PGW profit plunges 40%

Challenging times for farmers, challenging times for PGG Wrightson (PGW).

The rural supplies company yesterday announced a $8.4 million — or 40% — drop in after-tax net profit down to $12.7m for the first six months to December 31, 2023.

Operating earnings before interest, tax, depreciation and amortisation (ebitda) of $36.6m were down $11.2m or 24% compared with the prior corresponding period. Revenue of $560.9m was down $24.9m.

An interim dividend was suspended to avoid adding debt in the face of rising interests costs and capital would be reinvested back into growing the business.

In its update to the NZX, the board said it considered the company had performed well in difficult market conditions impacting the primary sector and wider economy.

"It is recognised that uncertainties remain and it is prudent to wait until the full financial year is 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," the board said.

In an interview, chief executive Stephen Guerin said the result was not a surprise.

It was rare to see a scenario where all sectors that made up the agriculture sector, ranging from arable and horticulture to dairy, sheep and beef, had challenges from a price commodity perspective, he said.

That was coupled with the impact of Cyclone Gabrielle and the subsequent devastation to properties and income and the macro issue of interest rates.

Looking at some "green shoots", there had been a lift in dairy commodity prices through the GlobalDairyTrade auction and that was being translated into interest in dairy herds and dairy properties which was "quite a shift".

Rabobank’s outlook for the calendar year pointed to various positive signals, beef prices were holding up, crops were looking "pretty good" across the country. In the wine industry, there was international demand, while the yield of crops looked to be back with poor flowering.

Sheep was the sector that positive signals were being looked for and that was yet to be seen. Sheep meat prices were at their lowest in a decade with high volumes of Australian meat and weaker international demand.

PGW had seen some uptick internally in dairy and the genetics market looked positive for bull sales.

The wool business had traded "OK" through the six-month period and some market share had been gained in fine wool.

Good-quality strong wool had shown some rise in price.

The challenge was to fix the volume and the Minister of Agriculture was actively engaging with wool sector players, with the outcome of that yet to be seen.

There was a lot more interest from overseas wool clients, and visitors to New Zealand wanted to understand what was happening on the farm and understand that production.

The freeing up of Covid-19 restrictions was enabling those visits from customers and that was pleasing to see, he said.

PGW has revised its ebitda forecast for the year to June 30, 2024 to around $50m.