PGG Wrightson profit hit
PGG WRIGHTSON says more than 20 per cent of its revenues are directly linked to the troubled dairy sector and dairy farmers are holding back on their spending.
‘‘If you are a dairy farmer things are tougher than they have been for as many years as we can remember back,’’ chief executive Mark Dewdney says.
‘‘We’re seeing spending caution, and I expect that cautious tone will continue for the foreseeable future until the milk price thing starts to recover.’’
Dewdney said it was too early for the company to forecast what impact the dairy downturn will have on PGW.
The rural services company would update on its 2016 financial year at its annual meeting in late October.
PGW, controlled by China’s Agria Corp, yesterday reported a fall in annual net profit to $32.8 million from $42.3m for 2014.
But it beat guidance for its operating earnings (earnings before interest, tax, depreciation and amortisation), which were up 18.4 per cent to $69.5m.
After the release, PGW shares were trading 1 cent weaker at 45.5 cents, but were up 11.2 cents or 35 per cent on a year ago.
The headwinds facing the dairy sector would make increasing this result in the 2016 financial year a hard target, Dewdney said. Further improvements would be made within the business and he would continue to look for new growth opportunities.
The company’s diverse customer base would help it get through the difficult dairy patch.
‘‘If you’re a beef farmer, if you’re a viticulturalist, a horticulturalist, an arable grower, prospects are not too bad.
‘‘Wool is worth more, the lambs are not quite worth as much as they were at the peak last year, so our business is very diversified.’’
Overall it was ‘‘a very strong result’’ given the challenges facing some sectors of New Zealand agriculture over much of the year, including the slump in dairy prices in recent months.
There were flowover effects from dairy as well. Challenging conditions had resulted in reduced demand for some of PGW’s lowermargin activity such as grain, fertiliser and supplementary feed.
For example, grain farmers that provided feed for the dairy sector were seeing less demand for the feed and thus cutting back on their own spending.
‘‘It’s not economical
to
feed a lot of high price supplements that are not grown on the milking platform. That was (Fonterra chairman) John Wilson’s message the other night.’’
Milk prices could both fall quickly and rise quickly, and could be tipped by a relatively small percentage of the total supply, so it was a matter of dairy farmers staying focused on the medium to long-term future, Dewdney said.
PGW’s diversified portfolio of agriculture business offered protection from cyclical volatility in any individual sector.
‘‘This is demonstrated by recently released Statistics NZ data that show dairy exports declining 24 per cent in the same period that the value of fruit exports reached an all-time high, up almost 20 per cent from a year earlier,’’ said Dewdney.