Saturday, April 13, 2024

PGW takes 40% hit to after-tax profits

Neal Wallace
No interim dividend as half-year results reflect challenging trading conditions in sector.
Reading Time: 2 minutes

Rural servicing company PGG Wrightson has reported a softening in half-year results as it faces the same challenging trading conditions as its rural clients.

Announcing its six-months result to December 31, it reported revenue of $560.9 million, down 4%;  net profit after tax of $12.7m, 40% lower; and operating earnings before interest, tax, depreciation and amortisation (EBITDA) of $36.6m, 24% lower.

A majority of the PGG Wrightson (PGW) board decided not to pay an interim dividend, with the capital reinvested back in the business to avoid extra debt.

Compared to the same period a year earlier, operating EBITDA was down $11.2m, revenue was $24.9m lower and NPAT $8.4m less.

Chair Garry Moore said despite challenging market conditions, PGW traded solidly in the period under review.

High inflation and interest rates, and rising debt levels combined with subdued demand and softer returns, created a demanding environment for the agricultural sector.

“This half-year result can be described as steady in the context of the headwinds the sector and the wider economy face,” Moore said.

He said the Retail and Water Group, which includes rural supplies, Fruitfed Supplies, water and agritrade, traded well despite less farm and orchard spending.

The Agency Group, which includes livestock, wool and real estate, reported an operating EBITDA of $1.4m for the period, a reduction of $2.2m, with revenue of $81.6m, down $3.1m.

The livestock business was affected by the reduced volumes of livestock traded, particularly North Island cattle and dairy.

PGW has been actively managing and reducing spend in a variety of areas, prompting Moore to describe the outlook for the agricultural sector as “cautious”.

International markets are still challenging, El Niño is affecting the weather, prices for sheep and lamb in particular are low, input costs are high and demand from New Zealand’s largest export market, China, remains subdued.

“The carryover impacts of Cyclone Gabrielle together with supply chain issues associated with offshore conflicts and higher interest costs are all contributing to temper the short-term outlook and prospects,” Moore said.

There are positive signs from rising dairy prices, the removal of tariffs on dairy exports to China, heavy kiwifruit, apple and pear crops and signs that interest in real estate will recover in the months ahead.

But there are headwinds.

“On balance, we remain cautious and expect to see subdued activity over the remainder of the financial year,” Moore said.

“Given the mixed signals in the macroeconomic environment, we have revised our forecast operating EBITDA guidance for the year to June 30 2024 to around $50 million.”

Chief executive Steve Guerin said given the context of the challenges facing the agricultural sector, it is a pleasing result.

“It’s been a tough year for us and a tough year for our clients and it has been rare to have cycle in farming where every sector is doing it tough.”

That said, Guerin said there are some signs of optimism, helped by recent increases in the forecast milk price.

Inquiries for pivot irrigation systems have picked up, interest in buying horticulture units and dairy farms is higher and PGW has increased its retail market share.

While beef prices are stable, he said there are few signs of improvement in the sheep industry.

Guerin said while farmers and growers continue to buy the necessities, discretionary spending is low as they focus on servicing and paying down debt.

PGW makes most of its income in the first half of the year and while it has lowered its full-year result, Guerin said company forecasts include expected lower income.

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