Agree.34% equity ratio. "Not so sound." Hmmm indeed.Difference between total assets and total equity is liabilities,So more debt.
Neither was receiving $4.1mil from the Govt.
Only positive was the operating cash inflow of $34mil
Printable View
Yes...........................
Half year cash flow negative.
Full year cash flow positive.
I really only brought it up as posters were concerned at the negative cash flow at the half year.
PGW's CFO told me at the time it would correct at the full year, as it did.
As I predicted, the PGW pension plan continues to career out of balance. The ten year picture is shown below.
In the table below, I am effectively looking at the pension schemes as a 'black box' and observing the cashflow that comes in and out. The information in this table can be found in the respective annual reports under the header "Defined Benefit Asset/Liability" (e.g. Note 20 in AR2017).
PGW Pension Plan(s) External Cashflows
Financial Year Pension Plan Deficit EOFY PGW Contribution {A} Members Contribution {B} Total Contribution {A}+{B} Benefit Paid {C} Net Cash Movement {A}+{B}-{C} 2010 -$18.206m $3.127m $1.651m $4.778m ($5.631m) ($0.853m) 2011 -$16.970m $3.622m $1.378m $5.000m ($4.980m) $1.398m 2012 -$26.264m $2.727m $1.363m $4.090m ($3.819m) $0.271m 2013 -$20.819m $1.402m $1.364m $2.766m ($6.412m) ($3.646m) 2014 -$13.528m $1.427m $1.337m $2.764m ($4.709m) ($1.945m) 2015 -$14.665m $1.301m $1.300m $2.601m ($5.304m) ($2.703m) 2016 -$20.715m $1.204m $1.254m $2.458m ($3.482m) ($1.024m) 2017 -$12.271m $5.920m $1.199m $7.119m ($6.010m) $1.109m 2018 -$7.722m $3.011m $1.170m $4.181m ($8.914m) ($4.773m) 2019 -$5.883m $8.455m $1.268m $9.723m ($14.044m) ($4.321m) 2020 -$9.838m $0.692m $0.832m $1.524m ($5.031m) ($3.377m) Bold Total $18.078m
Why have I highlighted the contributions of PGW to the pension plan over the last four years only? In the FY2017 report, PGW states:
"Previous expensing of the return on plan assets for the 2014 through to the 2016 year (Snoopy note: if this 'expense' ends up being negative then profits increase) have now been recognised through other comprehensive income."
So for the years 2016 and older, the money that PGW have pushed into supporting the pension plan has been taken out of the headline profits. To show what has happened, 'Basic Earnings Per Share (Continuing Operations)' was listed as 5.3cps in the AR2016 'Statement of Profit & Loss'. Yet the equivalent comparative figure, also relating to FY2016 in AR2017 was 5.8cps. This difference was solely due to the removal of a $5.835m 'Remeasurement of Profit and Loss' (offset by a $1.634m 'Deferred tax on remeasurements of defined benefit liability') making a net -$4.201m 'item that will never be classified to profit and loss'. [see my post 4135 on this thread for more detail]
Yet this $4.201m pension plan propping is 'real cash' that otherwise would have been available to shareholders to pay higher dividends, or shore up the capital position of the company. If we study the cashflow statements for the last four years, the actual cash required to prop up the pension plan is more than finds its way into the pension plan:
Cashflow Lump Sum Contribution to Plan {A} Contributions paid into Plan {B} {A}-{B} ({A}-{B})/{A} 2017 $7.551m $5.920m $1.631m 21.6% 2018 $2.842m $3.011m -$0.169m -5.9% 2019 $10.274m $8.455m $1.819m 17.7% 2020 $0.0m $0.692m -$0,692m NM Total $20.667m $18.078m
I do not understand why the 'cash flow attributed to propping up the pension plan' is not the same as the 'contributions paid into the plan'. Anyone know? I suppose it is the same in FY2020 ;-P. But whether the cash lost by shareholders doing this is $20.667m or $18.078m, it is still a lot of money. It accounts for all of PGWs long term bank debt of $20m going forwards in fact.
Still, at least the long term cash drain behind the scenes has shored up the pension plan at long last -right?
Unfortunately not, because the ten year government bond rate, a key driver in calculating the required pension fund asset position since the balance date of 30th June 2019 has declined from 1.57% in AR2019 to 0.91% in FY2020. The pain hasn't stopped either because as of today, nearly two months on from the balance date, the ten year cash rate is down to just 0.67%!
Very importantly, the earnings capacity of the company has approximately halved due to the sale of the seeds division. In this drought year in particular, earnings have collapsed to just $5m. That means the pension scheme deficit of $9.838m (approximately $10m) will need two years of PGW profits to be diverted to close the funding gap. The effective position of the pension plan for PGW shareholders, and even pension plan beneficiaries, must now be of significant concern. Yet in June 2019, the Group announced that they had brought the Plan to an 'actuarial equilibrium position', because they have their own calculation standards that are better than IFRS standards (apparently).
SNOOPY
Hey Snoops ......probably a few guys in this photo still collecting their pension from PGW
I’d hazard a guess that most of the pensioners worked for companies PGW no longer own but generous current shareholders keep paying their pensions ...cool eh
Note 6 in the annual accounts show the company's response to Covid-19
"The Group's financial performance for 2020 has been significantly impacted by COVID-19. Whilst the Group's retail stores and warehouse supplies facilities continued operating as an "essential service" during all of New Zealand's alert levels, the Group's Water, Wool, Real Estate and Livestock saleyard businesses were closed at alert level 4 and only reopened under alert level 3 following strict protocols. The Group received $4.11 million under the Government’s COVID-19 wage subsidy scheme which is aimed at supporting employers affected by the COVID-19 lockdown to continue to employ staff. $3.15 million of this subsidy has been recognised in the profit or loss within the Employee Expenses line, with the remaining $0.96 million being recognised as deferred income on the balance sheet as at balance date."
Sure enough , if we turn to note 17 in the annual accounts, there is $0.958m in 'wage subsidy waiting to be paid out' sitting on the balance sheet as a liability.
If we want to remove the effect of the government subsidy from operating performance, we might consider that $4.11m 'grant provided by Grant' as a debt, albeit a 'virtual debt' that doesn't have to be repaid. This is because if the government had not come up with the money, then PGW would have had to borrow $4.11m to pay those wages. Next year 'virus willing' PGW will not be receiving $4.11m in wage subsidies. The exact amount of subsidy they will receive we can probably glean from half year report to December 2020, when it comes out. But right now a new $4.11m in cost is built into the operating cost of the company. And as soon as the government stops paying that, corresponding debt will appear on the PGW books that will have to be offset by a permanent incremental improvement in earnings, or cost cutting.
This isn't a debt issue yet for PGW, but it is something to keep an eye on.
SNOOPY
Equity ratio.?
Tricky.
34.1% or 44.81%..?
Big difference.
Excluding the impact of NZFRS 16 leases [ as clearly pointed out on page 6 of the annual report] it is a very healthy 44.81%
ie Total assets $354,071 and total equity $158,650
Yet under NZFRS 16 leases. 34.1%
Total assets $459,453 and total equity $156,702.
Something we will have to get used to.
Snoopy has been writing doom & gloom about PGW for over a year.
I would be selling the hell out of the stock if I write the same doom and gloom!
Yet he claims to still be a shareholder in PGW?
DYOR.
So these hard working gents are now costing us circa $10M?
If anybody can supply me their names and addresses, I will visit them, thank them for their service, and shall we say, pension them off.
All in the interests of fiscal responsibility of course.
Dr JPG.
Profits before people.
I am more concerned with the cash management practices at PGW than the pension scheme. The pension scheme is a problem but not one that the current management were responsible for implementing, they just inherited the problem. However I can't understand why a New Zealand domiciled company with no overseas subsidiaries would have $17 million :) cash on hand, yet still have $30 million short term debt:(. I can forgive the long term debt of $20 million as break fees would probably apply for early repayment. This makes no sense to me, surely the banking syndicate are charging a higher interest rate for borrowing than investing. Common sense would say this cannot be the case as why would they continue trading and losing money.
So I can only conclude that the cash management team of PGW have been asleep at the helm. In my business, cash is always king, and the first thing that I am looking at every day especially in tough times. I have lost some faith in PGW thinking about this, especially on a reporting date. I would have assumed that this would have been a focus area for management ahead of the pension scheme.
Would be really happy if people have a different opinion to me to share as this really causing me some concerns.
Is it really such a huge problem as it is made up to be?
http://nzx-prod-s7fsd7f98s.s3-websit...149/328574.pdf
Go to Note 18 - Defined Benefit Liability
Points to note :
1. Liability was $21.7m in 2016, it is now $9.8m
2. The Group expects to pay $0.85 million in contributions to defined benefit plans in 2021 (2020: expected $1.01 million and paid $0.69 million). Member contributions are expected to be $0.59 million in 2021 (2020: expected $0.65 million and paid $0.83 million).
2 above has to be viewed in the context of a group with EBITDA of over $45m.
PGW is a rural servicing company & a broker - so a high level of working capital will and has always be a big part of its financial position.
Have a good look at Elders in Oz and you will see the same picture :
https://www.asx.com.au/asxpdf/202005...36rh1ts7qb.pdf
$615m equity vs total assets of $1.625m = 37.8%
Anyone hearing equity inadequacy alarm bells ringing with the institutional appetite for Elders shares?
The pension scheme is not particularly a worry, every year we get a short-term re-evaluation of a long-term commitment.
The easiest and also most-sensible thing to do is to factor in the possible yearly drain into your valuation of the company and then just get on with it.
As for the cash position I will suggest that the $30M [nice round number that :)] is a interest only loan for a fixed amount with a fixed repayment date.
It may not be, but would that settle your concerns.
May your cash flow always be bountiful.
Quite right. But look at what the short term revaluations have been. From the 'Statement of Consolidated Income' for each respective year:
Year Re-measurements of Defined Benefit Liability {A} Total Comprehensive Income {B} Defined Benefit Liability Proportion of NPAT {A}/{B} FY2016 ($10.666) $35.820m -30% FY2017 $3.121m $44.646m +7.0% FY2018 $2.746m $27.080m +10% FY2019 ($6.101m) $124.948m -4.9% FY2020 ($3.942m) $5.002m -79%
From a minor adjustment to profit (debatable), last years adjustment was almost equivalent to the whole profit!
New Rule of Thumb: Take Expected Profit from normal operations and halve it! Not really an adjustment you can dismiss.
SNOOPY
Balance has been widely promoting a potential formal offer for PGW at $3 to $3.30 per share.
I warned readers at the time I believed this to be unrealistically optimistic. Since that time the share price of PGW has fallen by 20%. That was a pretty good get out of jail call I made to traders who listened. Balance may yet get the last laugh. A takeover offer may come. But I am picking if it does happen it will be pitched at $2.75 and no more.
Observations like this from Balance....
.....were well wide of the mark. Post result it became clear that PGW Real Estate staff were only surviving on government subsides. The complete opposite of 'doing well'.
I am a long term holder in PGW, since the beginning in fact, and I held Wrightsons before that. I see a good future for PGW, but not an outrageously good future. Since the capital return I have purchased PGW shares in four tranches at: $2.46, $2.45, $2.38 and $2.12. These purchases were made at points where I considered the share 'good value'. I have not changed my view on these 'price purchase points', despite the emergence of Covid-19 and the cutting of the dividend, (the potential for the loss of the dividend being part of my pre-purchase valuation process).
I am a happy holder of the shares I have bought, but will not be seeking to increase my holdings at $2.60, a price level I consider elevated, rather than obviously overvalued. I don't believe in investing in a share just because you are convinced a takeover is likely to happen. The problem with that logic is that you can convince yourself that almost any share price looks like a bargain. From an operational perspective at PGW, there are very uncertain times ahead.
SNOOPY
Time for another episode in the much anticipated, controversial, yet wildly popular 'Shortage of Capital' series. This time the 'Trade & Other Payables' note throws up a brand new debt: the 'Make Right' provision for leased properties of $2.680m.
Like others I am still trying to come 'fully to grips' with the new standard for treating leased assets. $2.690m is to be "amortized over the life of the right-of-use assets". This $2.690m provision seems to be listed simply as part of the unspecified 'long term provision' in the balance sheet. 'Making good a property' is something that would normally happen at lease end. So it seems odd that the accounting treatment is to gradually write this figure off. I would have thought it would make more sense to keep this debt on the balance sheet as a 'lump sum', as a reminder that on lease end, this 'lump sum' must be spent. It is clear to me that this 'lump sum' must remain in a PGW bank account until it needs to be spent, regardless of what accounting conventions demand. This means it must end up as 'off balance sheet capital', ready to spend on termination of the lease. It is a confirmed 'future expense' that gradually becomes invisible to shareholders as it is amortized. When the lease is terminated, and the premises is vacated, then the accounts for that year will show next to nothing of the 'put back' refurbishment expenses. That doesn't seem right to me. But the upside of this policy is that PGW will have up to $2.690m of 'off balance sheet capital' to call on in an emergency. And that will have a positive, albeit transient, effect on any 'Shortage of capital' going forwards.
The above is my interpretation of what is going on. I hope if I am wrong one of the accounting gurus on this is forum will correct me!
SNOOPY
A horrifying result of post NZ-IFRS16 corruption!
But seriously, something strange is going on here. I had thought when NZ-IFRS16 was adopted two things were going to happen:
1/ A new asset was going to appear on the balance sheet: "A right of use of Leased Asset' entry. This would then be offset by a new liability incorporated within
2/ 'Lease Liabilities'
Then as the company continued to operate over the years, leases would be paid each year (thus reducing lease liabilities) and at the same time the 'Right of Use Asset' would be reduced in step. Thus 'Right of Use Assets' and 'Lease Liabilities' would shrink in tandem, causing minimal net change in equity or liability ratios. This seems to be confirmed in Note 15 of the accounts:
Right of Use Assets: $104.625m
Lease Liabilities: $106.904m
I was struggling to understand how a change in balance sheet presentation of the same cashflows could cause the equity ratio of PGW to shrink by ten points! The flaw in my thinking was that causing minimal net change in asset or liability values does not mean that there will be minimal net change in equity or liability ratios.
As illustrated on page 4 of the stand alone accounts for FY2020:
Old Total Assets Incremental Assets New Total Assets Pre NZFRS 16 $354.071m Post NZFRS 16 $105.382m $459.453m
Old Total Liabilities Incremental Liabilities New Total Liabilities Pre NZFRS 16 $195.421m Post NZFRS 16 $107.330m $302.751m
The company equity is the difference between the assets and liabilities at any time. And if the assets and liabilities go up by roughly the same amount then the difference between those two numbers remains roughly the same. Thus with NZ IFRS16, we have the numerator of the equity ratio - the company shareholder equity- staying about the same BUT the denominator of the equity ratio - the company assets - going up significantly. It stands to reason therefore that in post NZ IFRS16 circumstances, with equity the same and assets up, the equity ratio must go down, even though nothing substantially about the company has changed. Weird but true!.
SNOOPY
I think I/we have often not thought enough about leases and their liability .
A retailer like Michael Hill/SCY etc who does not own any property, and has long leases, have/had a huge liability off balance sheet.
So it means they are now out in the open.
How I/we account for them,as in the case of PGW I am not sure.
Just have to compare Apples with Apples,yet keeping in mind those leases are a huge liability for some companies.
In the case of SCY, it looks as though the rump of lease liabilities were left with SCY .From memory about $6mil ,which meant some landlords will be paid leaving nothing for shareholders.Yet nta was stated at over 70cps.
Check out the TLL Transport Logistics thread
Something similar has happened with the new Bean Counter's fanciful Lease Assets Add-ons on both sides there with relatively little change to SHF between most recent periods reported.
As was expected the % Equity Ratio has been shot to hell there too, with hefty Capital Equipment Leases I guess thrown into the mix
Here's another : The Warehouse
http://nzx-prod-s7fsd7f98s.s3-websit...034/318878.pdf
Equity ratio pre NZFRS 16 48.9%
Equity ratio post NZFRS 16 22.5%
Implications are worth thinking carefully about.