Earnings For The Year To 30 June 2005
29 July 2005
For Immediate Release
Earnings For The Year To 30 June 2005
The Wrightson Group virtually doubled its earnings during the year to 30 June 2005, while simplifying and growing the business through a series of initiatives. Net profit after tax (NPAT) was $20.5 million, compared with $10.3 million in the previous year.
Wrightson successfully completed the acquisition of Williams & Kettle Limited, entered into an insurance brokerage joint venture with Aon New Zealand, sold its Potato and Forestry Services businesses and its shareholding in Genesis Research and Development, restructured several operations, progressed the rebuilding of the Finance business, and completed a number of initiatives to improve its research focus. It also undertook considerable work leading to the agreement on terms for a merger with Pyne Gould Guinness Limited, announced on 5 July 2005.
“All these initiatives have been driven by a strong focus on the needs of clients – to pave the way for the company to help clients improve productivity and profitability, and make it easy for them to do business with us,” the Chairman, Keith Smith, said. “A key element of this programme has been to simplify administration and maximise decision-making by front-line staff.”
The financial results included a number of one-off or non-recurring items reflecting these initiatives, with a net positive impact of $4.0 million. One-off items totalled negative $2.4 million in the previous year.
Earnings before interest and tax (EBIT) were $29.1 million, compared with $16.5 million in the June 2004 year. Most businesses improved their financial performance, with Livestock, Australia Seeds, Grain and reduced corporate costs being the major contributors. The results include four months’ contribution from Williams & Kettle.
Earnings from Rural Supplies were affected by reduced margins on fertiliser sales due to intense competition in this area. The Finance result reflected investment in new products, systems and people during the year to re-establish and grow this business. At year end, total lending was $60 million, compared with $17 million at the end of the previous year.
Wrightson has declared a fully-imputed final dividend of 10.5 cents per share, to be paid on 15 September 2005. With the interim dividend of 3.5 cents per share, total dividend for the year is 14.0 cents per share, compared with 11.5 cents per share for the 2004 year.
Mr Smith said operating conditions had been generally favourable, with continuing strength in commodity prices offsetting the high value of the New Zealand dollar. Climatic conditions had a mixed impact, with a difficult spring for many farmers being balanced by good summer harvest conditions.
Mr Smith said the changes undertaken to reposition the business had been carried out rapidly and successfully. “The largest initiative completed during the year was the merger with Williams & Kettle. We are very happy with the way the integration of the two companies has progressed, and with the expected effect on performance for next year,” he said.
“We also completed the establishment of a new insurance partnership with Aon New Zealand to improve the range of insurance products available to rural New Zealand. Three major initiatives were undertaken in Research – the sale of our shareholding in Genesis Research and Development, the establishment of a new trans-Tasman partnership in biotechnology, and a substantial investment in a new venture fund (BioPacificVentures) focused on food and agriculture life sciences, with Nestlé and other investors.
“We also made good progress on the re-establishment of our Finance business, with a successful bond issue of $45 million, a significant increase in lending, progress on product development and people recruitment and investment in new systems.
“The Potato and Forestry Services businesses were considered non-core and were sold during the year. We also closed the Solutions business unit and integrated the remaining parts of the Consulting unit into our District operations.
“There has also been a range of moves to reduce overheads and improve efficiency in internal processes, and gains from these began to flow during the second half of the year.”
Mr Smith noted that the proposal to merge Wrightson and Pyne Gould Guinness, whilst agreed and announced just after the end of the year, had absorbed considerable board and management focus during the second half.
“Our objective in pursuing the merger is to establish a company that can deliver a new level of performance to help its farmer clients respond to the competitive pressures they will continue to face. A strong national rural servicing business will be in a better position to achieve this than a highly fragmented industry. PGG Wrightson’s prime purpose will be to make a positive difference to the profitability and sustainability of our farmer clients’ businesses.”
Key points – Financial and Operational
- NPAT of $20.5 million, compared with $10.3
million in the previous year, including:
-- Earnings from continuing operations of $16.5 million (excluding Williams and Kettle)
-- Net one-off costs, non-recurring items and discontinued activities of positive $4.0 million, comprising gains on disposal of the Insurance, Potato and Forestry Services businesses; offset by costs related to the Williams & Kettle acquisition and a loss on sale of the Genesis shareholding. (The items related to Williams & Kettle were a dividend received and earnings in the post-acquisition period, offset by interest on acquisition finance, amortisation of goodwill and merger costs.)
- Operating revenue of $692 million (including four months’ revenue from Williams & Kettle), compared with $638 million in the previous year.
- EBIT of $29.1 million, including the four months contribution from Williams & Kettle, compared with $16.5 million in the June 2004 year.
- Cash flow from operations totalling $17 million, compared with $9 million in the 2004 year. The increase was primarily a reflection of the increase in earnings and a positive movement in working capital.
- A substantial increase in the balance sheet where assets increased from $255 million to $469 million following the Williams and Kettle acquisition and continued growth in Finance Receivables. Bank debt increased to $114 million to fund this growth. New bank funding lines were established in anticipation of these and other initiatives and are in excess of current and foreseen requirements.
- Shareholders’ Equity is strong at $151 million, up from $110 million last year, reflecting the improved profitability, the revaluation of land and buildings to market values and the issue of additional shares during the year.
- The Seeds businesses in New Zealand and Australia continued to perform well due to revenue growth and business improvement initiatives.
- In Uruguay, Wrightson PAS improved revenue through an expansion in its product portfolio to include summer crops.
- The Livestock business performed strongly, with continued strength in tallies and prices. Results from Wool were flat, as the high US Dollar affected prices negatively.
- Earnings from Rural Supplies were affected by a reduction in margin on fertiliser sales as a result of intense competition.
- Results from Insurance and Real Estate improved, whilst those from Finance were reduced by investment to re-establish the business.
- Operating conditions were similar to those in the previous year, with strong commodity prices offsetting the high value of the New Zealand dollar.
Key points – Strategic
- The merger
with Williams & Kettle – with operational integration
substantially complete by the end of the year.
- The establishment of a new insurance partnership with Aon New Zealand.
- Continued regrowth of the company’s Finance business.
- Reorganisation of the company’s position in research and development.
- The sale of the Potato and Forestry Services businesses
- Preparatory work towards the proposal to merge Wrightson and Pyne Gould Guinness, announced on 5 July 2005.
Chief Executive Officer Barry Brook said the company was well-positioned to improve performance in the current year, with benefits being realised from internal improvements, the refinement of the operating portfolio and the merger of Wrightson and Williams & Kettle.
“Operating conditions are difficult to predict, but at this stage rural commodity prices remain generally strong, being helped by the recent decline in the value of the New Zealand dollar from its historical highs,” Mr Brook said. “Climatic conditions will always be a factor, but the spread of businesses and wide geographic presence of Wrightson reduces such risks. The generally favourable economic climate for farmers in recent years has meant on-farm investment has been substantial and productivity improvements are expected to continue,” he said.