PGW - PGG Wrightson

[Sideshow Bob]

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.

Page 27 - https://www.pggwrightson.co.nz/sites...t%202023_0.pdf ()pages 50/51 of their annual report)

Under 30 is their biggest number of new employees - also the biggest number of employees who leave. Over 50's the lowest of the leavers - probably the "lifers".

Also hiring way more women than men.

[Toddy]

I don't know what the answer is. But I would want to become the number one provider of technology to farmers and be know as the farming solution provider.

It's a easy conversation with the old farmers. The amount I have got onto Starlink and changed their world is amazing.

Conversation goes. Dump your expensive non tax deductible sky subscription. Get tax deductible Starlink. Then get Sky Now for a third of the price. That pays for your Starlink right there.
And since you have a super powered Internet, get off the shelf wireless security system, wireless water monitoring station, wireless everything.

PGW should be selling all this stuff. The young employees would love talking about it.

Good for share trading too if you are that way inclined.

[Snoopy]

Amongst this deteriorating financial outlook, you would have expected PGW's banking syndicate to be getting a bit cautious. Maybe they might 'sink the lid' on the amount of capital that PGW can borrow gradually over time, to ensure a disciplined pay back of debt? But no, the opposite has happened. From HYR2024 p26
"On 22nd December 2023 the syndicated bank facility agreement was amended and restated with an effective date of 19 January 2024."
-Term debt facilities are now permitted to grow to $100m (+$10m), with this facility maturing on 27 February 2026. (Amount drawn on this facility @31-12-2023 was $45.19m).
-Working capital facilities are now permitted to grow to $85m (+$15m), with this facility maturing on 27 February 2026. (Amount drawn on this facility @31-12-2023 was $65m).

To put this new 'revised PGW credit limit' into context, the total dividend payout over FY2023 was $21.712m. So it looks like there is plenty of headroom ($55m in long term debt facilities) for a 'new board' -should they be elected- to 'borrow to pay a dividend' - should they so choose, even if the company makes zero NPAT this year. Interesting!

I want to raise an 'alternative interpretation' on why the debt balance at PGW has seemingly been given the green light to 'blow out'.

From HYR24 page 26, just after the new higher debt burden tolerance has been documented.
"Under the amended and restated agreement, the Company continues to grant a general security deed and mortgage over all its wholly-owned New Zealand assets to a security trust. Bank of New Zealand acts as facility agent and security trustee for the banking syndicate, which comprises Bank of New Zealand, Co-operative Rabobank U.A. (New Zealand branch) and Westpac New Zealand Limited. The amended and restated agreement contains various financial covenants and restrictions that are standard for facilities of this nature, including maximum permissible ratios for debt leverage and operating leverage, together with limits for Go receivables, capital expenditure and asset disposals from its effective date."

The company has not given shareholders any indications of specifically what these 'covenants and restrictions' are. But way back in 2009, when Alan Lai and Agria were first invited to take a stake in PGW, they certainly did. Fortunately I kept that prospectus in my archive, even though it has long since vanished from the internet. If these covenants are unchanged from those days, and because PGW was in a similarly difficult phase of the agricultural cycle then as they are today - I think this is likely -, then there are currently restrictions on PGW from their banking syndicate as follows (refer to page 44 of the 2009 capital raising document):

Debt Leverage

Senior Debt Coverage Ratio	Percentage of Excess cashflows available for distribution	PGW Actual Value 31-12-2023
SDRC > 3.00x	0%
3.00x > SDRC > 2.00x	50%	2.62
SDRC < 2.00x	100%

Note: 'Senior Debt Coverage Ratio' = Senior Debt / EBITDA(pre IFRS16)




Operating Leverage

Fixed Cost Coverage Ratio	Percentage of Excess cashflows available for distribution	PGW Actual Value 31-12-2023
FCCR > 2.00x	No restrictions
FCCR < 2.00x	Time plan to restore metric to > 2.00x	1.56

Note: FCCR = EBITDA(post IFRS16) / (Total Net Interest Paid + Lease Expenses)

I wouldn't mind betting that PGW have been told (note that word, as it is the banking syndicate that is doing the telling) to improve their FCCR back to above 2 by the end of the financial year. Their dividend paying ability will then be determined by where the SDRC sits. The banks know that PGW will be having a tough time this year, and they don't want to be embarrassed by PGW busting the previously agreed borrowing limits. So they have given PGW some 'extra rope' so that if trading conditions really get smashed in the second half, and PGW ends up making EBITDA well below the latest forecast $50m for the whole year, then the debt covenants don't get busted. That means the increased debt covenants are not there because of the incredible resilient earning capacity of PGW. They are there to avoid embarrassing the banking syndicate, should PGW trading turn out to be rather worse than anticipated.

SNOOPY

[Sideshow Bob]

A major U-turn?? SP to rocket today....??


https://www.nzx.com/announcements/428401

PGG Wrightson Limited (PGW) advises that it has received notice from Agria (Singapore) Pte Ltd (Agria) that it has withdrawn its notice issued on 8 February 2024 requesting that a special shareholders meeting be convened to consider several proposed director changes.
The PGW Board welcomes this development and has determined that preparations for the proposed special meeting will now not be needed.
Agria and the PGW Board have determined that the current composition and the majority of the membership of the Board continue to have an appropriate balance of expertise, skills, and independence.

[percy]

Appears to me the excellent work put in by Oliver Mander of NZSA,has had another good result.

[Balance]

Appears to me the excellent work put in by Oliver Mander of NZSA,has had another good result.

Very good indeed. Well done to Oliver and all involved.

[blackcap]

Appears to me the excellent work put in by Oliver Mander of NZSA,has had another good result.

I third that. Saw Oliver on Wednesday in Wellington and shook his hand. The NZSA has done some fantastic work the last few years obtaining tangible results that can only be for the betterment of governance in NZ.

[iceman]

Appears to me the excellent work put in by Oliver Mander of NZSA,has had another good result.

Agreed. Well done Oliver & NZSA

[Snoopy]

Appears to me the excellent work put in by Oliver Mander of NZSA,has had another good result.

Well yes, except that now we shareholders don't get to vote on Oliver's excellent proposal that only minority shareholders should vote on their minority shareholder board representation. Oh well, I guess it means that Agria are now communicating with the board at the board level again, without having a public spat. Maybe Mr Lai read my analysis on this forum and realised that operationally, things were not as bad as he first thought ;-). I wonder if Elders had something to say behind the scenes?

I do realise that directors are concerned with the operation of the company of which they are a director. But with Agria as a 44% shareholder, this was a hint to me that perhaps the PGW directors should have stepped outside of their immediate mandate and considered the effect of their 'shock dividend cancellation' on their largest shareholder. There is nothing for the company to do now but 'hunker down' as they prepare for coming out the other side - eventually. There is no sense in punishing PGW staff by sacking them because it is not raining.

SNOOPY

[Oliver Mander]

Thanks for the kind words everyone. To Snoopy's point, we'll keep advocating for a minority interests regime more generally. We will also keep a watching eye on PGW and any next steps that may be required.