The growers were fully compensated by the supplier but PGW as retailer was only partially compensated, leaving a cost that could not be recovered, and that hampered an otherwise excellent trading result, chief executive Ian Glasson said.
The division’s operating earnings (Ebitda), the group’s favoured measure of performance, were $23m for the six months ended December 31, compared to $23.6m previously.
Without the spray claim the figure would have been more than $24m, Glasson said.
The rural supply stores traded strongly as did Fruitfed but water is a difficult business because farm irrigation projects have dried up.
The half-year accounts were the first presented for the future PGW, without the seeds business that is being sold to DLF Seeds included in the core figures but treated as a discontinued operation. A loss there affected the group’s bottom-line result.
For the group the half-year “was tough but we held our own. We were up on 2017 but not up to the record 2018 when everything seemed to align for us,” he said.
PGW’s agency operating earnings were $1.6m, down from the prior period’s $4.6m, mainly because of a fall of about $2m in wool earnings on lower volumes and weak international crossbred pricing.
Livestock trading was impacted by timing issues in a wet spring and early summer, largely because of dairy sector caution and Mycoplasma bovis impacts, with sheep and beef tallies similar to the previous year.
Earnings rebounded in January with strong cattle and sheep sales and livestock is now expected to match the full-year 2018 result.
Rural real estate was slow but the group maintained market share.
The rural service group encompassing those divisions had operating Ebitda of $17.8m, down from $23.4m.
The continuing business had a $9m after-tax profit but the bottom-line fell to just $320,000 after the $8.7m loss in the seeds and grain business mainly because of problems in South America. The $320,000 profit is a big fall compared to the 2018 figure of $14.6m.
PGW typically has an operating cash outflow in the first half-year, being $58.6m, compared to $49.77 previously.
On the basis of the rural services result the directors will pay an interim dividend of 0.75c a share on April 5.
That will take up about $5.6m but Glasson pointed to the division’s after-tax earnings of $9m and said the continuing business will be a very substantial enterprise with $800m in annual sales.
“It’s still very solid without seeds.”
Summing up the first-half, he said PGW had a later start to spring sales and a delayed recovery following an unseasonably wet period in the last few months of 2018.
“But we’ve got good underlying growth.”
The retail business makes about 85% of earnings in the first half of the financial year.
“Wet spring conditions have favoured milk and beef production with an increase in production by 6% across both sectors due largely to strong pasture growth.
“In contrast, wet growing conditions in most regions have delayed pasture renovation and the establishment of both arable and winter feed crops. This was felt across most of our rural services businesses, impacting the sales mix and some delayed spending.”
That involved some higher-value products.
With this background he believes there will be pent-up demand for agriculture inputs to come through in the autumn but more likely in the spring for crops, notably fodder beet which, is the group’s highest-value crop, to benefit retail earnings.
Glasson remains cautious on the overall outlook, saying there are several counterpoints to the positive signals on milk, beef and especially lamb prices pointing to continuing robust farm earnings.
Added to that, horticulture is expected to be the fastest-growing export sector.
The counterpoints include surveys indicating farmer pessimism, very dry conditions in many areas, lingering risk from M bovis and trade issues offshore.
A lot will depend on weather and commodity prices in May and June, an important period for livestock earnings.
At balance date PGW had total assets of $931m, with the seeds business included in $449m of assets held for sale. Shareholders’ equity was $274m.
The PGW Seeds business is conditionally sold, with last July 1 being the effective date if the final approval, from the Overseas Investment Office (OIO), is received. PGW is not part of the OIO process, but Glasson said his understanding was that the process is one of timing, and not any complicating issues. Uruguay regulatory authorities cleared the sale last week.
The sale price was locked-in at June 30 values and is a net $431m for PGW after DLF Seeds takes on $21m in seeds debt.
PGW has said the profit on the deal will be about $120m, to go into the after-tax earnings for the year-ending June 30.
The cash return will be about $210m. There will be a capital return to shareholders with details to be finalised when the sale is unconditional.
The company has indicated the return could be more than $210m. Factors involved in the decision include the ongoing group debt profile, capital and cash requirements and alternative uses of funds to support growth.
