Suisse (Australia) Ltd and First NZ Capital Ltd as financial advisers. At our annual shareholders' meeting today we will be providing further details about the review."

"Notwithstanding that the business is performing well, the board believes it is timely to review the overall PGW business, its growth opportunities, capital and balance sheet requirements, and potentially shareholding structure," Burt said. "PGW has a very strong foundation and is well positioned to explore how it should go about pursuing the opportunities available."

"This review is scoped at a strategic level looking at the capital structure of the company and assessing what is the optimal structure for the business to position PGW to execute on the growth opportunities it has before it," Burt said.

Wrightson's earnings guidance is at odds with some rural sector indicators that show better prospects for 2018, including Fonterra Cooperative Group's forecast milk payout of $6.75 per kilogram of milk solids and prices for kiwifruit orchards exceeding $1 million per canopy hectare, it said. Price "is only half the story," it said, citing a Beef + Lamb New Zealand estimate that the total number of lambs tailed in the spring of 2017 was down 1.3 percent from a year earlier to 23 million. Beef production was expected to be "static year-on-year."

"Generally wet conditions through winter and early spring is delaying the key spring sales season," it said. For dairy, "early season milk production has been hampered by weather conditions being generally too wet over recent months," it said. August New Zealand milk production was down 1.5 percent on last year, it said.

Wrightson said its South American operations "have seen a positive recovery this year, however, the long-term effects of the April 2016 flooding on farmer confidence, and their demand for inputs is likely to remain a constraint in the near term." In Australia, "confidence among our dairy clients is low as the uncertainty regarding prominent processor, Murray Gouldburn, continues with a deal announced in recent days for the sale of the cooperative to Canadian owned, Saputo."

Its shares last traded at 58 cents and have gained 17 percent this year. Wrightson is 50.2 percent owned by Agria Corp.

(BusinessDesk)