PGG Wrightson Limited (PGW.NZ) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the PGG Wrightson Limited Full Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Stephen Guerin, Chief Executive Officer. Please go ahead.

Thank you, Kelly. [Foreign Language] Good morning, and welcome to the PGG Wrightson results briefing for the financial year to 30th June 2025. My name is Stephen Guerin, Chief Executive Officer of PGG Wrightson. It's my pleasure today to provide a brief overview of the results for the financial year to June 2025. With me on the call, I have Peter Scott, our CFO; Julian Daly, our General Manager of Corporate Affairs, who is also our Company Secretary. During the call, I'll cover the year's financial results, our trading performance, key themes and initiatives, and some thoughts on the year ahead. There will be time for questions at the end of the call. PGG Wrightson's headline results from the 30th June 2025 include operating revenue of $975.3 million, up $59.4 million and 6% on the prior financial year; operating EBITDA of $56.1 million, up $12 million or 27% on prior financial year; net profit after tax of $10.7 million, up $7.6 million or 248% on the prior financial year; fully imputed final dividend of $0.04 per share, bringing a total of $0.065 per share for the full year. PGW's businesses reported improved results of the prior year with FY '24 appearing to have marked at the bottom of the equity cycle. Our Retail & Water group revenue was up $39 million on the prior year. Our performance at an operating EBITDA level was an increase of $1.1 million year-on-year. While the operating environment over the year was more challenging in the retail space, we are encouraged with the revenue growth. In this context, I'm pleased to see the business continue to consolidate and grow market share. Our Agency group delivered a strong up turnaround led by our Livestock and Real Estate businesses. Constrained supply for livestock and increased demand drove elevated red meat and dairy commodity prices, supported good farm gate returns. This has a positive influence for the profitability of our farming operations and is reflected in the positive sentiment shift. Rural real estate activity increased significantly as a consequence of improved confidence in the dairy and red meat sectors, with activity supported by the easing [indiscernible] in interesting. This has seen a shift in real estate inquiries in dairy, beef, sheep and selective horticulture properties, together with new listings coming to market. July Federated Farmers' Confidence Survey has confirmed strong lift in farmer sentiment, is at the highest levels in 8 years. This is driven by easing interest rates, more stability in input costs, improved commodity prices and government policies viewed as more supportive of the agricultural sector. Farm profitability has rebounded and strengthened investment spending in production expectations. The Board has declared a fully imputed final dividend of $0.04 per share. The dividend will be paid on 3 October 2025 to shareholders on PGW share register at 5 p.m. on 11 September 2025. This will bring the fully -- total fully imputed dividends for the year to $0.065 per share. Turning to the business highlights of the past financial year. PGW successfully implemented this business improvement program with go-live of its Microsoft D365 enterprise reporting platform in April 2025. This milestone marks a significant step forward in modernizing our systems and strengthening our operational capabilities. With the implementation now complete, our focus has shifted to unlocking the full value of this investment. The outcomes include improvements that will drive operational efficiencies, enhanced data utilization and generate deeper insights to support decision-making within the business. PGW reset its group strategy this year, reaffirming our long-standing commitment to deliver innovation expertise to help farmers and growers, customers achieve production objectives. Our group strategy serves as a framework for decision-making that expands the business and ensures alignment and delivers upon our purpose, which is helping farmers and growers succeed with expert knowledge and confidence. Our strategic priority is focused on deepening customer relationships, equipping our people for the future and leveraging technology to drive operational efficiency, enhancing the collective strength in our diverse businesses and investing in product and service innovation. We are building on our current heritage of positioning PGW for long-term success. While on this topic of strategy, July 2025, PGW acquired Nexan Group, the manufacturer of the Vetmed animal health range. This acquisition reinforces PGW's commitment to support local manufacturing and delivering high-quality innovative solutions that help New Zealand farmers thrive. This acquisition is a complementary fit, aligning with our PGW Group strategy and supporting business growth. PGW has partnered with Nexan for over a decade, and its commitment to innovation in rural communities aligns with PGW's vision in service. The acquisition ensures these products remain tailored to meet the needs of our rural communities. Nexan has a proven record on the R&D space as an innovator, and we see their core capability is adding to PGW's strengths in this space. I'll now comment on our 2 business groups, e.g., Retail & Water and the Agency businesses. Firstly, the Retail & Water business. Retail & Water business incorporates Rural Supplies, Fruitfed Supplies, Water and Agritrade. Retail & Water recorded operating EBITDA of $42.2 million, an improvement of $1.1 million on the prior year's result. Revenue of $773 million was up $39.4 million. Retail & Water refreshed its 5-year plan with a focus on a range of growth initiatives. A key example of such initiatives that I've commented upon was the acquisition of Nexan Group. The acquisition is an excellent fit for PGW and aligns with our strategic investments and ensures that Nexan's trusted range of products will remain New Zealand made backed by local expertise aligned with the needs of our rural communities. In terms of strategic fit, PGW is already a wholesaler and retailer of this range. This acquisition provides the opportunity to take ownership and product manufacturing on [indiscernible] perspective and continue to grow the range. Another key growth initiative is our BlueAG ag-chem private label strategy. Building brand equity in our proprietary BlueAG label provides greater branding recognition and the opportunity to provide -- build trust and credibility in our proprietary label. It provides PGW with the price-point control with -- while giving customers more product options that they can trust in. Our Rural Supplies business performed solidly, as sentiment in the farming sector improved over the year and with the strengthening in export commodity prices. It has been pleasing to see dairy, sheep and beef farmers all seeing strong international demand and increased returns, which helped many farming operations to return to profitability. While sales revenue improved on the prior year, farmers took a generally conservative approach with many using good returns to reduce debt. Fertiliser and stockfood were in demand as farmers focused on increasing production to maximize the higher commodity returns. There was additional spend on capital items such as fencing in the latter part of the year. However, the arable sector was more challenging with reduced demand in seed crops and prices coming under pressure. Our Fruitfed Supplies business faced a challenging trading environment FY '25. Despite the headwinds, Fruitfed Supplies maintained its strong market position. Encouragingly, we have seen renewed optimism for both kiwifruit and apple sectors. Orchard investment, new plantings and a focus on varietal development signal confidence in the future of these crops. Buoyant export demand, improved post-harvest performance and sustainable pricing have contributed to a positive outlook for these growers. The viticulture and vegetable sectors have been less buoyant. Viticulture market conditions were subdued due to global oversupply of wine. Market pressures have impacted grower confidence and the investment positions in these categories. There was a limited development for our Water business in the first half of the financial year. However, the team has seen a momentum shift in the second half in response to the buoyant dairy sector, which has lifted investment confidence in irrigation development moving forward. Our Agritrade business. The year has marked a strong -- some strong strategic investments and implementation of growth initiatives for Agritrade as our wholesale business. As I've already commented upon, the acquisition of the Nexan Group represents a strategic investment in the animal health sector and launch of our private label BlueAG ag-chem range all managed through the Agritrade business. Turning to our second largest business group, which is the Agency. The Agency group incorporates Livestock, Wool and the Real Estate businesses. Operating EBITDA was $23.5 million, which was an impressive $11.1 million up on the prior year's result. Revenue was $201 million, up $20.3 million. Our Livestock business recorded exceptional financial returns on the back of elevated meat pricing and increased volumes of beef and dairy cattle [indiscernible]. Strong demand for cattle, resulting from significant demand and constrained supply internationally, drove livestock prices to record levels. Pricing remained high throughout the year due to processor demands, good feed and robust beef schedules. Meat prices improved significantly year-on-year, particularly in the second half of the financial year. Elevated schedules allow farmers to take advantage of prices where declining feed and dry conditions impacted production. The number of sheep transacted were reduced as a result of lower numbers due to continued land use change. Good pricing for dairy resulted in strong demand and limited supply. Livestock pricing was buoyed by forecast milk price and high-end herd sales. There were also strong demand contracts for dairy herd sales. Stud stock sales rebounded as clients returned to the market with an increased demand for sire bulls, with records set during the selling season. Our GO-STOCK sheep, beef, dairy and deer products experienced strong demand. [indiscernible] interest rates improved meat availability in the South Island and higher stock range and meat schedules resulted in steady uplift in GO-STOCK contracts. Our strategic priority for the Livestock business is strengthening and growing our supply chain partnerships with herd meat processers. These relationships add value to PGW and our customers for providing consistent, high-quality service, safety, flexible contracts and finance options. Even though there has been a year-on-year reduction in livestock sentiment processes, it's pleasing that PGW has experienced growth in volume across most species to our supply chain partners and adding a growth of market share. Our bidr online trading platform is well established in livestock sector nationally and its database of buyers grows year-on-year. This growth was driven by continued demand for hybrid integration, online bidding, live streaming of cattle sale at saleyards and farm auctions. bidr hosted over 1,000 auctions during the year and has firmly established itself as leading online platform for livestock. Continuing to our Wool business. The wool season concluded with improved wool prices up on the previous year, though there remains significant room for improvement to create profitable lift for wool growers. A challenging year for wool production due to difficult trading -- growing conditions and a notable decline in shearable sheep, leading to a reduction of bales across our stores. Despite the reduced bale numbers, we've maintained our market share. PGW partnered with the iconic Kiwi brand, Norsewear, to strengthen the value of ethically produced New Zealand wool and support domestic manufacturing. The partnership connects PGW growers directly with trusted manufacturers, delivering better returns for wool growers through long-term contracts by ensuring wool -- by ensuring demand certainty and supply of fully traceable New Zealand wool. The Wool Integrity NZ trademark, PGW Wool's assurance brand, certifies that the wool meets the world-leading standards in animal welfare and sustainability. Our wool exporting subsidiary, Bloch & Behrens Wool New Zealand Limited, achieved an increase of wool export volumes to key markets, predominantly in Europe. This was perfectly pleasing given wool volumes exported from New Zealand declined in the past year. Our Real Estate business. Improvement on the real estate market has continued to contribute to a pleasing performance on PGW Real Estate with revenue activity up 55% on the same period last year. The market has been buoyed by a gradual downward trend in interest rates, strong dairy payouts, robust red meat pricing and farm gate prices breathing confidence into the sector. Volume of property listings and sales activity reached levels not seen for some time. Turning to our balance sheet. PGW recorded cash flows from operating activities of $12.4 million for FY '25 and included significant growth in our cash outflow. GO-STOCK receivables, which increased $28.9 million over the 12 months to 30 June 2025 to be $81.4 million. This growth compares to a cash inflow for GO-STOCK receivables of FY '24 of $21.5 million. Working capital balances increased $1.4 million from the prior comparative period. Cash flows from investing activities included capital expenditure of $17.4 million, inclusive of our investment in Microsoft D365 enterprise reporting platform implementation. PGW amended and extended the syndicated banking facilities on 30 June 2025 for a further 2-year period through to 30 June 2027. Turning to the outlook. The agricultural sectors experienced a strong rebound, supported by encouraging economic indicators. Buoyant export prices and good demand amid constrained supply has boosted confidence in production decisions. Easing inflation and interest rates, together with greater stability in input prices, have created a more positive operating environment. These factors have continued to a -- sorry. These factors have contributed to renewed optimism and a noticeable shift in farmer confidence, which is a positive for the rural servicing businesses. Despite the momentum, forward-looking sentiment is not uniform across the sector with a more challenging operating environment for arable farming, viticulture and strong wool. Ongoing geopolitical tensions and uncertainty around international trade terms with increased tariffs and protectism policy driven by the current U.S. administration are source for uncertainty. While dairy and red meat remained resilient, caution continues to influence parts of the sector, reflecting a mix but stabilizing our outlook for New Zealand primary sector. Our commodity prices are expected to remain throughout FY '26 across dairy, red meat and horticulture crops, particularly kiwifruit and apples. Overall, the outlook is positive for the sector. Confidence in the rural real estate market is expected to persist in FY '26. The quality of listings continue to attract interest and increased farm sales. While there's a mixed picture across New Zealand economy, with some industries facing difficult trading conditions, the agricultural sector is a bright spot and is leading the recovery, again, with strong export commodity prices and payouts that are boosting rural areas. Despite the global uncertainties, agricultural sector as a whole remains resilient and profitable. The implication of the increased U.S. tariffs on New Zealand exports from 10% to 15% have yet to be seen. The sector's strong fundamentals provide a strong, solid foundation for continued growth and investment. Supported by our strengths in technical expertise, innovation, enduring customer relationships, PGW is well positioned to support our customers' growth -- our customers to grow their businesses and capitalize on the forecast growth in export revenue. Achievements this year are a direct result of the dedication, resilience and talent of our exceptional team. We also extend our sincere thanks to our customers for their loyalty and trust. This concludes the 2025 financial year results presentation. I'm going to open the call for questions. Thank you very much. Kelly, I'll return this call back to yourself.

[Operator Instructions] We have a question from [ Paul Grant ].

I've just got the brief market report. I'm just wondering what the debt level now is for PGW. I didn't see the -- didn't notice that, sorry, on the on the report. And just wondering about the Fruitfed Supplies with you, how that's going at the moment.

Thank you, Paul. So I'll just throw the debt question over to the CFO, Peter Scott, for a moment to answer that question.

Yes, for the debt level, the net debt level at the end of June 2025, so including cash being reduced, that's about $86 million.

In terms of your question, Paul, around the Fruitfed Supplies business, we continue to grow our market share. The sector has had a good growing year, so there was good climatic conditions across the sector. So the crop quality was very good. That, in fact, had an adverse impact on our Fruitfed Supplies business because it was actually less inputs required from our clients. They know themselves have actually received good returns, good crop quality in the international markets, particularly in kiwifruit crops, apple crops and the likes of avocados, for example, which we actually welcome with a strange way because coming off a second year out of the cyclones of 2023 growing season, that's actually good for growers in terms of their balance sheets. And as I commented on our presentation, we're seeing some renewed investments in their plantings and expanded their production areas. The viticultural area, in terms of that sector, which is another part of the -- a key crop within our Fruitfed Supplies business, the crop quality is very good. And there was some good vintages coming out of the production cycle, the winemaking cycle, I should say. And -- but again, because of the climatic conditions, some of the inputs that we supply to the market weren't actually required by those growers, but it does result in a good quality, thus wine quality. Having said that, that sector, the international wine market, in fact, will broaden the -- the whole alcohol market is actually on a decline. We as a world and we in New Zealand are actually drinking less alcohol, less wine. So therefore, the confidence in the sector has reduced. And they're very much managing the input costs, and we're not seeing the new platforms coming to marketplace. Hopefully, that answer helps what you're looking for.

Paul, it's Peter Scott again. I thought maybe I should just give you one other comment on the net debt levels actually. So the net debt level is just under $86 million, but that actually includes $81.4 million of GO receivables. And when you take that out, that's actually -- we get to $4.1 million if you were to exclude the GO receivables. [indiscernible]

Thank you for the question, Paul.

Yes. Just with the good commodity prices and good real estate market, that sort of thing, I'm just wondering with tariffs and everything like that happening, how you're going to get some growth in your NPAT. You have mentioned in the interim report that you've had some tight control on costs, but you haven't given any clarity on what cost-out actions you've taken. Could you give us some more understanding of cost control and cost-out initiatives?

Yes. In terms of the growth, it's 2 parts to your question, Paul, is the growth and the earnings of the business. As you -- as we've acknowledged, we see the sector being positive over next little while. Yes, there is tariff barriers in terms of the U.S. market, but that is but one market from a New Zealand perspective. So we are seeing good demand out of other areas, and we've -- like in the Asian markets and the European markets, and we talked a little bit about that for our wool business. We didn't specifically talk about it, but our velvet market has bounced back a little bit in the latter part of this financial year. So we are confident that the other parts of the sector are going to underpin those strong returns for crop demand, and we're seeing that that's not a position that PGW holds. That's also a position that generally the market is holding as well. In terms of the cost management, there's a couple of things in that space. Initially, our costs this year do include some operating costs in respect to the implementation of our D365 platform, and we have -- we won't receive a receipt -- have a receipt of -- a repeat of those. We've also switched off some of our legacy systems in terms of dual licenses, et cetera, that we had operating in the business up until now and consolidating all those onto the D365 platform. Bearing in mind, we were running whilst the D365 platform was -- we talked about it as a new implementation that was new in terms of our finance and our core systems, but it wasn't new, new to us as we've been running it for about 5 years now under our retail environment. So that -- switching off those systems does reduce our operating expenditure in our IT area. And we see a more stabilized spend on that space. In terms of other areas, we continue to watch our costs such as our travel and those sorts of things, fundamental things that you do as far as our business is concerned. And we continue to review our vendor pricing in terms of inputs into the business. And like any -- in the organization, we continue to monitor those. So -- and people are still our core, and we've been managing how we go to market and how we -- what people we bring into the business when we have vacancy in positions, and we take very prudent approach as far as that is concerned. Those are couple of areas I'd call out.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Guerin for closing remarks.

Thank you all. Thank you for taking the time today to listen to our results. So I wish you all the best for the day.

That does conclude our conference for today. Thank you for participating. You may now disconnect.