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28-02-2017, 01:37 PM
#4071
The wider 'interest' picture: Part 1
Originally Posted by snoopy
an interesting question roger. However most banking covenants seem to be based on 'cashflow'. Cashflow won't be affected by whether long term lease agreements becaome capitalised debt or not. Also these changes in accounting rules have been well signalled. So yes the debt on paper from fy2019 will look higher. But will bank managers be really worried about it?
|
FY2011 |
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
Interest Payable: {A} |
|
$8.737m |
$5.537m |
$5.091m |
$6.768m |
$7.150m |
Bank Facility Fees: {B} |
|
$4.937m |
$4.240m |
$2.440m |
$1.508m |
$0.945m |
Financial Rearrangements during year |
|
1/ PGW Finance |
1/ Goodwill $300m+ |
1/ New Syndicated Loan |
1/ Syndicated loan |
1/ Reorganisation of |
|
|
divestment to Heartland |
write off |
negotoiated Dec 2013 |
extended to Dec 2018. |
Uruguayan loans: |
|
|
2/PGW Rural Capital |
2/$20m of 31-07-2004 |
(includes Term Debt |
2/ New Overdraft Facility |
(Logistic Centre |
|
|
Limited repayments |
loan paid back early |
facility $116m (+$6m) |
of $9.63m. |
Facility: $US11m) |
|
|
(including Crafer Farms) |
3/ Amortizing facility |
& Working Capital |
3/ New Trade Finance |
(Committed |
|
|
|
$38.98m repaid. |
facility $60m (same) ) |
facility of $6.57m |
Facility: $US12m) |
|
|
|
4/ Trade Finance facility |
until December 2016. |
4/ Extra finance for |
(Unsecured |
|
|
|
$34.16m wound up |
|
Uruguayan operations |
Facility: $US16.34m) |
|
|
|
|
|
$NZ11.76m + $38.32m |
Loan Balance (Short Term) EOFY |
$52.194m |
$29.709m |
$47.702m |
$35.573m |
$57.195m |
|
Loan Balance (Long Term) EOFY |
$124.500m |
$111.500m |
$62.000m |
$65.000m |
$66.000m |
|
Loan Balance (Short Term) EOFY AR2016 |
|
|
|
|
$57.411m |
$36.623m |
Loan Balance (Long Term) EOFY AR2016 |
|
|
|
|
$69.328m |
$97.551m |
Average Total Loan Balance Over Year: {C} |
|
$158.952m |
$125.455m |
$105.138m |
$111.884m |
$130.437m |
Charged Interest Rate Estimate: {A}/{C} |
|
5.50% |
4.41% |
4.84% |
6.05% |
5.48% |
Bank Facility + Interest Rate Estimate: [{A}+{B}]/{C} |
|
8.60% |
7.79% |
7.16% |
7.40% |
6.97% |
----
The important figure to look at (or so I thought) was the actual interest rate the bank syndicate was charging. However the supplementary 'Bank Facility Fees' are enormous. In FY2013 those fees almost matched the interest paid! I have tried to summarize any Financial Arrangements changed during the year that could explain these 'one off' charges. They are generally reducing over the years as PGW finds a more stable operating structure. So hopefully 'Bank Facility Fees' will not play as large a part in PGWs future as they have done in the past!
'PGW Rural Capital Limited' was a company set up to take over the remaining PGW Finance Loans that Heartland did not want. It is no surprise that a few extra bank fees were payable on the wind up of some of many of these loans in FY2012. Likewise the wind up of the 'Amortising Facilities' and 'Trade Finance facilities' in FY2013 look to be have been costly. FY2014 saw the former ANZ bank loan turned into a 'syndicated loan' involving Westpac and BNZ as well. This involved winding up the previous ANZ facility early. All that rearrangment was obviously costly! It is interesting that new 'trade facilities' were opened in FY2015. I thought that side of the business had been handed to Heartland? So is this a sign that Heartland ( PGW Finance owners) are not performing, with PGW having to establish new trade facilities again in their own right?
Here is hoping for stability in the loan arrangments going forwards!
SNOOPY
Last edited by Snoopy; 28-02-2017 at 03:36 PM.
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28-02-2017, 06:36 PM
#4072
The wider 'interest' picture: Part 2
Originally Posted by Snoopy
Here is hoping for stability in the loan arrangments going forwards!
|
FY2011 |
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
Financial Rearrangements during year |
|
1/ PGW Finance |
1/ Goodwill $300m+ |
1/ New Syndicated Loan |
1/ Syndicated loan |
1/ Reorganisation of |
|
|
divestment to Heartland |
write off |
negotoiated Dec 2013 |
extended to Dec 2018. |
Uruguayan loans: |
|
|
2/PGW Rural Capital |
2/$20m of 31-07-2004 |
(includes Term Debt |
2/ New Overdraft Facility |
(Logistic Centre |
|
|
Limited repayments |
loan paid back early |
facility $116m (+$6m) |
of $9.63m. |
Facility: $US11m) |
|
|
(including Crafer Farms) |
3/ Amortizing facility |
& Working Capital |
3/ New Trade Finance |
(Committed |
|
|
|
$38.98m repaid. |
facility $60m (same) ) |
facility of $6.57m |
Facility: $US12m) |
|
|
|
4/ Trade Finance facility |
until December 2016. |
4/ Extra finance for |
(Unsecured |
|
|
|
$34.16m wound up |
|
Uruguayan operations |
Facility: $US16.34m) |
|
|
|
|
|
$NZ11.76m + $38.32m |
Charged Interest Rate Estimate: {A}/{C} (previous table) |
|
5.50% |
4.41% |
4.84% |
6.05% |
5.48% |
Interest rates used for determining value (Receivables) |
|
13.6% |
14.4%% |
14.2% |
14.7% |
Not Mentioned% |
I always get suspicious when statistics are dropped from the Annual Report with no explanation.
Note 21 in AR2016 is titled 'Financial Instruments'. The last five years of annual reports also have a section titled 'Financial Instruments'. There is some detail in there about listing values on the books at 'fair value'. The interest rate used in determining these 'fair values' of 'finanace receivables' is listed under sub-section 'e' (in previous years). I assume some value of 'determining value' interest rate was used in FY2016, even though management chose not to tell sharehodlers what that interest rate was.
I have displayed the offending interest rate (where available) alongside my calculated interest rate that our company has been paying to the bank. There is no reason for these interest rates to be the same. I might expect the trend of changes in value year to year to show some correlation though. The 'determining value' interest rate has not dropped significantly since FY2012 (actually it has gone up). In a climate over the last few years of declining interest rates I find this odd. The fact that it wasn't given for FY2016 leads me to suspect it might have gone even higher. Can anyone explain this apparent anomoly? Why would an interest rate be used to help determine the value of financial receivables in the first place?
SNOOPY
Last edited by Snoopy; 05-03-2017 at 01:33 PM.
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06-03-2017, 10:08 AM
#4073
Interest Rate Stress Test: Part 1 'The Data'
I think PGW is the highest yielding share on the NZX, at least among those shares that have any chance of a stable earnings profile going forwards. High yield is often a measure of market scepticism. The reason for this scepticism IMO is that:
1/ Commodity markets (most of PGW's customers farm commodities) are subject to price and exchange rate volatility AND
2/ PGW itself carries a not insignificant bank loan debt burden.
Unfortunately when interest rates eventually rise, PGW will get a double whammy from:
1/ Higher interest costs
2/ The ability of customers to purchase being reduced from a higher NZ exchange rate reducing commodity prices in NZD terms..
I think it is worthwhile 'stress testing' the company to see what might happen in practice under a higher interest rate scenario. FY2012 to FY2016 covers the last five years under Alan Lai's Chairmanship. I suggest that 'net profit after tax' is largely determined by the revenue turnover of the company in any particular year. This is because PGW has limited ability to respond to any 'weather event' or predict the timing of the commodity cycles, but must have stock on hand at the start of each farming season (particularly with seeds) to meet demand from farmers. Revenue form the last five years has been tabulated below. I have presented an adjusted revenue picture too, as explained by circumstances outlined in note 1.
A point of observation is that 'adjusted revenue' is surprisingly stable. $1,173.6m is the mean adjusted revenue figure. The highest and lowest revenue figures are less that 4% away from that mean figure. This can be attributed to PGW doing business across all rural sectors. When the different rural sectors are 'out of synch' this naturally smooths the overall revenue picture.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
Stressed Year |
Revenue |
$1,336.8m |
$1,131.8mm |
$1,219.8mm |
$1,202.8m |
$1,181.6m |
Revenue (adjusted) |
$1,131.8m |
$1,131.8mm |
$1,219.8mm |
$1,202.8m |
$1,181.6m |
$1,131.8m (-$50m) |
Average Total Loan Balance |
$158.952m |
$125.455m |
$105.138m |
$111.884m |
$130.437m |
over Year: {Snoopy post 4071} |
Charged Interest Rate |
5.50% |
4.41% |
4.84% |
6.05% |
5.48% |
estimate: {Snoopy post 4071} |
Bank Facility + Interest Rate |
8.60% |
7.79% |
7.16% |
7.40% |
6.97% |
8.60% (+23%) |
estimate: {Snoopy post 4071} |
Notes
1/ Below is a quote from p5 of the PGW Annual Report for FY2013:
"Sales revenue for the group decreased, although this had no bearing on underlying business activity. Sale of the Agri-feeds molasses business resulted in it being accounted as ‘equity earnings from associates,’ meaning its revenue is no longer recognised in our accounts. In addition, a number of key product lines in the retail business are now transacted on an agency basis, meaning that,although gross profit generated by these transactions remains unchanged, only commission income is recorded as our revenue rather than the full transaction value."
SNOOPY
Last edited by Snoopy; 07-03-2017 at 09:36 AM.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
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06-03-2017, 02:12 PM
#4074
Snoopy
Not being an accountant myself, your descriptions sounds like a bit of creative in-house cooking.
Do you think there is any need to be mildly concerned
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06-03-2017, 02:45 PM
#4075
Originally Posted by arc
Snoopy
Not being an accountant myself, your descriptions sounds like a bit of creative in-house cooking.
Do you think there is any need to be mildly concerned
I think what Snoopy is saying is that the downward potential for the share might be currently higher than the upward potential. Cyclical stock at the top ...
Obviously - high leverage at the top of the cycle is not very clever and might point to a needy/greedy majority shareholder requesting a big dividend, no matter whether PGW could afford to pay or not. Moving now into the downcycle with high debt and in an environment of rising interest rate is not necessarily an advantage for the company and/or for holders.
30 cents - here we come again ?
Discl: don't hold;
----
"Prediction is very difficult, especially about the future" (Niels Bohr)
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06-03-2017, 03:33 PM
#4076
F16 saw them use $$29m to pay out dividends
This wasn't funded from normal activities - $20m came from property sales and the rest was borrowed
I reckon pusing the limits of 'financial endineering' to keep shareholders (at least the majority one) happy
No wonder a high dividend yield
”When investors are euphoric, they are incapable of recognising euphoria itself “
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06-03-2017, 07:38 PM
#4077
Thanks guys, good feedback
Sell and borrow as well !!! just to fund divies...
Obviously the div level requires a major slash and burn
So what happens when you have sold off all the silverware to support the habit, and have just the blankets left...
planting a red flag here.
Last edited by arc; 06-03-2017 at 07:43 PM.
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06-03-2017, 08:05 PM
#4078
Why is this page so wide Snoopy
Originally Posted by winner69
F16 saw them use $$29m to pay out dividends
This wasn't funded from normal activities - $20m came from property sales and the rest was borrowed
I reckon pusing the limits of 'financial endineering' to keep shareholders (at least the majority one) happy
No wonder a high dividend yield
Whilst I broadly agree with you I have underlined the bits that are plain wrong.
Best Wishes
Paper Tiger
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06-03-2017, 08:19 PM
#4079
Originally Posted by Paper Tiger
Whilst I broadly agree with you I have underlined the bits that are plain wrong.
Best Wishes
Paper Tiger
What a "classic" post.!.....lol.
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06-03-2017, 08:33 PM
#4080
Originally Posted by Paper Tiger
Whilst I broadly agree with you I have underlined the bits that are plain wrong.
Best Wishes
Paper Tiger
You fallen in love again or something
Thanks for the generous praise anyway
Cheers
”When investors are euphoric, they are incapable of recognising euphoria itself “
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