Release Date: February 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PGG Wrightson Ltd (NZSE:PGW, Financial) reported a total shareholder return of +93.08% since August 2019, significantly outperforming the S&P/NZX50 Gross Index's +8.44% over the same period.
- The retail and water segment showed resilience, with operating EBITDA of $40.0 million, despite challenging market conditions.
- The company has seen growth in several sales categories, particularly General Merchandise, indicating increased foot traffic and customer engagement.
- PGG Wrightson Ltd (NZSE:PGW) continues to invest in customer-focused innovation, such as the successful trial of Spark IoT fridge sensors, enhancing product quality assurance.
- The company has a strong focus on health, safety, and well-being, with new training programs and risk reduction initiatives in place.
Negative Points
- Operating EBITDA for the first six months was $36.6 million, down $11.2 million or 24% compared to the prior period.
- Revenue decreased by $24.9 million or 4%, and net profit after tax fell by $8.4 million or 40%.
- The Board has suspended the interim dividend to reinvest capital and avoid debt, reflecting financial caution amid rising interest costs.
- The agency segment, including livestock, wool, and real estate, saw a reduction in operating EBITDA by $2.2 million compared to the same period last year.
- Farm and orchard spending indicators are down, with investment intentions at their weakest since the 1980s, excluding the first COVID-19 lockdown.
Q & A Highlights
Q: You've noted pessimistic commentary regarding farm and orchard spending indicators being down and less horticultural development due to the cyclone. Yet, you're still expecting to achieve the second half in line with the PCT. Can you explain the key driver that underpins that second-half result and what makes you confident in achieving it?
A: We have gone through the business on a line-by-line basis and have locked up the first-half results. We have visibility on January and February results and the weighting of trading versus the first half. The second half is weighted towards livestock, particularly dairy herds and the genetics bull beef market. These factors give us a reasonable expectation of achieving around $50 million by June 30.
Q: Are you assuming stronger dairy trading in the second half compared to last year?
A: Yes, we are seeing an upward tick in demand for dairy animals and stable prices driven by improved sentiment from the global dairy trade. Additionally, some significant sales deferred from June '23 to July '23 due to the cyclone are now being transacted this year.
Q: Despite improved cash flows, you're not paying an interim dividend. Can you reconcile this with your confidence in second-half guidance?
A: The Board took a cautious approach due to on-farm debt and financing costs, considering the possibility of rising interest rates. The dividend position will be reviewed as part of our year-end results based on trading visibility.
Q: Is the Board being more cautious than your guidance suggests?
A: No, the Board is part of the guidance sign-off process. Given the material change in the marketplace and rising interest rate costs, the Board is ensuring we are in a healthy position to take advantage of opportunities.
Q: Can you provide some sense of the dividend payout ratio the Board is considering?
A: The Board is actively considering this question. The considerations include the cost of interest rates and growth opportunities within the business, such as product innovation and ongoing IT program investments.
Q: Have you had any more context on the recent shareholder activism?
A: Management is focused on operational performance, and I have not engaged with shareholders on this matter. The Board is handling these discussions.
Q: How did you manage to keep your first-half '24 sales for the agency flat despite lower livestock volumes and real estate activities?
A: The agency business includes livestock, wool, and real estate. Our wool business was stronger, and we held good market share in livestock despite lower values. Initiatives like GO-STOCK and supply chain partnerships also contributed. The real estate business was soft, but overall, we maintained sales levels.
Q: What was the cost of the recent software investment, and are you expecting an uplift in FY24?
A: The one-off operating costs to establish the program will not be repeated in subsequent years. We will provide the exact number later, but these costs will reduce from FY25 as the program work is completed.
Q: Are you confident that areas of strength will offset weaker environments in meat trading and real estate?
A: Yes, we are confident. Sheep trading is not heavily weighted to the second half, and we have visibility on January and February numbers. We expect the softness in the real estate market to continue and have factored this into our forecast.
Q: Can you provide more details on the deferred revenue from the genetics bull market?
A: The deferred revenue is significant, particularly in the East Coast area. These sales were deferred due to the cyclone and are now being transacted this year, contributing to our second-half results.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
