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Rocky dairy outlook takes sheen off PGG Wrightson profits

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New Zealand farm services group PGG Wrightson deferred issuing its full year forecast, as flat revenues and diary "headwinds" take the sheen of some better-than-expected annual earnings.

Shares in PGG Wrightson (PGW), which is controlled by Chinese agribusiness giant Agria, fell on the news.

PGW cited "challenging conditions in the dairy market sector" as it unveiled flat revenues and falling post-tax profits, despite gross-earnings which came in ahead of guidance.

Rising earnings

In the year to June 30, PGW saw earnings before interest, taxation, depreciation and amortization (ebitda) rise by 18% to NZ$69.5 million, up 18% from NZ$58.7.

The results came in ahead of prior company guidance at NZ$66m-NZ$69m, and beating analysts' expectations of NZ$67.5m

Ebitda rose 15% for PGW's livestock business, and 19% for the seed and grain sector.

PGW will pay a dividend of NZ$0.02 a share on October 1, 2015.

Flat revenues

But PGW saw a post-tax profits fall 22% to $32.8m from $42.3m last year.

The group ascribed the fall to a lower effective tax rate and "a number of one-off non-operating gains" in the previous financial year.

And PGW's revenues edged down over 1% to $1.202 billion, from $1.219b in the previous financial year.

"Challenging market conditions in the dairy sector have resulted in reduced demand for some of our lower margin activities, such as grain, fertilizer and supplementary feed, which partially explains the flat revenue year over year," said Mark Dewdney, PGW chief executive.

Dairy headwinds

Global dairy prices are plumbing 13-year lows, as demand from China, which is a key buyer of New Zealand dairy products, remains historically low thanks to ample inventories.

Last week Fonterra, New Zealand's largest dairy co-operative and the world's top milk exporter, slashed its estimate for 2015-16 milk payments to farmers to NZ$3.85 per kilogramme of milk solids, from NZ$5.25 per kilogramme of milk solids.

Mr Dewdney warned that "the headwinds facing the dairy sector make it challenging to increase our growth for the 2016 financial year".

He said that "given the current volatility in a number of markets and the need to assess the likely impact on PGW's clients, we plan to defer providing a forecast for the current fiscal year until the annual shareholders meeting in October".

Takeover trail

PGW has been on the takeover warpath recently, with a string of high profile agricultural acquisitions.

In July the group purchased Australian seeds company Grainland Moree.

PGW said the purchase had granted it "state-wide coverage of the grains industry" in New South Wales, Australia's second-ranked cereals-growing state, with the purchase of Grainland Moree.

July also saw PGW acquire a 50% stake in Uruguayan rural services company Agrocentro Uruguay, while in June this year the group revealed the purchase of a New Zealand turf irrigation business from Advanced Irrigation Systems.

PGW shares closed down 2.2% at NZ$0.455 in Wellington on Tuesday.


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