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Agria profits drop drives shares further below bid price

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Shares in Agria Corp eased further behind an offer from the group's chairman, Guanglin Lai, after the seed-to-rural services group unveiled a "modestly disappointing" 80% slump in earnings, reflecting weaker soybean and dairy prices.

The Hong Kong-based group – which is listed in New York, and controls New Zealand farm services group PGG Wrightson – unveiled earnings of $2.5m for the July-to-December period, the first half of its financial year, on revenues down 20% to $420.2m.

The declines reflecting weakening performances in all three of the group's operating divisions, although in particular in the seeds business, which saw revenues drop 25%, and operating profits fall by 34%.

"Lower revenue was primarily driven by soft conditions in South America, as wet weather and falling soybean prices impacted demand," Agria said.

The key crop protection, nutrients, and merchandise division reported a 15% drop to $16.7m in operating profits, on revenues down 19% at $207.1m – a fall which reflected "cautious spending by New Zealand farmers, as they react to lower dairy prices".

'Modestly disappointing'

"Our first half results are modestly disappointing," said Mr Lai, the Agria founder and executive chairman, although added that the figures were "not necessarily surprising, given the challenges faced by the global agriculture industry.

"An exceptionally strong El Niño weather pattern - the most extreme in 70 years - is wreaking havoc for growers around the world," with currency volatility "doing equal damage, impacting commodity prices and making trade and business planning more difficult for farmers".

The stronger dollar, for instance, curtails the competitiveness of US crop exports, the slow rate of which has prompted the US Department of Agriculture to curtail expectations for shipments of major crops such as wheat in 2015-16.

However, he added that Agria remained "optimistic" about its prospects, citing boosts to food consumption needs from the growing and increasingly wealthy world population, which will "cause agricultural industry growth for decades to come".

Mr Lai also flagged the prospect of boosts to Australian and New Zealand agriculture from the Trans-Pacific Partnership trade deal signed by 12 countries in the region.

"We are cautiously optimistic that the recently concluded Trans Pacific Partnership can open up new markets for our New Zealand and Australian farmer customers," Mr Lai said.

Bid process

Nonetheless, Agria shares fell by 1.0% to $0.97 in New York, above the two-year low of $0.89 reached last week, but below the $1.20 at which Mr Lai has pitched a bid for the company.

Agria has set a three-member committee of independent directors to assess the bid from Mr Lai, whose wholly-owned investment vehicle, Brothers Capital Limited, is the group's largest shareholder.

PGG Wrightson has also set up an independent committee to discuss the impact, if any, of Mr Lai's plans on the business.


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