A deeper look into PGW saleyard operations
I open this post with a disclaimer. I am not a farmer and I have never been to a PGW saleyard auction. But if I want to forecast where PGW is going over FY2025, I need a better understanding of the livestock business. So I may be making a fool of myself in this post (feel free to correct me). But here goes.
In all the PGW reports I have read mentioning livestock, the emphasis is always on the sale of cattle (be they for meat or diary) and sheep. This is not surprising as they are the two most widely farmed four legged herbivores on New Zealand. But we also farm pigs and deer in some numbers. Why are those animals never mentioned? The closest I have come is seeing references to PGW auctioning off 'deer velvet' but never deer. Why is that? Pigs are more multiplicative breeders and seem to be less fussy about their feed. So do pig farmers never need to trade their animals? Do they just feed them up and send them straight to the works? I would be interested to know.
This leads to what I call my 'first foolish assumption' which I am calling 'FA1'. "All of the trade through the PGW saleyards is sheep and cattle". Perhaps other animals do go through the saleyards. But what I am saying that in percentage terms, the headcount of these other species of animals is so small, we can forget about them in the overall revenue picture.
In AR2023 on p27 we learn:
"Over 350,000 cattle and 2.3 million lambs (have been) purchased via the GoStock (finance) program since it launched during the 2016 financial year."
I now make 'FA2', that the GoStock numbers are indicative of the animals passing through the PGW saleyards.
If I look at the beef and lamb New Zealand lamb price guide.
https://beeflambnz.com/sites/default...%20%284%29.pdf
This is showing me that over the 2017 to 2023 period, lamb prices averaged about $140 per head. (I will call that FA3)
Moving on to the beef and lamb recorded cow price over that same period,
https://beeflambnz.com/sites/default...%20%283%29.pdf
the cows seem to have been selling at around $3.80 per kilo. For animals averaging 180-195kg in weight (average 187.5kg). So cows traded at $713 per animal (I will call that FA4)
Now I combine all four of my 'foolish assumptions' to make a guess at the indicative turnover going through those PGW saleyards.
350,000 x $713 = $249,550,000 = $250m (cattle)
2,300,000 x $140 = $322,000,000 = $320m (sheep)
This works out at a split of 44% cattle and 56% sheep in dollar terms. This is of course before the much touted 28% fall in lamb prices which has been punishing our sheep farmers recently. From a keyboard farmer, does that make sense?
SNOOPY
Forecast EBITDA for FY2025
I am concentrating on EBITDA, because that is the figure that PGW itself likes to quote. Operating EBITDA for FY2023 was $61m, and I would like to think of that as a 'base year' (FY2022, when everything freakishly aligned, was higher at $67m). The PGW EBITDA forecast for FY2024 was downgraded from the 'base year' to $52m, then $50m and most recently $43m. Thus the profit downgrade from our base year is $61m-$43m=$18m.
Quote:
Originally Posted by
Snoopy
I want to draw attention to the sub-sections of the agricultural market that have received negative comments in HYR2024. These are likely to have been the drivers in the three EBITDA downgrades the company has issued over the last twelve months. And if we are looking for EBITDA to recover again over FY2025, these areas are where the recovery will most likely come from.
The reported negative changes in 'Agency' are as follows
Quote:
Originally Posted by
Snoopy
Sub Sector Report: Sheep
From HYR2024 p4
"Our Agency segment results were again impacted by the weak real estate market and softer commodity pricing, particularly in sheep and lamb markets where prices were back 28% year on year."
Using post 5704 as a reference:
Lamb 'Agency' revenue = 0.56 x 0.47 x $188.803m = $49.7m (Estimated sheep auction revenue over FY2023). If sheep volumes were not affected but sheep prices dropped by 28% this figure would be projected to have reduced to (1-0.28)$49.7m= $35.8m over FY2024. That equates to an EBITDA drop of: $49.7m-$35.8m= $13.9m YOY.
In summary, from an investor perspective, I feel as though it is best to assume that the last year's decline in 'Agency' is permanent.
The reason why revenue comes straight off profit (in the quote above) is that there is no incremental cost saving in running less sales lots through an established and existing auction platform.
If the lost EBITDA from Agency cannot be recovered over FY2025, is there some other part of the business that can 'bounce back' to offset that? I say yes and it comes from reversing the FY2024 downgrade in 'Retail & Water', particularly the grower based sub section. The relevant aspect of the HY2024 downgrade in 'Retail and Water' is reported below.
Quote:
Originally Posted by
Snoopy
Sub Sector Report: Horticulture
From HYR2024 p8:
"The apple, avocado and kiwifruit industries have experienced weaker demand and declining client returns, with prices at levels for some crops not seen for several years."
From HYR2024 p13
"The outlook for horticulture is positive with good kiwifruit, apple and pear crops expected to be harvested. Kiwifruit is predicted to deliver improved quality fruit with higher volumes compared to last year."
The impact of Cyclone Gabrielle is rolling away into the prior period, which should result in growth in FY2025. Particularly helpful for kiwifruit growers is the NZ free trade agreement with Europe which will progressively come into effect over CY2024. It sounds like horticulture is in for at least a short term rebound.
35% of 'Retail and Water' over FY2023 amounted to: 0.35x $785.298m = $274.854m (Estimated horticulture revenue over FY2023)
Refer to post 9656 and you will see that 'retail and water' revenue is always skewed towards the first half. In FY2023 that skew was 64%/36%, for a total revenue of ($785.298m-$1.151m-$0.363m)=$783.784m. Apply that same split to FY2024 and total retail and water revenue is an expected ($478.301m-$0.387m-$0.207m)/0.64 = $746.417m. he revenue difference year to year is: $783.784m - $746.417m = $37.367m,
Using the FY2023 EBITDA margin for 'Retail and Water' of 6.9%, this equates to incremental profits of: 0.069 x 0.35 x $37.367m = $1m. This is the expected incremental EBITDA should horticultural sales return to FY2023 levels, but other retail sales remain flat at FY2024 levels into FY2025.
The rise in corporate costs since FY2022, detailed below, which subtracts from EBITDA, is unlikely to be pulled back. So we aren't using that $2m figure in any adjustment calculation.
Quote:
Originally Posted by
Snoopy
Corporate Costs
The cold conclusion is that underlying operating corporate costs have risen by $2m over two years. That corporate cost increase sounds permanent.
This means that if animal farming continues in its funk for another year, but horticulture improves back to FY2023 levels, then EBITDA for PGW over FY2025 becomes: $43m + $1m = $44m. yay! (given the magnitude of the potential EBITDA increase, using capital letters to express my joy would seem an overkill.)
SNOOPY
Forecast Interest Bill for FY2025: part 1
Quote:
Originally Posted by
Snoopy
This means that if animal farming continues in its funk for another year, but horticulture improves back to FY2023 levels, then EBITDA for PGW over FY2025 becomes: $43m + $1m = $44m. yay! (given the magnitude of the potential EBITDA increase, using capital letters to express my joy would seem an overkill.)
I want to open this post by saying I don't try predict where interest rates are going within a two year time horizon. That kind of exercise is too hard, even for a Snoop. But what I am interested in predicting is the quantum of bank borrowing that is likely for PGW over FY2025.
We do know that the full year EBITDA for FY2024 is forecast to be $43m.
We do know that the half year EBITDA for HY2024 was $37m. So that means a forecast EBITDA of $43m - $37m = $6m is expected for the second half.
In round figures the interest bill for the second half year will be $4.7m (see post 5696). That leaves a the princely sum of $6m - $4.7m = $1.3m To pay down debt. great :(.
Actually the real amount of cash available to pay down debt is different to this. If you look at HYR2024 and the balance sheet on p23, it looks like debt has blown out massively from the full year, by a net more than $30m. (from $65.317nm to $96.833m). But this is an operational seasonal effect. Put simply PGW has to buy in stock to sell to their farmer clients over Spring. So the apparent 'blow out in debt' is offset against a rise in inventory ($107.533m -> $130.769m). As store merchandise is sold down, PGW will need to decide how much inventory to hold for the next farming year. And if the next farming year is going to be difficult then PGW could elect to hold less stock in store, and put that 'saved stocking capital' into reducing debt.
What I am suggesting here is that although at first glance PGW has only $1.3m to pay down their long term debt, the reality could be a lot higher as 'inventory money' gets recycled. I don't think it is possible to know by how much management may seek to pay down debt. But it might be possible to work out by how much the banks would like debt to be paid down. So let's try to get an estimate of that figure. And so we dive into the thorny topic of 'banking covenants.' I have looked at this previously. The main 'covenant of contention' looks likely to be the 'Fixed Cost Coverage ratio' or FCCR for short.
SNOOPY
Forecast Interest Bill for FY2025: part 2
Quote:
Originally Posted by
Snoopy
I don't think it is possible to know by how much management may seek to pay down debt. But it might be possible to work out by how much the banks would like debt to be paid down. So let's try to get an estimate of that figure. And so we dive into the thorny topic of 'banking covenants.' I have looked at this previously. The main 'covenant of contention' looks likely to be the 'Fixed Cost Coverage ratio' or FCCR for short.
Quote:
Originally Posted by
Snoopy
The interest payments have a dual role in this calculation. One as the interest payment that PGW must make to their banking syndicate (rather obviously), with the second role being the cost base for the 'GoLivestock' loans that I am required to remove from EBITDA as a cost of doing the finance side of the business (because all operational costs of doing business should be removed when EBITDA is calculated). Time to restore the 'GoLivestock Interest Cost' figure back to just the interest cost, not including the banking facility set up cost? Not now.
I call it the 'Go Livestock Interest Cost'. But actually it is a cost derived from the interest paid on the combined short and long term bank loans. You could argue that those loans belong to PGW in general, and are not specific costs that are to be matched up against 'GoLivestock' income. I would argue that it is best not to think like that, because the 'stock loaned against' numbers have gone up with the 'GoLivestock' loan book going up in value. That means it would be possible to pay off all company debt should the GoLivestock program be completely wound down (EOFY2023 perspective). History has shown that to work through retailing business cycles, having no company debt (disregarding all of the retailers lease agreements which are quite onerous enough in themselves) can be smart business practice. So I think it is reasonable to consider at the full year balances date, the retail and agency arms of PGW as 'debt free company divisions', with an add on finance division ('GoLivestock'), which does carry an appropriate level of debt.
Post 5476 gives an indicative cost of funds rate of 7.1% (this figure excludes the bank facility set up costs, and is 'interest only') on an average debt balance of $64.552m. In funding cost terms, this translates to a dollar amount of: 0.071 x $64.552m = $4.583m over the year. We now have the information needed to complete our bank covenant equation.
FCCR= [(EBITDA - 'GoLivestock Interest Cost'] / [Total Interest(less interest income in cash)+ Banking Facilities Charge+(Lease Expenses)]
= [$61.194m - $4.583m] / [($4.565m-$0.485m)+$0.956m+($3.800m+$19.532m)] = 2.0 which is just equal to the targeted 2.0 figure.
All good then. But with a covenant like this going 'so close to the wire', you do wonder what would happen if the EBITDA falls as forecast over FY2024.
We don't have (and won't until the FY2024 results are released) all of the information needed to calculate the Fixed Cost Coverage ratio for FY2024. But we can do a quick approximation by putting the one figure that management has managed to forecast (EBITDA for FY2024) into the FCCR equation for FY2023. We are of course assuming that bank facilities charges and lease expenses are not going to change much year to year when we do this.
FCCR= [(EBITDA - 'GoLivestock Interest Cost'] / [Total Interest(less interest income in cash)+ Banking Facilities Charge+(Lease Expenses)]
= [$43.000m - $4.583m] / [($4.565m-$0.485m)+$0.956m+($3.800m+$19.532m)] = 1.35 which is well less than the targeted 2.0 figure.
As an alternative hypothetical scenario, what would happen if all bank facilities were repaid?
FCCR= $43.000m / [($3.800m+$19.532m)] = 1.84 which is still less than the targeted 2.0 figure.
'Paying back all debt' would also entail winding back the 'GoStock' finance lending program. That is definitely something that PGW would not want to do. Neither would it please their banking syndicate, as this program is very beneficial for both.
My pick is that PGW will be given a waver for meeting their FCCR covenant on the 30th June 2024 reference date, on the understanding that if the GoStock program was wound down on that date, then all of the bank debt could be repaid. But without an improvement in farm commodity prices, things could get 'interesting' at PGW over FY2025.
Traditionally when New Zealand as a nation cannot earn enough to pay its import bill the NZ dollar takes a hit, thus improving farmers returns on an NZD basis. That may indeed happen, which would help out PGW. The other thing that could give PGW a more immediate boost would be 'asset sales'. PGW have sold off most of the family silver. But one jewel does remain that is not so tightly integrated into the group that it could be let go: Fruitfed. As a shareholder I would feel the pain if that were to go. But with prospects looking up at Fruitfed, PGW could get a good price. And if that would eliminate the bank debt worries, such a strategy might be worth pursuing.
Back to the subject of this post. A 10% reduction in inventory levels from the HY2024 peak would allow $13.1m to be directed to paying down debt. Add that to the $1.3m pay down identified in 'Part 1' and I get $14.3m of long term debt 'paid off'. At an interest rate of 7.1%, this would reduce the annual interest bill by: 0.071x $14.3m= $1.0m.
This means the net interest bill for PGW over FY2025 reduces from $4.7m to $3.7m
SNOOPY
What the banking syndicate really thinks of PGW (HY2024 perspective) Part 1
Quote:
Originally Posted by
Snoopy
I want to raise an 'alternative interpretation' on why the debt balance at PGW has seemingly been given the green light to 'blow out'.
From HYR24 page 26, just after the new higher debt burden tolerance has been documented.
"Under the amended and restated agreement, the Company continues to grant a general security deed and mortgage over all its wholly-owned New Zealand assets to a security trust. Bank of New Zealand acts as facility agent and security trustee for the banking syndicate, which comprises Bank of New Zealand, Co-operative Rabobank U.A. (New Zealand branch) and Westpac New Zealand Limited. The amended and restated agreement contains various financial covenants and restrictions that are standard for facilities of this nature, including
maximum permissible ratios for debt leverage and operating leverage, together with limits for Go receivables, capital expenditure and asset disposals from its effective date."
The company has not given shareholders any indications of specifically what these 'covenants and restrictions' are. But way back in 2009, when Alan Lai and Agria were first invited to take a stake in PGW, they certainly did. Fortunately I kept that prospectus in my archive, even though it has long since vanished from the internet. If these covenants are unchanged from those days, and because PGW was in a similarly difficult phase of the agricultural cycle then as they are today - I think this is likely -, then there are currently restrictions on PGW from their banking syndicate as follows (refer to page 44 of the 2009 capital raising document):
Debt Leverage
Senior Debt Coverage Ratio |
Percentage of Excess cashflows available for distribution |
PGW Actual Value 31-12-2023 |
SDRC > 3.00x |
0% |
3.00x > SDRC > 2.00x |
50% |
2.62 |
SDRC < 2.00x |
100% |
Note: 'Senior Debt Coverage Ratio' = Senior Debt / EBITDA(pre IFRS16)
Operating Leverage
Fixed Cost Coverage Ratio |
Percentage of Excess cashflows available for distribution |
PGW Actual Value 31-12-2023 |
FCCR > 2.00x |
No restrictions |
FCCR < 2.00x |
Time plan to restore metric to > 2.00x |
1.56 |
Note: FCCR = EBITDA(post IFRS16) / (Total Net Interest Paid + Lease Expenses)
I wouldn't mind betting that PGW have been
told (note that word, as it is the banking syndicate that is doing the telling) to improve their FCCR back to above 2 by the end of the financial year. Their dividend paying ability will then be determined by where the SDRC sits. The banks know that PGW will be having a tough time this year, and they don't want to be embarrassed by PGW busting the previously agreed borrowing limits. So they have given PGW some 'extra rope' so that if trading conditions really get smashed in the second half, and PGW ends up making EBITDA well below the latest forecast $50m for the whole year, then the debt covenants don't get busted. That means the increased debt covenants are not there because of the incredible resilient earning capacity of PGW. They are there to avoid embarrassing the banking syndicate, should PGW trading turn out to be rather worse than anticipated.
Banking facility notes (typically found in either note 9 or 10 in the respective annual reports) can be rather a dry foot note to the annual 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 |
EOFY2023 |
EOFY2022 |
EOFY2021 |
EOFY2020 |
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($20m) |
Working Capital Facility (Amount Drawn) |
$70m($65m) |
$70m($19.96m) |
$70m($7.50m) |
$70m($9.90m) |
$70m($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 |
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.
2/ Working Capital Facilities are said to be subject to an 'annual clean down'. I am not sure what this means (see post 5746). I 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 -with some profit- at the end of the business year. I doubt that every stock item brought into the company in any particular financial year is sold by the end of that year. So I am imagining an 'annual clean down' as something like a stock take, but simultaneously confirming the goods left on the shelves are in fact still salable (i.e. are not 'dead stock'). IOW the working capital itself that bought the unsold stock is 'still alive'.
3/ The Overdraft balances drawn at EOFY2022, EOFY2021 and EOFY2020 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 those three 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.
Net debt has certainly blown out over the last few reporting periods from a low of $10m at EOFY2021 to $100m at EOHY2024. However there has been no tightening of the bank imposed debt caps over that 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
Split Beginnings: History Repeats Pt1
Quote:
Originally Posted by
Snoopy
Livestock Trading: PGW has NZs largest group of livestock representatives with more than 180 representatives across the country, operating more than 50 sale-yard sites across New Zealand. The core market is sheep and beef cattle. But 'PGW Livestock' will also sell dairy cows and deer velvet. Saleyard business is conducted by farmers on site concurrently with PGW's in house on-line sales platform bidr®. Others in the NZ livestock trading game include "NZ Farmers Livestock" with more than 100 staff over 15 sale-yard sites, complete with their own web based trading tool: 'MyLiveStock'. Listed 'Allied Farmers' currently owns 67% of "NZ Farmers Livestock."
Here is what PGW says in their Annual Report regarding livestock. This from page 9:
"Our livestock business most closely reflects the fortunes of livestock farming in New Zealand. Lower export prices and the drought resulted in significantly reduced sheep and lamb values on farm, which impacted farm profitability and reduced revenue for our livestock business."
"On average the value of sheep and lambs traded fell by 37 percent on the prior year. While increased volumes were traded in the sheep and lamb markets, volumes in both beef and dairy cattle were slightly back, principally due to the wider market effects of the drought."
"Trading sheep and cattle remains the mainstay of our livestock business."
I think this sums up the state of the livestock market today very well. Except that quote was taken from the 2013 annual report and was written over ten years ago! Who says history never repeats? But more importantly for investors today, the reporting was far more transparent ten and more years ago. The figures for the Livestock section of the company on its own were 'laid bare' (not combined into 'Agency'). How did PGW Livestock get out of their pickle last time, and can we learn anything from that time which will help us forecast the performance of PGW Livestock today? We have our two starting 'recovery' points to compare:
1/ EOFY2013 and
2/ EOFY2024.
That's next.
SNOOPY
Split Beginnings: History Repeats Pt2
Quote:
Originally Posted by
Snoopy
How did PGW Livestock get out of their pickle last time, and can we learn anything from that time which will help us forecast the performance of PGW Livestock today? We have our two starting 'recovery' points to compare:
1/ EOFY2013 and
2/ EOFY2024.
That's next.
'PGW Agency' as a business unit did not exist in FY2012 and FY2013. But we have enough information in AR2013 to recreate Agency as it would have been back then, had the same three business units of 'Livestock' , 'Wool' and 'Real Estate' been combined 'back then'.
|
Livestock |
Wool |
Real Estate |
Total Agency |
Period Change |
|
HY2012 Revenue |
$59.587m |
$47.048m |
$10.899m |
$117.534m |
HY2012 Operating EBITDA |
$3.016m |
$1.254m |
$0.463m |
$4.733m |
HY2013 Revenue |
$51.033m |
$38.017m |
$10.341m |
$99.391m |
(-15.4%) |
HY2013 Operating EBITDA |
$0.607m |
$2.372m |
$0.174m |
$3.153m |
(-33.4%) |
|
2HY2012 Revenue |
$73.648m |
$39.975m |
$15.051m |
$128.674m |
2HY2012 Operating EBITDA |
$15.015m |
$2.066m |
$1.549m |
$18.630m |
2HY2013 Revenue |
$47.467m |
$41.468m |
$13.837m |
$102.772m |
(-20.1%) |
2HY2013 Operating EBITDA |
$11.575m |
$5.010m |
$1.077m |
$17.662m |
(-5.20%) |
|
FY2012 Revenue |
$133.235m |
$87.023m |
$25.950m |
$246.208m |
FY2012 Operating EBITDA |
$18.031m |
$3.320msays |
$2.012m |
$23.363m |
FY2013 Revenue |
$98.500m |
$79.485m |
$24.178m |
$202.163m |
(-17.9%) |
FY2013 Operating EBITDA |
$12.182m |
$7.382 |
$1.251m |
$20.815m |
(-10.9%) |
Compare what happened above eleven years ago in FY2013 with what is unfolding through FY2024.
Like the above, comparisons are made with the previous (better) year.
|
Livestock |
Wool |
Real Estate |
Total Agency |
Period Change |
HY2023 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$84.670m |
HY2023 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$3.643m |
HY2024 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$81.589m |
(-3.98%) |
HY2024 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$1.431m |
(-60.7%) |
|
2HY2023 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$104.133m |
2HY2023 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$12.425m |
2HY2024 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$?m |
2HY2024 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$?m |
|
FY2023 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$188.803m |
FY2023 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$16.068m |
FY2024 Revenue |
$ Unknown |
$ Unknown |
$ Unknown |
$?m |
FY2024 Operating EBITDA |
$ Unknown |
$ Unknown |
$ Unknown |
$?m |
|
|
|
Commentary in the HYR2013:
"Livestock earnings were lower than in the same period in the prior year but in line with expectations. Overall the volume of business transacted remains similar, although dairy cattle tallies were down and minor variations are evident across other product lines. These changes are consistent with the market and reflect the higher level of feed that was available on-farm with good growing conditions in the late spring and early summer for most regions."
"Commodity values for sheep meat and venison are significantly lower than for the prior year.which in turn has seen average trading prices back by 33% and 12% respectively. As a commission business, these flow directly through to earnings and are a major driver for the reduced operating EBITDA from livestock."
"Greater volume handled by the wool business combined with improved margins and reduced operating costs has lead to $1.1m year on year improvement in operating EBITDA."
"Real Estate has had a solid six months, although earnings were less than the corresponding period in the prior year. The market remains relatively fickle and turnover in the sector remains well down on long term averages, especially in the large farm segment where we traditionally see a higher market share."
---------------------------
Compare the above from HYR2013 with what was said in HYR2024
"Reduced numbers of Livestock being traded, particularly North Island cattle and dairy. Poor lamb prices (down 28% year on year) have squeezed commission revenue."
"During the year we improved our supply chain partnerships and increased volumes."
"Despite a turbulent global situation, New Zealand's deer market is holding its own and remaining profitable, reflecting the high quality product."
Subsequent to this there was an 18th April 2024 profit warning with "Weak sheep meat demand from China and increased supply culminating in lower farm-gate returns."
"The total number of Wool bales sold was ahead of the same period last year. Although prices for strong wool remain suppressed, it was encouraging to note increases in prices compared to last season."
"Our market share, especially in the fine wool market, has grown."
"We grew our wool contract business which links wool growers with manufacturers domestically and internationally and provides growers with surety of price."
"The New Zealand Real Estate market has endured a difficult time. North Island sales in particular have been low, with the volume of the business significantly back. North Island sales in particular have been low with the volume of transactions significantly back on the business contracted in FY21 and FY22. Within the rural sector the most challenged area is sheep and beef farms, where values look to be reset."
--------------------------
I have to admit to being shocked at seeing HYR2024 revenue for 'Agency' as a going lower, by 18%, than eleven years previously. But I should add that 'Livestock' today no longer includes "The Standardbred Division", shut down over FY2018, that used to specialise in the trading of harness horses. The last year that sales for this division were disclosed was in HYR2017 p7 when revenue was $11.25m. This is typically almost entirely weighted to the second half year yearling sales. So it should not have affected much the first half livestock revenues and EBITDA that I am comparing (see text in table in red).
SNOOPY
Split Beginnings: History Repeats Pt3
Part 2 'the data' was getting long. So I thought I would put 'my reaction' to this data in a follow up post. The half yearly report excerpts are qualitative. So equating these to likely changes in revenues is an art, which I can't claim I will 'get right' each time. But here goes, with how I see things!
Agency
Despite the longer term decline issues, wool looked to be having a positive first half both in HYR2013 and HYR2024.
Real estate was difficult in both comparative first halves. But with talk of a need to revalue sheep and cattle farms downwards in HYR2024, I would suggest the market sounds a little worse over HYR2024 than HYR2013, However real estate has always been the smaller triumvirate of the wider 'Agency' picture.
Note that the PGW profit downgrades from last years FY2023 $61.194m EBITDA figure, have manifested themselves as forecast FY2024 EBITDA's of $52m, $50m and, with the April 2024 downgrade, now $43m. PGW management seemed to reinforce the further decline in 'LIvestock', when in their 18/04/2024 profit downgrade, they specifically mentioned further weakness in lamb prices. My inkling is that on a 'net' basis, almost all of the decremental April 'profit warning EBITDA decline (-$7m)' over 2HYR2024, where the Agency segment dominates the outlook, will be attributed to the 'Livestock' 'sub sector business' of 'Agency'.
When forecasting earnings for FY2024, based on what we know from FY2023, I think it is easier to start from what we do know from FY2023:
EBITDA |
HY2023 |
2HY2023 |
FY2023 |
HY2024 |
2HY2024 (forecast) |
FY2024 (forecast) |
Δ FY2023 to FY2024 |
Agency |
$3.643m |
$12.425m |
$16.068m |
$1.431m |
$7.637m |
$9.068m |
($7.000m) |
Retail & Water |
$48.918m |
$5.211m |
$54.129m |
$39.962m |
$2.973m |
$42.935m |
($11.194m) |
Sub Total Operations |
$52.561m |
$17.636m |
$70.197m |
$41.393m |
$10.610m |
$52.003m |
|
Back Office |
($4.717m) |
($4.286m) |
($9.003m) |
($4.775m) |
($4.228m) |
($9.003m) |
$0m |
Total |
$47.844m |
$13.350m |
$61.194m |
$36.618m |
$6.382m |
$43.000m |
($18.194m) |
Table Notes
The sequence of calculations used to compile the above table was as follows:
i/ Assume Back Office costs are unchanged for the year: $9.003m-$4.775m=$4.228m
ii/ Assume $7.000m hit on Agency: => FY2024 EBITDA = $16.068m - $7.000m = $9.068m
iii/ Assume $11.194m hit on Retail & Water: => FY2024 EBITDA = $54.129m - $11.194m = $42.935m
iv/ Calculate Agency EBITDA 2HY2024: => $9.068m - $1.431m = $7.637m
v/ Calculate Retail & Water EBITDA 2HY2024: => $42.935m - $39.962m = $2.973m
-----------------------------------
Observations
1/ 2HY2024 (estimate) Agency EBITDA of $7.637m, marks a decline from the prior comparable period figure of 2HY2023's $12.425m, of 39%.
2/ FY2024 (estimate) Agency EBITDA of $9.068m marks a decline from the prior comparable period of FY2023 EBITDA of $16.068m, of 44%.
This 44% forecast annual percentage decline is much worse than the comparable period 11 years prior, where EBITDA declined a mere 10.9% over the year. Why this should be, I am not sure. The only thing I can think of is that the Livestock sale yards have a certain base operating cost which cannot be trimmed below a certain level. Thus there comes a point, apparently reached (?) in FY2024, where you cannot employ just half a car park attendant (to use a single staff member example) to save costs.
SNOOPY
---------------------------
P.S For completeness, although this series of posts is nominally about 'Livestock', I will have a look at the consequent implied EBITDA for the 'Retail and Water' segment, the other trading segment of the company, as well.
Retail & Water
Observations
1/ 2HY2024 for Retail and Water, I estimate EBITDA of $2.973m, which is down $2.238m or 43% from the $5.211m EBITDA earned over HY2023.
2/ FY2024 (estimate) for Retail & Water is $42.935m, which is $11.194m or 21% down from the $54.129m earned over FY2023
Split Beginnings: History Repeats Pt4
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
EBITDA |
HY2013 |
2HY2013 |
FY2013 |
HY2014 |
2HY2014 |
FY2014 |
Δ 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 |
|
|
|
|
|
|
LIvestock |
$51.033m |
$47.467m |
$98.500m |
$29.494m |
$47.356m |
$76.850m |
0% (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
What the banking syndicate really thinks of PGW (HY2024 perspective) Part 2
Quote:
Originally Posted by
Snoopy
|
EOHY2024 |
EOFY2023 |
EOFY2022 |
EOFY2021 |
EOFY2020 |
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($20m) |
Working Capital Facility (Amount Drawn) |
$70m($65m) |
$70m($19.96m) |
$70m($7.50m) |
$70m($9.90m) |
$70m($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?
|
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
Current Ratio: HY2024 Perspective
Quote:
Originally Posted by
Ferg
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.
|
EOHY2024 |
EOHY2023 |
EOHY2022 |
EOHY2021 |
EOHY2020 |
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) |
1.22 |
1.25 |
1.15 |
1.19 |
1.27 |
Inventories |
$130.769m |
$129.717m |
$111.939m |
$105.536m |
$107.750m |
Average Days in Arrears, Accounts Receivable (3) |
100 |
103 |
101 |
91 |
103 |
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
HY2024: Divisional Profitability
HY2024 |
Retail & Water |
Agency |
Back 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 Margin |
3.48% |
-4.95% |
|
Notes
1/ Reallocation apportioning is on the basis of divisional revenue.
SNOOPY
HY2023: Divisional Profitability
HY2023 |
Retail & Water |
Agency |
Back 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 Margin |
4.54% |
-2.29% |
|
Notes
1/ Reallocation apportioning is on the basis of divisional revenue.
SNOOPY
FY2023: Divisional Profitability
HY2023 |
Retail & Water |
Agency |
Back 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 |
($16.067m) |
($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 |
$16.928m |
$0.942m |
|
Net Profit Margin |
2.16% |
0.499% |
|
Notes
1/ Reallocation apportioning is on the basis of divisional revenue
SNOOPY
Stock Turnover Recalculation: HY2023, FY2023, HY2024
Quote:
Originally Posted by
Snoopy
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.
Quote:
Originally Posted by
Ferg
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 = (1/1.0216)x$796.043m = $779.212m
=>FY2023 Annual Stock Turn = $779.212m/$113.099m= 6.9 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
Expense Control (FY2023 perspective)
Quote:
Originally Posted by
Ferg
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