Auditor questions the value of goodwill
PGG Wrightson has bounced back from a loss last year of $30.7 million to post a profit of $24.5m resulting in a near 10 per cent rise in its shares.
The company's auditor has questioned the company's value of goodwill on its balance sheet and tagged its concerns on to the company's full year results.
Group goodwill at June 30, 2012 totalled $325.6m just up from $325.4m a year earlier.
KPMG is questioning if goodwill is too high. "There was a reasonable possibility of change that would cause the carrying amount of goodwill to exceed its recoverable amount," KPMG said.
Chief financial officer Rob Woodgate said PGG Wrightson allocated goodwill partly on growth forecasts.
At a group level growth in the agritech/agriservices and livestock businesses would average 1 per cent growth in 2013, 18 per cent in 2014 and 14 per cent in 2015.
"What I think the auditor is doing here is saying this is a cyclical business. (PGG Wrightson) has made assumptions around the performance of those business units, (and) they can go up or down."
The company believed the growth targets for the units were "reasonably achievable".
The profit result saw its shares rise 3 cents, 9.4 per cent, to 35c.
Operating revenue was up 7.2 per cent to $1.338 billion.
Managing director George Gould said the result reflected strong performances across the majority of business units, including record returns from livestock and positive gains across both real estate and retail operations.
The seeds business was hampered by wet weather in Australia.
Retail earnings before interest, tax, depreciation and amortisation were up $3m to $21.8m, and "in terms of market share we're doing equal or better to our competitors this year."
A substantial improvement in net operating cashflow to $58.6m from $4.9m in the year to June 30, 2011 reflected a strong focus on working capital and debt management.
Bank debt had been reduced to $124m on balance day from $176m a year earlier.
Shares in the company were trading 3 cents or 9.4 per cent higher yesterday afternoon.
Hamilton Hindin Greene broker Grant Williamson said efforts by the PGG Wrightson management team to return the business to its core operations and a focus on farmer clients had paid off, reflecting in the improved result and share price.
"The legacy problems of some previous bad management decisions seem to be completely gone now, and the forward outlook is positive," Williamson said.
"The current management has done a very good job of turning the ship around. I would hope we would see further improvement from here."
In 2012 the company sold its PGGW Finance subsidiary's "good loan" assets to Heartland New Zealand but retained some troublesome loans. Gould said excluding a Crafar loan, which was by far the largest, the remaining loans still to be paid to PGG Wrightson added up to $4m and should be retrieved before the end of 2012.
Looking forward the company's agritech business, based around seeds, held the potential to generate growth with an expected turnaround in Australia based on better weather.