Wrightson lowers dividend despite gain in earnings

Rural services firm PGG Wrightson [NZX: PGW] beat its guidance with an 18.4% gain in annual earnings, led by an improved performance for seed and grain. 

The company, controlled by China's Agria Corp, declared a lower final dividend after investing in businesses in Uruguay and Australia.

Operating earnings before interest, tax, depreciation and amortisation rose to $69.5 million in the year ended June 30, from $58.7 million a year earlier. Sales from continuing operations fell slightly to $1.2 billion from about $1.22 billion for the Christchurch-based company. 

Ebitda beat both Forsyth Barr's forecast of $67.5 million and the company's forecast range of between $66 million to $69 million.

Net profit fell to $32.8 million from $42.3 million, which the company says reflects a lower effective tax rate and one-time gains in the previous year. Wrightson's "diversified portfolio" of agricultural businesses had helped cushion the company from volatility in particular sectors, such as the slump in dairy, chief executive Mark Dewdney says

Last month the company agreed to buy the assets of Australian seed business Grainland Moree and a 50% stake in Uruguayan rural services company Agrocentro Uruguay for undisclosed amounts.

"Challenging market conditions in the dairy sector have resulted in reduced demand for some of our lower margin activity such as grain, fertiliser and supplementary feed, and this partly explains the flat revenue year on year," Mr Dewdney says.

"Despite the dairy sector challenge in the second half, most of our individual business unit financial results have improved."

Wrightson will pay a fully-imputed final dividend of 2c a share on October 1, bringing payments for the year to 4c. Payments of 5.5c for 2014 included a 1c special dividend.

The company's seed and grain business delivered the biggest uplift in operating Ebitda, up 19% to $40.3 million, even while sales dropped to $400.9 million from $452 million.

Livestock earnings rose 15% to $13.4 million as sales rose to $86.7 million from $76.9 million, while retail earnings rose 7% to $27 million as sales rose almost 2% to $494 million.

Total rural services - everything except seed and grain - recorded a 2.9% gain in earnings to $54.5 million.

The difficult outlook for the dairy industry means Wrightson may struggle to lift earnings again in the 2016 year.

"The headwinds facing the dairy sector make increasing this result a genuine stretch target," Mr Dewdney says.

"Further improvements will be made within the business and we will continue to look for new growth opportunities.

Given the current volatility in a number of markets, and the need to assess the likely impact of this on PGW's clients, it is the company's intention to defer providing a forecast for the current fiscal year until the annual shareholders' meeting in October."

Wrightson shares last traded at 46.5c and have gained 20% in the past 12 months. The stock is rated a 'buy' based on three recommendations compiled by Reuters, with a target price of 51c.

(BusinessDesk)