I got my capital repayment on 14th August 2019. So 'last year', as at 30th June 2019, PGW was holding heaps of net cash. You can't get an accurate prospective picture of 'PGW Rural Rump' going forwards by studying the published 30th June 2019 PGW balance sheet in my view.
Most of my figures are from page 10 in the document below.
https://www.pggwrightson.co.nz/-/med...otes.pdf?la=en
That page contains a pro-forma balance sheet for 'PGWRR' on May 19th 2019. I have taken figures from there and used them as estimates of the financial position of a 'separated' PGWRR on June 30th 2019. The way that I understand PGW to operate is that they build up a lot of seasonal debt by filling up their retail shelves and lending money to farmers to buy animals (the GoBeef and GoLamb livestock finance schemes). So roughly, debt is at a minimum at the 30th June balance date and it ramps up to near a maximum at the 31st December half year.
I am not saying that PGW have drawn down all their working capital in twelve months. I am saying that they have banking arrangements that allows PGW to draw down up to $70m of working capital at the mid year peak, and then reduce that working capital balance down to zero again at EOFY. There is no problem with the 'Senior Debt Coverage Ratio" (SDCR) as at 30th June provided all the working capital debt is returned. But that 30th June date shows this company in its best possible light, debt wise. My 31st December balance date calculation shows the company in its worst possible light,
Balance asked:
"Do you know how debt covenants apply in the case of PGW with its seasonal funding profile? "
No I don't. But I will bet they wouldn't just look at the most favourable capital position through the farming season (the 30th June figure). Nor would they look solely at the least favourable position (the 31st December figure). Do they take some kind of averaged debt figure in the middle? I genuinely don't know. There is something I do know though.
If PGW invested a whole lot of money into stock (both stuff on the retail shelves and animals) and they didnt get what they paid for that stock back, then the company debt would go up. I admit I am being extreme when adding the working capital onto the debt to calculate SDCR.and then checking for the Senior Debt Coverage Ratio at that point. That would imply that PGW spent heaps of money on stock and lost it all. But we do know that PGW failed to make a profit in the second half. So the question of exactly how much PGW lost on stock over the year is a fair question. Thinking about it further, PGW could lose up to $70m/2 = $35m in stock over the year and still meet the end of year SDCR target. Or they could lose $35m/2 = $17.5m worth of stock and meet a between six monthly reporting dates 'middle' target. Looking at the problem with this perspective Norwest, I guess you are right in calling me out over failing PGW on the SDCR target. It could yet be a problem if a whole lot of calves PGW had funded got foot and mouth as an example. But there is no sign of that. I am prepared to let PGW off my high level SDCR hook, even if I don't understand how 'seasonal' bank covenants work.
My criticism of PGW not being able to fulfill their 'Fixed Cost Coverage Ratio' obligations stands.
SNOOPY