What a crap article. No insights. I would expect this quality from the Stuff Business reporters.
And I'm paying to view it.
Printable View
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?
EOHY2024 EOHY2023 EOHY2022 EOHY2021 EOHY2020 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($20m) Working Capital Facility (Amount Drawn) $70m($65.00m) $70m($48.00m) $70m($18.00m) $70m($21.00m) $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) $NAm($6.08m) Total Facility Limit (Amount Drawn) $163m($114m) $163m($101m) $133m($52m) $133m($45m) $123m($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
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
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:
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.Quote:
The syndicated facilities fund the general activities of the Group, the seasonal fluctuations in working capital, and the Go livestock receivables.
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.
Question for you Snoopy - does PGW have debt denominated in a foreign currency?Quote:
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.
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:
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)
"SOPI report: Forecast dip in primary industry export revenue due to lower prices for key commodities"
https://www.nzherald.co.nz/nz/sopi-r...y+14+June+2024
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.