PGG Wrightson Limited (PGW) Earnings Call Transcript & Summary

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

Thank you, Rachel. [Foreign Language] Good morning, and welcome to PGG Wrightson's Results Briefing for the 6 months to 31 December 2024. I'm Stephen Guerin, Chief Executive Officer, and I'm pleased to provide you an overview of the interim results for the 2025 financial year. Joining me on the call are Peter Scott, our CFO; and Julian Daly, our General Manager of Corporate Affairs, who is also our Company Secretary. Today, I'll summarize at a high level our financial results and trading performance and will comment on my thoughts on the year ahead. There will be time for questions at the end of my commentary. A more detailed commentary on our half year result is available on our half year report, which has been released online today. I will refer also predominantly to operating EBITDA, which is a non-GAAP measure, that allows us to best describe our business operations. I'll also refer to net profit after-tax, the formal GAAP measure. The key financial performance items for the first 6 months to 31 December '24 to note are operating EBITDA of $41.4 million was up $4.7 million or 13% on the prior corresponding period, operating revenue of $570.3 million was up $9.4 million or 2%, net profit after-tax of $16 million was up $3.2 million or 25%. Interim dividend of $0.025 per share was declared today. We have reaffirmed our forecast FY '25 full year operating EBITDA guidance of around $51 million for the period ended 30th of June 2025. PGW started the first 6 months of the financial year with improved returns in our Rural Supplies business. There was also stronger demand for beef, which underpinned our Livestock results, and there was a positive rebound in Real Estate. Our focus on prudent cost control of operating expenses also assisted the group results. The agribusiness servicing sector remains competitive, with customers generally taking a cost-sensitive approach and limiting discretionary spend. However, our service offering and technical expertise are valued by our customers. We continue to consolidate our position as leader in the markets in which we operate. Economic conditions have shown early signs of improvement, with several indicators pointing to a healthier outlook. General economic conditions have improved with both inflationary pressures and interest rates easing with further rate reductions indicated last week by the Reserve Bank in coming months. Agriculture input prices stabilized, generally speaking, in the first 6 months but remain up above historical norms. In addition, a higher forecast milk payout, stronger beef export returns and generally solid commodity prices are beginning to positively impact farmer and grower sentiment. Federated Farmers' confidence survey results released last week noted farmer confidence has risen to its highest levels in over a decade, albeit rebounding from record lows in recent years. The survey saw a sharp lift in profitability, with 54% of farmers reporting a profit double the number from the last survey 6 months ago. Our Retail & Water business incorporates Rural Supplies, Fruitfed Supplies, Water and Agritrade. Retail & Water operating EBITDA of $39.5 million was down $0.5 million, or $500,000, and operating revenue of $490.3 million was up $12 million on the prior corresponding period. The reduction in interest rates and the improved dairy payout have bolstered confidence. The budding optimism is beginning to be demonstrated through farmers looking to invest in their operations again, after several years of budgetary restraint. As farmer confidence levels gradually return, Rural Supplies has seen a positive impact, with nearly all categories showing some growth compared to last year. This has been more evident in our animal health, seed, stock food, fertilizer, water and fencing categories. Favorable growing conditions across most regions have contributed to growers reporting excellent quality across a range of fruit and vegetable crops. Our Agency Group includes Livestock, Wool and Real Estate. The Agency Group delivered an operating EBITDA of $6.8 million for the first 6 months of the financial year, an increase of $5.4 million compared with the same period last year. Operating revenue was $79.1 million, down $2.4 million compared to the prior period. Favorable spring weather across most of the country lifted sheep and cattle values. Good feed conditions throughout the country, strong processor demand and general shortage of cattle have underpinned values. Sheep pricing has improved, particularly in recent months. The reduction in lamb processing volumes from Australia have provided further opportunity for New Zealand sheep meat to command stronger export prices against last year. Buoyant milk payout prices are predicted for the dairy farmers. Fonterra's current midpoint forecast of $10 per kilogram of milk solids is at the highest level since the cooperative's formation. We have seen improved crossbred wool prices with some of the highest values in last 7 years. Declining sheep numbers and reduced wool volumes are creating a more competitive environment amongst buyers. The weakness of the New Zealand dollar has encouraged buyers to fill order books. The increased demand and more competitive pricing for strong wool is an encouraging sign for growers in the industry. However, there's still a way to go to achieve more sustainable prices and provide much needed confidence to wool growers. Ultrafine wool remains sought-after with strong competition from international buyers. Turning to our Real Estate business. Improving market dynamics, including ongoing official cash rate reductions, have resulted in an increased real estate activity. November and December were busy with strong sales and a diverse range of properties with average prices above the prior year. Demand for dairy properties has been solid buoyed by improving dairy prices. However, there are a limited number of dairy properties on the market. PGW Real Estate facilitated 10 transactions exceeding $10 million in the period, with the highest surpassing $50 million. The number of sheep and beef farms converting to forestry has slowed. Horticultural properties are showing signs of revived activity after a quiet 18 months. As we approach the autumn selling window, the residential, lifestyle and rural sectors are showing growth. PGW recorded operating cash outflow of $31 million for the first 6 months of the financial year. Outflows were $24.2 million higher versus the prior comparative period of $6.8 million. The higher operating cash outflow is a result of seasonal increase in working capital for the group, with GO-STOCK receivable movements $27.4 million higher. This was partially offset by $4.7 million higher operating EBITDA and $1.5 million lower income tax payments on the FY '24 financial results. Cash flows from investing activities included $8.2 million of capital expenditure during the period, an increase of $1.3 million and included further investments in our Business Improvement Programme. PGW sold its interest in Kauri and Kauroa Saleyards during the period, with fixed asset disposals generating $2.7 million. Lease liability payments increased $0.9 million versus the prior period to be $11.2 million. Net interest-bearing debt was up $9.8 million from 31 December 2023 to be $106.7 million. Board has declared a fully imputed dividend of $0.025 per share, which will be paid on the 3rd of April 2025 to shareholders on PGW's share register as at 5:00 p.m. on the 26th of March 2025. We've included an update on our sustainability progress in the first half year report. These are referenced on Page 14 of the half year report, which has been released on the NZX. PGW's outlook for New Zealand's agricultural sector is promising yet cautious. With economic signals improving, including lower inflation and interest rates, together with increased commodity prices, farmer and grower confidence is improving. Good feed conditions throughout the country and strong processor and export demand have underpinned solid cattle pricing and improved sheep values. With a positive payout predicted for dairy farmers, the outlook for the livestock sector is more positive than a year ago. There's also strength in horticulture prices with the kiwifruit industry likely on track for record exports. Federated Farmers' sentiment survey noted that spending intentions have strengthened, with 23% of farmers planning to increase spending over the next 12 months, which is a positive signal. A recent report by MFAT anticipates that exporters should benefit in the current year from the strengthening of global commodity prices and the weaker New Zealand dollar. Supply and demand fundamentals are expected to underpin more optimistic farmgate pricing for many key commodities in 2025. A summary of these key factors we expect to influence the sector through the remainder of the current financial year and beyond include: dairy farm margins are likely to benefit through 2025 from strong export demand and farmgate milk pricing; beef farmgate pricing is expected to remain above the 5-year average throughout 2025; sheep meat values are looking stronger in 2025 with current lamb farmgate pricing now above the 5-year average; horticultural exports outlook is positive with strong kiwifruit signals for 2025 and exports projected to reach $3.5 billion for the first time; while farm input pricing is generally predicted to be more stable during 2025, a weak New Zealand dollar is likely to keep imports such as fertilizer and chemical pricing at elevated levels. New Zealand's agricultural sector is well positioned to respond to global demand and PGW is well placed to support our farmer and grower customers with their production needs. We're cautiously optimistic about the remainder of the financial year and note that PGW remains on track to deliver our forecast FY '25 full year operating EBITDA guidance of around $51 million. We extend our gratitude to all our stakeholders for their support. We're grateful for our valued customers' loyalty, trust and their support. We also recognize our dedicated nationwide team whose passion and expertise is critical to our success. Our 2025 half year report is available on the New Zealand Stock Exchange website under the PGW ticker and also on PGW's website. Thank you for your time in joining today's call. This concludes the formal part of our presentation, and I will now take any questions. And back to you, Rachel.

[Operator Instructions] Your first question comes from Tim Hunter from NBR.

Just a couple of questions for me. You mentioned in your presentation about farmer confidence survey, finding farmer confidence at the highest levels in almost a decade. Just wondering if you've noticed whether these confidence surveys, I don't know how frequently they're done, but whether there's a correlation between farmer confidence and the performance of PGW.

The confidence survey has been going for a few years now. I think it's about 15 years, Tim, and they come out every 6 months or so. And there is a strong correlation between farmer confidence and commodity prices and the performance of PGW. That's a fair summary. There is a slight -- sorry, I should make one caveat on the survey. The survey, of course, is for what we call rural farmers. So it does not include horticulture. So you can get a sector difference in that space depending on where the -- and so there can be a bit of a lag in that window as well. So just to clarify what the contents of the survey is and what makes that.

Yes. It's nice to see the turnaround, so that's very encouraging. And the return to the dividend, you're obviously feeling that, that confidence is reflecting in the ability to resume dividends, and that's sustainable from now on?

Yes. So the directors go through a process around that, looking at our forward forecast, looking at our future need for cash within the business. And based on that, we have confidence in resuming dividends, albeit it is at a cautious level as well.

I mean I noticed that you got strongly negative cash flow in this half, the seasonal effects and so on. I'm just wondering whether the Board considered it might have been prudent to delay the dividend until the full year and see how things were going just to manage cash flow. I mean there's quite a significant increase in working capital debt.

You look at our -- that's true, Tim. If you look at the working capital, as I explained, our GO-STOCK has increased by $24.2 million. That does have a timing factor in it in terms of when those contracts roll on and roll off. So we have a good look-through of those contracts and when they're going to roll off in the cash flow. So that gave the directors confidence in terms of their decision-making in this process. That was a big driver of the decision, the movement in cash flow, and also what that means for our year-end results in that regard.

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

Thank you all. Thank you for your time, and we wish you all the best for the day ahead, and we appreciate your attendance on the call today. Thank you.

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