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PGG Wrightson lifts profit hopes, bucking ag sector trend

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Shares in PGG Wrightson rebounded after the farm supplies-to-land agency group became one of the few agribusiness groups to increase its profits hopes, despite particular setbacks to farming in its native New Zealand.

PGG Wrightson, one of the world's oldest farm businesses, tracing its history back to the mid-19th century, forecast that its earnings before interest, taxation, depreciation and amortisation (ebitda) would come in at NZ$66m-69m for the year to the end of this month.

That represents an even bigger increase from last year's NZ$58.7m than it forecast in February, when it guided investors to ebitda this time of NZ$66m-69m.

The company's trading performance "has held up well over the second half of our financial year", said Mark Dewdney, the group's chief executive, despite "more challenging conditions", which have prompted ever-steeper expectations of profits falls at many other agriculture businesses.

Lower crop prices have, in denting arable farm profitability, dented farmers' willingness to spend on the likes of inputs and machinery.

And while lower grain prices have supported margins for some consuming sectors, such as beef, for dairy - particularly important in New Zealand, the top milk-exporting country - they have only dulled somewhat the pain from a collapse in milk prices.

'More difficult period'

Indeed, Mr Dewdney noted that "dairy farmer confidence in particular has taken a hit with farmgate milk prices tumbling, together with a realisation that softening commodity prices may continue for longer than initially anticipated.

"There is widespread acceptance that the sector is moving into a more difficult period."

While New Zealand processors such as Fonterra, Synlait and Westland have forecast rising milk prices for 2015-16, which started in the country this week, the estimated values remain below production costs for most farmers.

Mr Dewdney said that full-year results at PGG Wrightson's livestock business, which covers areas from trading to genetics, would be "back on last year, with dairy tallies in particular down".

'Strong seed sales'

However, he also noted expectations of an improved performance in seed and grains.

"Seed sales continue to be strong in New Zealand, and Australia has had a solid year," Mr Dewdney said.

Growers in Australia, where the group also operates, were forecast this week by the Abares crop bureau sowing 22.9m hectares of winter grains, a rise of 1% year on year, with increased sowings of the likes of barley and chickpeas offsetting declines in canola and wheat.

PGG Wrightson's performance is also being enhanced by restructuring measures imposed at the group, which was particularly badly affected by the global financial crisis, which it entered with heavy debts.

Shares in the group, now controlled by China's Agria Corp, collapsed from a high of NZ$2.401 in August 2008 to less than NZ$0.245 two years ago.

'More uncertainty than usual'

Alan Lai, the chairman of both Agria and PGG Wrightson, said that it was "very pleasing to see the business continue to perform well" and execute on its strategy.

However, Mr Dewdney flagged market headwinds for its next financial year, starting next month, although the group could still exploit operational "improvements"

"Reduced farmer confidence in dairy and lamb is creating more uncertainty than usual regarding spending intentions for next season," he said.

"This may result in farmers reducing expenditure which will potentially impact on our financial performance."

PGG Wrighton shares closed up 3.3% at NZ$4.70 in Auckland.


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