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PGW lifts profits hopes, despite 'tougher' dairy market

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Shares in PGG Wrightson recovered 4% after the retail and farm services group lifted profits hopes – despite the woes of the dairy sector, where conditions will remain "tough" over the next year.

The New Zealand-based group, which also operates in Australia and South America, raised to NZ$65m-68m its forecast for operating earnings before interest, tax, depreciation and amortisation (ebitda) for the year to the end of this month, from a previous estimate of NZ$61m-67m.

The upgrade reflected a better-than-expected performance by the group's important retail division, which was now expected to see its operating ebitda beat the NZ$27.3m achieved in the last financial year.

The improvement was down "in part our exposure to sectors that have had a strong year, such as horticulture and beef," PGG Wrightson, better known as PGW, said.

However, the group also flagged the prospect of increased earnings at its seed and grains unit, where a dent from inundations in Uruguay – which flooded a PGW factory besides dampening farmer sentiment – would be "slightly less" than had been anticipated.

"Another lift in Australian earnings, and a solid New Zealand contribution, will offset the weaker South American result," said Mark Dewdney, the PGW chief executive.

'Challenging outlook'

Indeed, PGW's overall profits in New Zealand "continue to exceed expectations", Mr Dewdney said.

"A strong autumn sales season in New Zealand underpins this earnings performance, and shows the resilience of PGW in spite of the challenging conditions being experienced in some agri-sectors," he added.

The agriculture sector in New Zealand, the world's top milk exporting country, has suffered significantly from the "tougher" dairy market conditions.

Mr Dewdney, noting "cautious spending from our dairy clients", cautioned that the sector's woes would continue to overshadow PGW.

"We expect market conditions to remain challenging over our 2017 financial year," he said.

"The dairy sector will remain tough with many dairy farmers facing their third consecutive unprofitable season."

He added that "despite these challenges", including the potential for lingering setbacks in Uruguay, "we believe we can still continue to grow market share and margins in many of the sectors in which we operate".

Shares rise

Alan Lai - the chairman of both PGW and of China's Agria, which controls the Christchurch based group – said that "the momentum at PGW continues to improve.

"Growth initiatives and strong execution enabled us to overcome challenging conditions in the trading environment."

PGW shares closed up 3.9% at NZ$3.95.

Shares in Agria, which is listed in New York, stood up 1.1% at $0.90 in midday deals.

By Mike Verdin

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