PGW - PGG Wrightson

[Xerof]

I'm a very fair person Sparky - that was precisely the 'intervention' I was meaning

[Snoopy]

Some more detail on half year earnings. Agria made 'Operating Income' (EBIT) of $US6.1m, which equates to $NZ7.4m using the exchange rate on 31st December 2012 of $1NZ = $US 0.8196 (half year result date).

From the PGW HY2013 report, EBIT was $NZ18.0m - $NZ4.0m = $NZ14.0m.

Half of that (the Agria share) is $NZ7m, which compares unfavourably with the $NZ7.4m EBIT declared by Agria. So has Agria finally added some value at EBIT level? Possibly, although the lack of break down in the Agria result makes it difficult to be sure.

I am going to give Agria the benefit of the doubt. I shall assume the difference in the HY2013 profit ($NZ0.4m, $US0.33m) was all due to 'China seeds'. Based on 6 months seed turnover of $US5m, this represents an EBIT margin of 6.5%. How does that compare to 'Agritech', the arm of PGW that 'China Seeds' is ostensibly trying to merge with?

Well, Agritech had HY2013 turnover of $NZ 181.7m and EBIT of $4.999m. That gives an EBIT margin of 2.8%.

Therefore Chinaseeds is 232% better than Agritech and 'equivalent turnover' for China Seeds is not $US5m, but $US11.6m or $NZ14.2m. Thus if the two businesses were to be combined the fair split of the combined business would be for it to be held 7.2% by Agria shareholders and 92.8% by PGW shareholders.

Sigh! It is no use. Using all the BS figuring* in the world, I cannot get anywhere near Alan Lai's NZ Herald Interview claim of grabbing 67% of a combined PGW Agritech / Agria China Seeds for Agria shareholders! It also includes all of the troubles that Agritech were facing in Australia over the comparison period.

SNOOPY

*BS figuring includes the expected low first half of the year for Agritech (southern hemisphere) with the expected high first half of the year (northern hemisphere) for Agria's 'Chinaseeds'.

[Snoopy]

I am going to give Agria the benefit of the doubt. I shall assume the difference in the HY2013 profit ($NZ0.4m, $US0.33m) was all due to 'China seeds'. Based on 6 months seed turnover of $US5m, this represents an EBIT margin of 6.5%. How does that compare to 'Agritech', the arm of PGW that 'China Seeds' is ostensibly trying to merge with?

Well, Agritech had HY2013 turnover of $NZ 181.7m and EBIT of $4.999m. That gives an EBIT margin of 2.8%.

Therefore Chinaseeds is 232% better than Agritech and 'equivalent turnover' for China Seeds is not $US5m, but $US11.6m or $NZ14.2m. Thus if the two businesses were to be combined the fair split of the combined business would be for it to be held 7.2% by Agria shareholders and 92.8% by PGW shareholders.

Sigh! It is no use. Using all the BS figuring* in the world, I cannot get anywhere near Alan Lai's NZ Herald Interview claim of grabbing 67% of a combined PGW Agritech / Agria China Seeds for Agria shareholders! It also includes all of the troubles that Agritech were facing in Australia over the comparison period.

SNOOPY

*BS figuring includes the expected low first half of the year for Agritech (southern hemisphere) with the expected high first half of the year (northern hemisphere) for Agria's 'Chinaseeds'.

From the NZ Herald report.

"Agria has 51 per cent of the Wrightson seeds' business but 100 per cent of China Seeds. Post the merger (and some prospective M&A activity in the US) PGG Wrightson would have less than one-third of the new company."

This kind of thinking has 'grand theft seed pod' stamped all over it. How on earth could Lai consider that his China seed business would make up two thirds of a combined Agritech/ China Seeds? PGW minority shareholders will have to be very careful here. It does read like Lai is lining up to 'steal' decades of seed technology built up in New Zealand for himself (Agria)! There is serious risk here for PGW minority shareholders IMO.

SNOOPY

[Snoopy]

An interesting article by Fran O'Sullivan this morning about the Seeds business potentially joining up formally with Agria.

http://www.nzherald.co.nz/business/n...ectid=10875679

Another quote from the above article:

"With the combination between PGGW and China Seeds, we are number two in the world and we are looking in the next three years to be number one."

"I believe there is a natural synergy between PGG Wrightson Seeds and Agria Seeds to make a company to compete with the giants like Monsanto. The integration will give PGG Wrightson much more extensive access to the Chinese market as well."

This claim does not stack up to me. How will combining PGW Agritech and 'China Seeds' improve contacts in China? Before merger we are reliant on Alan Lai and his connections to develop the China business. After merger we woudl still be reliant on Alan Lai as the beachhead into China for PGW investors. How can combining Agritech and Chinaseeds make one jot of difference in improving access to the Chinese market?

SNOOPY

[Snoopy]

An interesting article by Fran O'Sullivan this morning about the Seeds business potentially joining up formally with Agria.

http://www.nzherald.co.nz/business/n...ectid=10875679

Another quote from the above article

"Lai is not proposing an IPO on the Hong Kong exchange (this was earlier floated by XT)."

Well of course he isn't! All you need do to see why is look at the HK listing rules for new issues:

http://www.hkex.com.hk/eng/listing/l...q/equities.htm

where you can find the following quote:

A GEM new applicant must have a trading record of at least 2 full financial years with: substantially the same management throughout the 2 full financial years; and a continuity of ownership and control throughout the full financial year immediately preceding the issue of the listing document

Since the CEO and CFO both left six months ago, Agria would not comply with the management continuity rules and so he would not be allowed to list the company in Hong Kong. Naturally Lai didn't tell Fran O'Sullivan that!

SNOOPY

[Snoopy]

An interesting article by Fran O'Sullivan this morning about the Seeds business potentially joining up formally with Agria.

http://www.nzherald.co.nz/business/n...ectid=10875679

I am not finished with this article yet!

"And with China rapidly building huge mega-dairy farms (Lai knows of at least 40 with more than 10,000 cows on each farm), he believes there is a big opportunity to grow forage in China to cut-and-carry to the animals."

"Lai estimates this business could generate at least US$25 million in annual revenue by 2017 - rising to US$200 million turnover within 10 years."

This claim is harder to judge because in general NZ does not supplementary feed like Lai is proposing.

However, Uruguay certainly does and as a former NZS shareholder I have some relevant information. NZS had an average of 65,000 cattle on their farms during FY2012 and spent $4.943m on forage. Scale that up to 400,000 cows and you would be looking at a turnover of $US30.4m. That is substantially below the $US200m ten year target that Lai is talking about. Granted, conditions in China are not directly comparable with Uruguay. But the feed used by NZS in Uruguay during FY2012 was substantially over budget due to the poor grass conditions. So it does look like Lais claimed forage market in China is an order of magnitude above reality.

SNOOPY

[Snoopy]

It is entirely possible he was talking drivel on purpose and Fran O'Sullivan didn't know enough about PGW to challenge it.

Fran O'Sullivan is a well respected journalist, and I would have expected much better of her. The article wasn't even consistent within itself, which should have raised some alarm bells even if your specialty training wasn't in farming. IMO this Herald article is an utterly disgraceful piece of journalism: inaccurate, inconsistent and just plain wrong over its entire content.

SNOOPY

[Morpheus]

This kind of thinking has 'grand theft seed pod' stamped all over it. How on earth could Lai consider that his China seed business would make up two thirds of a combined Agritech/ China Seeds? PGW minority shareholders will have to be very careful here. It does read like Lai is lining up to 'steal' decades of seed technology built up in New Zealand for himself (Agria)! There is serious risk here for PGW minority shareholders IMO.

SNOOPY

This was something Shoeshine in the NBR picked up on recently, noting that Alan Lai’s wife seemed to feature a lot as a major shareholder in lots of obscure seed companies half owned by Agria. Shoeshine mentioned Shenzhen Guanli Agricultural Technology, 51% owned by Agria Brother (Agria’s biotech arm) and 49% owned by Li Juan, wife of Agria chairman and founding shareholder Guanglin (Alan) Lai. Then there is Shenzhen Agria Agricultural Co and Shenzhen Zhongyuan Agriculture Ltd, of which Mrs Lai is the 95% owner ... plus lots of other side deals with the Chinese government and shady lease agreements between these seed merchants and farmers in mainland China. Worth reading.
The article was in the print edition and is now on the website http://www.nbr.co.nz/article/agria-k...gw-dark-135030
Sorry NBR wont allow me to cut and paste it here.

[Queenstfarmer]

I am not finished with this article yet!

"And with China rapidly building huge mega-dairy farms (Lai knows of at least 40 with more than 10,000 cows on each farm), he believes there is a big opportunity to grow forage in China to cut-and-carry to the animals."

"Lai estimates this business could generate at least US$25 million in annual revenue by 2017 - rising to US$200 million turnover within 10 years."

This claim is harder to judge because in general NZ does not supplementary feed like Lai is proposing.

However, Uruguay certainly does and as a former NZS shareholder I have some relevant information. NZS had an average of 65,000 cattle on their farms during FY2012 and spent $4.943m on forage. Scale that up to 400,000 cows and you would be looking at a turnover of $US30.4m. That is substantially below the $US200m ten year target that Lai is talking about. Granted, conditions in China are not directly comparable with Uruguay. But the feed used by NZS in Uruguay during FY2012 was substantially over budget due to the poor grass conditions. So it does look like Lais claimed forage market in China is an order of magnitude above reality.

SNOOPY

I would imagine that within ten years he wld be talking about a substantial amount of cows...a great deal more?? than 400,000?

[Master98]

Believe or not, as long as Mr Lai want, he can easily get funding from china to buy another half pgw, just when this will happen. China agriculture is a major part of new nation five years plan.