PGG Wrightson's seeds business to make a 1H loss after Uruguay woes

Wednesday 19th December 2018

PGG Wrightson says its seeds business will make a loss after tax in the six months ended December and that it has had to bail out its joint venture partner in Uruguay.

Wrightson also says its rural services operations have been “trading solidly, although slightly behind last year" due to a later start to spring sales and a delayed recovery following recent heavy rain across much of New Zealand.

Wrightson didn’t say in its statement how much it has cost it to buy out the 50 percent stake in the retail joint venture AgroCentro in Uruguay.

“Challenging climatic conditions in Uruguay have impacted crop yields in recent seasons causing liquidity issues in the agricultural sector as credit pressures have tightened for farmers,” chief executive Ian Glasson says.

“This has negatively impacted AgroCentro. To safeguard the Uruguayan business, PGW has agreed to acquire the remaining 50 percent of the joint venture and hence consolidate this business.”

Glasson tells BusinessDesk the consideration it has paid is not material.

“It’s about assuming a credit liability – it’s all around the credit situation in South America. With no liquidity in the market, the company has been struggling,” he says.

The purchase will mean earnings before interest, tax, depreciation and amortisation - ebitda - for the six months ended December will be “down significantly,” and will mean an unspecified loss after tax.

Nevertheless, Glasson says this won’t affect the $434 million sale of the seeds business to Danish co-operative DLF Seeds, which is expected to deliver Wrightson a $120 million gain.

Glasson says the sale agreement set the price at June 30 this year and that DLF “assumes all the risks and all the rewards of the business effectively, if the sale goes through.”

He says he remains confident the sale will be approved, even though the Commerce Commission has expressed concerns about the potential concentration of power in the ryegrass seeds market, which may allow DLF to raise prices or reduce the quality to customers.

Its decision is due by Feb. 14.

“We’ve obviously been in discussions with the Commerce Commission, as have DLF. We believe there shouldn’t be any issues there at all. We don’t think there are issues that will disrupt the deal,” Glasson says.

Despite these adverse events, Wrightson hasn’t updated its earnings guidance provided at its annual meeting in late October. It said ebitda for the year ending June should be about $70 million, similar to the previous year’s $70.2 million result.

Glasson says the company will have a better idea of how the year will pan out through January and that it will update guidance when it releases the first-half results on Feb. 27.

“We got off a bit slow off the blocks in September this year because there was a late start to spring,” followed by a lot of rain, he says.

(BusinessDesk)

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