PGG Wrightson Limited (PGW) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the PGG Wrightson Limited half 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, operator. [Foreign Language] Good morning, and welcome to the PGG Wrightson results briefing for the 6 months to 31 December 2023. I'm Stephen Guerin, the Chief Executive Officer as the operator introduced. I'm pleased to provide you an overview of the interim results for the 2024 financial year. Joining me on the call are Peter Scott, our CFO, and Julian Daly, our General Manager and Corporate Affairs and is also our Company Secretary. Today, I'll summarize the financial results, our trading performance, key themes and initiatives for the period, and I'll discuss some thoughts of the year ahead and then the time for questions and answers at the end of the session. During this call, I'll refer to PGG Wrightson as PGGW, a company of the group. I will refer also predominantly to our operating EBITDA which is a non-GAAP measure that allows us best to describe our business operations. I will also discuss the outward bottom line of net profit after tax for we'll get [ measure ]. Key items of metrics for the first 6 months to 31 December 2023 to note are operating EBITDA of $36.6 million, down $11.2 million or 24%. Revenue of $560.9 million, down $24.9 million or 4%. Net profit after tax of $12.7 million, down $8.4 million or 40%. Operating EBITDA guidance of around $50 million for the financial year to 31 -- sorry, 30 June 2024 has been issued to the market. PGW Board has by a majority determined PGW will reinvest capital back into growing the business by suspending the interim dividend in order to avoid adding debt in the face of rising interest costs. The Board considers PGW has performed well against difficult market conditions and the restraints is impacting the primary sector and wider economy. It recognizes uncertainties remain and that it is prudent to complete before reviewing the dividend payout ratio, if any. Recent levels of dividend have been at the upper end of the payout ratio for the sector and are not sustainable. PGW has traded solidly during the first half of the financial year in a materially more challenging market conditions than experienced in recent years. Factors such as elevated levels of inflation, interest rates on rising debt levels, together with subdued demand and softer returns in most of New Zealand's key primary export commodities have all contributed to create a more demanding environment of many of PGW's farmer and grower clients. And we note that there is clearly a strong correlation between the fortunes of our clients and PGW. In terms of the key metrics, PGW delivered operating earnings before interest, tax, depreciation and amortization or operating EBITDA of $36.6 million, down $11.2 million or 24% compared to the prior corresponding period. Revenue was $56.9 million -- sorry, $560.9 million down $24.9 million or 4%. And net profit after tax or NPAT was $12.7 million, down $8.4 million or 40%. This year's results can be described as steady in the context of the headwinds of the sector and the wider economy face. Our Retail & Water segment nevertheless traded well compete the record high for the comparative period. Our Agency segment results have been again been impacted by the weaker real estate market and softer commodity pricing, particularly in sheep and lamb markets where prices were back 28% year-on-year. In response to the trading conditions, PGW has actively managed and reduced its spend in a range of cost areas. At the same time, we have seen increases in costs through supplier price rises as evidenced by CPI price increases. Favorable climatic conditions in Australia in recent years have been seen farmers build up their flocks with sheep numbers estimated to be at their highest in 15 years. However, recent dry conditions in Australia have resulted in record numbers going to slaughter and were up 16% from the previous year. This excess of supply has negatively impacted farmgate sheep meat prices on both sides of the Tasman. It is useful to look at the results in the context of PGW's performance through the economic cycles over recent years, and we refer you to our half year results at an operating EBITDA level, revenue and NPAT level from the previous 5 years. I'm referring you to our graphs as outlined on Page 2 of the NZX announcement. It's also informative to highlight PGW's total shareholder return change baselined against the S&P/NZ50G index over this period. PGW have seen a total shareholder return movement of plus 93.08% since the share consolidation in August -- sorry, in August 2019 on the sale of PGW seeds business. This compares favorably to the S&P/NZ50G index movement on plus 8.44% over the same period. The figures were rebased at 100. I'm going to refer you to the graph at NZX announcement. Despite the challenging environment, PGW's dedicated and knowledgeable team continued to deliver first-class service and products to our clients who appreciate the tailored advice they received from our trusted store team and reps in their fields and orchards. We'll now cover the credit performance of our retail and business -- Retail & Water business. Retail & Water business incorporates Rural Supplies, Fruitfed Supplies, Water, and Agritrade. Operating EBITDA for Retail & Water was $40 million, down $9 million and revenue was $478.3 million, down $21.7 million on the prior corresponding period. Farm and orchard spending indicators across the board continue to point downward. Although farmer and grower confidence has improved over the period, investment intentions have fallen to their weakest since the 1980s, excluding the first COVID-19 lockdown. This is a result of high interest rates, inflation and a decline in both meat and milk commodity prices due to softer demand in export markets and the ongoing impact of Cyclone Gabrielle for our North Island clients in both the rural and horticulture sectors. The professionalism and superior advice, service and technical ability of our people continues to reinforce client loyalty and attract new customers underpins pleasing market share growth. We continue to build on PGW reputation of providing the best technical advice in our market and our customers research demonstrates strongly that this focus and market differentiating factor resonates well with our clients and remains a key component of our strategy as we hold and grow our market competitiveness. In several sales categories, we have seen growth on last year’s record result. The standout range being General Merchandise which is continuing to grow year-on-year. This is a strong indicator that we are seeing an increase in foot traffic through our stores which is a testament to our team’s culture and client centric focus. Our goal of having the best trained people in the industry is widely understood and well recognized by our clients. Customer Focused Innovation is one of our strategic pillars and we continue to invest in this area. One such example is the successful trial run last year with Spark IoT, and where we have now started rolling out fridge and freezer sensors across our business. These sensors help safeguard key products in our care such as animal health vaccines, horticultural pheromones, and deer velvet that must be kept at set temperatures. By digitalizing the process, we reduce the cost of wastage and provide our clients with greater quality assurance. During the period we introduced our self-funded research and development model. We currently have a strong footprint in horticultural R&D and will expand this to the rural sector of our business, focusing on systems, programs, and product focused R&D. Initial R&D trials have now been selected and trial work has begun. We commenced a refresh of the Retail & Water strategy. The focus of the strategy is to capitalize on the growth in market share providing the best products and high levels of service and advice to clients in an ever-changing landscape, and rearticulating our goals over the next three years. The focus of our marketing campaign this year is on the value we add to our clients’ businesses, looking at the whole farm and orchard approach taken by our technical field and horticultural representatives. Client testimonials are the main component of the campaign, demonstrating the positive impact our approach has on our clients and their business operations. We continue to invest in our store network which further demonstrates our commitment to rural New Zealand and supporting our farmers and growers. Our Timaru Retail store and water branch relocated to new purpose-built buildings on a single site. The Geraldine Rural Supplies store has also recently opened a bulk warehouse extension. These modernized buildings provide better customer and working environments and improved flow of products between the retail areas and bulk warehouses, improving operational and safety outcomes. A number of other building initiatives are currently in early stages with work about to commence on the new Ohakune Rural Supplies and Fruitfed Supplies store, as well as a major upgrade of the retail area in our Waimate store. Our Rural Supplies were not affected by the predicted impacts of the early onset of the El Niño dry season across the country as it did not materialize through the spring period with a lot of rain for most areas during the critical spring period. It was a lot of rain during this period with a prevalence of cooler temperatures. This led to increased grass cover and good feed reserves. The flow on effect is reduced sales of stock food and summer brassicas. Our goal of having the best trained people in the sector is evident in the growth of our Animal Health offering where we are taking a proactive approach relating to the onset of drench resistance. Drench resistance is accelerating and the financial impact on sheep and beef farmers will be significant. PGW has proactively moved to get ahead of this challenge and provide market leading support and advice to our clients on this topic. We have begun building the awareness of our frontline staff on this issue, increasing their knowledge of how best to manage drench resistance through farm management practices and build toolboxes that will allow our teams to assist clients. Our Fruitfed Supplies business first half was impacted by Cyclone Gabrielle, which occurred in February '23 -- 2023. A number of our clients in Gisborne and Hastings lost large areas of crop and therefore required less product in the current season. Many clients lost their entire seasons crop last year causing cash flow impacts. Due to falling returns and the impact of the cyclone we have seen a slowing of horticultural development over the last 12 months as growers look to consolidate their existing businesses and remediate properties. Returns in some sectors have been softer. The apple, avocado and kiwifruit industries have experienced weaker demand and declining returns, with prices for some crops at levels not seen for several years. These falling returns have seen the amount clients spend on some product lines reduce. At the same time, we see land use change as some growers diversify their products and investing in other regions, increasing opportunities across the core categories that we supply to our clients. Our PGW Water business has continued to invest in specific field training for our technicians. This has increased client referrals and new and returning customers across our service branches due to our team’s increased field operational skill-set. Some staff vacancies were difficult to fill at the beginning of the period as we lifted our expectations of employee skill-sets, but we have started to see an increase in quality applicants. Our Agritrade, which is our wholesale business, commenced a review of its business strategy with a focus on areas that generate value growth. The primary emphasis to date has been about optimizing the supply chain dynamics with a goal of reducing customer order frequency and adding minimum order volumes. This reduction enhances operational efficiency by reducing the operational overheads, greenhouse gas emissions and enhances customer service. Additionally, the focus has extended to identifying and addressing non-profitable products to ensure that our inventory better aligns with market demands and continues to contribute meaningfully to our revenue. These refinements of our model aims to position our wholesale business for sustained growth in an evolving landscape. Tensions in the key Red Sea trade route are contributing to longer shipping times and higher freight costs for some products. Shipping companies are diverting trade from the Red Sea and the Suez Canal. Supply chain pressures like those seen during COVID-19 could return if the conflict continues for product shipped via these routes. I will now turn to the trading performance of our Agency business. Our Agency group includes Livestock, Wool, and Real Estate. Agency delivered an Operating EBITDA of $1.4 million for the first six months of the 2024 financial year, a reduction of $2.2 million compared with the same period last year. Revenue was $81.6 million, down $3.1 million compared to the prior period. High on-farm inflation, softer commodity prices, elevated interest rates have led to subdued purchasing from farmers which reduced volumes of livestock being traded, particularly North Island cattle and dairy markets. Poor lamb prices have squeezed commission revenue, with weaker Chinese demand and increased Australian supply causing prices to fall. Our strong relationships with clients contributed to maintaining our market share throughout these tough times. During the period we grew our supply chain partnerships and increased volumes. GO-STOCK returns were up significantly compared to the prior period, reflecting the attractiveness of the product to clients. It remains a popular product for our clients, assisting them with their cash management and allowing capital to be used elsewhere. Bidr’s growth in the first half of the year was assisted by the installation of weekly saleyard auctions at Stratford and Taranaki as well as an increase in the number of online-farm hybrid auctions for commercial sheep and beef in the North Island. Many were inaugural sales and a replication of the traditional on-farm auction model in the South Island. Despite a turbulent global situation, New Zealand’s deer market is holding its own and remaining profitable reflecting the high quality of the product. Our Velvet business has continued to grow, with significant new contracts agreed with both local and international buyers. China announced late in 2023 that imported velvet will need to be dried before it can be classified as a Traditional Chinese Medicine. This will require a different approach given that New Zealand exports mainly frozen velvet which can be more cost-effectively processed in China and presents some uncertainty in the 2024/25 season. Government officials are engaged in constructive discussions with their Chinese counterparts to have a classification and a pathway that the industry is hopeful will have potential longer-term benefits. We progressed the roll-out of new technology by improving the technical information our reps can access on their tablets and in the field. The total number of wool bales sold was ahead of the same period last year. Although prices were strong wool remain suppressed, it was encouraging to note increases in prices compared to last season. Top quality, well-prepared crossbred fleeces do command premiums. Our market share especially in the fine wool market has grown on the back of profitable contracts offered to growers. We grew our wool contract business which links wool growers with manufacturers domestically and internationally and provides growers with surety of price. We saw increased inquiries from domestic and international retail brands with a number of overseas clients visiting. Their focus is to better understand the supply chain with a particular emphasis on the outlook for New Zealand wool production and farming practices. Our wool exporting subsidiary, Bloch & Behrens Wool (NZ) Limited, increased its Wool Integrity NZ brand profile nationwide collaborating with Hyundai Country Calendar and giving away generous vouchers redeemable at the Wool Integrity store. These initiatives increased the online sales and total orders, and improved customer return rates. Supporting the wool industry is important to our business. We continue our sponsorship and support of the Wool in Schools program where two mobile interactive classrooms known as Wool Sheds traveling through the country promoting the virtues of wool. The PGW Vetmed National Shearing Circuit commenced in October, with five rounds of competition across the country. The New Zealand Real Estate market has endured a difficult time. North Island sales in particular have been low with the volume of transactions significantly back on the business transacted in FY '21 and FY '22 years. However, during the period there were four sales greater than $10 million in the South Island and residential sales in the lower South Island have exceeded expectations. There is increased activity in plants and dairy farms with higher levels than those seen in the past few years. Orchards have seen an upturn In interest with more properties poised to come to the market in autumn. Within the rural sector the most challenged area is sheep and beef farms where values look to be reset. The Tauranga real estate office relocated to new premises in Te Puna which allows the benefits of a more modern building and an increased brand profile in the area. I'll now turn to our balance sheet and in particular cash flow and debt. Cash flow from operating activities saw a $6.8 million outflow; a $28.1 million Improvement compared to the prior comparative period. Operating EBITDA was $11.2 million lower than the comparative period. The build in working capital for the Group of $36.1 million was $33.4 million lower than the prior six-month period. The Group received good collections from customers with overdue rates lower than 31 December 2022. In addition, income tax payments were also $7.7 million lower than the prior period which included income tax payments on the record FY '22 financial performance. Financing costs were $1.4 million higher as a consequence of higher interest rates. Capital expenditure was $6.9 million, an increase of $700,000 versus 31 December 2022 and included investment in our Business Improvement Program. The group paid the FY '23 final dividend of $0.10 per share, or $7.8 million in October 2023. Net interest-bearing debt was up $1.4 million compared to 31 December 2022 at $96.9 million. The group renewed and extended its bank facilities in December 2023. The renewed facilities have a term ending in February 2026 and now provide total facility limits of $185.0 million, an increase of $25.0 million allowing for future growth opportunities including GO-STOCK. Given the current challenges faced in the sector and broader economy and the impacts these have had on our plants businesses, the PGW Board has determined not to pay an interim dividend. The Board considers that this is an appropriate and prudent measure to take at the present time. At a broader level the PGW Board is also assessing its ongoing dividend payout ratio given the need to strike the right balance between sustainable distributions for shareholders whilst retaining sufficient earnings in the best Interests of the company to allow it to effectively execute upon its strategy. As a business we are determined to improve our safety performance. In advancing our health and safety and wellbeing program -- strategy we continue to focus on our key critical risks improving our team members' health and safety and wellbeing skill-sets competence, and mindsets. To assist with this a new health and safety and wellbeing fundamentals training program has been developed to provide all team members with the fundamentals of how we view safety at PGW alongside the key roles played as an organization, and as team members. We have also made progress in reducing risk across three of our highest risk areas being working with animals, driving vehicles and mobile plant, by ensuring those closest to these risks are intimately involved in designing the relevant safety controls. We continue to reap the benefits of investing in our people through our academy, technical college, and sales and training programs. Alongside our well-regarded leadership and capability development program, we have deployed a series of roadshows to enhance management skills across our leaders. Our strong employment brand sees us continue to attract and retain high caliber team members. We continue the implementation of significant investment will chase both operating expenditure and capital expenditure in our company-wide business development program to simplify PGW’s IT systems. This program will simplify our technical IT environment and standardize business processes, providing benefits of greater efficiency, flexibility and better utilization of our data. During the period batch tracking for some products and retail pricing projects were completed. A comprehensive batch tracking service provides traceability allowing us to trace the source, origin, or production conditions of raw materials and final products and differentiates us from our competitors and will be extended to our full range in the next financial year. We updated our retail pricing system to Microsoft D365, a cloud-based portfolio, which improves operational efficiency. It has been just over one year since the Max Rewards loyalty program was relaunched, and the team is pleased to see the positive impacts of the program with new members joining, current members being retained, and high engagement on redemptions. The Max Rewards stand has been a popular feature in our PGW marquees at National Fieldays held at Mystery Creek in Waikato and the New Zealand Agricultural and Pet Show here in Canterbury, in relation to the [indiscernible]. The team will delve further into member acquisition, member retention, further opportunities with internal stakeholders development program, and implementing new reporting over the next 12 to 18 months. We've included our useful strategy report, sustainability report and our half year report and refer to pages 14 to 15 for the update of our program and work in this area. Turning to outlook and guidance. The group's outlook remains cautious with the agricultural sector and international marketplaces facing various challenges including the impact of El Niño conditions across the country, lower meat pricing in particular sheep and lamb, higher input costs, softer commodity pricing for primary exports, and subdued demand from our largest export market, China. The carry over impacts of Cyclone Gabrielle together with supply chain challenges associated with offshore conflicts and higher interest costs are all contributing to temper the short-term outlook prospects. Sheep meat prices are at their lowest range in a decade with high volumes of Australian meat and weaker international demand have impacted the market. Whilst pressure on sheep pricing is anticipated to continue in the near term, there is an expectation we will see improved trading across the major stock types as the countryside dries out and the current abundance of grass diminishes. Beef prices are expected to remain stable. Although our beef farmers are more optimistic, there is concern about the year ahead which may translate into reduced investment. Rising dairy prices have improved the dairy farmer's confidence in recent weeks with Global Dairy Trade auctions recording higher prices and increasing payout expectations. The removal of the remaining dairy tariffs on dairy exports to China allows New Zealand products to enter China duty free and providing an advantage over some international export competitors. The outlook for horticulture is positive with good kiwifruit, apple and pear crops expected to be harvested in coming weeks. Kiwifruit is predicted to deliver improved quality fruit with higher volumes compared to last year. Wine exports are expected to reduce this season, then increase in the next season. Overall, horticulture is anticipated to produce stronger export volumes from this year’s harvest without the impact of events such as Cyclone Gabrielle, with further growth into next year. We see some positive gains in the real estate market as we move into 2024. Sentiment is improving, and current indications suggest that sales levels will grow in the months ahead, with more orchards poised to come on the market in autumn. The NZ-EU Free Trade Agreement will progressively come into effect during 2024 providing improved conditions to the European markets. Whilst the factors impacting market sentiment are mixed and slightly pessimistic in the near term, we are confident that PGW remains in a strong position to capitalize on opportunities as they arise and maintain the positive performance trend that PGW has demonstrated over the past five years. The longer-term prospects for the New Zealand primary sector remain strong with the Ministry for Primary Industries projecting steady growth. While noting the green shoots of a recovery in our clients’ confidence in the sector, we remain cautious as to on-farm and on-orchard spend. We see a period of debt reduction by clients given the recent commodity pricing cycle and the ongoing recovery costs related to Cyclone Gabrielle for North Island clients. On balance, we remain cautious and expect to see subdued activity over the remainder of the financial year. Given the mixed signals in the macroeconomic environment, we have revised our forecast operating EBITDA guidance for the year to 30 June 2024 to around $50 million. On behalf of the board and executive team, we extend our gratitude to our nationwide team of passionate people for their dedication and for delivering an exceptional service every day. We appreciate our suppliers who work with us to navigate ongoing challenging supply chains from some markets and to enable us to meet our clients’ needs. Our clients’ enduring support has been pivotal in our success for over 170 years and we thank you for trusting in us. We appreciate your loyalty and fostering the enduring relationships we continue to build over time that allow us to better understand your businesses and improve on our offerings. We will continue to work hard to exceed your expectations and deliver outstanding service. To our shareholders, we recognize your commitment to PGW. We continue to focus on executing our strategy and delivering sustained results. Our 2024 half year report is available on the stock exchange -- New Zealand Stock Exchange website in our PGW ticker and also on PGW's Group site. That concludes the formal part of this presentation. I'll now open the call to questions via the operator.

[Operator Instructions] Your first question comes from Christian Bell with Jarden.

Just firstly, can you hear me okay.

I can hear you okay.

So I guess -- so my first question starts off. So you've got some pretty pessimistic commentary noting farm and orchards indicators are down across the board and continue to point downward is horticultural development from the site line compared by lower margins due to inflation. But you're still expecting to achieve a second half in line with the PCP. So can you just explain the key driver that underpins that second half result and what makes you confident on achieving it?

Good question. Thank you, Christian. So we have gone through the business on a line-by-line basis in terms of resulted in the forecast that we had. You recall, we gave margin guidance of around $52 million in late October as part of our annual shareholder meeting. The bulk of our business is phased towards the first half of calendar -- of the first half of the financial year being the period 1 July to 31 December. So we've got those locked down. We've also seen the trading results for the January month, and we also coming towards the conclusion of the February month so we know we were tracking in that regard. The second half of the year is weighted towards our livestock business results, and that's in particular that's around the dairy herds trajectories, and we have a lead on that data. And also the generics ball beef market. And we have -- again, we have a read on that market as well. So with the first half result locked on, the January and February results visible to us, forecasting processes that we had internally and the weighted of trading versus -- first half versus second half we're able to planned on a reasonable expectation around our forecast of around $50 million in the period ended 30 June.

Okay. So if we could just sort of compare your performance that you're expecting in the second half of this year compared to the second half of last year, are you basically assuming that you're going to have stronger dairy trading. Are you able to sort of fill in the gaps there, just like what your...

We're seeing enough detected demand for dairy animals question, and price is holding pretty well in that regard. And that's driven off the sentiment of the lift in the global dairy trade and we will have -- we actually had some herds -- sorry, in the beef market, we had some herds or sorry, and the bull market, we had some sales are actually deferred out of June 23 into July 23 because of cyclone and from being transacted in this year and they are quite significant sales, particularly in the East Coast area, and we see that. So we have that will add some revenue that was not in the last year's financial results. So those 2 factors are the key drivers for the results.

How much would you say that deferred revenue was?

I'd have to go back and get that number but it's a reasonable number in terms of results the bull market, generics market is a significant contributor of the business and East Coast area, Christian. And those properties were just inaccessible during the July -- June period last year.

Okay. And so you're confident on those 2 areas of strength. Obviously, it seems like a weaker environment, the likes of other meat trading and also real estate that likely is going to -- is potentially interest rates is a chance that they actually go higher again. So kind of -- you're confident that you've been conservative enough on those other areas?

Yes, we are. We -- ship trading was not weighted in the second half. But we have -- it is through January and February, and we've seen -- had visibility of those numbers. And we are expecting the softness in the real estate market and generally continue over the next -- while we factor those into our forecasts.

Okay. So I guess sort of having sort of gone through there. You're also not paying an interim dividend despite improved cash flows net debt that hasn't really changed. And then sort of as you just explained, you're pretty confident on your second half guidance, it's going to be similar to the PCP. So not paying a dividend at all when you paid $0.12 per share does appear to sort of contribute at least your near-term confidence. So can you kind of help reconcile the difference in messaging there? Like the second half as maybe is -- and I have to know like maybe it is a bit optimistic or perhaps you're worried a bit beyond that over the next 12 to 18 months? Can you sort of help reconcile the messaging there?

As we outlined, Christian, the board had the opportunity to consider dividend at yesterday's board meeting. They've taken a cautious approach with the on-farm debt and the financing costs for our own debt 2 million. And as you say, there is a possibility of interest rates rising. They will consider the debt -- sorry, the dividend position as part of our year-end results based on the trading that they see. So we -- it is a cautionary position for the board and also allows to retain income within the business -- best allow us to deliver on our strategy.

Okay. So is that -- would you -- would it be fair to say that the board is being more cautious than you are in your guidance?

No. I won't say that because the board are part of the sign off process. Let me remind you that our EBITDA last year was $61.2 million and for the full year, and we're now at $70 million. So there has been a material change in the marketplace as well as rising interest rate costs. So we do -- there is actually the Board is cautious to make sure that we are in a healthy position to take advantage of those opportunities.

Okay. And then just following from the -- I can't remember, it's not on your website, but you don't -- I don't think you have a set policy range like as a payout ratio of your NPAT sort of stated in the public domain sort of -- but I guess that's sort of...

[indiscernible]

We do have a dividend policy on our website, Christian, but you're correct that it doesn't have a payout ratio and it just lifts the bunch of factors that the board considers them in determining whether to give a dividend or not.

Yes. I guess that's averaged above 90% probably for the last 2 or 3 years. So could you like -- are you able to sort of please provide some sense as to what your -- what the thinking is there? Like potential -- if possible, I guess, what type of rate, what type of percentage you might be what is in sort of consideration compared to that 90%, to provide some sort of context. And then secondly, my part better that would be is that purely to protect against interest rates or perhaps is it for growth? In which case, could you provide -- would you be able to explain what those opportunities are again, coming back to what looks like a difficult outlook, at least in the near term?

So I'll deal with the first part of the question -- sorry, the second part of the question first, Christian, your answer on the last part of your question, that is the considerations are the cost of interest rates particularly rising on us that our expenses relative to what we've seen over the last few years. And we are a tight margin business. That's an effect of the mention of -- and your analysis will support that. So it's to deal with that issue and also to the growth opportunities that exist in the business. The terms of those growth opportunities we see in a couple of areas, that's on our product innovation area. You see that in the growth of that base stock opportunity. But of course, we've got ongoing good investment in our IT program, which will create business efficiency as far as the business is concerned as we outlined which has been a program in work and will be delivered into the year '25 here, which is the next financial year, and we're on track for that. To the first part of your question, which was what sort of ratios is the board thinking about. That's an active question is under consideration by the board, and they will give very fair to say about that on the picture.

Okay. Cool. And then obviously, you've sort of been in the -- I guess, in the media agree sort of shareholder activism. So are you able to sort of -- have you had any more context since your last update? Are you able to provide a bit of a summary on conversations you've had and also, do you have any insight as to what the motivation is for that recent activism?

Let's just clarify the second part of the question for me. You dropped out a bit.

So the second part was, do you have any sort of sense of what the motivation is for the activism?

So two parts to my answer, Christian. Firstly, which is 2 parts to your question. Firstly, this is a matter for the PGW Board to deal with, management to focus on the results and the operational performance of the business. The second part of the question is that I've not engaged with the shareholders on this matter. So I have nothing to add in that regard.

Okay. And sorry, I just had one more question. So your first half '24 sales for Agency were flat. And that was despite low livestock volumes and real estate activity. So like, how did you actually manage to keep your sales net?

How do we best keep our sales flat?

Yes, yes. Just seemed like everything was -- yes, like it seemed like everything was kind of against you, but you still managed to keep your topline the same as the PCP. So just like how did you actually did this. Yes.

Yes, yes. Sorry I'm just -- Up to 2 -- the 3 business units within the Agency business, Christian, so first thing, you've got livestock, you've got wool and you've got our real estate businesses. So if you go to our segment reporting with regard to the group site announcement through the NZX, you'll see some detail on there in that regard, although that doesn't break down the individual performances within those business units. The reality is that our wool business was stronger and commented on the commentary. Our livestock businesses we saw animal volumes very similar to year-on-year in the sheep space, although values are decked at 28%. So that tells you -- and it was a declining sheep market. So it tells you we're actually holding a good market share in that regard against our competitors. And some of our initiatives around GO-STOCK and supply chain initiatives in that regard, which is where we link suppliers, this is -- say, partner with suppliers, the mid companies have been growing in the uptake from a client base perspective. And indeed, our cattle volumes are very similar year-on-year and prices are actually holding up in that regard. So we've actually done pretty well from market share perspective that's been involved the value that's influence from a contribution perspective. And also, we have processed and we talked about our Velvet business. We've transacted Velvet on what we call a principal basis. So we have taken ownership of the developed product and then we sell that out into the market. Previously, that was done on an agency basis. So the product was which something transacted the commissions through our financial statements. Now I wouldn't want to give calls or cause to think that, that create additional risk because those contracts were backed by complete documentation in the international market, and we have been dealing with a couple of years in particular customers or customer, I should say and there is bank securitizations through the process in terms of the plan. So before we even purchase and ship product. But it is a slightly different trick that it turns our account treatment for those because we delay them for a period of time. And then there is, of course, the real estate business has been softer as of current results. So hope that gives you a bit more flavor as the breakdown of the Agency business.

Yes. So that's great. Actually, sorry, if I could just squeeze one more question on what was the cost out that you were expecting from your -- the recent software investment that you've sort of been, I think, ends in FY '24. So what -- just remind me what that was worth? And are you expecting that to be an uplift in FY '25?

That -- I'll turn that question over to -- when we say cost out, Christian, that's the one-off -- the operating cost to establish the program of work that won't be repeated in the subsequent years.

That's right.

That's what you're talking about. We'd have to go won't get there. I mean, you're quite right, Christian. We did talk about that in previous -- we'll come back to you on that because I can't get the number off the top of the head. I want to give you a number on before don't mind. But there is -- that is true. There will be costs repeated -- sorry, costs incurred in this financial year that won't be included in the subsequent periods.

From FY '25?

There'll be some into FY '25. That will start to reduce from FY '25 because the program work is stood up at FY '25.

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

Thank you, operator, and thank you all for taking the time to listen to this presentation today. I wish you all a good day. Thank you.

This concludes our conference for today. Thank you for participating. You may now disconnect.