PGG Wrightson Limited Analysis

Overview

PGG Wrightson Limited (PGW) is an agricultural services business operating throughout New Zealand for more than 160 years. The company provides an extensive range of products and a full-service offering, complimented with the knowledge and expertise of our people, to the rural sector.

PGW's enduring relationships with the rural community, technical expertise, focus on innovation, along with its nationwide presence, place it in an enviable position of being one of the best-known and most respected agricultural brands in New Zealand. PGW is a market leader in many of the segments in which it operates including rural retail supplies, livestock, wool, pasture improvements, horticulture, animal health and nutrition, water, real estate, as well as technical advice and support.

To service the needs of its more than 60,000 customer accounts PGW employs over 1,800 people in over 100 locations throughout the country. PGW's people are key members of the rural communities in which they live and work alongside their customers, which in many cases results in a trusted advisor relationship often spanning a number of generations.

Performance

The following information was extracted from PGG Wrightson Limited's Full Year results, released on 13 August 2024:

PGG Wrightson Limited (PGW) today announced its results for the financial year ended 30 June 2024.

Key results for the year to 30 June 2024 include:

• Operating EBITDA2 of $44.2 million (down $17.0 million on prior financial year)
• Net profit after tax (NPAT) of $3.1 million (down $14.5 million on prior financial year)
• Revenue of $915.9 million (down $59.7 million on prior financial year)
• No FY24 final dividend declared

PGW Chair, Mr Garry Moore said “The agricultural sector continues to navigate persistently challenging market conditions and this volatility is reflected in PGW’s financial results. PGW’s Operating EBITDA of $44.2 million is back on the strong trading results of recent years and this is largely a product of the economic environment being felt across the sector. We often say that PGW prospers when our farmer and grower customers do well. Our customers have faced difficult conditions over the past year and consequently this has impacted our results.

PGW has done well to continue to hold and grow share in the markets in which we operate but we have seen farmers and growers cutting back where they can and deferring discretionary spend. We have continued to support our customers with all their essential production requirements, but the sector is in the grips of a period of austerity where non-essential and discretionary spend has been paused.

Despite the environment our receivables have held up well and our collections are healthy. Gross margins have also remained steady across the business.

While most of the agri-sector has been impacted, some have been harder hit with sheep farmers experiencing soft export demand and weaker commodity pricing and the rural real estate market going through a particularly quiet period. The 6% decline in revenues from the prior comparative period represents the first drop in PGW’s revenues since FY18. The Retail & Water businesses accounted for the majority of the revenue decline. There remains a carry-over effect from the devastation caused by Cyclone Gabrielle last year with areas not yet replanted.

Symptomatic of the market sentiment, the Federated Farmers Farm Confidence Survey released in July recorded the second lowest confidence levels ever with 33% of farmers making a loss, only 27% reporting a profit and 39% breaking even this year. The four greatest concerns for farmers were noted as financing costs; volatile commodity prices; regulatory compliance and input costs.

The agricultural sector is cyclical, and we have seen these ups and downs before and remain positive about the longer-term prospects of the sector. Based upon current indications, the rural servicing market in New Zealand looks like it will remain subdued through the current calendar year. There are however some positive signals with inflationary pressures easing and input costs stabilising. We are also optimistic about longer term demand for sustainably produced, safe and trusted sources of food and fibre and see New Zealand growers well placed to support this growth.

PGW recorded a Net Profit After tax of $3.1 million noting this was negatively impacted by a one-off non-cash $0.9 million deferred tax expense due to the in change in legislation for tax depreciation on long-life commercial buildings.

Given the continued difficult trading conditions impacting the sector and wider economy the Board has declared a final dividend for the year.

In view of the current operating environment there has been increased focus within PGW on cost control measures and monitoring of expenses such as travel, vehicles and recruitment etc.