View Full Version : PGW - PGG Wrightson
Balance
10-06-2024, 09:44 AM
https://www.nzherald.co.nz/bay-of-plenty-times/news/mark-lister-why-farmers-make-good-investors/A3KDAN2QUJFEHCDOHVS3YB7YZA/
Why farmers make good investors.
Actually not a bad summary and very topical these days as we see farming cashflows spread across other income streams.
Any good experienced farmer will tell you that they expect and prepare for at least 1 bad year out of 4. The ones feeling the pressure tend to be highly leveraged or inexperienced.
The market however prices farming assets in a bad year like it is going to last forever and in the good years, like that is going to last forever too!
Hence, the opportunity for the strong and experienced players to pick up farms cycle after cycle.
One Indian family (Waikato farmers) I socialise with always keep their powder dry and have over the decades, expanded their farming operations with each downturn. They also get their farms upgraded during the downturns - no hassles getting contractors and services. Quietly and low profile, they now are one of the biggest players n the industry.
Snoopy
11-06-2024, 11:31 AM
Parts 2 and 3 concentrated on 'what happened'. Now we move onto the important part of the analysis. 'What is going to happen ' in FY2025. And as a reference for this, we are going to look 'what did happen' leading out of the FY2013 slump, into FY2014
EBITDAHY20132HY2013FY2013
HY20142HY2014FY2014Δ FY2013 to FY2014
LIvestock$0.607m$11.575m
$12.182m
$1.026m$12.363m
$13.389m+9.91%
Back Office($13.648m)
($11.479m)
($25.127m)
($15.456m)
($12.750m)
($28.206m)+12.2%
Revenues
[TD[/TD]
LIvestock$51.033m$47.467m
$98.500m
$29.494m$47.356m
$76.850m0% (1)
Table Notes
1/ Revenue decline was judged minimal if you account for the fact there were minimal live animal exports over 2014 (see AR2014 quotes below).
-----------------------------------
What was the story behind these 'recovery numbers'? From AR2014 p18
"A strong market for both dairy and beef cattle, along with better prices in the sheep meat market drove an increase in earnings for the livestock business."
"Cattle prices and tallies were up on last year with farmers enjoying good returns from international markets. Sheep number across the country continue to decline as land is converted into dairying or dairy support. Overall sheep numbers were further down this year as farmers rebuild flocks following last years North Island drought. However, with sheep prices almost 20% higher than last year (after falling 37% between FY2012 and FY2013) , overall earnings from sheep trading were up."
"Our livestock export business had a relatively quiet year with only one significant shipment during the year. This largely accounts for the difference in revenues when drawing comparison between periods."
That kind of outlook might resonate into FY2025. Yet a big change I think is that there is no longer pressure to convert sheep farms into dairy farms. The incentive today, if anything, is to convert such land into forestry blocks for 'carbon farming'.
A rise in sheep prices of 20% sounds credible, given that markets tend to overshoot 'on the downside' when confronted with unexpected shocks. But a rise of 20% would not compensate for a fall of 28% in the previous year (FY2024): (1-0.28)x1.2 = 0.86. IOW we would still be looking at a fall in sheep prices for FY2025 of 14% over FY2023 levels.
There has been some talk of resuming livestock shipments overseas from NZ. But I believe this will require suitable ships to be sourced. And I doubt if we will see a return to this trade by June 2025 (EOFY2025 for PGW).
A thing I find encouraging about this 'reflected view from the past' is that despite the lamb price crashing by 38% going into FY2013, then recovering by 20% over 2014, implying a price index change of 0.62x1.2= 0.74 (i.e. a two year drop of 26%), Livestock EBITDA managed to grow by 9.91% 'from the bottom of the trough'. This may be a result of more animals going through the stockyards, better control of stockyard costs, or a combination of both.
If we assume a flat year for the combination of wool and real estate over FY2025, and livestock represents about 50% of the now called 'agency division' (as it did in FY2013, post 5745), then Agency EBITDA should be able to grow 0.5x9.91%=5.0% over FY2025. That kind of growth would put Agency EBITDA for FY2005 at: 1.05 x $9.068m = $9.521m (refer post 5747). This is an increase of ($9.521m-$9.068m=)$0.453m
I want to say something on those 'back office charges', which seemed to have ballooned over FY2014. You would think that coming out of a bad year, PGW would seriously look at keeping these under control. Yet they ballooned by $3m or more than 10%! A possible explanation is that during FY2014, 'PGG Wrightson Irrigation & Pumping' acquired 'Water Dynamics' and 'Aquaspec' to create PGG Wrightson water. That may have increased the number of 'back office bods' within the company. However, I wouldn't expect to see an analogous increase over FY2025, as PGW are not looking to acquire other complementary businesses at this time.
SNOOPY
Snoopy
11-06-2024, 09:57 PM
It means the loan balance must be fully repaid at least once during a financial year such that the balance at a point in time during the FY is zero.
Yikes! If we go back to post 5740 and the multi balance date banking loan position, we see that there was sufficient headroom in the Term Debt Facility to pay off the balance in the Working Capital Facility EXCEPT at the latest Half Year declared position, where the amount drawn on the Working Capital Facility of $65m is well in excess of the $44.81m headroom in the Term Debt Facility. Gulp! This isn't necessarily a disaster, because December is still a 'high stock month' and we can expect further sales of stock will reduce working capital debt to zero at some unspecified date in FY2024, before stock is built up again for the Spring. But it does mean that the 'annual clean down' of working capital debt is looking a lot tighter than the previous year. This looks to me to be another reason to hit the pause button on putting more money into PGW shares myself right now.
At some point EBITDA must increase or debt must decrease to keep that banking syndicate happy. The bankers have given PGW a bit more rope as from January 24th 2024 the term debt facilities have been raised by $10m to $100m (HYR2024 p26).
Free cashflow from operations over FY2023 was $25.509m. But take away the 'repayment of the principal portion of lease liabilities' (part of the old rent) and operational free cashflow reduces to: $25.509m-$19.532m=$5.977m. Now take another $18m off that (the EBITDA downgrade for FY2024) and you get a deeply negative number.
If IFRS16 corrected EBITDA is negative to the tune of $12m, how are PGW even going to start to reduce their debt burden? Wind up 'GoLivestock' or sell 'Fruitfed' are my two previous suggestions. But neither of those actions will do any favour to the earnings profile of PGW going forwards. The AGM is starting to sound like a 'must attend'.
SNOOPY
Snoopy - do we know if PGW did their annual clean during the first half year? Also, given the nature of working capital facilities, they can be repaid pretty quickly using the timing of monthly cashflows to one's advantage. I'm not sure you can borrow from a term facility to repay the working capital facility given that is not the intention of the annual clean down. If the facility is too high and cannot be repaid, then better IMO to transfer some of the balance to a term loan and rebalance the 2 headrooms instead.
Snoopy
12-06-2024, 09:27 PM
Snoopy - do we know if PGW did their annual clean during the first half year? Also, given the nature of working capital facilities, they can be repaid pretty quickly using the timing of monthly cashflows to one's advantage.
No we don't know when the annual working capital facility 'clean' happens, except it is not on the 30th June or the 31st December each financial year (the two reporting dates).
Below is the table of annual banking facilities repeated from post 5740, except I have updated the banking facility limits on 31st December 2023, to the new limits granted from 19/01/2024. Oh, and I have indicated the Working Capital facilities drawn in red.
EOHY2024EOFY2023EOFY2022EOFY2021EOFY2020
PGG Wrightson Cash Balance
$13.307m$4.643m$4.676m$3.367m$16.868m
Term Debt Facility (Amount Drawn)
$100m($45.19m)$90m($50m)$60m($30m)$60m($0m)$50m($2 0m)
Working Capital Facility (Amount Drawn)
$85m($65m)$70m($19.96m)$70m($7.50m)$70m($9.90m)$70 m($30m)
Overdraft Facility (Amount Drawn)
$3.0m($0m)$3.0m($0m)$3.0m($0m)$3.0m($0m)$3.0m($0m)
Letter of Credit (Amount Drawn)
$NAm($3.77mm)$NAm($3.77m)$NAm($3.58m)$NAm($3,53m)$ NAm($3.58m)
Total Facility Limit (Amount Drawn)
$163m($114m)$163m($74m)$133m($41m)$133m($13m)$123m ($54m)
Banking Syndicate Loans (Balance Sheet)
$110.190m$69.960m$37.500m$9.900m$50.000m
Now you could argue that the comparison table is not really fair, because the most recent date is the half year date, when more stock tends to be on the shelves. Whereas all other dates are end of year dates at 30th June (which obviously has not occurred yet for FY2024 as I write this post). But the mountain of Working Capital Debt drawn that must be 'cleaned down' as at 31st December is substantial compared to all previous periods, whatever light you shine on it.
I would argue the 'cleaned down' period is most likely at the end of the selling season, as that is the time most of the 'shop stock' will have moved off the shelves, the fattened up GoLivestock animals will have been sold off the farms, which means as many assets as possible will have been transformed into cash. Perhaps early to mid April? If that is so, that 'clean down date' is in the second half of PGW's financial year. But I guess this whole discussion is in the context of PGW's inventory levels, which are substantial: $107.553m at FY2023 balance date, $130.769m at the most recent half year date. So even with $65m or working capital owing, only half the store stock is 'on tick'.
SNOOPY
Snoopy
12-06-2024, 09:46 PM
I'm not sure you can borrow from a term facility to repay the working capital facility given that is not the intention of the annual clean down. If the facility is too high and cannot be repaid, then better IMO to transfer some of the balance to a term loan and rebalance the 2 headrooms instead.
Hmmm, I am not sure if those two quoted sentences are logically consistent. Wouldn't transferring a 'too high' working capital balance to a term loan balance be exactly the thing you are hinting at which you suggest would not be allowed?
SNOOPY
I am referring to swapping one facility for another on a permanent basis as part of capital management*. What you suggested was temporarily borrowing on one to repay the other which would not be allowed.
*per re-negotiated agreements with the banking syndicate.
On reflection 'headroom' was the incorrect word - it should have been 'limit'.
Readers will notice that the 'Amount drawn against total facilities' and the banking syndicate total loans as measured on the balance sheet do not exactly match. The difference is the 'Letter of Credit' guarantee which is effectively an off balance sheet debt that may be called in should circumstances determine there be a need to do that.
https://www.investopedia.com/terms/l/letterofcredit.asp
I suggest you read up on the definition of a letter of credit. If in doubt refer to that definition.
Assuming we are not using invented definitions for words, the second half of the following interpretation is not correct:
"the 'Letter of Credit' ... is effectively an off balance sheet debt that may be called in should circumstances determine there be a need to do that."
The gist is that you shouldn't be including letters of credit in your total liability calculations. I get the sense you won't change your analyses in future but it doesn't belong in the debt calculations you are doing. It is effectively a promise to pay an overseas supplier for goods that have been ordered that have not yet arrived. Such commitments to purchase have also been made to local suppliers for the supply of goods at a point after the reporting date, and no such "LOC" or "debt" exists in the accounts for such transactions. The only difference between the two is the location of the supplier. A LOC is not a loan nor a debt, rather it provides the overseas supplier surety they will be paid and as such it is a commitment that will crystallise into an amount payable once the supplier has performed their half of the transaction.
The very rough life cycle for overseas sourced purchases is : purchase order created and sent -> supplier sends invoice -> LOC created -> supplier ships goods -> supplier paid [for simplicity purposes] from the working capital facility -> goods arrive -> working capital facility repaid from sale proceeds.
P.S. I forgot to mention LOC's are not needed in some situations where there is a long standing relationship and mutual trust between the overseas supplier and local customer, whereby normal credit terms can be negotiated without involving bank LOCs. In addition, there are different types of LOCs and I provided an example for a transactional LOC rather than a revolving or standby LOC.
kiora
13-06-2024, 04:30 AM
Just to add to the mix.I suspect ?
Like most rural businesses the stock levels/liabilities will likely be effected by delayed charging whereby the wholesaler will supply the product for spring/summer/autumn/winter promotions and delay charge or extend credit for up to 3 months in some cases or until stock levels on the effected items are reduced to "Off Season" levels
kiora
13-06-2024, 07:55 AM
https://businessdesk.co.nz/article/economy/productivity-drops-for-smes-xero-reports
"Agriculture leads the decline by output with 12.1 % less output"
Toddy
13-06-2024, 08:19 AM
https://businessdesk.co.nz/article/economy/productivity-drops-for-smes-xero-reports
"Agriculture leads the decline by output with 12.1 % less output"
What a crap article. No insights. I would expect this quality from the Stuff Business reporters.
And I'm paying to view it.
blackcap
13-06-2024, 08:30 AM
What a crap article. No insights. I would expect this quality from the Stuff Business reporters.
And I'm paying to view it.
It was written by an intern journalist to be fair. But agree, businessdesk is pretty crap all round.
Sideshow Bob
13-06-2024, 09:11 AM
It was written by an intern journalist to be fair. But agree, businessdesk is pretty crap all round.
Not the right page, but a subscriber and disappointed about the overall quality/mix of articles and as you say Toddy the insights or lack there of. Most seem to be just re-written press releases. The AI generated ones are better.....!!
Snoopy
13-06-2024, 01:17 PM
EOHY2024EOFY2023EOFY2022EOFY2021EOFY2020
PGG Wrightson Cash Balance
$13.307m$4.643m$4.676m$3.367m$16.868m
Term Debt Facility (Amount Drawn)
$90m($45.19m)$90m($50m)$60m($30m)$60m($0m)$50m($20 m)
Working Capital Facility (Amount Drawn)
$70m($65m)$70m($19.96m)$70m($7.50m)$70m($9.90m)$70 m($30m)
Overdraft Facility (Amount Drawn)
$3.0m($0m)$3.0m($0m)$3.0m($0m)$3.0m($0m)$3.0m($0m)
Letter of Credit (Amount Drawn)
$NAm($3.77mm)$NAm($3.77m)$NAm($3.58m)$NAm($3,53m)$ NAm($3.58m)
Total Facility Limit (Amount Drawn)
$163m($114m)$163m($74m)$133m($41m)$133m($13m)$123m ($54m)
Banking Syndicate Loans (Balance Sheet)
$110.190m$69.960m$37.500m$9.900m$50.000m
The table below has been changed such that it now only looks at the half year debt position. This means that all the snapshot periods are now seasonally comparable.
Banking facility notes (typically found in note 3 in the respective half year interim reports) can be rather a dry foot note to the presented figures and may end up not telling shareholders much. But if we look at such numbers over multiple sequential reporting dates, then longer term patterns can emerge. Such patterns can tell the story of how happy the banking syndicate really is with PGG Wrightson - a topic that rarely, if ever, is given any 'descriptive text time' in the annual report. So what can we deduce about the relationship of PGW with their bankers from the summary table of 'banking facilities drawn' and 'banking facilities offered' below?
EOHY2024EOHY2023EOHY2022EOHY2021EOHY2020
PGG Wrightson Cash Balance
$13.307m$2.484m$1.113m$1.764m$0.682m
Term Debt Facility (Amount Drawn)
$90m($45.19m)$90m($50m)$60m($30m)$60m($20m)$50m($2 0m)
Working Capital Facility (Amount Drawn)
$70m($65.00m)$70m($48.00m)$70m($18.00m)$70m($21.00 m)$70m($40.00m)
Overdraft Facility (Amount Drawn)
$3.0m($0m)$3.0m($0m)$3.0m($0m)$3.0m($0m)$3.0m($0m)
Letter of Credit (Amount Drawn)
$NAm($3.77m)$NAm($3.58m)$NAm($3.58m)$NAm($3.58m)$N Am($6.08m)
Total Facility Limit (Amount Drawn)
$163m($114m)$163m($101m)$133m($52m)$133m($45m)$123 m($66m)
Banking Syndicate Loans (Balance Sheet)
$110.190m$98.000m$48.000m$41.000m$60.000m
Notes
1/ The 'Overdraft facilities' and the ''Guarantee Letters of Credit Finance Facilities', collectively known as the 'Syndicated Facilities' are there to fund:
1i/ The general corporate activities of the group.
1ii/ The seasonal fluctuations of working capital.
1iii/ The 'GoLivestock' lending program
A guaranteed letter of credit (refer to post 5758) is effectively a promise to pay an overseas supplier for goods that have been ordered that have not yet arrived. So it doesn't increase the debt at PGW, unless PGW reneges on an account payable. In that case the banking syndicate steps in pays the bill, which they will no doubt recover from PGW at a later date. So a 'Guarantee Letter of Credit' is a statement by PGW's banking syndicate that PGW contracted for goods and services will be paid for. So technically it is only a 'conditional bank debt', if PGW do not pay their bills. But I guess for reporting purposes under 'financing facilities' (AR2023 note 9), conditional debts to your banking facility do require a mention.
2/ Working Capital Facilities are said to be subject to an 'annual clean down'. This means the loan balance must be fully repaid at least once during a financial year such that the balance at a point in time during the FY is zero..
Think of Working Capital as a means of buying goods for on sale to customers. Being a seasonal business, PGW buys in stock for farmers to buy to 'put on the farm' (mostly) in Spring. It then hopes to recoup that money outlay -with some profit- by the end of the business year. The end of autumn is usually when the last of PGG Wrightson's GoLIvestock animal assets are sold off as well. So this should be 'maximum cash' time for the company. We aren't informed exactly when the debt clean down date is. But the 'end of autumn' would seem to be the most logical time period for the annual working capital clean down.
3/ The Overdraft balances drawn at EOHY20xx, were not specifically declared. However because the short term loan balance was declared at the end of each of those years in the balance sheet, and it equated exactly to the Working Capital separately declared, I can deduce that the 'overdraft loan balance' must have been zero on the given reference dates.
----------------------
Readers will notice that the 'Amount drawn against total facilities' and the banking syndicate total loans as measured on the balance sheet do not exactly match. The difference is the 'Letter of Credit' guarantee which is effectively an off balance sheet debt that may be called in should circumstances determine there be a need to do that.
These half year balance date figures alter the story on how PGW is using its borrowing facilities (compared to the full year figures in the quoted text). The 'blow out in debt' actually occurred between EOFY2022 and EOHY2023. While a seasonal build up of debt would be expected over this time, as the company builds up its rural store stock in preparation for Spring, this was a much bigger blowout of debt (+$50m more to $98m) than the equivalent period a year before that. But by the end of FY2023 the working capital debt was down again, as we might expect. By EOHY2024 the working capital debt had increased to a new record high from the previous year However the offsetting 'cash balance' was at a new record high as well. If you take one from the other:
$110.190m - $13.307m=$96.883m (HY2024 figures)
$98.000m - $2.484m = $95.516m (HY2023 figures)
....you can see that 'net working capital' was only a little more than $1m higher at EOHY2024 - not so significant. I take this 'zoom out view' and assess that -in real terms-, Working Capital is about the same year on year. The big change was instead the jump from the EOHY2022 base level of $20m to a new EOHY2023 level of $50m which has remained sticky. So the first published indicator that rising working capital debt was 'a thing' was back on 31st December 2022. I notice that although the amount of working capital drawn over the half year reporting periods has carried on increasing, the maximum Working capital available to be borrowed has remained at $70m. At least that was true until 14th January 2024, when the banking syndicate suddenly granted PGW $15m more working capital headroom (maximum working capital balance is now $85m).
There has been no tightening of the bank imposed debt caps of any kind over all of this time. On the contrary, the total amount able to be borrowed has expanded by $40m over four years. The banks would not have done this unless they were confident the PGW business could look after the security of their loan money. It will be interesting to see if this changes once the EOFY2024 has rolled over and the annual results are collated and submitted to those 'friendly bankers'. But as of now, this picture is showing me that the banks are on good terms with PGW. They understand the multi-year seasonal trends that such a business is subject to, and they are quite happy to keep on supporting PGG Wrightson 'through the trough'.
SNOOPY
Snoopy
13-06-2024, 07:55 PM
Snoopy - do we know if PGW did their annual clean during the first half year? Also, given the nature of working capital facilities, they can be repaid pretty quickly using the timing of monthly cashflows to one's advantage. I'm not sure you can borrow from a term facility to repay the working capital facility given that is not the intention of the annual clean down. If the facility is too high and cannot be repaid, then better IMO to transfer some of the balance to a term loan and rebalance the 2 [b]limits[/] instead.
I am referring to swapping one facility for another on a permanent basis as part of capital management*. What you suggested was temporarily borrowing on one to repay the other which would not be allowed.
*per re-negotiated agreements with the banking syndicate.
OK thanks for the clarification. I guess the reason there are two different classes of borrowing is that one class of borrowing is cheaper than the other. Otherwise why not just run all classes of borrowing into a single classification 'big bucket' and 'get on with charging for it'?
$65m sounds like a lot of loan to 'draw down' to me. But is it?
I can take a linear average modelling guess at the average amount of store stock on hand during the year, by looking at three reference balance sheets: FY2022, HY2023 and FY2023.
Average Inventory = ($107.533m+$129.717m+$102.048m)/3 = $113.099m
The revenue for the year at 'Retail & Water' was $796.043m. That means the stock turn for FY2023 was: $796.043m/$113.099m= 7.0 times. That puts the $65m or working capital into context. It is only $65m/$796.043m or 8% of annual revenue. Still a lot of money of course. But nothing that a few judiciously priced end of season stock sales could not raise. Even the seasonal wind down of 'GoStock' might produce that kind of cash.
PGW is a seasonal business. So what is my estimate of stock turn over HY2023?
Average Inventory = ($129.717m+$102.048m)/2 = $115.883m
Revenue at 'Retail & Water' over HY2023 = $487.909m. => 6 Month Stock Turn = $487.909m/$115.883m= 4.2 times
Did the stock turn slow down over HY2024?
Average Inventory = ($130.769m+$107.533m)/2 = $119.151m
Revenue at 'Retail & Water' over HY2024 =$471.471m => 6 month Stock Turn = $471.471m/$119.151m = 4.0 times
So we did see a small drop off in stock turn over FY2024 as things got tighter. But not enough to suggest to me that 'enough cashflow could not have been rounded up' to temporarily repay the working capital debt of $65m.
SNOOPY
OK thanks for the clarification. I guess the reason there are two different classes of borrowing is that one class of borrowing is cheaper than the other. Otherwise why not just run all classes of borrowing into a single classification 'big bucket' and 'get on with charging for it'?
Capital management has long term debts for long term assets (such as acquisitions and capex) and short term debts for short term assets (such as inventory). Hence the use of working capital facilities to fund inventory 'blowouts' until you sell them down and pay the loan off. Bankers don't like to see long term debt used to fund short term assets such as inventory, hence the reason you don't see one class of borrowing. The interest rate on the short term facility will likely be a bit higher, but it's not really a huge cost given it is supposedly a temporary facility and not drawn down 365 days per year.
I saw this note in their HY report:
The syndicated facilities fund the general activities of the Group, the seasonal fluctuations in working capital, and the Go livestock receivables.
So the facility funds both inventory and livestock receivables, although it doesn't explain the growth in the WC balance. Instead p22 of HY24 report pretty much explains it. It is not good reading.
If I were a shareholder I would want to know their receivables are actually collectible. Receivables of ($294m less GST=) $256m divided by (edit: not into!) HY daily sales of ($561m/184=) $3m implies there are an average of 84-85 days sales outstanding as at 31 Dec. On the face of it, it is not good but better to look at trends. But I would still be worried about collectability in today's economic climate.
Snoopy - if you are calculating stock turnover, it should be based on the cost of sales, not sales. But whatever floats your boat....
Also - I see the letter of credit facility is a "limit" of $3.77m not what has been drawn so you may want to amend your tables.
The syndicated facility agreement allows the Group, subject to certain conditions, to enter into additional facilities outside of the Company's syndicated facility. The additional facilities are guaranteed by the security trust. These facilities amounted to $6.77 million as at 31 December 2023.
– Overdraft facilities of $3.00 million. This facility was undrawn at 31 December 2023 (undrawn at 30 June 2023, undrawn at 31 December 2022).
– Guarantee, letters of credit and trade finance facilities of $3.77 million.
Question for you Snoopy - does PGW have debt denominated in a foreign currency?
The other thing I would be looking at is how does a decline in top line revenue impact NPBT given gross margin of 24.2% has fallen slightly compared to last year, and there are about ($139+58+30+10=) $237m of forecast fixed costs above the NPBT line. Following is a table of the sales value needed to break even assuming fixed costs of $237m, and a range of gross margins:
24% GM -> breakeven annual sales is $987m which requires H2 sales to grow +9% over H2 last year
24.5% GM -> breakeven annual sales is $967m (H2 +4% vs LY)
25% GM -> breakeven sales is $948m (H2 -1% vs LY)
25.5% GM -> breakeven sales is $929m (H2 -5% vs LY)
26% GM -> breakeven sales is $912m (H2 -10% vs LY)
What this tells me is even if they can lift their H2 margins such that the FY gross margin is 26% (last year 25.9%) then a fall in annual topline sales of 10% for H2 will result in zero NPBT. A fall greater than that will result in a loss.
You can also use similar maths to work out the forecast NPBT based on a range of changes in top line sales and changes in gross margins. The graphs on p2 of the recent presentation highlight the impact of falling sales and/or falling margins on profits - the percentage fall in NPBT is usually more than the % fall in top line revenues.
In light of the latest cashflow report and suspended dividend, I would not expect PGW to pay a dividend at year end or even next HY. Once the SP has finished doing it's thing, it could be 1-3 years to climb out of its current position. Investors will need to look through the short term funk to the longer term.
Sources:
Announcement (https://www.pggwrightson.co.nz/sites/default/files/2024-02/27%20Feb%202024%20PGW%20Half%20Year%20Results%20-%20Announcement.pdf)
HY Results (https://www.pggwrightson.co.nz/sites/default/files/2024-02/27%20Feb%202024%20PGW%20Half%20Year%20Report%20to% 2031%20December%202023.pdf)
kiora
14-06-2024, 05:07 AM
re GM & stock turn
I am surprised they are even that high
re receivables that are actually collectible
They are likely very seasonal ,extended credit likely highest end Dec?,slowly paid down as milk checks come in(dairy) /stock are sold (S& B)
kiora
14-06-2024, 12:31 PM
"SOPI report: Forecast dip in primary industry export revenue due to lower prices for key commodities"
https://www.nzherald.co.nz/nz/sopi-report-forecast-dip-in-primary-industry-export-revenue-due-to-lower-prices-for-key-commodities/M3X7ANC5VFDJHMJTIWEPROTPXQ/?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Friday+14+J une+2024
percy
14-06-2024, 12:37 PM
re GM & stock turn
I am surprised they are even that high
re receivables that are actually collectible
They are likely very seasonal ,extended credit likely highest end Dec?,slowly paid down as milk checks come in(dairy) /stock are sold (S& B)
Something does not add up to me regarding their stock turns.
It certainly is not in store stock.I would guess their in store stock would be lucky to turn over 1.5 or 2 times a year.
Therefore most of their stock turns must be from bulk stock that never comes through their stores.
kiora
14-06-2024, 02:08 PM
Something does not add up to me regarding their stock turns.
It certainly is not in store stock.I would guess their in store stock would be lucky to turn over 1.5 or 2 times a year.
Therefore most of their stock turns must be from bulk stock that never comes through their stores.
Yes,that could be it, good point Percy
Just clipping the ticket.High value,low margin (10% ?)
Toddy
14-06-2024, 02:15 PM
Most stock is seasonal. I. E only used for a number of weeks a year. A good percentage of customers pre order as the items are essential to a good outcome on farm.
Sure, they have gumboots and dog food etc
So I think it's a little tricky to talk about stock turn. I've never deep dived into their accounts.
Snoopy
14-06-2024, 08:00 PM
I saw this note in their HY report:
"The syndicated facilities fund the general activities of the Group, the seasonal fluctuations in working capital, and the Go livestock receivables."
So the facility funds both inventory and livestock receivables, although it doesn't explain the growth in the WC balance. Instead p22 of HY24 report pretty much explains it. It is not good reading.
If I were a shareholder I would want to know their receivables are actually collectible.
I guess you are looking at the $16.400m increase in 'Accounts Receivable' over the half year period? Let's put some context on that.
EOHY2024EOHY2023EOHY2022EOHY2021EOHY2020
PGG Wrightson Cash Balance {A}
$13.307m$2.484m$1.113m$1.764m$0.682m
Accounts Receivable Asset {B}
$294.198m$321.851m$296.772m$234.765m$241.598m
GoLivestock Animal Assets (C)
$40.578m$42.470m$35.805m$30.582m$38.584m
Total Current Assets {A}+{B}+{C}={D}
$348.083m$366.805m$330.690m$267.111m$280.864m
Accounts Payable Liabilities {E}
($265.312m)($273.959m)($269.311m)($208.328m)($221. 050m)
Short Term Lease Liabilities {F}
($20.189m)($18.863m)($17.690m)($16.936m)($N/Am) (1)
Total Current Liabilities {E}+{F}={G}
($286.131m)($292.822m)($287.001m)($225.264m)($221. 050m)
Total Net Current Assets {D}+{G}
$61.952m$73.983m$43.689m$41.847m$59.814m
Working Capital Limit
$70m$70m$70m$70m$70m
Term Facility Limit
$90m$90m$60m$60m$50m
Current Ratio {D}/{G} (2)
1.221.251.151.191.27
Inventories
$130.769m$129.717m$111.939m$105.536m$107.750m
Average Days in Arrears, Accounts Receivable (3)
10010310191103
Table Notes
1/ Not Applicable because short term lease liabilities as a balance sheet item did not exist prior to IFRS16 implementation.
2/ I guess a real accountant would see my above calculation table as a corruption. Generally it is common practice to include inventories amongst current assets. The idea being you can just put a sale sign up on the door and all these consumers will rush in converting your 'stock in store' into cash. But with a specialist retailer such as PGW, with their farmer customers on the 'bones of their bums' and the banks refusing them credit, I am not sure this is a realistic. So I have chosen to leave inventories out of the current assets total.
3/ Days in Arrears for Accounts Receivable Calculations
Any Period: (Accounts Receivable less GST)/(Average Daily 'Retail & Water' Revenue)
HY2024: ((1/1.15)x$294.198m)/($471.371m/184) = 100days
HY2023: ((1/1.15)x$321.851m)/($500.008m/184) = 103days
HY2022: ((1/1.15)x$296.772m)/($468.989m/184) = 101days
HY2021: ((1/1.15)x$234.765m)/($413.421m/184) = 91days
HY2020: ((1/1.15)x$241.598m)/($373.837m/184) = 103days
------------------------------------------
It looks like PGW were more diligent following up their overdue accounts in FY2024 rather than FY2023. The 'GoLivestock' assets will generally be cashed up before the winter, and probably at a higher price than book value (because they have had a few months of fattening up by the farmer).
The accounts receivable are big numbers to be sure. And those numbers do rise going into that half year balance date, because this period marks the seasonal time that most farmers are making their purchases. But looking at the multi-half-year picture, this doesn't look like a company with a cashflow crisis spiraling out of control. And we should also remember, just after the close off period, the banking syndicate increased the allowable working capital draw-down to $85m. So it doesn't look like the banks have a problem with this picture either (or at least they didn't at the half year balance date).
SNOOPY
Snoopy
15-06-2024, 11:31 AM
HY2024Retail & WaterAgencyBack Office Total
Revenue$478.301m (85.4%)$81.589m (14.6%)
EBITDA$39.962m$1.431m($4.775m)
less Back Office EBITDA ReAllocation($4.078m)($0.697m)
less Net Interest Allocation($2.019m)($1.035m)($1.666m)
less Back Office Interest ReAllocation($1.423m)($0.243m)
less Depreciation & Amortisation($8.214m)($4.771m)($1.537m)
less Back OfficeDA Reallocation($1.299m)($0.238m)
less Income Tax Benefit (Expense)($8.412m)$1.154m$2.469m
add Back Office Tax ReAllocation$2.109m$0.360m
equals NPAT$16.626m($4.039m)
Net Profit Margin3.48%-4.95%
Notes
1/ Reallocation apportioning is on the basis of divisional revenue.
SNOOPY
Snoopy
15-06-2024, 08:45 PM
HY2023Retail & WaterAgencyBack Office Total
Revenue$500.008m (85.5%)$84.670m (14.5%)
EBITDA$48.918m$3.643m($4.717m)
less Back Office EBITDA ReAllocation($4.033m)($0.684m)
less Net Interest Allocation($2.969m)($0.904m)($1.084m)
less Back Office Interest ReAllocation($0.927m)($0.157m)
less Depreciation & Amortisation($8.017m)($4.301m)($1.411m)
less Back OfficeDA Reallocation($1.206m)($0.205m)
less Income Tax Benefit (Expense)($10.781m)$0.374m$2.023m
add Back Office Tax ReAllocation$1.730m$0.293m
equals NPAT$22.715m($1.941m)
Net Profit Margin4.54%-2.29%
Notes
1/ Reallocation apportioning is on the basis of divisional revenue.
SNOOPY
Snoopy
16-06-2024, 09:15 AM
FY2023Retail & WaterAgencyBack Office Total
Revenue$785.298m (80.6%)$188.803m (19.4%)
EBITDA$54.129m$16.608m($9.003m)
less Back Office EBITDA ReAllocation($7.256m)($1.747m)
less Net Interest Allocation($3.779m)($3.857m)($1.937m)
less Back Office Interest ReAllocation($1.561m)($0.376m)
less Depreciation & Amortisation($16.267m)($8.787m)($3.009m)
less Back OfficeDA Reallocation($2.425m)($0.584m)
less Income Tax Benefit (Expense)($9.707m)($1.170m)$4.459m
add Back Office Tax ReAllocation$3.594m$0.865m
equals NPAT$16.728m$0.942m
Net Profit Margin2.13%0.499%
Notes
1/ Reallocation apportioning is on the basis of divisional revenue
SNOOPY
Snoopy
16-06-2024, 09:45 AM
I can take a linear average modelling guess at the average amount of store stock on hand during the year, by looking at three reference balance sheets: FY2022, HY2023 and FY2023.
Average Inventory = ($107.533m+$129.717m+$102.048m)/3 = $113.099m
The revenue for the year at 'Retail & Water' was $796.043m. That means the stock turn for FY2023 was: $796.043m/$113.099m= 7.0 times. That puts the $65m or working capital into context. It is only $65m/$796.043m or 8% of annual revenue. Still a lot of money of course. But nothing that a few judiciously priced end of season stock sales could not raise. Even the seasonal wind down of 'GoStock' might produce that kind of cash.
PGW is a seasonal business. So what is my estimate of stock turn over HY2023?
Average Inventory = ($129.717m+$102.048m)/2 = $115.883m
Revenue at 'Retail & Water' over HY2023 = $487.909m. => 6 Month Stock Turn = $487.909m/$115.883m= 4.2 times
Did the stock turn slow down over HY2024?
Average Inventory = ($130.769m+$107.533m)/2 = $119.151m
Revenue at 'Retail & Water' over HY2024 =$471.471m => 6 month Stock Turn = $471.471m/$119.151m = 4.0 times
So we did see a small drop off in stock turn over FY2024 as things got tighter. But not enough to suggest to me that 'enough cashflow could not have been rounded up' to temporarily repay the working capital debt of $65m.
Snoopy - if you are calculating stock turnover, it should be based on the cost of sales, not sales. But whatever floats your boat....
To calculate the 'cost of sales' from the 'sales revenue' you have to know the net profit margin. You won't find that figure in any PGW report. However, it is possible to work in out. And this is an exercise that I have now done (posts 5774, 5775 and 5776). So I can now redo these stock turnover calculations as per Ferg's suggestion.
Period Stock Turn = (Cost of Period Revenue)/(Snapshot of Inventory value)
Average Inventory FY2023 = ($107.533m+$129.717m+$102.048m)/3 = $113.099m
Cost of Retail and Water Revenue = (1/1.0213)x$765.661m = $749.693m
=>FY2023 Annual Stock Turn = $749.613m/$113.099m= 6.6 times
Average Inventory HY2023 = ($129.717m+$102.048m)/2 = $115.883m
Cost of Retail and Water Revenue = (1/1.0454)x$487.909m = $466.720m
=>HY2023 Stock Turn = $466.720m/$115.883m= 4.0 times (equivalent to 8.0 times annual rate)
Average Inventory HY2024 = ($130.769m+$107.533m)/2 = $119.151m
Cost of Retail and Water Revenue = (1/1.0348)x$471.471m = $455.616m
=>HY2024 Stock Turn = $455.616m/$119.151m= 3.8 times (equivalent to 7.6 times annual rate)
The result of the correction is a little bit of a drop in the stock turn rate. But the basic narrative remains unchanged. That being that stock turns over faster in the first half than the full year, and that the stock turnover rate over HY2024 is a little behind that over HY2023, although it is not alarmingly lower. That is pretty much what you would expect in a rural downturn. This is of course not what shareholders would like to see. But I don't see a sign of mismanagement here. To improve the stock turnover you would have to reduce inventory even more, which may not provide farmers with the choices that they need or want.
SNOOPY
winner69
16-06-2024, 09:54 AM
To calculate the 'cost of sales' from the 'sales revenue' you have to know the net profit margin. You won't find that figure in any PGW report. However, it is possible to work in out. And this is an exercise that I have now done (posts 5774, 5775 and 5776). So I can now redo these stock turnover calculations as per Ferg's suggestion.
Period Stock Turn = (Cost of Period Revenue)/(Snapshot of Inventory value)
Snoops …I’m sure when Ferg was saying Cost of Sales used in stock turn calcs he was meaning the actual cost of goods sold ……generally the difference between revenues and Gross Margin
I see you can do this at a Conpany lebpvel but not by segment as they don’t show Cost of Sales / Gross Margin by segment.
But I might have misunderstood you both
winner69
16-06-2024, 10:02 AM
FY23 ..,.. Cost of Sales $723m …..Average Stock F22 and F23 $104m só about 7 stock turns ….amazingly what you got
I must have misunderstood you lol
Snoopy
16-06-2024, 10:26 AM
Snoops …I’m sure when Ferg was saying Cost of Sales used in stock turn calcs he was meaning the actual cost of goods sold ……generally the difference between revenues and Gross Margin
Yes, that is what I took Ferg's comments to mean.
I see you can do this at a Company level but not by segment as they don’t show Cost of Sales / Gross Margin by segment.
No they don't give you the information directly. But there is enough segmented information given to allow you to work the segment margin out, which is what I have done in posts 5773, 5774 and 5775.
SNOOPY
Snoopy
16-06-2024, 10:41 AM
Something does not add up to me regarding their stock turns. It certainly is not in store stock.I would guess their in store stock would be lucky to turn over 1.5 or 2 times a year. Therefore most of their stock turns must be from bulk stock that never comes through their stores.
I agree Percy that a 6.9x stock turn at those PGW retail stores does not 'feel' right. Your 'bulk stock that never comes through the store' could be one explanation. But might I suggest another. Perhaps PGW has an arrangement with many suppliers where stock is supplied in a consignment arrangement whereby PGW don't actually 'own' the stock until it is sold. The extreme example of this is the supermarkets, where the big players end up not paying for the goods until the end line customer has bought it. Turnover at the supermarkets is much higher than at a PGW retail store of course. But there is nothing to say the strong arm of PGW the retailer is not at work here.
"We will generously allow your stock to be displayed at our retail stores, but don't expect us to pay for it Mr Chump supplier unless it goes out the door."
PGW would no doubt pay up front for the high turnover stuff, but some of the slower moving lines? Maybe not. So could it be that the stock you see 'not moving' at a PGW retail store is not yet owned by PGW, so is not on the books as inventory?
SNOOPY
percy
16-06-2024, 11:50 AM
Yes, that is what I took Ferg's comments to mean.
No they don't give you the information directly. But there is enough segmented information given to allow you to work the segment margin out, which is what I have done in posts 5773, 5774 and 5775.
SNOOPY
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percy
16-06-2024, 12:10 PM
I agree Percy that a 6.9x stock turn at those PGW retail stores does not 'feel' right. Your 'bulk stock that never comes through the store' could be one explanation. But might I suggest another. Perhaps PGW has an arrangement with many suppliers where stock is supplied in a consignment arrangement whereby PGW don't actually 'own' the stock until it is sold. The extreme example of this is the supermarkets, where the big players end up not paying for the goods until the end line customer has bought it. Turnover at the supermarkets is much higher than at a PGW retail store of course. But there is nothing to say the strong arm of PGW the retailer is not at work here.
"We will generously allow your stock to be displayed at our retail stores, but don't expect us to pay for it Mr Chump supplier unless it goes out the door."
PGW would no doubt pay up front for the high turnover stuff, but some of the slower moving lines? Maybe not. So could it be that the stock you see 'not moving' at a PGW retail store is not yet owned by PGW, so is not on the books as inventory?
SNOOPY
Sounds sensible,however I very much doubt that would happen at PGW.
My "in store' stock turns of between 1.5 and 2 maybe generous.I can not see Jacket,shirt or socks suppliers offering more than 60 days credit.
The likes of Pak'n Save turn over a great deal of their stock weekly.
Their logistics are incredible.Their ordering systems are integrated with their major suppliers.
Similar systems are used by Bunnings..
The only way I can see PGW stock turns being high are;
a].Extended Credit is offered in Spring.And end of year stock level is very low.
b]When farmer comes into store he buys $100 worth of displayed goods ,and orders $10,000 worth of Fencing/fertisliser or whatever, which is delivered ex supplier direct to the farm,never going near the PGW store.
kiora
16-06-2024, 05:33 PM
I concur with Percy on this one
Snoopy
16-06-2024, 05:39 PM
Also - I see the letter of credit facility is a "limit" of $3.77m not what has been drawn so you may want to amend your tables.
Ferg, the full text you refer to is from p26 of HYR2024 and is here:
"The syndicated facility agreement allows the Group, subject to certain conditions, to enter into additional facilities outside of the Company's syndicated facility. The additional facilities are guaranteed by the security trust. These facilities amounted to $6.77 million as at 31 December 2023.
– Overdraft facilities of $3.00 million. This facility was undrawn at 31 December 2023 (undrawn at 30 June 2023, undrawn at 31 December 2022).
– Guarantee, letters of credit and trade finance facilities of $3.77 million."
There is no mention of the "Guarantee, letters of credit and trade finance facilities." being drawn or undrawn. What is mentioned is that the overdraft on the line above is undrawn. My impression is that the "Guarantee, letters of credit and trade finance facilities.' is drawn, because if it wasn't, PGW would have told us, like they did with the overdraft facility on the line above.
I consider the "Guarantee, letters of credit and trade finance facilities" has been drawn, or should be thought of as such because such money can be called upon at any time, and there is nothing the banks can do or could have done about it. You say the letter of credit is a 'limit'. But that is your word. The word 'limit' is not mentioned in the quoted text. And if it were a limit, why pick such a strange number?: $3.77m? Why not just make the limit $4m? The mere fact the number is $3.77m is another hint to me that the $3.77m is already drawn. I could still be wrong about this. But you haven't convinced me that I am.
SNOOPY
Snoopy
16-06-2024, 09:21 PM
Question for you Snoopy - does PGW have debt denominated in a foreign currency?
PGW source many of their product lines from overseas sources. The HY2024 report shows $265.312m "Accounts payable and Accruals". For the breakdown of what this figure might represent, you need to look at the equivalent entry in AR2023. Note 17 of AR2023 would suggest the majority of what is termed the "Accounts Payable and Accruals" are trade creditors. How many of these are overseas based is not directly disclosed. But this I believe is the extent of PGW debts denominated on foreign currency.
There is an extensive section on 'Financial Instruments' held by PGW in AR2023, starting on p91. From p94
"Foreign Currency Risk The group undertakes transactions denominated in foreign currencies and exposure to movements in foreign currency arises from these activities. The group manages this risk by using forward foreign exchange contracts to hedge foreign currency risks as they arise."
Immediately following that statement there is a table titled "Foreign Currency Exposure Risk". The first part of that table shows that the amount of foreign money owed to 'trade creditors', greatly exceeds the foreign money that is expected to come in from 'trade receivables', all as shown on the balance sheet. But below that, there is a line showing foreign exchange cover across four currencies (GBP,USD,AUD,Euro) to the total value of $42.787m. The same table contains another line of figures showing a net unhedged position that sums to $55.606m.
The balance sheet contains trade creditors to the value of $105.679m. (AR2013 p87). So my interpretation of this is that of the trade creditors ($42.787m+$55.606m=)$98.393m are overseas based. Of those creditor accounts, a bit under half, $42.787m, are hedged back to the NZD. And $105.679m-$98.393m=$7.286m of the creditor accounts are NZD based, and probably local suppliers. That is how I read the information as presented anyway. I am happy to be corrected if my interpretation is wrong.
So that sums up PGW's total exposure to foreign currency.
But if your question is related to 'working capital' or 'long term capital' funding via the banking syndicate, then no, PGW do not have any foreign debt funding of that type.
SNOOPY
Snoopy
17-06-2024, 09:27 AM
The other thing I would be looking at is how does a decline in top line revenue impact NPBT given gross margin of 24.2% has fallen slightly compared to last year, and there are about ($139+58+30+10=) $237m of forecast fixed costs above the NPBT line.
I couldn't find the above series of numbers last night. I think it is because they were rounded. Referred annual figures from FY2023 from HYR2024 p17 Interim Consolidated Statement of Profit & Loss are close:
FY2023 Annual Fixed Costs
Employee Expenses $137.561m
Other Operating Expenses$54.590m
Depreciation & Amortisation Expense$28.063m
Net Interest and Finance Cost$9.573m
Total Fixed Running Costs$229.787m
That is a little different to your $237m total. But I think we are talking about the same figures. I guess the question is, can any of these fixed costs be reasonably reduced? Falling interest rates plus using cashflows that might otherwise have gone towards paying dividends to shareholders to reduce the loan balance should soon help.
There has been quite a large IT spend been going on at PGW, which I believe is nearing completion. So while that will not reduce and may even increase depreciation charges for FY2025, these are non cash items in any prospective income statement. So I expect some of the cashflow from FY2024 that has been pouring into computer equipment will in the future be available to pay down debt.
Employee expenses in a high inflation environment, can only really be reduced by sacking people, or putting on a 'hiring freeze'. This would result in customer service issues in the medium term which is unlikely to be good.
So in summary, I think there is light at the end of the tunnel from a cashflow perspective, if not a profit perspective.
SNOOPY
winner69
17-06-2024, 09:41 AM
Só 130 page AR and you guys still have difficulty in finding answers ….PGW, not good enough
Snoopy
17-06-2024, 09:58 AM
Só 130 page AR and you guys still have difficulty in finding answers ….PGW, not good enough
p130 of the Annual Report is the back cover with two farmers (or is it one farmer and a PGW rep) walking off into the cloudy reaches of a drying landscape. Maybe a hidden message for shareholders, that this path - walking away - is the path shareholders should take as well? So the Annual Report was perfectly clear after all. It is just that no-one noticed, until today.
SNOOPY
winner69
17-06-2024, 10:01 AM
Hey snoops I read that post too quickly and got this
p130 of the Annual Report is the back cover with two farmers (or is it one farmer and a PGW rep) walking off into the cloudy reaches of a dying company. Maybe a hidden message for shareholders
Snoopy
17-06-2024, 11:08 AM
The other thing I would be looking at is how does a decline in top line revenue impact NPBT given gross margin of 24.2% has fallen slightly compared to last year, and there are about ($139+58+30+10=) $237m of forecast fixed costs above the NPBT line. Following is a table of the sales value needed to break even assuming fixed costs of $237m, and a range of gross margins:
24% GM -> breakeven annual sales is $987m which requires H2 sales to grow +9% over H2 last year
24.5% GM -> breakeven annual sales is $967m (H2 +4% vs LY)
25% GM -> breakeven sales is $948m (H2 -1% vs LY)
25.5% GM -> breakeven sales is $929m (H2 -5% vs LY)
26% GM -> breakeven sales is $912m (H2 -10% vs LY)
What this tells me is even if they can lift their H2 margins such that the FY gross margin is 26% (last year 25.9%) then a fall in annual topline sales of 10% for H2 will result in zero NPBT. A fall greater than that will result in a loss.
Just figuring out where some of the above numbers came from. Refer to the 'Interim Consolidated Statement of Profit and Loss' for HY2024 for the input figures below.
Gross Margin = (Revenue - Cost of Goods Sold) / Revenue
Gross Margin FY2023 = ($975.692m - $722.849m)/$975.692m = 25.9%
Gross Margin HY2023 = ($585.756m - $441.463m)/$585.756m = 24.6%
Gross Margin HY2024 = ($560.878m - $425.247m)/$560.878m = 24.2%
------------------
(Gross Margin)(Revenue) = (Revenue - Cost of Goods Sold)
Assuming a Gross Margin of 24% and using the FY2023 figures as a base:
0.24xR = (R-$772.849m) => 0.76R = $772.849m => R= $1,017m
Actual operating revenue was $975m over FY2023, but gross margin, at 24.2%, was higher than that modelled above.
I couldn't find the above series of numbers last night. I think it is because they were rounded.
Snoopy - my figures were in the context of a "forecast" not actual hence the reason they don't agree to what you are seeing (see people can make forecasts! .... but whether or not it is accurate remains to be seen).
$237m of forecast fixed costs above the NPBT line
Also, in banking parlance a "facility" is a limit.
P.S. If you are looking for the breakeven formula it is Fixed Costs / GM%.
bull....
17-06-2024, 04:31 PM
new lows coming :scared:
Snoopy
17-06-2024, 07:48 PM
Ferg, the full text you refer to is from p26 of HYR2024 and is here:
"The syndicated facility agreement allows the Group, subject to certain conditions, to enter into additional facilities outside of the Company's syndicated facility. The additional facilities are guaranteed by the security trust. These facilities amounted to $6.77 million as at 31 December 2023.
– Overdraft facilities of $3.00 million. This facility was undrawn at 31 December 2023 (undrawn at 30 June 2023, undrawn at 31 December 2022).
– Guarantee, letters of credit and trade finance facilities of $3.77 million."
There is no mention of the "Guarantee, letters of credit and trade finance facilities." being drawn or undrawn. What is mentioned is that the overdraft on the line above is undrawn. My impression is that the "Guarantee, letters of credit and trade finance facilities.' is drawn, because if it wasn't, PGW would have told us, like they did with the overdraft facility on the line above.
I consider the "Guarantee, letters of credit and trade finance facilities" has been drawn, or should be thought of as such because such money can be called upon at any time, and there is nothing the banks can do or could have done about it. You say the letter of credit is a 'limit'. But that is your word. The word 'limit' is not mentioned in the quoted text. And if it were a limit, why pick such a strange number?: $3.77m? Why not just make the limit $4m? The mere fact the number is $3.77m is another hint to me that the $3.77m is already drawn. I could still be wrong about this. But you haven't convinced me that I am.
In banking parlance a "facility" is a limit.
OK, but the text still does not specify whether that limit of $3.77m if that is what it is, is partially drawn, fully drawn or not drawn. Thinking further about this, I think my problem is that I am thinking of this "Guarantee, letters of credit and trade finance facilities" as a loan, when it is not really a loan at all.
The fact that $3.77m is 'not a round number', suggests to me it is based around a specific transaction, or maybe an annually repeating specific transaction. Some company that PGW deals with on a regular basis wants an absolute guarantee that they will be paid, to the extent that even the banks have been shut out of denying such a payment. In all probability the facility will remain undrawn. But if for any reason PGW misses a payment, then this unnamed creditor can cash in the 'guarantee facility', regardless of any banking covenants PGW may have agreed to with its banking syndicate at the time. Since the banks have no control over this $3.77m facility, it would be prudent for them to consider it drawn, even though it is not, because they have no control over whether it is drawn or not. And the $3.77m 'guarantee facility' could be drawn at any time.
Thus in my tables looking at banking facilities (posts 5764, 5740), I still think it is appropriate for the "Guarantee, letters of credit and trade finance facilities" to be considered drawn, even if they are not, because these facilities sit outside of the banking system arrangements of PGW. And to be conservative, the banking syndicate just thinks of them as 'permanently drawn', and adjusts the rest of their lending covenants accordingly.
SNOOPY
Snoopy
17-06-2024, 08:04 PM
Snoopy - my figures were in the context of a "forecast" not actual hence the reason they don't agree to what you are seeing (see people can make forecasts! .... but whether or not it is accurate remains to be seen).
People can make forecasts - yes. But accountants are not allowed to forecast. An accountant must report figures faithfully and accurately. If they start to think for themselves then they become 'creative accountants'. And we all know where that road leads....;)
Economists OTOH are born forecasters. Their sole career purpose is to spin a plausible future business climate narrative that is suitable for the airways. Never in print mind you, because that would create a public record of what was said. Once the forecast period is up, it doesn't matter whether the economist was right or wrong, because no-one can remember what they said in their forecast in the first place! ;)
SNOOPY
Baa_Baa
17-06-2024, 08:12 PM
I couldn't bring myself to investing in this or any sector that is proven to be subject to repeated cycles of doom and gloom, over and over again ad infinitum, but especially primary industry associated companies. It seems most of the time it's gloom and occasionally it's boom. Too volatile and unpredictable for me. Best left to the banks imo, they can decide what they're prepared to risk, it's not an independent investors stock. Same for insurance for example, there's so much that can and does go wrong, when we least expect it, and each time it does happen, our investment capital and earnings are screwed.
Snoopy
You should have stopped here:
I think my problem is that I am thinking of this "Guarantee, letters of credit and trade finance facilities" as a loan, when it is not really a loan at all.
What you posted after that about an undrawn facility being fully drawn is, with all due respect, garbage. Your assumptions are wrong, namely:
suggests to me it is based around a specific transaction - WRONG (with the identical value from 6 months ago??)
or maybe an annually repeating specific transaction - WRONG (no such thing)
because if it wasn't, PGW would have told us - WRONG (they are not required to disclose, plus disclosing an undrawn O/D is not proof an unrelated facility is drawn)
In all probability the facility will remain undrawn - WRONG (these are used all the time and balances actually committed vary monthly, higher probability this facility is committed to a value >$0 and <$3.77m)
But if for any reason PGW misses a payment - WRONG (not possible under a LOC)
Since the banks have no control over this $3.77m facility - WRONG (they set the limit)
it would be prudent for them to consider it drawn, even though it is not - WRONG (not 'drawn' instead an 'exposure')
Only you can convince yourself that a facility that is undrawn is actually drawn!
:huh:
Snoopy
17-06-2024, 08:18 PM
P.S. If you are looking for the breakeven formula it is Fixed Costs / GM%.
What about:
Fixed Costs + Variable Costs = Customer Receipts => 'No Profit' (breakeven)
SNOOPY
People can make forecasts - yes. But accountants are not allowed to forecast. An accountant must report figures faithfully and accurately. If they start to think for themselves then they become 'creative accountants'. And we all know where that road leads.
What is your point? Given I know accounting like the back of my hand, I can't forecast? Absolute twaddle. I made a living making forecasts hence the reason I think statements such as "people can't forecast the future" are 100% nonsense. What is needed are some qualifications around that statement. For example, including words such as 'accurately' and taking into account various assumptions etc. And I stand behind my forecasts....not like economists.
I am trying to point out some of the risks for investors as a counter to your posts that attempt to minimise or downplay the risks with PGW. I am also trying to show where your analyses are off the mark but apparently there is a saying about old tricks and new dogs or something...? How many hours have you put into this so far? FYI I found the LOC mistake in under 5 minutes and spent about another 5 minutes looking at PGW financials - it probably took me longer to write my posts.
That breakeven technique is a forecasting tool using 2 predictable variables built on about 6 other known numbers - over which you would overlay your own probabilities. Investors can then assess the likelihood of varying sales and margin over H2 and come to a binary profitable/unprofitable forecast very quickly. One would hope the worst case scenario is not actually the best case scenario.
What about:
Fixed Costs + Variable Costs = Customer Receipts => 'No Profit' (breakeven)
SNOOPY
The GM% method is volume independent and has been employed for decades by analysts. But hey if you want to forecast variable costs and volumes then go for it.
Baa_Baa
17-06-2024, 08:49 PM
What is your point? Given I know accounting like the back of my hand, I can't forecast? Absolute twaddle. I made a living making forecasts hence the reason I think statements such as "people can't forecast the future" are 100% nonsense. What is needed are some qualifications around that statement. For example, including words such as 'accurately' and taking into account various assumptions etc. And I stand behind my forecasts....not like economists.
I am trying to point out some of the risks for investors as a counter to your posts that attempt to minimise or downplay the risks with PGW. I am also trying to show where your analyses are off the mark but apparently there is a saying about old tricks and new dogs or something...? How many hours have you put into this so far? FYI I found the LOC mistake in under 5 minutes and spent about another 5 minutes looking at PGW financials - it probably took me longer to write my posts.
That breakeven technique is a forecasting tool using 2 predictable variables built on about 6 other known numbers - over which you would overlay your own probabilities. Investors can then assess the likelihood of varying sales and margin over H2 and come to a binary profitable/unprofitable forecast very quickly. One would hope the worst case scenario is not actually the best case scenario.
Love your work Ferg, thank you, it's good to have someone qual'd casting their eye over the numbers and questioning whether they're sensible and whether this is investable. IMO PGW is a 'suck-in the investors' story, one year they'll make a motza, next year and the year after that, and the one after that, they'll be taken to the cleaners by events no one can predict, but are fundamentally ruinous. Primary industry is fraught for investors, boom, bust bust bust. The cycle repeats.
Thanks for posting.
Snoopy
17-06-2024, 09:03 PM
Snoopy
You should have stopped here:
Snoopy wrote: "I think my problem is that I am thinking of this "Guarantee, letters of credit and trade finance facilities" as a loan, when it is not really a loan at all.
What you posted after that about an undrawn facility being fully drawn is, with all due respect, garbage. Your assumptions are wrong, namely:
suggests to me it is based around a specific transaction - WRONG (with the identical value from 6 months ago??)
Yes, an identical value as six months ago, because exactly the same letter of credit was in force six months ago as now. It is the same thing being reported at two different snapshots in time.
In all probability the facility will remain undrawn - WRONG (these are used all the time and balances actually committed vary monthly, higher probability this facility is committed to a value >$0 and <$3.77m)
Since the banks have no control over this $3.77m facility - WRONG (they set the limit)
it would be prudent for them to consider it drawn, even though it is not - WRONG (not 'drawn' instead an 'exposure')
If we:
a/ Accept your point that a 'Letter of Credit' is not for a fixed amount of $3.77m, but is instead for some varying amount between $0 and $3.77m at any particular time AND
b/ Accept your point that the $3.77m is an 'exposure' rather than being 'drawn'. (I think this is playing with words a bit. 'Exposure' has a context of something that might happen given certain circumstances and in those circumstances a payout might be required. 'Drawn' OTOH would suggest an event has happened and the money has actually been drawn out. But whether that $3.77m is a 'drawn risk' or an 'exposure risk' the amount of money 'at risk' is still $3.77m either way.)
BUT We know for a fact that this $3.77m is outside of the banking syndicate facilities.
YET we also know that the banks know the $3.77m is outside of the arrangements of the banking syndicate facilities.
Given the banks know this, they could therefore have set up their banking facilities to take account of the fact that this $3.77m facility exists outside of the banking facility arrangement they are about to set up. So although the banking syndicate does not control the $3.77m external facility directly, they do control it indirectly , in effect, because the banking facility they are about to set up will be on less generous terms compared to a hypothetical 'parallel universe facility' they would have set up if the $3.77m external facility did not exist.
So Ferg, I put it to you that although we are approaching this question from different directions, when each of us puts the building blocks in place, along our divergent expressive paths, what we end up with is the same thing. IOW in results terms, we agree. That $3.77m can be drawn down at any time and the banks know it.
SNOOPY
Snoopy
17-06-2024, 09:15 PM
What is your point? Given I know accounting like the back of my hand, I can't forecast? Absolute twaddle. I made a living making forecasts hence the reason I think statements such as "people can't forecast the future" are 100% nonsense.
That post was meant to be a joke Ferg, to lighten up what was turning into a deadly serious thread. You think I could come onto a finance forum, diss all accountants and economists and get away with it? It was a play on stereotypes and not meant to be personal or taken too seriously. I have added smilies to the original post to make this clear! I very much appreciate and respect your contributions on accounting matters. No hard feelings I hope.
SNOOPY
Snoopy
17-06-2024, 09:54 PM
"Since the banks have no control over this $3.77m facility" - WRONG (they set the limit)
BUT We know for a fact that this $3.77m is outside of the banking syndicate facilities.
YET we also know that the banks know the $3.77m is outside of the arrangements of the banking syndicate facilities.
You may not be aware of the full history of this Ferg. So this is a further explanation is just to show you I am not making this stuff up....
On 1st May 2019 PGW sold their seed division. Under Note 9 "Cash and Finance facilities" in AR2019 we are told:
--------------------
"The company fully repaid the and cancelled the syndicated banking facilities during the year, using proceeds form the sale of the Seed & Grain segment."
"As at 30 June 2019, the group had the following finance facilities, which amount to $9.58m, comprise:
- Guarantee and trade finance facilities of $6.08m
- Overdraft facilities of $3.50m"
--------------------
Go forward one year under the same Note 9 and we get this:
---------------------
"On 2 July 2019, the Company entered into a new syndicated bank facility which provides the following:
– Term debt facility of $50.00 million maturing on 1 August 2021
– Working capital facilities of up to $70.00 million maturing on 1 August 2021 (subject to an annual Clean Down)
The syndicated facilities fund the general corporate activities of the Group, the seasonal fluctuations in working capital, and the Go livestock
receivables."
"The syndicated facility agreement allows the Group, subject to certain conditions, to enter into additional facilities outside of the Company’s syndicated facility. The additional facilities are guaranteed by the security trust. These facilities amounted to $6.58 million as at 30 June 2020 (2019: $9.58 million).
–Overdraft facilities of $3.00 million
–Guarantee, letters of credit and trade finance facility of $3.58 million."
-------------------------
The point of this post being to show you that the 'additional borrowing facilities' we are talking about were in place before the current banking syndicate was signed up. Not the other way around.
SNOOPY
So what we are saying is that syndicated debt = the term debt + working capital facility. That is not in dispute. Typically 'syndicated debt' is debt provided by >1 banks (hence it is called a syndicate of banks) and usually includes at least 1 local bank and can include 1 or more overseas banks. Syndicated debt is therefore provided by a bank syndicate. The overdraft and trade finance/LOC facilities are typically (probability >99%) provided by a single local bank which is normal practice. That single local bank may or may not be a member of the bank syndicate. My prediction is that the single local bank is a member of the syndicate (Why? In my experience I have not yet seen a bank syndicate where one of the local bank syndicate members does not provide the day to day banking services). Whilst it could be a local bank that is not a member of the bank syndicate, I would be surprised if that were the case. Whilst the single local banker is not the same entity as the bank syndicate in toto, the banking syndicate would certainly have half an eye and some say on the size of the non-syndicated debt facilities - hence the 'banks' setting facility limits refers to the single local bank working in conjunction with bank syndicate as evidenced by your quote ("The syndicated facility agreement allows the Group, subject to certain conditions, to enter into additional facilities outside of the Company’s syndicated facility"). But all said and done, this changes nothing for the numbers...
Snoopy
18-06-2024, 08:16 AM
So what we are saying is that syndicated debt = the term debt + working capital facility. That is not in dispute. Typically 'syndicated debt' is debt provided by >1 banks (hence it is called a syndicate of banks) and usually includes at least 1 local bank and can include 1 or more overseas banks. Syndicated debt is therefore provided by a bank syndicate. The overdraft and trade finance/LOC facilities are typically (probability >99%) provided by a single local bank which is normal practice. That single local bank may or may not be a member of the bank syndicate. My prediction is that the single local bank is a member of the syndicate (Why? In my experience I have not yet seen a bank syndicate where one of the local bank syndicate members does not provide the day to day banking services). Whilst it could be a local bank that is not a member of the bank syndicate, I would be surprised if that were the case. Whilst the single local banker is not the same entity as the bank syndicate in toto, the banking syndicate would certainly have half an eye and some say on the size of the non-syndicated debt facilities
OK, that is basically the point I was trying to make but you have said it better. But the way you previously expressed your view that I quote below I believe gave the wrong impression.
Snoopy "Since the banks have no control over this $3.77m facility" - WRONG (they set the limit)
You may have had it in your mind that you were saying the same thing. But it didn't come across that way to me. The above sounds like the new banking syndicate came in and said:
"Right, that existing day to day banking facility you already have. You can't have that any more. We are ripping that agreement up and from now on we will set the overdraft limit and any letter of credit conditions. That other bank you have agreed to those old terms with - they can get stuffed."
What I was saying was, the new banking syndicate can't come in and order PGW to default on their previously agreed to 'day to day' banking arrangements. Whenever you take out a new loan agreement, it is natural for any new loan provider to be aware of any existing loan agreements that already exist with others. They want to know about your total ability to repay all outstanding loan agreements - not just the new loan application you put in front of them. And yes, whether they approve that new loan or not, will require them to know the intimate details of other loans you have. But what a potential new loan provider cannot do is approach another loan provider and demand they change the conditions of another loan you have with that different third party loan provider.
They would as you so aptly put it:
"certainly have half an eye and some say on the size of the non-syndicated debt facilities."
But they can't demand changes to a contract that was not signed by them, and in which they have no direct interest. They can of course adjust their own proposed loan arrangement to take account of this. But they can't dictate the terms of as third party contract, which I believe what your quote immediately above implied.
SNOOPY
Snoopy
18-06-2024, 08:57 AM
Only you can convince yourself that a facility that is undrawn is actually drawn!
:huh:
....and just to explain this apparent paradox. If PGW has a syndicated bank facility, and outside of that a non-syndicated bank facility with another party over which the syndicated bank facility has no control, that means the non-syndicated facility could be drawn down from anything to $0 to a maximum of $3.77m. Since the non-syndicated bank facility could be drawn down to $3.77m at any time, that means the syndicated bank facility, if being conservative, would need to assume it is drawn down all the time. Thus you have the superficially what looks like a paradoxical situation where a loan is assumed to be drawn, when it may be completely undrawn.
SNOOPY
Entrep
18-06-2024, 09:38 AM
Soooooo, numba go up or down?
Toddy
18-06-2024, 09:39 AM
Soooooo, numba go up or down?
The debt will go up.....
Snoopy
18-06-2024, 02:09 PM
The debt will go up.....
I feel the need to qualify that statement. PGW is a seasonal business. And as part of the seasonal ebbing and flowing of the business there is an agreement that at some point the working capital, drawn to $65m at the half year balance date will need to be 'washed down' or completely repaid. $65m off company debt is quite a reduction. The wash down will be possible because of the sell down of shop stock, and the sell down of PGW owned animals 'rented out' to farmers from the GoLivestock program. The question is what happens 'after that', or about now?
PGW now has to choose to what level they will stock their retail operations for the 2024-2025 season. If they think Spring will be tough, they may not buy in as much shop stock as last year. Likewise, the farmers who do have spare feed may not have to pay as much for the beasts they plan to fatten up over the winter months. So the PGW GoLivestock balance may be reduced as a result of that. Less capital borrowed means lower profits but also less money borrowed from the banks to support those lower profits. Given no dividend was paid over 2HY2024 as well, I think that come the 30th June balance date, debt will be lower than many here think. Granted that will be against a backdrop of slower and lower profits going forwards.
SNOOPY
percy
18-06-2024, 04:41 PM
Most of PGW's Spring stock orders were most probably placed in January/Feb/March.
kiora
18-06-2024, 05:19 PM
"the farmers who do have spare feed may not have to pay as much for the beasts they plan to fatten up over the winter months. So the PGW GoLivestock balance may be reduced as a result of that"
No,beef prices will be higher with a shortage of stock likely.Works already indicating $6.50/kg later in winter
Snoopy
19-06-2024, 03:08 PM
"the farmers who do have spare feed may not have to pay as much for the beasts they plan to fatten up over the winter months. So the PGW GoLivestock balance may be reduced as a result of that"
No,beef prices will be higher with a shortage of stock likely.Works already indicating $6.50/kg later in winter
Good to hear.
Higher beef prices
=> Higher prices paid at auction for cattle
=> Higher commission income for PGG Wrightson Livestock
=> More capital needed to support 'GoLivestock' (the only negative)
BUT ultimately farmers are better off
=> More money spent on the retail side of the PGW business
=> EBITDA increases
=> ability to support today's higher company debt increases
=> less need to conserve capital = 'dividends restored' YAY!
The 'virtuous circle' circles back.
SNOOPY
FatTed
20-06-2024, 03:01 PM
"Higher beef prices" no one can afford to buy!
Snoopy
20-06-2024, 05:03 PM
"Higher beef prices" no one can afford to buy!
They can in Japan.
SNOOPY
winner69
24-06-2024, 03:43 PM
Hey snoops ….what’s the state of the pension fund
Wouldn’t want beneficiaries to miss out
Valuegrowth
24-06-2024, 08:10 PM
"Higher beef prices" no one can afford to buy! Because of Nutritional value, Affordability and reliability chicken has become number 1 protein in the world. Consumers are chasing for lower cost proteins like eggs for their protein and nutritional value.
percy
24-06-2024, 09:56 PM
From last Friday's Silver Fern Farms Ltd fortnightly newsletter;
At home we are getting very good demand from local retailers, on steak cuts and secondary cuts.
Alongside our branded on-shelf retail packs, we supply beef to in-store butcheries who may further process and sell to consumers under their own brands. Supermarkets are keen to align with us for these requirements, and we are working hard to service their needs.
maclir
27-06-2024, 05:27 PM
Good couple of days, but not sure why? Is it on the back of the export numbers? In particular benefitting from strenghtening US economy? Or is it a more general sentiment that the price went too low based on the board room shennanigans?
Hey snoops ….what’s the state of the pension fund
Wouldn’t want beneficiaries to miss out
Hahaha .. doesn't go away - does it ? .. or maybe it does :)
blackcap
27-06-2024, 07:06 PM
"Higher beef prices" no one can afford to buy!
I think you will find that beef prices are higher, exactly because people can afford to buy. If they could not, beef prices would be lower. Demand/Supply
Entrep
28-06-2024, 10:04 AM
This is very thinly traded. Whoever has been selling down probably took a breather.
kiora
29-06-2024, 11:17 AM
Ouch! for PGG
"Farm sales have declined 43% over the last two years"
https://www.interest.co.nz/property/128471/farm-sales-have-declined-43-over-last-two-years?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Saturday+29 +June+2024
Ouch! for PGG
"Farm sales have declined 43% over the last two years"
https://www.interest.co.nz/property/128471/farm-sales-have-declined-43-over-last-two-years?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Saturday+29 +June+2024
Probably likely to turn around soon, with more forced sell outs, foreclosures & liquidations/receiverships as hard rural times continue to bite.
Toddy
29-06-2024, 12:20 PM
My feeling is that farming has its debt under control. Kiwifruit is doing its thing so I haven't heard people moaning too much. And the local Farmlands and Fruitfed carparks are starting to look more lively.
It's another story though in my other world (Auckland Remuera). The mums are starting to get a bit emotional over the financial stresses around mortgages and school fees etc. And hear about people losing their jobs.
The sp has been over sold, but that goes for many NZX companies.
Entrep
04-07-2024, 11:01 AM
Catching a bid
Snoopy
04-07-2024, 11:26 AM
Good couple of days, but not sure why? Is it on the back of the export numbers? In particular benefitting from strenghtening US economy? Or is it a more general sentiment that the price went too low based on the board room shennanigans?
Far too much speculative selling and then buying going on in my view. While it is nice to be 'back in the black' on my overall investment position in PGW, headwinds remain:
a/ No dividend likely.
b/ Banking covenants remain busted, although I expect the banking syndicate to grant PGW a reprieve on these until late 2025. And if things have not stabalised by then, expect the pressure to come on.
c/ Live animal export ban from Australia, will see a massive upswing in the WA sheep kill and a new downward squeeze on Oceania sheep prices.
d/ The re-entry of Brazil into the global beef trade will see significant pressure on NZ's beef export markets going forwards.
Better times for fruit growers with the so called free trade deals with Europe coming into effect. But there will be no overall return to the 'golden times' of FY2021/FY2022. Best to wait until the FY2024 results are in and the FY2025 outlook is out IMO before adding. Yes you will 'miss the bottom' by doing that. But it is the trade off you make for more certainty of forward vision (the outside chance of a cash issue to shore up the balance sheet should not be entirely dismissed).
SNOOPY
Valuegrowth
06-07-2024, 04:56 PM
https://research.rabobank.com/far/en/sectors/regional-food-agri/nz-agribusiness-july-2024.html
Snoopy
09-07-2024, 11:44 AM
Hey snoops ….what’s the state of the pension fund
Wouldn’t want beneficiaries to miss out
With the release of the actual results being so close, I am not sure it is useful to speculate on that. As at the last balance date, pension plan assets were divided into equities 60%, fixed interest 27% and cash 13%. But there is no more detail than that. The bond market will have had a tough year, Equities in NZ have been fairly flat, although if some of that equity money has been invested in the USA it will have done better. Last year the funding deficit ( fund liabilities -fund assets ) was $1.076m or about 2% of the pension fund investment total. I guess the problem over FY2024 if there is one, is that there is no 'spare cash' from operations to top up the pension scheme this year. So any topping up will likely be by borrowing. The amount of new borrowing required (if any) should not affect the debt ceilings already agreed to. But these debt ceilings were agreed to as long as certain banking covenants are being concurrently maintained.
Cracks were appearing in both the Fixed Cost Coverage ratio and the Senior Debt Coverage ratio at the half year period
https://www.sharetrader.co.nz/showthread.php?2923-PGW-PGG-Wrightson&p=1045374&viewfull=1#post1045374
The covenant ratio issues are all related to the plunging EBITDA figures. a result of the farming downturn. I expect both FCCR and SDCR will be will and truly busted once the FY2024 results are revealed. So we will have to see what the banking syndicate will do about this. I expect that compliance with these banking covenants will be waived for a time, with PGW being forced to operate via their sick bed on an 'austerity drip' (which means no cash for shareholders).
SNOOPY
What has happened to the share price?? Up 56% in 3 weeks!
What has happened to the share price?? Up 56% in 3 weeks!
Another lot of brothers sniffing around to potentially more "Asianise' the Register .. or not ? ;)
Snoopy
10-07-2024, 08:50 PM
What has happened to the share price?? Up 56% in 3 weeks!
I am feeling a bit less stupid now. Topping up at $1.98 as I did a month or so ago, before the share price tanked even further! But none of the share price movements since Alan Lai announced he was seeking to replace most of the board with nominees of his own made sense. The share price plunged by more than a dollar shortly following on from that announcement. But when it was announced that Mr Lai's and the board's position were reconciled, for now at least, there was no share price bounce back. OK, some of NZ's food commodity prices were looking a little shaky at the time. But I thought a PGW share price of around $3 would have fairly reflected that.
When a share price continues to fall like PGW did, I usually look again at the free cashflow. Surprise, surprise it wasn't good. According to my projection calculations both the 'Senior Debt Coverage Ratio' (Senior Debt divided by EBITDA adjusted downwards for lease payment) and the fixed cost coverage ratio FCCR= [(EBITDA+Lease Expenses)] / [Total Interest(less interest income in cash)+Lease Expenses], were busted on 30th June 2024. I think that means 'the bankers are now calling the shots'. We shareholders will get our first hint of what this means at the upcoming AGM. But I am fairly sure it means no dividends for shareholders for 'a while'.
The poor cashflow projections would suggest to me that PGW is right now more of a 'gamblers share'. More information is the only way to reduce this kind of 'gamblers risk.'
Another lot of brothers sniffing around to potentially more "Asianise' the Register .. or not ? ;)
Are you talking about the 'A' team? Alan and Andy Lai? I made a quick estimate that around 1.5m shares have changed hands since the 'rotate the directors seats' game was started in February. With 75m PGW shares on issue in total, and all shares bought going to one buyer, that buyer would still have less than 2% of the share register. And I know one buyer did not buy all of those shares, because I bought some of them!
SNOOPY
Sideshow Bob
13-08-2024, 08:35 AM
https://www.nzx.com/announcements/436013
GROUP PERFORMANCEPGG Wrightson Limited1 (PGW) today announced its results for the financial year ended 30 June 2024.Key results for the year to 30 June 2024 include:
- Operating EBITDA2 of $44.2 million (down $17.0 million on prior financial year)
- Net profit after tax (NPAT) of $3.1 million (down $14.5 million on prior financial year)
- Revenue of $915.9 million (down $59.7 million on prior financial year)
- No FY24 final dividend declared
PGW Chair, Mr Garry Moore said “The agricultural sector continues to navigate persistently challenging market conditions and this volatility is reflected in PGW’s financial results. PGW’s Operating EBITDA of $44.2 million is back on the strong trading results of recent years and this is largely a product of the economic environment being felt across the sector. We often say that PGW prospers when our farmer and grower customers do well. Our customers have faced difficult conditions over the past year and consequently this has impacted our results.
PGW has done well to continue to hold and grow share in the markets in which we operate but we have seen farmers and growers cutting back where they can and deferring discretionary spend. We have continued to support our customers with all their essential production requirements, but the sector is in the grips of a period of austerity where non-essential and discretionary spend has been paused.
Despite the environment our receivables have held up well and our collections are healthy. Gross margins have also remained steady across the business.
While most of the agri-sector has been impacted, some have been harder hit with sheep farmers experiencing soft export demand and weaker commodity pricing and the rural real estate market going through a particularly quiet period. The 6% decline in revenues from the prior comparative period represents the first drop in PGW’s revenues since FY18. The Retail & Water businesses accounted for the majority of the revenue decline. There remains a carry-over effect from the devastation caused by Cyclone Gabrielle last year with areas not yet replanted.
Symptomatic of the market sentiment, the Federated Farmers Farm Confidence Survey released in July recorded the second lowest confidence levels ever with 33% of farmers making a loss, only 27% reporting a profit and 39% breaking even this year. The four greatest concerns for farmers were noted as financing costs; volatile commodity prices; regulatory compliance and input costs.
The agricultural sector is cyclical, and we have seen these ups and downs before and remain positive about the longer-term prospects of the sector. Based upon current indications, the rural servicing market in New Zealand looks like it will remain subdued through the current calendar year. There are however some positive signals with inflationary pressures easing and input costs stabilising. We are also optimistic about longer term demand for sustainably produced, safe and trusted sources of food and fibre and see New Zealand growers well placed to support this growth.
PGW recorded a Net Profit After tax of $3.1 million noting this was negatively impacted by a one-off non-cash $0.9 million deferred tax expense due to the in change in legislation for tax depreciation on long-life commercial buildings.
Given the continued difficult trading conditions impacting the sector and wider economy the Board has declared a final dividend for the year.
In view of the current operating environment there has been increased focus within PGW on cost control measures and monitoring of expenses such as travel, vehicles and recruitment etc.
Staff Acknowledgements
PGW CEO, Stephen Guerin said “Before commenting on business performance, I would like to acknowledge the immeasurable loss PGW experienced in April this year with the passing of Grant Edwards, General Manager Wool. Grant dedicated 40 years to the business and his leadership will leave a lasting influence. As a stalwart of wool, his passion for the industry was unwavering.
I would also like to acknowledge the very sad passing of Victor Schikker, a valued member of our Livestock team, who passed away following a tragic accident in recent days having given nearly 50 years of quality service to the business and our clients. Our thoughts are with Victor’s family at this time.
Retail & Water Group
The Retail & Water business incorporates Rural Supplies, Fruitfed Supplies, Water, and Agritrade. Retail & Water’s Operating EBITDA was $41.0 million; down $13.1 million (-7%) on the prior year. Revenue of $733.6 million, was down $51.7 million (-7%).
Retail & Water experienced a drop in demand with farmers and growers alike reducing their spend levels.
Despite the market conditions our retail business continued to consolidate market share in most categories. Even in these difficult times customer feedback and market research indicators support the view that PGW is on the right track in terms of our professionalism, technical knowledge, and service. When budgets are tight, we understand the heightened need for our customers to optimise value from their spend. In that context, our focus on providing the best technical advice and expertise along with leading innovation becomes even more important and differentiates our customer proposition.
Even in the trading conditions we have experienced in over recent times, our Fruitfed Supplies network has continued to set the standard in the market. The business achieved its best performance in Crop Monitoring Services and our Ag-Chem category recorded its second highest sales year.
The impacts of Cyclone Gabrielle continue to be felt. A number of our clients in the Gisborne and Hastings areas lost large portions of their crops in 2023 and therefore less inputs were required in the new season. Some clients lost their entire season’s crop last year impacting their cash flows and income.
Returns for some crops have been softer. The apple, avocado and kiwifruit industries have experienced reduced returns, with prices obtained for some varieties at levels not experienced for several years. The drop in returns resulted in reduced spending in some product lines. Despite a good harvest, yields for wine growers were lower with this year’s harvest back 21% on last year’s tonnage.
Agency Group
Our Agency group incorporates the Livestock, Wool, and Real Estate businesses. Operating EBITDA was $12.3 million which was down $3.8 million (-23%) on the prior year’s strong result. Revenue was $180.7 million, which was broadly in line with the prior year’s result, down just $8.1 million (-4%).
Our Livestock business was impacted by the tougher macro-economic conditions. Elevated inflationary pressures and input costs led to subdued purchasing from farmers and a noticeable reduction in bull sales. Sheep prices were back significantly due to subdued export demand from China coupled with an increase in supply from Australia. These factors combined to reduce commission revenue.
Lower stock volumes were traded in the North Island, as a feed surplus throughout much of the year led to farmers holding livestock for longer. Whereas cattle trading was robust in the South Island, with tallies up slightly compared to the prior year as drier conditions led to increased stock turnover.
Our GO-STOCK grazing programme continued to see positive demand. GO-STOCK frees up capital for farmers allowing them to invest in other areas of their businesses. Robust returns were generated from GO-STOCK and continues to prove popular with sheep, beef, dairy and deer farmers.
Our bidr® database of buyers continued to show development. This growth is driven by continued demand for online bidding and livestreaming of cattle sales at saleyards and on-farm auctions, with especially strong demand in livestock genetics markets. We have regular livestreaming from 13 saleyards around the country and a growing number of on-farm auctions with over 950 auctions streamed during the year.
The season delivered a degree of stability for wool growers with some wool types approaching three-year highs, although significant scope for value growth remains. Merino wool met steady competition from fine wool buyers with solid prices.
It has been a particularly challenging year for the rural real estate market. Momentum in this market remains subdued, with farm sales significantly down on the prior year. The economic climate has impacted farm and agricultural land prices and produced a mismatch between vendor and purchaser expectations.
Sheep and beef property sales were slower due to low farm gate returns. The dairy sector saw some momentum with increased interest in the dairy properties listed following the uplift in the forecast farmgate milk price. Uncertainty is also evident in horticulture with fewer listings than expected.”
Cashflow and Debt
Mr Moore reported that “PGW recorded operating cash flows during the year of $57.7 million, which was $32.2 million higher than the prior year. The key drivers of the higher operating cashflows were a reduced GO-STOCK balance from that recorded in June 2023 together with lower income tax payments.
Capital expenditure of $22.8 million was $5.7 million higher than the prior comparative period. This spend included the continued investment in our IT Systems Business Improvement Programme and the acquisition of our co-owners’ half-share in Frankton saleyards in the Waikato.
Our net interest-bearing debt was $59.2 million as at 30 June 2024, a reduction of $6.1 million from the prior comparative period.
PGW renewed and extended its syndicated bank facilities during the year through to 2026. These facilities provide extended term and working capital limits and allow for growth in our GO-STOCK book.”
OutlookMr Moore noted, “Looking ahead, the rural servicing market in New Zealand remains relatively challenged in the near term but is expected to see moderate growth over the longer term. Commodity prices remain relatively volatile and underpins a cautious approach from growers and farmers. Geopolitical tensions are contributing to volatility. A slower than expected recovery of the key Chinese export market continues to dampen commodity price expectations.
Economic pressures through elevated funding costs remain as interest rates continue to exert pressure on the agricultural sector. Interest rate and inflationary relief is expected to come as global economic conditions stabilise. This should lead to more manageable debt servicing costs and predictable inflation.
With this backdrop, PGW expects to see continuing subdued demand for agricultural inputs and services over the short term while producers face these challenges. Over the coming 18 months we would anticipate these pressures to ease and increasing demand for rural inputs and services as farmers and growers invest in their productive operations.
It is too soon to forecast trading performance for the year, and we would expect to be better placed to provide guidance for FY25 following the start of the important spring trading period at our Annual Shareholders’ Meeting in October 2024.”
winner69
13-08-2024, 08:44 AM
Might need to update and release another version
. Given the continued difficult trading conditions impacting the sector and wider economy the Board has declared a final dividend for the year.
Suppose a NIL dividend counts as being declared lol
From my earlier post: https://www.sharetrader.co.nz/showthread.php?2923-PGW-PGG-Wrightson&p=1056574&viewfull=1#post1056574
The other thing I would be looking at is how does a decline in top line revenue impact NPBT given gross margin of 24.2% has fallen slightly compared to last year, and there are about ($139+58+30+10=) $237m of forecast fixed costs above the NPBT line. Following is a table of the sales value needed to break even assuming fixed costs of $237m, and a range of gross margins:
24% GM -> breakeven annual sales is $987m which requires H2 sales to grow +9% over H2 last year
24.5% GM -> breakeven annual sales is $967m (H2 +4% vs LY)
25% GM -> breakeven sales is $948m (H2 -1% vs LY)
25.5% GM -> breakeven sales is $929m (H2 -5% vs LY)
26% GM -> breakeven sales is $912m (H2 -10% vs LY)
What this tells me is even if they can lift their H2 margins such that the FY gross margin is 26% (last year 25.9%) then a fall in annual topline sales of 10% for H2 will result in zero NPBT. A fall greater than that will result in a loss.
I estimated fixed costs of $237m - these came in at $230m. PGW did well to control fixed costs considering last year was $229m.
Margin was lifted to 25.7% over H1's 24.2%, which is slightly down on last year's 25.9%.
Accordingly PGW narrowly avoided making a loss (profit was $3m) due to control over fixed costs and they maintained gross margin close to last year.
Snoopy
13-08-2024, 06:33 PM
Might need to update and release another version
. Given the continued difficult trading conditions impacting the sector and wider economy the Board has declared a final dividend for the year.
Suppose a NIL dividend counts as being declared lol
'Corrected' in the subsequent re-release of the result. But you missed the subtlety of the two reports Winner. The 8:30am edition was for Mr Lai who is very keen on dividends (just don't mention the declared dividend is 0c, OK?) . The second 9:30am edition is for the rest of us who will take the no dividend medicine without protest.
SNOOPY
Snoopy
13-08-2024, 08:47 PM
FY2023Retail & WaterAgencyBack Office Total
Revenue$785.298m (80.6%)$188.803m (19.4%)
EBITDA$54.129m$16.608m($9.003m)
less Back Office EBITDA ReAllocation($7.256m)($1.747m)
less Net Interest Allocation($3.779m)($3.857m)($1.937m)
less Back Office Interest ReAllocation($1.561m)($0.376m)
less Depreciation & Amortisation($16.267m)($8.787m)($3.009m)
less Back OfficeDA Reallocation($2.425m)($0.584m)
less Income Tax Benefit (Expense)($9.707m)($1.170m)$4.459m
add Back Office Tax ReAllocation$3.594m$0.865m
equals NPAT$16.728m$0.942m
Net Profit Margin2.13%0.499%
Notes
1/ Reallocation apportioning is on the basis of divisional revenue
FY2024Retail & WaterAgencyBack Office Total
Revenue$733.576m (80.2%)$180.699m (19.8%)
EBITDA$41.042m$12.314m($9.186m)
less Back Office EBITDA ReAllocation($7.367m)($1.819m)
less Net Interest Allocation($3.399m)($3.624m)($3.003m)
less Back Office Interest ReAllocation($2.408m)($0.625m)
less Depreciation & Amortisation($17.019m)($8.552m)($3.177m)
less Back OfficeDA Reallocation($2.548m)($0.629m)
less Income Tax Benefit (Expense)($5.604m)($0.094m)$3.433m
add Back Office Tax ReAllocation$2.753m$0.680m
equals NPAT$5.450m($2.349m)[/
Net Profit Margin0.743%(1.30%)
[/
Notes
1/ Reallocation apportioning is on the basis of divisional revenue.
2/ $5.450m - $2.349m = $3.1m (the total declared net profit after tax for PGW over FY2024)
SNOOPY
Snoopy
14-08-2024, 10:17 AM
To calculate the 'cost of sales' from the 'sales revenue' you have to know the net profit margin. You won't find that figure in any PGW report. However, it is possible to work in out. And this is an exercise that I have now done (posts 5774, 5775 and 5776). So I can now redo these stock turnover calculations as per Ferg's suggestion.
Period Stock Turn = (Cost of Period Revenue)/(Snapshot of Inventory value)
Average Inventory FY2023 = ($107.533m+$129.717m+$102.048m)/3 = $113.099m
Cost of Retail and Water Revenue = (1/1.0213)x$765.661m = $749.693m
=>FY2023 Annual Stock Turn = $749.613m/$113.099m= 6.6 times
Average Inventory HY2023 = ($129.717m+$102.048m)/2 = $115.883m
Cost of Retail and Water Revenue = (1/1.0454)x$487.909m = $466.720m
=>HY2023 Stock Turn = $466.720m/$115.883m= 4.0 times (equivalent to 8.0 times annual rate)
Average Inventory HY2024 = ($130.769m+$107.533m)/2 = $119.151m
Cost of Retail and Water Revenue = (1/1.0348)x$471.471m = $455.616m
=>HY2024 Stock Turn = $455.616m/$119.151m= 3.8 times (equivalent to 7.6 times annual rate)
The result of the correction is a little bit of a drop in the stock turn rate. But the basic narrative remains unchanged. That being that stock turns over faster in the first half than the full year, and that the stock turnover rate over HY2024 is a little behind that over HY2023, although it is not alarmingly lower. That is pretty much what you would expect in a rural downturn. This is of course not what shareholders would like to see. But I don't see a sign of mismanagement here. To improve the stock turnover you would have to reduce inventory even more, which may not provide farmers with the choices that they need or want.
To calculate the 'cost of sales' from the 'sales revenue' you have to know the net profit margin. This I have calculated in post 5836
Period Stock Turn = (Cost of Period Revenue)/(Snapshot of Inventory value)
Average Inventory FY2024 = ($107.533m+$130.769m+$95.192m)/3 = $111.165m
Cost of Retail and Water Revenue = (1/1.00743)x$719.961m = $714.651m
=>FY2024 Annual Stock Turn = $714.651m/$111.165m= 6.4 times
The result is a little bit of a drop in the stock turn rate over FY2023 (the same pattern being evident in HY2023 vs HY2024). But the amount of inventory on hand at EOFY2024 is down more than $12m, or 11.5%. This suggests to me management are being pro-active about not letting 'old inventory' hang around. That is pretty much what shareholders would reasonably expect in a rural downturn from a well run company. Good mismanagement here, although it would be of interest to know what spaces on the shelves PGW have been able to cut back on so dramatically. If you reduce inventory too much, you may not provide farmers with the choices that they need or want.
SNOOPY
Toddy
14-08-2024, 11:39 AM
Are farmers changing their habits. I went into farmlands last week to grab some items for a job.
The local farmlands didn't have the item on the shelf. When I asked where the items were they replied that they stock less now. So they advised that I ask them to order it for me and they will let me know when it arrives.
So I went into my car, hopped online, ordered the products cheaper from another online supplier and the courier arrived the next day.
My point being, a percentage of the decline in retail sales is not due to discretionary spending, but changing habits of the customer. These habits are unintentionally being driven by the cost cutting exercises of the major rural suppliers by not carry the stock.
Snoopy
14-08-2024, 12:54 PM
Are farmers changing their habits. I went into farmlands last week to grab some items for a job.
The local farmlands didn't have the item on the shelf. When I asked where the items were they replied that they stock less now. So they advised that I ask them to order it for me and they will let me know when it arrives.
So I went into my car, hopped online, ordered the products cheaper from another online supplier and the courier arrived the next day.
My point being, a percentage of the decline in retail sales is not due to discretionary spending, but changing habits of the customer. These habits are unintentionally being driven by the cost cutting exercises of the major rural suppliers by not carry the stock.
I have highlighted the risks of trimming the inventory before Toddy, because of exactly the scenario that you describe. I am glad you were able to find the PGW on-line store though:
https://store.pggwrightson.co.nz/?srsltid=AfmBOoqCb2HEpPtgIPS3yHGvITIDiiS90k7074HPS 3d-PV3X8W45Uhyj
and that they were able to give you a better deal than the opposition! Good stuff!
SNOOPY
Sideshow Bob
14-08-2024, 01:35 PM
Are farmers changing their habits. I went into farmlands last week to grab some items for a job.
The local farmlands didn't have the item on the shelf. When I asked where the items were they replied that they stock less now. So they advised that I ask them to order it for me and they will let me know when it arrives.
So I went into my car, hopped online, ordered the products cheaper from another online supplier and the courier arrived the next day.
My point being, a percentage of the decline in retail sales is not due to discretionary spending, but changing habits of the customer. These habits are unintentionally being driven by the cost cutting exercises of the major rural suppliers by not carry the stock.
I think Farmlands are trimming the number of items they hold. Currently I understand that the shop just stocks what they want, leading to a mis-mash and proliferation of products. So they are rationalising the SKU's and having a bit more centralised control.
We are suppliers to Farmlands and think going through that process currently.
Snoopy
14-08-2024, 09:11 PM
HY2024Retail & WaterAgencyBack Office Total
Revenue$478.301m (85.4%)$81.589m (14.6%)
EBITDA$39.962m$1.431m($4.775m)
less Back Office EBITDA ReAllocation($4.078m)($0.697m)
less Net Interest Allocation($2.019m)($1.035m)($1.666m)
less Back Office Interest ReAllocation($1.423m)($0.243m)
less Depreciation & Amortisation($8.214m)($4.771m)($1.537m)
less Back OfficeDA Reallocation($1.299m)($0.238m)
less Income Tax Benefit (Expense)($8.412m)$1.154m$2.469m
add Back Office Tax ReAllocation$2.109m$0.360m
equals NPAT$16.626m($4.039m)
Net Profit Margin3.48%-4.95%
Notes
1/ Reallocation apportioning is on the basis of divisional revenue.
The first half produced a NPAT of: $16,626m-$4.039m = $12.587m
How bad did it really get in that second half year?
This is a 'subtraction exercise', because we know the 'divisional profitability of FY2024' and the 'divisional profitability of HY2024'.
2HY2024Retail & WaterAgency
Revenue$255.275m$99.110m
EBITDA$1.080m$10.883m
less Back Office EBITDA ReAllocation($3.289m)($1.122m)
less Net Interest Allocation($1.380m)($2.589m)
less Back Office Interest ReAllocation($0.985m)($0.382m)
less Depreciation & Amortisation($8.895m)($3.781m)
less Back OfficeDA Reallocation($1.249m)($0.391m)
less Income Tax Benefit (Expense)$2.808m($1.248m)
add Back Office Tax ReAllocation$0.644m$0.320m
equals NPAT(-$11.266m)$1.690m
Net Profit Margin-4.41%1.71%
Notes
1/ Reallocation apportioning is on the basis of divisional revenue.
Total loss figures for the second half after tax were: -$11.266m+$1.690m=-$9.576m, with livestock auctions lightly 'saving the day'. No wonder PGW do not publish their second half results stand alone to highlight such things! But having said that, Rural Supplies, where farmers are buying their farm input goods at the start of the growing season are always weighted to the first half. And Agency, dominated as it is by livestock auctions is always going to be weighted to the second half as fattened up animals are sold for good process. That means the pattern of these second half results are not unusual and it does not mean the company is 'going to the pack'. But the 2HY2024 result does represent a negative tinge on the more usual seasonal result pattern.
SNOOPY
Snoopy
14-08-2024, 11:07 PM
To calculate the 'cost of sales' from the 'sales revenue' you have to know the net profit margin. You won't find that figure in any PGW report. However, it is possible to work in out. And this is an exercise that I have now done (posts 5774, 5775 and 5776). So I can now redo these stock turnover calculations as per Ferg's suggestion.
Period Stock Turn = (Cost of Period Revenue)/(Snapshot of Inventory value)
Average Inventory FY2023 = ($107.533m+$129.717m+$102.048m)/3 = $113.099m
Cost of Retail and Water Revenue = (1/1.0213)x$765.661m = $749.693m
=>FY2023 Annual Stock Turn = $749.613m/$113.099m= 6.6 times
Average Inventory HY2023 = ($129.717m+$102.048m)/2 = $115.883m
Cost of Retail and Water Revenue = (1/1.0454)x$487.909m = $466.720m
=>HY2023 Stock Turn = $466.720m/$115.883m= 4.0 times (equivalent to 8.0 times annual rate)
Average Inventory HY2024 = ($130.769m+$107.533m)/2 = $119.151m
Cost of Retail and Water Revenue = (1/1.0348)x$471.471m = $455.616m
=>HY2024 Stock Turn = $455.616m/$119.151m= 3.8 times (equivalent to 7.6 times annual rate)
The result of the correction is a little bit of a drop in the stock turn rate. But the basic narrative remains unchanged. That being that stock turns over faster in the first half than the full year, and that the stock turnover rate over HY2024 is a little behind that over HY2023, although it is not alarmingly lower. That is pretty much what you would expect in a rural downturn. This is of course not what shareholders would like to see. But I don't see a sign of mismanagement here. To improve the stock turnover you would have to reduce inventory even more, which may not provide farmers with the choices that they need or want.
To calculate the 'cost of sales' from the 'sales revenue' you have to know the net profit margin. You won't find that figure in any PGW report. However, it is possible to work in out. And this is an exercise that I have now done (post 5841). So I can now do the stock turnover calculation.
Declared 'retail and water' revenue over FY2024 was $719.961m
Declared 'retail and water' revenue over HY2024 was $471.471m
=> Calculated retail and water' revenue over 2HY2024 was $248.490m
Period Stock Turn = (Cost of Period Revenue)/(Snapshot of Inventory value)
Average Inventory 2HY2024 = ($130.769m+$95.192m)/2 = $112.981m
Cost of Retail and Water Revenue = (1/(1-0.0441)x$248.490m = $259.954m
=>2HY2024 Stock Turn = $259.954m/$112.981m= 2.3 times (equivalent to 4.6 times annual rate)
The basic narrative remains unchanged. That being that stock turns over faster in the first half than the full year. The stock turnover rate over HY2024 is a new recent low and behind HY2024, which does cause me concern. But that is what you would expect in a rural downturn. Yet to improve the stock turnover you would have to reduce inventory even more, which may not provide farmers with the choices that they need or want (as per Toddy's experience today).
SNOOPY
Snoopy
16-08-2024, 08:41 AM
I am not going through the full 'Buffett' analysis for PGW this year, because I know not enough has changed to allow the company to gain an overall pass. But I will update the quantitative statistics for 'other discussion purposes'.
Profit Normalisation table
FY2023
FY2022FY2021FY2020FY2019
Reference
Declared Profit$17.518m
$24.286m$22.720m$7.133m$4.510m
less (add) Fair Value Gains (Losses) net of Impairments0.72x($0.051m)
0.72x$2.182m0.72x($1.832m)0.72x$0.807m0.72x$3.187m
AR Note 5
less (add) Foreign Exchange Gains (Losses)0.72x$0.737m
0.72x($0.430m)0.72x$0.094m0.72x($0.178m)0.72x($0.8 12m)
AR Note 6
less (add) IFRS16 adjustment0.72x($0.613m)
0.72x($0.613m)0.72x($0.613m)0.72x($0.027m)
Post 5347
less (add) Non operating gains (losses)0.72x($0.327m)
0.72x($0.699m)0.72x($4.456m)0.72x($0.132m)0.72x$2. 170m
AR Note 4
equals Normalised Profit$17.335m
$24.603m$17.819m$7.471m$7.782m
Notes
1/ I don't believe there is sufficient disclosure in AR2022 or AR2023 to allow us to calculate an IFRS16 profit adjustment for FY2022. In the absence of this, I have rolled forward the IFRS16 adjustment for FY2021 into FY2022 and FY2023, assuming it to be the same.
2/ Earnings per share calculations (below) have been adjusted to take into account the 9th August 2019 10:1 share consolidation, reducing the number of shares on issue to 75.484 million.
3/ FY2019 figures are those referred to from AR2020 and some of those figures have been restated
Earnings Per Share Calculations
FY2019: $7.782m / 75.484m = 10.3c
FY2020: $7.471m / 75.484m = 9.9c
FY2021: $17.819m / 75.484m = 23.6c
FY2022: $24.603m / 75.484m = 32.6c
FY2023: $17.335m / 75.484m = 23.0c
The extraordinary drop in profits between FY2018 and FY2019 had me diving back to my FY2019 annual report to see what went wrong.
From AR2019 p5.
"Reflecting on FY2019, we believe it was one of the most operationally challenging of recent years. Farmer confidence in parts of the agriculture sector remains subdued, constraining farm spending and therefore our revenue for the year. This has also been evident in recent months with a discernible tightening of the credit environment"
From AR2019 p6:
"The impact of mycoplasma bovis (present in NZ since mid-2017) was felt across the livestock and rural supplies business. Most particularly with reduced dairy herd settlements, a reduction in tallies, a softening in demand for dairy beef and and a more cautious approach to spending in the dairy sector across a range of farm inputs."
"Market conditions continued to challenge both our Real Estate and Wool businesses with results down on last year."
That all seems like a reasonable 'excuse'. But I guess it reflects the view that when the dairy industry catches a cold, it is hard for the rest of the farmers in NZ in other sectors to make up the lost income. Tougher market conditions for meat and milk especially have once more emerged over 2023, disrupting any overall upwards earnings trend once again.
Conclusion: Fail Test
I am not going through the full 'Buffett' analysis for PGW this year, because I know not enough has changed to allow the company to gain an overall pass. But I will update the quantitative statistics for 'other discussion purposes'.
Profit Normalisation table
FY2024
FY2023
FY2022FY2021FY2020
Reference
Declared Profit
$3.064m
$17.518m
$24.286m$22.720m$7.133m
less (add) Fair Value Gains (Losses) net of Impairments
0.72x($0.051m)
0.72x$2.182m0.72x($1.832m)0.72x$0.807m
AR Note 5
less (add) Foreign Exchange Gains (Losses)
0.72x($0.734m)
0.72x$0.737m
0.72x($0.430m)0.72x$0.094m0.72x($0.178m)
AR Note 6
less (add) IFRS16 adjustment
0.72x($0.613m)
0.72x($0.613m)
0.72x($0.613m)0.72x($0.613m)0.72x($0.027m)
Post 5347
less (add) Non operating gains (losses)
0.72x$0.067m
0.72x($0.327m)
0.72x($0.699m)0.72x($4.456m)0.72x($0.132m)
AR Note 4
add back Building Depreciation Tax change one-off
$0.915m
AR Note 7
equals Normalised Profit
$3.057m
$17.335m
$24.603m$17.819m$7.471m
Notes
1/ I don't believe there is sufficient disclosure in AR2022 or AR2023 to allow us to calculate an IFRS16 profit adjustment for FY2022. In the absence of this, I have rolled forward the IFRS16 adjustment for FY2021 into FY2022 and FY2023, assuming it to be the same.
2/ Earnings per share calculations (below) have been adjusted to take into account the 9th August 2019 10:1 share consolidation (during FY2020), reducing the number of shares on issue to 75.484 million.
Earnings Per Share Calculations
FY2020: $7.471m / 75.484m = 9.9c
FY2021: $17.819m / 75.484m = 23.6c
FY2022: $24.603m / 75.484m = 32.6c
FY2023: $17.335m / 75.484m = 23.0c
FY2024: $3.057m / 75.484m = 4.0c
Tougher market conditions for meat and milk especially have once more emerged over 2023, disrupting any overall upwards earnings trend once again. High interest rates contributed to only 27% of all farmers making a profit over FY2024, and 37% just breaking even. Plus, FY2024 was still a cyclone recovery year, with the previous baseline earnings in the Hawkes Bay being reset downwards.
Construction Contract revenue (note 1 in the accounts), provided to customers in the Water business to construct pivots and irrigation systems, was down 33%. PGW do not provide separate disclosure for the 'water' part of the business (it is lumped together as 'Retail and Water'). But we can take it from the revenue decline that this business unit was severely affected and loss making over FY2024.
Conclusion: Fail Test
SNOOPY
Snoopy
16-08-2024, 12:44 PM
ROE here is defined as: (Adjusted or Normalised NPAT) / (End of Year Shareholder Equity)
FY2019: $7.782m / ($398.264m-$234.000m) = 4.74%
FY2020: $7.471m / $156.702m = 4.77%
FY2021: $17.819m / $173.538m = 10.3%
FY2022: $24.603m / $172.684m = 14.2%
FY2023: $17.335m/ $169.261m = 10.2%
Notes
1/ The $234m capital return to shareholders from the seed division sale eventually took place in FY2020, on 09/08/2019, following the settlement of the 'seed deal' on 01/05/2019. These two dates straddle the PGW end of year reporting date of 30-06-2019 (FY2019). A capital return was well signalled. So, I believe it would be most representative to remove the capital return from the shareholder equity held on the books at the 30-06-2018 balance date (and hence also the 30-06-2019 balance date) for the purposes of making a 'Return on Equity' calculation.
ROE is consistently below the 15% goal for all years under consideration.
Conclusion: Fail Test
ROE here is defined as: (Adjusted or Normalised NPAT) / (End of Year Shareholder Equity)
FY2020: $7.471m / $156.702m = 4.77%
FY2021: $17.819m / $173.538m = 10.3%
FY2022: $24.603m / $172.684m = 14.2%
FY2023: $17.335m/ $169.261m = 10.2%
FY2024: $3.057m/ $164.733m = 1.86%
Notes
ROE is consistently below the 15% goal for all years under consideration.
Conclusion: Fail Test
SNOOPY
winner69
16-08-2024, 12:55 PM
Snoops …. do you think F21 through F23 results were a result of a ‘super cycle’ that won’t be repeated for some years
Several companies have reported this trend and one or two used the term ‘super cycle’ ….usually in context current profit can’t be compared to ‘super cycle’ profits blah blah
If so eps around the 10 cent mark would be the norm.
Thoughts
Snoopy
16-08-2024, 01:24 PM
Snoops …. do you think F21 through F23 results were a result of a ‘super cycle’ that won’t be repeated for some years
Several companies have reported this trend and one or two used the term ‘super cycle’ ….usually in context current profit can’t be compared to ‘super cycle’ profits blah blah
If so eps around the 10 cent mark would be the norm.
Thoughts
I haven't thought of the FY2021-FY2023 period in those words before Winner. But I think your observation is spot on. I cannot remember a time period outside of FY2021 to FY2023 when every agricultural commodity (bar logs which is the one thing PGW are not really into) was doing so well all at the same time. Sheep and Beef farmers were getting great prices for their product. Horticulture was doing well. Dairy farmers likewise. It was an incredible confluence of positivity, the likes of which I have not seen before in agriculture. I might have even seen a farmer crack a smile once over that time - something that I thought was an extinct expression in the stoic agricultural type.
I like to invest with the prospect of market conditions returning to the norm. But it could be the 'norm' of FY2021 to FY2023 will never be seen again! I am still looking to increase my shareholding in PGW further. But I feel no urgency to do so. I can afford to wait until Mr Market has another silly session.
SNOOPY
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