It is either a Western or a Samurai movie
Quote:
Originally Posted by
winner69
Chance of La Nina this summer tripled recently
Is this good or bad for PGW
Last decent one was 2010/2011 and I don't think that was too good
Is La Ninja the wet one or the dry one?
I always get that and El Dorado mixed up!
Best Wishes
Paper Tiger
Property Sales Profit Adjustments
Quote:
Originally Posted by
Beagle
Basic eps is stated at 6.1 cps but strip out the $9.6m gain on sale of property which the company has ostensibly admitted will not repeat to the same extent next year and we get eps of 4.86 cps.
Not sure where the other Beagle got his property sales profit $9.6m adjustment figure from. But property sales are certainly an issue and not something I would consider comes under the heading of 'Operating Earnings'. These property sales from the current sell down program have been happening over FY2015, FY2016 and FY2017. Looking at the 'Property Plant & Equipment' section of the respective Annual Reports over the last three years, I get the following property plant and equipment 'sales' and 'profits' figures:
|
FY2015 |
FY2016 |
FY2017 |
Total |
Assets disposed of |
$2.972m |
$22.390m |
$16.359m |
Gain on disposal |
$0.96m |
$4.99m |
$8.74m |
$14.69m |
That total gain on disposal ties in nicely with a comment made in AR2017 on page 8:
"Our property divestment program which began in 2015 is largely complete. So far we have realised $43m from the programme by selling (and in some cases leasing back) property that had a net book value of $29m."
I note that: $43.5m - $28.5m = $15m, which ties in with the the tabulated $14.69m gain.
It looks like I have some property adjustment sales to make to obtain the 'real' underlying operating earnings for the company for FY2015, FY2016 and FY2017. I fear that I have work to do on the superannuation plan adjustment too. The 'cashflow' didn't change, but the profit went up because this was an adjustment only made to 'reserves'? Financial engineering at its best?
SNOOPY
Change in Profit Statement Format
Quote:
Originally Posted by
winner69
Super fund liability down to $16m. Good effort
I think it really nice that current shareholders front up to pay the pensioners - many who retired many years ago and many who worked for companies PGW don't even own now.
One day they should bite the bullet and wind the scheme up and just pay everybody out - ongoing liabilities won't go away in a hurry ...but they are hoping.
One important procedural change in the account statements this year is related to the PGW internal super fund(s). Whenever the presentation of the accounts changes for no "change in accounting rules" reason, this hound's nose gets into action. The official explanation for the change in presentation this year is reported as follows:
"Previous expensing of the return on plan assets for the 2014 through to the 2016 year (Snoopy note: if this expense ends up being negative then profits increase) have now been recognised through other comprehensive income."
That sounds quite technical. So to see what is going on, I think it is useful to look at a 'before' and 'after' example. I present the profit and loss statements for FY2016, first as presented in AR2017 and then the same result as presented in AR2016 (before the FY2017 presentation adjustment).
STATEMENT OF PROFIT OR LOSS (For the year ended 30 June 2016) |
From AR2017 ($m) |
Difference |
From AR2016 ($m) |
Continuing operations |
Operating revenue |
1,181.624 |
|
1,181.624 |
less Cost of sales |
(854.871) |
|
(854.871) |
equals Gross profit |
326.753 |
|
326.753 |
add Other income |
0.725 |
|
0.725 |
less Employee benefits expense |
(156.148) |
|
(156.148) |
less Research and development |
(4.515) |
|
(4.515) |
less Other operating expenses |
(96.390) |
|
(96.390) |
add Equity accounted earnings (losses) of investees |
(0.244) |
|
(0.244) |
equals Operating EBITDA |
70.181 |
|
70.181 |
adjust for Non-operating items |
4.151 |
+5.835 |
(1.684) |
less Fair value adjustments |
(0.232) |
|
(0.232) |
less Depreciation and amortisation expense |
(9.170) |
|
(9.170) |
equals EBIT |
64.930 |
|
59.095 |
less Net interest and finance costs |
(10.474) |
|
(10.474) |
equals Profit from continuing operations before income taxes |
54.456 |
|
48.621 |
less Income tax expense |
(10.466) |
-1.634 |
(8.832) |
Profit from continuing operations {D} |
43.990 |
+10.6% |
39.789 |
Discontinued operations |
Profit (loss) from discontinued operations (net of income taxes) |
(211) |
|
(211) |
Net profit after tax {A} |
43.779 |
|
39.578 |
Other comprehensive income/(loss) for the period |
Items that will never be reclassified to profit or loss |
add Changes in fair value of equity instruments |
5.433 |
|
5.433 |
less Remeasurements of defined benefit liability |
(10.666) |
-5.835 |
(4.831) |
add Deferred tax on remeasurements of defined benefit liability |
2.987 |
+1.634 |
1.353 |
equals {B} |
(2,246) |
|
1.955 |
Items that are or may be reclassified to profit or loss |
less Foreign currency translation differences for foreign operations |
(8.513) |
|
(8.513) |
add Effective portion of changes in fair value of cash flow hedges |
3.888 |
|
3.888 |
less Income/deferred tax on changes in fair value of cash flow hedges |
(1,088) |
|
(1,088) |
equals {C} |
(5,713) |
|
(5,713) |
Other comprehensive income/(loss) for the period, net of income tax {A+B+C} or {E} |
(7.959) |
|
(3.798) |
Total comprehensive income for the period {D}+{E} |
35,820 |
|
35,820 |
What we have here are two very long columns of figures both adding up to the same thing. This is the kind of thing that makes accountants smile. That's because generally when two long columns of figures add up to the same thing, it means they have done their job correctly. A nice little bonus is that 'Net Profit from Continuing Operations' has gone up by 10.6% with the new presentation format. That is sure to make the shareholders feel all warm and fuzzy. Yet, I wonder if some of that new warmth is at the expense of a little accounting fuzziness?
SNOOPY
Change in Profit Statement Format Reflections
Quote:
Originally Posted by
Snoopy
Yet, I wonder if some of that new warmth is at the expense of a little accounting fuzziness?
Sometimes it is possible to prepare the accounts in two different ways to the same accounting standard, and both ways are equally valid. Which presentation that is best to accept is largely dependent on the perspective of the reader.
The new presentation makes sense, because the distortion of operating profits due to the movement of the underlying balances of the employee retirement schemes, is not related to that year's 'farm servicing environment'. It is nonsensical to criticise current operations management because of adverse movements in a multi-year future focussed retirement scheme. Yet there is something I find very uncomfortable about looking at the results in this new way.
What makes me feel uncomfortable is the movement of the change in 'defined benefit' (that means pension) liability to the section where it is 'never to be reclassified to profit or loss'. And I think that includes lump sum contributions from shareholders to defined benefit plans (Not made in FY2016, but a $7.551m lump sum contribution made in FY2017). The pension liabilities are real cash liabilities that must be met in the future. It doesn't seem right to group these with other etherial liabilities, like 'Foreign currency translation differences'' and 'Fair value adjustments' which generally have a long term zero sum expected value by the time the underlying financial arrangements run their course. In complete contrast pension liabilities are a real liability for current shareholders which won't be extinguished until the very last employee or spouse who draws a PGW pension becomes subterranean slow release fertilizer. Pension liabilities, unlike the interim 'mark to market' changes in value of financial arrangements are not something shareholders can back away from.
Of all the NZX listed companies that have in house pension plans, I don't know of one in a worse position than the PGG Wrightson plan. It has been underwater for the entire existence of PGG Wrightson.
Financial Year |
Pension Plan Deficit EOFY |
PGW Contribution {A} |
Members Contribution {B} |
Total Contribution {A}+{B} |
Benefit Paid {C} |
Net Cash Movement {A}+{B}-{C} |
2009 |
-$13.680m |
$1.709m |
$1.556m |
$3.265m |
($11.111m) |
($7.846m) |
2010 |
-$18.206m |
$3.127m |
$1.651m |
$4.778m |
($5.631m) |
($0.853m) |
2011 |
-$16.970m |
$3.622m |
$1.378m |
$5.000m |
($4.980m) |
$1.398m |
2012 |
-$26.264m |
$2.727m |
$1.363m |
$4.090m |
($3.819m) |
$0.271m |
2013 |
-$20.819m |
$1.402m |
$1.364m |
$2.766m |
($6.412m) |
($3.646m) |
2014 |
-$13.528m |
$1.427m |
$1.337m |
$2.764m |
($4.709m) |
($1.945m) |
2015 |
-$14.665m |
$1.301m |
$1.300m |
$2.601m |
($5.304m) |
($2.703m) |
2016 |
-$20.715m |
$1.204m |
$1.254m |
$2.458m |
($3.482m) |
($1.024m) |
2017 |
-$12.271m |
$5.920m |
$1.119m |
$7.119m |
($6.010m) |
$1.109m |
The pension plan deficit is a long tail of shame for shareholders, but also a long term worry for shareholders who must eventually meet the bill. Consequently it is a real underlying risk to shareholders as this debt is over and above the already substantial bank loan liabilities that PGW has. I don't think 'sweeping it under the carpet' by changing the profit presentation format is the right way for shareholders to look at the situation.
SNOOPY
Rebirth of the Finance Division: The FY2017 Chapter
Quote:
Originally Posted by
macduffy
For the sake of PGW shareholders - I'm not one - it's to be hoped that there are still a few PGW executives who remember the mistake they made several years ago in selling their then Finance division to Rabobank, only to discover that this loosened - and in some cases severed links with a lot of farmers and gave Rabobank the start they needed in becoming a strong competitor in rural finance.
They wouldn't make that mistake again, would they?
Picking up on Macduffy's question of January 2011, of course the finance division 'PGW Finance' was sold to Heartland. However, the PGW AR2017 contains a glowing reference to the new 'Go-Beef' and 'Go-Lamb' products created by PGW during FY2016 (from a zero base in November 2015 to an asset balance of $32 million as at 30 June 2017, yet not mentioned in AR2016) that:
"continue to grow strongly. During the year 187,964 lambs and 33,983 cattle entered the scheme." (AR2017 p2)
So what is 'Go-Beef' and 'Go-Lamb'? It is a scheme where farmers buy beef cattle and/or lamb through their local PGW Livestock Agent. However, in a novel twist, the farmer does not have to pay for these animals up front. Instead they truck them off to their farm to fatten them up and PGW puts the 'farmer bought' animals on their own books and the farmer 'rents' their new stock. A few months later the fattened livestock returns to the PGW saleyard, the lamb/cattle are on sold, and PGW clips the auction ticket - again.
For 'Go-Beef' beef cattle the average time spent on farm is 185 days, while for 'Go-Lamb' lambs it is 104 days. The business is not entirely seasonal and there is significant demand for this service over a rolling twelve month period. All this was explained by Mark Dewdney on the post result conference call following the release of FY2017 results. Mark also noted that the same service has been offered previously via the Heartland bank owned PGW Finance with very little take up.
Dewdney noted that 'Go-Beef' and 'Go-Lamb' were good business for PGW, because they locked the PGW Saleyards onto both ends of the deal, and made a commission increment on the borrowing rate they charged farmers, thus 'clipping the ticket' three times.
As a further point of reference there is this quote from AR2017 p6 is notable for its omission of any reference to the Heartland/PGW Finance agency unit:
"In terms of performance of other businesses within Agency of which Livestock and Wool form part, our Real Estate and Insurance referral businesses each performed well and broadly in line with the corresponding period last year."
And next from AR2017 p17 where Heartland is mentioned:
"Our Insurance and Finance businesses earn commissions from legacy businesses sold to Aon Insurance and Heartland Bank. We have placed increased emphasis on improving these working relationships and exploring opportunities to grow both partnerships through referrals for new business."
Am I reading too much into all of this to suggest that the agency arrangement with Heartland is not performing to expectations and not meeting the needs of farmers? Or is the alternative interpretation, that Heartland have evaluated the risk of the 'animal renting' business and have decided it is not worth encouraging. Consequently this implies Heartland might judge PGW's latest move into "fattening animal finance" as reckless! Is Heartland or PGW right? What do shareholders think?
'Go-Beef' and 'Go-Lamb' certainly look like "PGW Finance Chapter Three" to me!
SNOOPY
Understanding the Pension Scheme: Part 1
Quote:
Originally Posted by
Snoopy
(The underfunded pension plan) is a real underlying risk to shareholders as this debt is over and above the already substantial bank loan liabilities that PGW has. I don't think 'sweeping it under the carpet' by changing the profit presentation format is the right way for shareholders to look at the situation.
I have come to the conclusion that I should reverse the change in result presentation of the pension liabilities when I judge the future prospects of this company. But to do that I need to fully understand how the changes were made.
It was in AR2016 p61 that PGW stated:
"During the period, the group made a commitment to provide certain contributions to the 'Defined Benefit Liability' over a five year period (FY2017, FY2018, FY2019, FY2020 and FY2021). As a result of this commitment, the defined benefit liability now includes the impact of ESCT (Employer Superannuation Contribution Tax) on the committed contributions."
The committed contributions on ESCT were listed as follows:
ESCT on committed contributions - short term |
($2.642m) |
ESCT on committed contributions - long term |
($2.372m) |
If we regard 'short term' as within twelve months, how does this tie up with the actual payments made into the scheme by PGW?
The cashflow statement in AR2017 (being the ensuing 12 months after the above commitment was made) shows the "Lump sum contributions to the defined benefit plan (ECST inclusive) totalled $7.551m. If I assume that this payment was fully taxable at the company tax rate of 28%, then :
$7.551m x 0.28 = ($2.114m)
This falls short of the ($2.642m) I might have expected from AR2016. Does this mean that PGW, at EOFY2016, were going to put more money in this year? But for some reason scaled their contribution back from what was originally envisaged? Or does that tax 28% rate not apply for superannuation payments, because those superannuation payments will ultimately pass to individuals who have a higher marginal tax rate? Working the numbers from the other direction:
(Forecast tax paid)/(Actual tax Payment) = ($2.642m)/($7.551m) = 35%
That seems quite a high tax rate for superannuitants. So perhaps my theory of a higher tax rate applying to these funds is not right?
Returning to the AR2016 results, the differences noted in my post 4135 under 'non-operating items' and the apparently related 'income tax adjustment' would indicate that the defined benefit Scheme(s) over FY2016 made a NPAT of $5.835m and produced an associated income tax liability of $1.634m.
I note that: $1.634m/$5.835m = 28%, which is the company tax rate.
Yet the fair value of plan assets actually went down over FY2016, from $57.498m to $ $52.702m (note 19, AR2016). How do I reconcile those two positions?
It seems that those in the scheme who are not yet retired, despite it being closed to new participants, are still able to add to their scheme positions. Likewise those that are already retired are receiving payouts from the scheme.
SNOOPY
Understanding the Pension Scheme: Part 2
Quote:
Originally Posted by
Snoopy
Returning to the AR2016 results, the differences noted in my post 4135 under 'non-operating items' and the apparently related 'income tax adjustment' would indicate that the defined benefit Scheme(s) over FY2016 made a NPAT of $5.835m and produced an associated income tax liability of $1.634m.
I note that: $1.634m/$5.835m = 28%, which is the company tax rate.
Yet the fair value of plan assets actually went down over FY2016, from $57.498m to $ $52.702m (note 19, AR2016). How do I reconcile those two positions?
It seems that those in the scheme who are not yet retired, despite it being closed to new participants, are still able to add to their scheme positions. Likewise those that are already retired are receiving payouts from the scheme.
p63 in AR2016 provides more details on the profit and loss factors that moved the pension scheme balance about over FY2016. Using this I will try to reconcile what happened.
Opening Fair value of Plan Assets |
$57.498m |
less Benefits paid by the Plan |
($3.482m) |
add PGW Top Up Contribution |
$1.204m |
add Member Contributions |
$1.254m |
add Current Service Costs and Interest |
$2.063m |
(This is odd because I would expect 'service costs' to be a negative value. Could it be they have been offset by 'interest earned? (1)) |
less Expected Return on Plan Assets |
($5.835m) |
(A very strange piece of jargon IMV. Why would the expected investment return be negative? Was the actual return negative?) (2) |
equals Closing Fair value of Plan Assets |
$52.702m |
(1) The line below shows 'Current Service Costs' to be $1.083m and 'Interest' of $0.529m adding to $1.612m. This is not in agreement with 'Current Service Costs and Interest' being $2.063m. However both of these are listed as positive 'expenses' which should add negatively to the plan asset total as I might have expected.
(2) This negative return appears to be unique to FY2016. The 'Expected return on plan assets' both over FY2015 and FY2017 are both positive as I might expect. What was it that 'apparently' caused this huge loss in FY2016, when investment markets were so favourable?
The total movement in plan assets was:
$57.498m - $52.702m = -$4.796m
Yet the figures from the profit and loss statement that I derived were a profit of $5.835m together an associated income tax liability of $1.634m, which doesn't tie up. I must say that I am finding this pension scheme representation in the books all rather baffling....
SNOOPY
A Smart Tiger learns from Past Experiences, especially painful ones.
Quote:
Originally Posted by
Snoopy
...
add Current Service Costs and Interest |
$2.063m |
(This is odd because I would expect 'service costs' to be a negative value. Could it be they have been offset by 'interest earned? (1)) |
less Expected Return on Plan Assets |
($5.835m) |
(A very strange piece of jargon IMV. Why would the expected investment return be negative? Was the actual return negative?) (2) |
...
...
(1) The line below shows 'Current Service Costs' to be $1.083m and 'Interest' of $0.529m adding to $1.612m. This is not in agreement with 'Current Service Costs and Interest' being $2.063m. However both of these are listed as positive 'expenses' which should add negatively to the plan asset total as I might have expected.
(2) This negative return appears to be unique to FY2016. The 'Expected return on plan assets' both over FY2015 and FY2017 are both positive as I might expect. What was it that 'apparently' caused this huge loss in FY2016, when investment markets were so favourable?...
Quote:
Originally Posted by
winner69
...Like that ($5.835m) is the difference between expected returns (the long term return assumption) and actual returns. Now that's got you confused eh...
I am just going to keep quiet, occasionally look in on how this is 'progressing' and possibly allow myself a few smug moments.
Best Wishes
Paper Tiger
Understanding the Pension Scheme: Part 3
Quote:
Originally Posted by
Snoopy
I must say that I am finding this pension scheme representation in the books all rather baffling....
I am taking another dive into AR2017 to make some sense of things.
Various 'Actuarial Assumptions' (p62) are made about valuing the pension scheme assets. The present value of plan assets is $71.105m. This I expect is discounted by the listed discount rate of 2.97%. However we are told that inflation (and hence they say pension payments?) are forecast to increase at 2% each year. This means the apparent book value of the pension scheme will be eaten up faster in the future. So we need an additional discount factor to account for this.
We are told that the 'weighted average duration of the defined benefit obligation' is 8.5 years.
This means the undiscounted current balance should be calculated as follows:
UCB x [(1-0.0297)(1-0.02)]^8.5 = $71.106m => UCB x (0.9509)^8.5 = $71.106m => UCB = $109.09m
It seems reasonable to assume that this 'cash balance' will include some assumptions on likely earnings of the portfolio into the future, before it is ultimately redeemed. However, although we are told the superannuation investment has gone from a 79%/19%/2% Equities/Fixed Interest/Cash to 64%/28%/8% Equities/Fixed Interest/Cash, there is no mention of what the expected return on any of these investment categories is.
$109.09m - $71.106m = $37.984m
So take out the 'time value of cash' adjustments and we are looking at a percentage increase in portfolio value of around 50% over 8.5 years. That sounds do-able, albeit investment conditions would have to remain favourable for 8.5 years to achieve such a target. Perhaps this is why the actuarial calculations are telling PGW to top up? Or perhaps I have got the whole thing completely wrong!
SNOOPY
AGM Report FY2017 from Riccarton Racecourse 31/10/2017
Major Review Announced
The principal announcement from the AGM was made by Deputy Chair of PGW, Trevor Burt (who also happens to chair the South Island Maori business powerhouse Ngai Tahu Holdings Corporation). The PGW board has appointed ‘Credit Suisse’ to conduct a wide ranging strategic review of the business. This review will neatly dovetail with the appointment of new CEO Ian Glasson who starts work today (1st November 2017). Credit Suisse will not review the performance of the existing business units. The board are very happy with the senior management team already in place. No, the purpose of this review is to look at the capital structure of the group, to see if it is appropriate to maximise the opportunities of the group going forwards. In many companies this would be code for an upcoming ‘cash issue’. But in the case of PGW, I think this is doubtful. Parent Agria has its own capital restrictions. And I don’t think Agria and PGW Chairman Alan Lai will tolerate his Agria parent holding in PGW dipping below 50.1%. My guess is we will see another capital injection by Ngai Tahu into the intermediate holding company ‘Agria Asia’ - where Trevor Burt’s Ngai Tahu are already shareholders. And a mechanism to allow this money to trickle down to PGW itself will be found. Either that, or shareholders will see the partial sell down of existing growth business units to strategic growth partners. But I am getting ahead of myself, and maybe fantasising a bit too much!
Trevor identified the ‘full digitisation of the customer offering’ to rural service customers as an opportunity for new capital spend – more on this later. Trevor further identified the underutilised IP in the seed business, which he believes could be leveraged globally rather than just regionally. During question time, we learned that the seed division spends 12% of its revenue on R&D, amounting to $15m annually across Australasia and South America. Today’s product idea from this R&D pipeline might take 10 to 15 years to emerge. But because the R&D pipeline is well established, there are new opportunities emerging from the R&D pipeline every year right now!
The Outlook for FY2018
FY2018 forecast: Operating EBITDA is predicted to be similar to FY2017 at $64-$65m. But operating NPAT will be 30% below FY2017, which equates to $32.4m. Yet $32.4m still represents an ‘eps’ of 4.3cps (That should allow the current annual dividend rate of 3.75cps ‘fully imputed’ to be retained.) The reasoning behind this lower profit forecast is that, during the first quarter, NZ has been wetter and colder than normal. Summer is ‘late’ this year. This in turn means more stock feed has been sold than expected. But offsetting that, less pasture seed and agricultural chemicals were sold. In addition, PGW expects a slower and lower grain crop harvest, resulting in less downstream drying and handling and ultimately less product for the seed division. Last year 25-30% of the maize crop was lost. Poor growth and wet weather conditions meant it wasn’t able to be harvested. FY2017 was the worst grain harvest year within PGW institutional memory. While PGW management now expects this ‘growing year’ to be ‘below average’, it shouldn’t be as bad as FY2017.
In Australia, the confidence of dairy farmers is very low, due to the local dairy co-operative Murray Goulburn being unable to pay a competitive farm gate price for milk to farmers. This has been brought about by MG overpaying farmers during the previous season. Last week MG was sold to a Canadian company ‘Saputo’. PGW hopes this will result in more confidence from Australian dairy farmers going forwards.
As of the end of Q1 FY2018, PGW is $2m behind in EBITDA compared with Q1 FY2017.
Further business unit market share gains on what has been achieved to date are going to be more difficult to come by. Furthermore most of the assets that were worth selling - to redeploy the released working capital - have been sold.. So future growth will largely come from working the existing capital base harder. This begs the question, what will be the growth drivers going forwards?
The vision going forwards for ‘Retail and Water’ can be summed up under the buzz acronym ‘Project RoBuSt’. This stands for the ‘Retail Business Transformation Project’. ‘RoBuSt’ involves an overhaul of all point of sale (POS) systems and greater use of mobile devices ‘on the spot’ in the sales process. This will continue the deeper, faster acquisition of sales data and open the possibilities of more cross selling across the PGW business units. The Water sub-unit of ‘Retail & Water’ will look to recover by ‘breaking even’, or even making a small profit, in FY2018.
‘Go Beef’ and ‘Go Lamb’ are a recent innovation in the Livestock subsection of the Agency Sector. Livestock is trading at all time record levels, helped by this innovation ‘Go Beef’ and ‘Go Lamb’ apply PGW company borrowings to ‘rent’ animals out to farmers who:
a/ are creditworthy AND
b/ have the on farm skills needed to efficiently grow the weight of a weaner.
PGW clips the ticket at both animal sale and purchase time, while collecting ‘rent’ by way of interest from the 100 or so days over which the animals are being fattened. I see ‘Go Lamb’ and ‘Go Beef’ as a ‘finance’ operation, but PGW sees those initiatives as just part of selling livestock. We will have to differ on this point. But we shareholders did learn more on the fate of ‘PGW Finance’, the formerly fully owned finance division now owned by ‘Heartland Bank’ during question time.
EBITDA from Heartland commissions were described by outgoing CEO Mark Dewdney as ‘almost negligible’. When pressed, he qualified this to mean about $200k per year. Now I am going to start making a few figures up...
1/ If this $200k represents an up front commission of one percentage point on the loan granted AND
2/ the average rate the farmer is paying is 8%, THEN
3/ Our combined farmer/borrowers total interest rate bill on new business for the year will be $1.6m. The capital value of new loans issued by PGW Finance during the year will therefore have been:
$1.6m/0.08 = $20m
4/ Traditionally PGW Finance had been 25% seasonal finance (3-6 months) and 75% longer term finance. It is likely that the longer term financing will still be, on average, over a shorter time period loan than a traditional bank loan. So I am going to assume an average duration of all PGW Finance loans to be 2.5 years (based on 3 years being half a business cycle, the time a farmer might need before conditions recover). This implies a total PGW Finance loan book size of:
$20m x 2.5 = $50m
By way of comparison, the PGW in house ‘Go Lamb’ and ‘Go Beef’ loan book (just don’t call it a loan book when you speak to PGW management!) sits between $30m-$33m. This is getting up to the loan level that ‘PGW Finance’ has (probably) shrunk to.
Readers, please feel free to challenge my assumptions above. But the balance of the loan book when PGW Finance was sold to Heartland was documented at $490m. So it looks like the hoped for synergistic relationship between the old ‘PGW Finance’ and PGW itself has broken down. Mark Dewdney noted that the process of waiting to get the result of the Heartland credit checks back to the PGW rural shop front was frustratingly slow. Hence the reason Heartland commissions had ‘slowed to a trickle’.
Other paths to profit growth
There are typically 5,000 tonnes of grower owned crossbred wool in the PGW wool stores nationwide. All wool in the stores is grower owned. At present that volume has ballooned to 25,000 tonnes. PGW will ‘clip the ticket’ when the wool is eventually sold. And that will be when the wool price heads above $3 per kilogram. That revenue is coming for PGW, while the cost of capital tied up in the meantime is largely borne by the farmer.
Moving to another business unit, Horticulture remains a highlight with market share and margins higher than the animal based rural side of the PGW business.
The high tech ‘Agri Optics’, recently a 51% owned subsidiary, has received a further capital injection from CB Norwood Distributors Limited, seller of sprayers and tractors. The current Agri Optics shareholding is now split ‘one third each’ between ‘McKemzie family’/ PGW/ CB Norwood. We now have three useful partners to advance the prospects of ‘smart cropping’ in for the future.
Board Composition
A shareholder, noting the high tech path charted for the future, questioned the lack of obvious ‘tech’ expertise on the board. Trevor Burt responded that Ronald Seah is currently Chair of ‘Nucleus Connect Pte Ltd.’ a fibre broadband company in Singapore, and has worked on the ‘computer front end’ of the managed fund investment industry. A further observation was made that there was little ‘hands on’ farm management experience on the board. Trevor Burt suggested that both he, after being on the board at Silver Fern Farms and Landpower Holdings and fellow director John Nichol, who has been on the board of Fortex Group, The New Zealand Salmon Company Limited, Alpine Dairy Products Limited, Craigpine Timber Limited and the New Zealand Dairy Board had vast experience in governing primary sector businesses. Furthermore, experience in ‘agricultural governance’ was more important experience than hands on ‘operational farm experience’ when becoming a PGW director. Another shareholder asked if there was a retirement age for directors. Trevor Burt replied that this would be illegal in NZ and that age does not necessarily wither directorial performance. A supplementary question on ‘company profit’ and the link to ‘performance pay’ yielded the information directors do not have a performance pay component. But sales people have a 20-30% boost to their income available from outperforming their sales targets.
I managed a brief word with Alan Lai after the meeting, and thought of you if you are still out there Agrainvestor. I didn’t ask the question directly but gave Alan plenty of chance to speak about the future of Agria. Without breaking any confidences, I think it is fair to say that what Alan has experienced with Agria’s US delisting is still pretty raw. And there is still no solution on the horizon for Agria shareholders who want out to cash out their Agria positions.
The meeting ended with a cup of tea/coffee and a good spread of Club sandwiches (including egg and asparagus, ‘yum’) , sausage rolls, and mini pie savouries. To cap the spread were freshly baked date scones to which shareholders could add NZ farmer bred butter or cream and NZ horticulturalist originated raspberry jam.
SNOOPY
Alan Lai, back on the dance floor
Quote:
Originally Posted by
Snoopy
Agria is the 50.1% shareholder but plays no part in the day to day running of PGW. I wouldn't expect any affect on the PGW share price as a result of Agria shares being suspended.
Agria will not be able to sell any shares they own in PGW because if they do, they will no longer be able to consolidate the PGW accounts within Agria. Agria selling down their PGW stake at this stage would cause a multi-million dollar loss for Agria as any remaining PGW stake was 'marked to market'. Last time I looked Agria was still highly indebted. So writing down that PGW stake might cause Agria to collapse. Agria have no other investments of any meaningful size outside of their stake in PGW.
It looks grim for Agria in the headlines now. But Chariman Alan Lai is the master of dance. I wouldn't discount his ability to waltz out of trouble just yet. A 2:1 share consolidation at Agria is all that it would take to fix things with the NYSE listing requirments.
The dance ended and Agria was not so quietly delisted. But now it looks like Alan Lai will need to once again put on his dancing shoes, this time in New Zealand...
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The Overseas Investment Office (OIO) is investigating whether Agria Corporation, the Chinese company which half owns New Zealand produce company PGG Wrightson (PGW), is of "good character".
If it is declared not to be of good character, its 50.22 per cent stake in PGW could be under question.
Individuals or companies rarely fail the test. Last year United States investor Charles Banks, who headed the buyout of Hawke's Bay's Trinity Hill winery and was sentenced to four years in prison for fraud, was stripped of his rights as an investor. PGG Wrightson's activities are widespread, including its livestock agency business.
In a statement, the OIO confirmed Hands was the only person or company who had ever failed the test, although it was not able to comment on matters that were under either surveillance or investigation. US broadcaster Matt Lauer's good character is also being queried after he was fired from his job for allegations of sexual misconduct. He paid a rumoured $13 million for the lease of Hunter Valley Station near Hawea.
In late 2016 Agria was delisted from the New York Stock Exchange after the NYSE announced it allegedly uncovered evidence a "top executive and other intermediaries" artificially inflated the company's stock price. While Agria initially said it would fight the delisting, it later changed tack, with chief executive Alan Lai floating the possibility of it becoming a private company or relisting elsewhere.
In July last year, in an out-of-court settlement, it agreed to pay out US$1.3m to aggrieved shareholders who threatened a class action over the fall in value of their shares. The Campaign Against Foreign Control of Aotearoa (CAFCA) said it had asked the Overseas Investment Office (OIO) 13 months ago to investigate whether Agria was of "good character" - one of the requirements for foreigners or foreign companies investing in New Zealand.
This week the OIO confirmed it was investigating Agria's good character given: its delisting by the New York Stock Exchange; Agria's public statements that it had received subpoenas from the US Securities and Exchange Commission; and allegations made against Agria and some of its directors in related class action lawsuits.
A PGW spokeswoman said independent directors Bruce Irvine, John Nichol and Ronald Seah had considered the implications, if any, that the matters might have for PGW. They would update the market if there were any material developments that might require consideration by PGW shareholders, the spokeswoman said. An Agria spokesman said the company had always made full disclosure to the OIO and would assist it fully with any enquiries.
Agria was founded in 2004 by Alan Lai, the chairman of both Agria and PGW. There are four Agria directors on the PGW board.
It is registered in the Cayman Islands for tax purposes and its major asset is PGW which had an annual turnover last year of $1.13 billion and employed 2200 staff. PGW made an after-tax profit last year of $46.3m.
- Stuff
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PGW was the biggest loser on the NZx today, down 3.3%. I do note that no announcement has been made by PGW to the NZx as yet regarding the OIO investigation!
SNOOPY