Friday, March 29, 2024

PGW shows ‘tough times’ growth

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A firming in dairy livestock values and a recovery in South America trading were the main end-of- year gains providing the boost in PGG Wrightson operating earnings.
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The herd sale values were probably underpinned by beef prices and the South America earnings came in stronger after the earlier flood problems there, chief executive Mark Dewdney said.

They enabled the company to upgrade earnings ahead of conformation in the formal figures, showing operating earnings (Ebitda) of $70.2 million in the year ended June 30, up from $69.6m a year earlier.

Those benefits added to the gains already made in the Retail division – where FruitFed was a “clear market leader” in horticulture – and strong earnings in Seed and Grain based on higher NZ and Australia seed sales.

Wrightson was adding to margins and making market share gains as a result of its seed development technologies and the technical expertise of its staff, Dewdney said.

Agriculture markets were very challenging and might be even more so this year but the group had been able to take volatility out of its earnings because of that technical strength and the diversity of its business across a range of farming types.

“We said at the start of the year that we had a stretch target to beat the 2015 earnings and that it was possible but not likely and we did beat it but it was not because agriculture is booming.

“We’ve shown that we can grow our earnings in the good times, such as 2014, and in the bad times of 2016.”

Both Dewdney and chairman Alan Lai described the 2016 earnings as outstanding.

Wrightson had some taxation benefits to increase its bottom line result, with an after-tax profit of $39.5m up from the previous year’s $32.7m. The pre-tax profit had been marginally lower, at $48.6m from $48.7m.

The group had tax credits from infrastructure projects in South America, tax losses to use in Australia and tax-free gains on NZ property sales. They led to an effective company tax rate of 18% down from 33% the previous year.

Taxation would eventually revert to the corporate rate but in the short term there were more deferred tax assets to work through.

From the after-tax earnings of 5.2c for the year, the group would pay a final fully-imputed dividend of 2c a share, taking the total to 3.75c.

The directors did not have a set payout policy but continued to balance earnings, cash levels and prospects, Dewdney said.

“We think we’ve built a track record of stable dividends.”

The segment revenues and earnings were included in the accompanying table but total sales were lower, at $1.18 billion compared to $1.2b a year earlier.

That was mainly because of the downturn in the dairy sector making farmers very cautious in their spending.

A lot of the dairy farm spending was on lower-margin products such as palm kernel and in-shed chemicals so the end result was a higher proportion of overall sales was in higher-margin products in other farming sectors.

 

“What we’re seeing is farmers realising that the key to greater productivity is in growing more feed on their own farms.”

Mark Dewdney

PGG Wrightson

The Seed business was a highlight, with farmers increasingly targeting non-commodity cultivars in fodder beet, chicory and plantain over commodity-type grasses.

“It’s not dairy-specific but what we’re seeing is farmers realising that the key to greater productivity is in growing more feed on their own farms with pasture quality, weed control and strategic cropping,” Dewdney said.

“They’re really challenging their farming systems, spending their money on the right products and advice and any companies that can help them do that are benefitting.”

As the table showed, Retail and Seed and Grain both increased earnings but Livestock was lower, mainly because of the absence of a live shipment of dairy heifers to China that had enhanced 2015 earnings.

The balance of Livestock earnings was similar, with beef values higher to offset softer dairy cattle prices.

Beef prices had come off their highs and though they remained strong, Dewdney did not expect increased beef farmer spending this year.

The work done refocusing the Australian business was finally paying off and there were good levels of forage seed sales to sheep farmers.

Other rural services businesses included water, wool and real estate.

The Water business was the one affected most by the dairying downturn and lower irrigation spending by farmers. Work was under way to merge that business with the Retail division.

The wool business was solid and real estate very strong as a result of activity in the lifestyle and horticulture sectors. 

Sales for the year were the highest in any year since the global financial downturn in 2008-09, though dairy farm sales remained slow, Dewdney said.

Wrightson’s operating cashflows for the year were $35.2m, up from $29.16m. The group was not seeing any deterioration in the receivables book. About $44m was spent on capital expenditure in the latest year and the spending would be less this year.

Net interest costs of $10.47m were covered a healthy 5.6 times by the $59m Ebit figure, with the ratio about the same as last year.

The group had total assets of $687m at balance date. The ratio of debt to total debt plus equity was 60% but the ratio of borrowings alone was just 19.5%. Those figures were also similar to the 2015 year.

Going into the new financial year market conditions remained challenging with many dairy farmers facing a third year of cash losses and South America difficult to call, Dewdney said.

Horticulture would continue to grow but lower lamb numbers would be a barrier to growth in the traditional livestock business.

Repeating the latest year’s $70.2m operating earnings would again be a stretch target. The group would provide an update on trading at the annual meeting in late October. 

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