Friday, March 29, 2024

Sales squib on bright sell-off

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PGG Wrightson has another approval for the sale of its seeds business but the operating environment is a dampener.
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Earnings in the rural service division in the latest half year are about $5 million behind the previous year because of a delayed start to spring sales and a slow recovery after the heavy rains in the few months leading up to December 31, chief executive Ian Glasson said.

The impact is largely on the retail business (the stores and Fruitfed), which have about 85% of the earnings in the first six months of the financial year. They were unlikely to be recovered, Glasson said. 

As well, the water business remains negatively impacted by the lack of on-farm irrigation development.

Rural services also includes the agency business, notably livestock, which has most of its earnings in the second half of the year between January and the end of June. Softer first-half earnings were also partly caused by weak international demand for wool and a slow start to the spring season for rural real estate.

The 2017 interim rural services operating earnings (Ebitda) were $23.36m. Latest half-year earnings will be released next Wednesday.

The company has already signalled lower earnings in the seeds and grain division because of continuing problems in the South American part of the business.

Those earnings will be reported as discontinued operations because of the pending sale of PGW seeds to Danish group DLF Seeds.

After getting competition approvals last week from NZ and Australian regulators the sale has now been approved by PGW seeds’ research and development joint venture partners, including Crown agencies AgResearch and Plant and Food.

Wrightson was always confident the joint venture approvals would be received but it is pleasing to have that formally confirmed, Glasson said.

The remaining approvals required are from the Overseas Investment Office and Uruguay regulators. 

“We expect that the remaining conditions will also be confirmed soon.”

Glasson confirmed the sale, if completed, will provide a capital gain of at least $120m for the group, which would flow through to net profit after tax. The sale price being paid by DLF Seeds is about $431m and Wrightson has signalled a return of capital up to a potential $292m to shareholders.

Wrightson shares slipped 2c to 54c on the NZX after the earnings warning but retained most of the 10c gain from last week on the strength of the Commerce Commission approval.

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