PGW - PGG Wrightson

[nztx]

He ALSO has the 'most to gain', by asset stripping PGW from increased dividends (well past earnings per share) by using the additional debt headroom freed up recently...

Any more divisions surplus to requirements that can be lopped off similar to the Seeds division and hocked off
perhaps to awaiting Aussies or others waiting in the wings (that's not Singaporean Chop Sui either) ?

Got to be another Wing, and a couple of legs tucked up in there somewhere ..

Progressive partial amputation program folks - Singaporean style - just so long as there is some movement after the Separation is carried out - don't worry if it hobbles or wobbles a bit afterwards


If things Rural get real tough economically - how will PGW's financing & borrowing abilities fare ?

Lenders probably look for some earnings cover & if the wheels & dials are headed south in heavy head winds, that might not help one little bit..

An extended drought or some other event might be all it takes. Let's face it on 14 March 2024, Govt has declared Drought event already for Marlborough, Tasman & Nelson districts

How likely would it be that Aria come up with a pile of Ca$h to toss in if PGG got into a really tight spot and put the hand out to stakeholders to sure things up ? - or are they circling with an empty feed bowl looking for a fill up, or fail that a quick flick off to the next suitor ready to stump up any sort of pile depending on the day for their interest ?

On a 45% interest it doesn't look like nearly enough to see Aria operate the press and forceably spit out coins from one of NZ's iconic Rural Service Companies maybe being eyed up for a gutting by Singaporean interests .. and then the rest of the stakeholders may not like what they see going on and get rather upset

[Toddy]

These farm servicing companies also need to move with the times. With Starlink etc farmers are getting more access to the Internet.

It's a simple Google on the product manufactures name to see if they supply products direct.

I would say that 20 percent of the stuff I use to buy from Farmlands, PGG I now buy off the Internet and it gets dropped to my door at a significant discount.

It's just a matter of changing the way we purchase to be more in line with the modern world.

[blackcap]

I would say that 20 percent of the stuff I use to buy from Farmlands, PGG I now buy off the Internet and it gets dropped to my door at a significant discount.

.

I don't disagree, but is it the same product, brand and quality? Ie can I buy redband gumboots online cheaper than I can from PGG Wrightson?

[Toddy]

I'm talking about purchasing the exact same products.

When I started doing this, I though I had been a lazy idiot for not doing it sooner.

Also, alot of the manufactures offer you the same payment terms. Once you have bought off them once, then the next time they just invoice you.

As the older generation farmer retires then the next generation are all over the new way of doing business.

All as I'm saying is that over time the margins that Farmlands and PGg have enjoyed in the past may not be acceptable in the future on their retail side of the business.

[Snoopy]

Hey Snoops.....did you want a Pass Test score?

Logic makes some sense to draw that conclusion but isn't it about margin rather than $s ...on that surely a Fail

A few words on the Buffett Test Number 4. As a shareholder, we don't want to be part of a company that sells more and more stuff at less and less of a profit margin over the years. The logical extension of such a strategy is that the company ends up selling heaps and heaps of stuff but makes no net profit at all. That is obviously unsustainable. Retailers in particular, even the sellers of non-discretionary goods like PGW, do go through up and down cycles. So although it would be nice to see our 'ideal retailer' increase their net profit margin every year, this isn't going to happen, even for the best of retailers. Instead we look for the 'second best option'. Namely for those periods when 'times are good', our retailer should be able to demonstrate their ability to increase their net profit margin. Unless our company has that ability to increase profit margins at some time in the business cycle, then eventually all profits will disappear, and so will the retailer. I should add increasing profit margin does not equate to just raising prices. It also means sensible control of stock levels and the ability to increase stock turnover. Hopefully PGW's heavy IT spend over the last few years is helping with this. As is PGW's drive to up skill their sales staff with technical knowledge that they can share with farmers to help them make better purchasing decisions.

Up until Putin upset the trade routes -and oil and other commodity prices-, we have enjoyed 1%-3% annual inflation for as long as most investors today can remember. Even I got sucked in, as I reduced my 'acceptable yield on investment' goals, assuming that inflation was beaten. These last couple of years have come as a real shock, as I have had to consider what 'lifting your profit margin above the rate of inflation' really means. Your comment 'did you want a Pass Test score', suggests to me that perhaps you think I am deliberately or unconsciously looking for the 'sunny side of my statistics' so that I can contrive them to give me the test result I want. My method was to adjust the 'ingredients' for inflation and check what happened to the margin after that. Perhaps instead I should have taken the FY2021 net profit margin of 2.10% and adjusted that by 7%: 2.10% x 1.07 = 2.25%? Actual net profit margin for FY2022 was 2.58%. So I did increase my net profit margin by greater that the rate of inflation over the year. Is that what you are getting at?

No-one is disputing that the margin has gone down in FY2023. But I don't see that as a 'fail'. Rather it is part of a normal retail cyclical downturn which, when market conditions turn, PGW should have the ability (judging by their track record) to 'turn that margin around' like they did over the years FY2020 to FY2022. It is the ability to turn things around that is the point of this test. This is why PGW earns a 'pass' mark for the BT4/ test in my view. But passing the BT4/ test is not enough for Buffett. He would require PGW to pass all four of his tests for PGW to qualify as a 'Buffett style' investment.

SNOOPY

[winner69]

Thanks Snoopy for that

Good PGW consistently are profitable even if their profit margin is razor thin …..often thinner than what WHS achieve.

[kiora]

I wonder if/when H & G will step in again ?

[Snoopy]

Not much new Snoops. Has this statement from Agria ….rest is about what our Oliver says

Extract

In a statement supplied to the Herald, Agria took aim at PGW’s performance.

“While there are some small signs of performance improvement in one or two business lines, the last four years has seen inconsistent and declining business performance,” the company said.

“As a result, shareholders including Agria are seeing the ongoing erosion of value – market capitalisation, share price, dividends, international sales and demand, margins, and increasing debt levels.”

Agria acknowledged the work of the board to lead and govern “through these challenging years” but said the company now required a different skill set to improve its business performance.

“Regrettably, the business metrics and facts speak for themselves and in the best interests of the company, Agria believes an updated and new set of skills is required to arrest the four-year financial decline of PGG Wrightson.”

Alan Lai would have direct contact with Agria appointed directors on the board. So I imagine he has better and more frequent intelligence information coming his way than a pleb shareholder like me. That would include information on business units which for PGW reporting purposes are 'lumped together' under the broad groupings of "Agency" and "Retail & Water". Nevertheless I think it is worth looking at my 'net profit trend table' in light of Mr Lai's press statement.

Profit Normalisation table	FY2023	FY2022	FY2021	FY2020	FY2019	Reference
Declared Profit	$17.518m	$24.286m	$22.720m	$7.133m	$4.510m
less (add) Fair Value Gains (Losses) net of Impairments	0.72x($0.051m)	0.72x$2.182m	0.72x($1.832m)	0.72x$0.807m	0.72x$3.187m	AR Note 5
less (add) Foreign Exchange Gains (Losses)	0.72x$0.737m	0.72x($0.430m)	0.72x$0.094m	0.72x($0.178m)	0.72x($0.812m)	AR Note 6
less (add) IFRS16 adjustment	0.72x($0.613m)	0.72x($0.613m)	0.72x($0.613m)	0.72x($0.027m)		Post 5347
less (add) Non operating gains (losses)	0.72x($0.327m)	0.72x($0.699m)	0.72x($4.456m)	0.72x($0.132m)	0.72x$2.170m	AR Note 4
equals Normalised Profit	$17.335m	$24.603m	$17.819m	$7.471m	$7.782m

Inconsistent' means varying fortunes from year to year. If you expect a steady profit from year to year then that statement is true. Farm profits certainly do go up and down and so do profits at PGW. If profits are inconsistent and going up then this is a good thing. If profits are inconsistent and going down, then this is not so good. But if consistency as a measure aligns with the fortunes of our farmers, then I would say the profits at PGW are very consistent.

Is the business in decline? Over the last reported year -FY2023- definitely yes. And this decline has continued into FY2024. But IMO this to be more related to the general agricultural market malaise resulting from the cyclical nature of the industry, rather than anything specific to PGW. Indeed PGW claim to be gaining market share off their largest competitor, the Farmlands co-operative. Unlike Farmlands, PGW did make a positive net profit after tax over FY2023, even if it was down on the prior year.

Of the two new director skill set nominations, Vena Cawley the former chief customer officer at Contact Energy, is likely a very customer focussed guy. So is Alan Lai suggesting that PGW are still not customer focussed enough? Traci Houpapa, Chair of Landcorp, is effectively chairman of the largest corporate farm in the country. So maybe Mr Lai is indirectly suggesting that more input from a 'customer perspective' is desirable at board level. Maybe he is right? Those NZ lawyers and MBA types on the board now are out of touch?

'Market capitalisation', 'share price', and 'dividends' are all directly linked in a company like PGW.

As for 'international sales', I seem to recall there was mention of PGW of 'Agritrade', the wholesale business arm, shipping some product off to China. That potential area of expansion seems to have gone very quiet in recent years. Is Mr Lai signalling that management have become too 'inward looking'?

Margins have characteristically always been low in industry supply companies, except when you have a unique product that can plug into a real need (I am thinking Skellerup and how that company has grown). But PGW is a retailer rather than a product innovator. And personally I consider PGW's margin performance satisfactory (refer post 5589).

Debt levels can be reduced going forwards by cancelling the dividend. But somehow, I don't think that this was the kind of 'debt level fix' that Mr Lai had in mind! The current board fracas would indicate there may be disagreement as to what debt levels for the company are appropriate. However, I haven't heard about any substantial new initiatives that would require new capital to fund. 'Running a bit leaner' might incentivise the management team to look for efficiencies

SNOOPY

[Toddy]

Farmers are getting smarter. The old school cyclical spending habit is becoming less correlated by the day.

Education plus technology means that farmers are managing their cashflows and particularly their expenditure with much more efficiency.

[Toddy]

When I walk into PGW stores I just see old school workers and no new age young people wanting to sell you the latest technology.

It's a very reactive business model.

Yet, we rely on having these stores in the local farming communities for the basics.

I would love to see a massive shake up.

I haven't looked into the American or European farm suppliers to see how advanced they are.

Next rainy day I will Google the heck out of it.