The facility is popular with farmers for buying lambs and cattle and profitable for the group but is capital intensive and capital constrained, chief executive Ian Glasson said.
About $40 million is invested and there are limits on “how much we can pour in”.
The working capital required is a major part of the reduced group operating cashflow for the year ended June 30, with cashflow down to $5.76 million from $20.48m a year earlier.
Wrightson had operating earnings of $70.2m for the year, right at the top of the guidance target, well ahead of the $64.6m in 2017 and virtually equal to the record 2016 figure. That was on total revenue of $1.19 billion, up from $1.132b.
Several one-off charges and higher interest and finance costs and higher depreciation and tax made a big dent in earnings, leaving an after-tax profit of $18.88m, down from $46.3m a year earlier.
Glasson said the board will have several options when the proposed $421m sale of the seed businesses is settled. A substantial return of capital to shareholders is an option that has been signalled.
“It’s early days and we’ll complete the sale first.
“We haven’t seen the full potential of the Go business yet and we don’t know how far we can go but we don’t think it will get hugely bigger in the short term.”
Go Livestock involves Wrightson funding lamb and beef purchases for farmers. PGW retains the title over them while they are finished on farm. The company pockets the buy and sell transaction commissions plus a margin on the holding costs while the stock are fattened.
The livestock business is the biggest part of its agency division, which achieved record operating earnings (Ebitda) of $20.1m, up 12% on the strong earnings the previous year.
Glasson said higher sheep prices offset a lower number of dairy transactions.
The wool business had also achieved excellent results with volumes returning to more normal levels as prices started to recover from their very low base of the last couple of years.
The retail and water division also recorded strong revenues and earnings with Ebitda up 30% year-on-year.
Retail has been consistently good, benefiting from what Glasson said is a focus on customers. That includes technical expertise and a commitment to add value. Though operating in a challenging sector with reduced irrigation development the water business provided about half the Ebitda gain as it worked hard on efficiencies.
The conditional sale of the grains arm is the first outcome of the group’s strategic review, begun in October. On completion of the sale the group will have a strong rural services business with revenue of more than $800m and good profitability – Ebitda of about $35m in the latest year, with seed and grain excluded.
The remaining business will include seed and grain supply to farmers as part of a distribution agreement with the division’s buyer, DLF Seeds,
“Farmers won’t see much difference in the business,” Glasson said.
Though the strategic review is ongoing, there is every possibility the remaining business will be kept intact.
“There’s no call on that yet. The board has made no decisions. It’s a real option.”
The directors are paying a reduced final dividend of 1.25c a share with full tax credits, down from 2c last year. That makes a total 3c a share for the year, more than the 2.5c earnings a share.
Deputy chairman Trevor Burt said the board considered the factors affecting the after-tax profit, the underlying trading performance and the reinvestment opportunities available. With the seeds sale not expected to settle for several months, Glasson wouldn’t indicate investment options, saying they are still hypothetical.
The seed business reported lower Ebitda than the previous year, with very good NZ results more than offset by lower returns after difficult autumn conditions in Australia and South Americas, both hit by drought. Those businesses are in the sale.
Domestically, the business had very good sales results with a new Raphno brassica product it developed and a new plantain called Ecotain is being well received. It reduces nitrate from the animal and in the ground.
Glasson took issue with what he said was misleading comment in the market that the sale of the seed business means a loss of intellectual property. Seed development was done in joint ventures with the Crown, covering grassland, endophyte and forage and royalties from overseas sales would continue flowing into NZ. They are likely to increase because of the greater ability of Danish-based DLF to sell seed into northern hemisphere markets.
In the livestock business
Mycoplasma bovis did not affect livestock earnings but PGW had set-up a response team to help affected clients.
“It’s causing a lot of trauma to those impacted and we’re doing what we can,” Glasson said.
Real estate, part of the agency division, had a weak first half but improved in the second.
PGW had indicated the June 2018 after-tax profit would be lower because of the absence of property sale gains that bolstered the 2017 result. The latest result has $8m in provisions for holiday pay entitlements to staff for previous years and unrealised foreign exchange losses as the NZ dollar fell in value, as the company warned in mid-June.
The net dollar impact of just over $4m was included in the finance costs where ordinary interest costs were also about $3.45m higher on increased borrowing. Glasson said the foreign exchange losses will be recovered as overseas sale receipts come through.
There were also negative fair value adjustments on investments, and depreciation was higher on increased capital expenditure.
The final dividend will be paid on October 3 on shares owned on September 4.
