PGG Wrightson Limited* (PGW) announced today that it is forecasting its full
year Operating EBITDA to 30 June 2018 including earnings of associates** is
expected to be at a similar level to 2017 earnings.
The 2018 financial year has begun with confidence high among dairy, beef and
horticultural clients due to good commodity prices. Currently the forecast
dairy pay-out stands at a very healthy $6.75 per kgMS, and gold kiwifruit
orchards continue to sell for over $1 million per canopy hectare. However,
price is only half the story. Recent estimates from Beef + Lamb New Zealand
warn of a significant contraction in forecast production throughout New
Zealand.
By way of illustration, Beef + Lamb New Zealand estimate the total number of
lambs tailed in the spring of 2017 at 23 million head, down 1.3 percent or
0.3 million head on the previous spring, reflecting fewer breeding ewes.
This drop contrasts with previous indications that the lamb flock might be up
around 1.1 percent. In addition, beef production is expected to be static
year-on-year.
For dairy, early season milk production has been hampered by weather
conditions being generally too wet over recent months. August New Zealand
milk production was down 1.5 percent on last year (which was down 3.0 percent
on the year before that). Milk production is ramping up for spring, but the
BNZ, for example, suspect it will not be as strong as it usually is given
recent weather conditions. This is tempering their forecast for the season
as a whole. They still expect milk production this season to be higher than
last season but not quite as much as they had previously thought - maybe up
in the 1 to 2 percent range rather than a 3 to 4 percent range.
Generally wet conditions through winter and early spring is delaying the key
spring sales season. While the delay is not yet significant enough to
suggest lost sales, the risk of a poorer spring for PGW is somewhat
heightened compared to a few months ago. Currently PGW is around $2 million
behind the same time last year but there is confidence of making up this
ground as the spring season accelerates.
PGW''s South American operations have seen a positive recovery this year,
however the long-term effects of the April 2016 flooding on farmer
confidence, and their demand for inputs, is likely to remain a constraint in
the near term. In Australia, confidence among our dairy clients is low as
the uncertainty regarding prominent processor, Murray Gouldburn, continues
with a deal announced in recent days for the sale of the cooperative to
Canadian owned, Saputo.
It is against this backdrop of higher prices, lower production and a delayed
start to spring that we have forecast our 2018 earnings. We expect that 2018
earnings at the Operating EBITDA level will be at a similar level to 2017
earnings.
At the net profit after tax level we are expecting more normalised earnings.
Our 2017 net profit after tax included non-operating items of $9.5 million,
of which $8.74 million related to capital gains on the sale of properties.
As this programme is now largely complete we will not get a boost from this
line in the current financial year. Consequently, PGW is expecting net
profit after tax to be approximately 30 percent lower than 2017.
It is important to note that it remains early in the financial year to be
forecasting with the vast majority of the year''s trading still ahead. It is
also noted that PGW''s optimism for the future is not diminished - earnings
are expected to return to growth in 2019.
PGW Deputy Chairman Trevor Burt said, "PGW is continuing to see the benefit
of having a highly engaged team which is demonstrated in the strong results
that the company has produced over the last few years and is forecasting
ahead for FY2018.
"The Board continues to see opportunities for improvement and growth right
across PGW Group. It is important to recognise that PGW''s current strategy
has served the business well over the past five years. It now operates in
three distinct operating groups - Retail and Water, Agency and Seed and Grain
- each with very different business models and market dynamics, with a much
more coordinated approach to offering technical advice, products and services
to our customers.
"Notwithstanding that the business is performing well, the Board believes it
is timely to review the overall PGW business, its growth opportunities,
capital and balance sheet requirements, and potentially shareholding
structure. PGW has a very strong foundation and is well positioned to
explore how it should go about pursuing the opportunities available.
"Last week we announced the appointment of Ian Glasson as CEO, who commences
tomorrow. With Ian''s appointment, the Board considers that the time is right
to commence a strategic review and has made a joint appointment of Credit
Suisse (Australia) Ltd and First NZ Capital Ltd as financial advisers. At
our Annual Shareholders Meeting today we will be providing further details
about the review.
"It is important to emphasise that the Board considers that the business is
in good health and is well positioned for the future with a strong management
team and culture. The Board has confidence that we have the right management
team and as such this is not an operationally focussed review of the
business. This review is scoped at a strategic level looking at the capital
structure of the company and assessing what is the optimal structure for the
business to position PGW to execute on the growth opportunities it has before
it," said Mr Burt.
For further information please contact
Trevor Burt
Deputy Chairman
Mobile: +64 27 502 0050
Please see attached announcement for **Disclosure Statement: Non-GAAP profit
reporting measures
End CA:00309451 For:PGW Type:MKTUPDTE Time:2017-10-31 08:30:21