Thank you for standing by and welcome to the PGG Wrightson Limited Half-Year Results Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Stephen Guerin, Chief Executive Officer. Please go ahead.
Thank you, Operator.
Kia ora. Good morning and welcome to the PGG Wrightson’s results briefing for the six months to 31 December 2023. I am Stephen Guerin, the Chief Executive Officer. As the Operator has introduced, I’m pleased to provide you an overview of the interim results for the 2024 financial year. Joining me on the call are Peter Scott, our CFO, and Julian Daly, our General Manager of Corporate Affairs who is also our Company Secretary. Today I’ll summarize the financial results, our trading performance, key themes, and initiatives for the period, and I will discuss some thoughts of the year ahead. Then we’ll make time for questions and answers at the end of the session. During this call I refer to PGG Wrightson as PGW, the company, or the group.
I will refer also predominantly to our Operating EBITDA, which is a non-GAAP measure that allows us best to describe our business operations. I will also discuss our ultimate bottom line of net profit after tax, a formal GAAP measure. Key items of metrics for the first six months to 31 December 2023, to note, are: Operating EBITDA of NZD 36.6 million, down NZD 11.2 million or 24%; revenue of NZD 560.9 million, down NZD 24.9 million or 4%; net profit after tax of NZD 12.7 million, down NZD 8.4 million or 40%. Operating EBITDA guidance of around NZD 50 million for the financial year to 30 June 2024 has been issued to the market. PGW Board has by a majority determined PGW will reinvest capital back into the growing business by suspending the interim dividend in order to avoid debt in the face of rising interest costs. Excuse me.
The Board considers PGW has performed well against difficult market conditions and the restraints impacting on the primary sector and wider economy. It recognizes uncertainties remain and that it is prudent to wait for the full financial year to complete before reviewing the dividend payout ratio, if any. Recent levels of dividend have been at the upper end of the payout ratio for the sector and are not sustainable. PGW has traded solidly during the first half of the financial year in a materially more challenging market conditions than experienced in recent years. Factors such as elevated levels of inflation, interest rates on rising farm debt levels, together with subdued demand and softer returns in most of New Zealand's key primary export commodities, have all contributed to create a more demanding environment for many of PGW's farmer and grower clients.
We note that there is generally a strong correlation between the fortunes of our clients and PGW. In terms of the key metrics, PGW delivered operating earnings before interest, tax, depreciation, and amortization for operating EBITDA of NZD 36.6 million, down NZD 11.2 million or 24% compared to the prior corresponding period. Revenue was NZD 560.9 million down NZD 24.9 million or 4%. Net profit after tax, or NPAT, was NZD 12.7 million, down NZD 8.4 million or 40%. This year's result can be described as steady in the context of the headwinds that the sector and the wider economy face. Our retail and Water segment, nevertheless, traded well compared to the record high for the comparative period. Our agency segment results have again been impacted by the weaker real estate market and softer commodity pricing, particularly in sheep and lamb markets where prices were back 28% year-on-year.
In response to the trading conditions, PGW has actively managed it by reducing spend in a range of cost areas. At the same time, we have seen increases in costs through supplier price rises, as evidenced by CPI price increases. Favorable climatic conditions in Australia in recent years have seen farmers build up their flocks, with sheep numbers estimated to be the highest in 15 years. However, recent dry conditions in Australia have resulted in record animal numbers going to slaughter and were up significantly from the previous year. This excess of supply has negatively impacted farm gate sheep meat prices on both sides of the Tasman.
It will be useful to look at the results in the context of PGW's performance through the economic cycles over recent years, and we refer you to our half-year results at an operating EBITDA level, revenue, and NPAT level from the previous five years. I will refer you to our graphs as outlined on page two of the NZX announcement. It's also informative to highlight PGW's total shareholder return change baseline against the S&P/NZX 50 Gross Index over this period. PGW has seen a total shareholder return movement of plus 93.08% since the share consolidation in August 2019, following the sale of PGW Seeds business. This compares favorably to the S&P/NZX 50 Gross Index movement of plus 8.44% from the same periods. These figures were rebased at 100. Again, I refer you to the graph in our NZX announcement.
Despite the challenging environment, PGW's dedicated and knowledgeable team continue to deliver first-class service and products to our clients. We appreciate the tailored advice they receive from our trusted store teams and reps in their fields and orchards. We'll now cover the trading performance of our retail and water business. The retail and water business incorporates Rural Supplies, Fruitfed Supplies, water, and Agritrade. Operating EBITDA for retail and water was NZD 40 million, down NZD 9 million, and revenue was NZD 478.3 million, down NZD 21.7 million on the prior corresponding period. Farm and orchard spending indicators across the board continue to point downward. Although farm and grower confidence has improved over the period, investment intentions have fallen to the weakness since the 1980s, excluding the first COVID lockdown.
This is a result of higher interest rates, inflation, and decline in both meat and milk commodity prices due to softer demand in export markets and the ongoing impact of Cyclone Gabrielle for our North Island clients in both the rural and horticultural sectors. The professionalism and superior advice service and technical ability of our people continue to reinforce client loyalty and attract new customers and underpins pleasing market share growth. We continue to build on PGW's reputation of providing the best technical advice in our market, and our customers' research demonstrates strongly that this focus and market differentiating factor resonates well with our clients and remains a key component of our strategy as we hold and grow our market competitiveness. In several sales categories, we've seen growth in the last year's record result, the standout range being the general merchandise, which has continued to grow year-on-year.
This is a strong indicator that we're seeing an increased foot traffic through our stores, which is a testament of our team's culture and client-centric focus. Our goal of having our best trained people in the industry is widely understood and well recognized by our clients. Customer-focused innovation is one of our strategic pillars, and we continue to invest in this area. One such example is the successful trial run last year of the Spark IoT, and where we have now started rolling out fridge and freezer sensors across the business. These sensors help safeguard key products in our care, such as animal health vaccines, horticultural pheromone products, and DLF that must be kept to a set temperature. By digitizing the process, we reduce the cost of wastage and provide our clients with greater quality assurance. During the period, we introduced our self-funded research development model.
We currently have a strong footprint in horticultural R&D, and we will expand this to the rural sector of our business, focusing on systems, programs, and product-focused R&D. Initial R&D trials have been selected, and trial work has begun. We commenced a refresh of the retail and water strategy. The focus of the strategy is to capitalize on the growth in market share, providing the best products and higher values of service and advice and compliance in an ever-changing landscape, and rearticulating our goals for the next three years. The focus of our marketing campaign this year is on the value we add to our clients' businesses through a whole farm and orchard approach taken by our technical and field horticultural representatives. Client testimony was the main component of the campaign, demonstrating the positive impact our approach has on our clients and their business operations.
We continue to invest in our store network, which further demonstrates our commitment to rural New Zealand and supporting our farmers and growers. Our Timaru retail store and water branch relocated to new purpose-built buildings on a single site. The Geraldine Rural Supply Store has a recently opened Bulk Warehouse Extension. These modernized buildings provide better customer working environments and improved flow of products between the retail areas and Bulk Warehouses, improving operational and safety outcomes. A number of other building initiatives are currently in the early stages, with work about to commence on the new Whakatane Rural Supplies and Fruitfed Supplies Store, as well as a major upgrade for the retail area and our Waimate store.
Our rural supplies clients are not affected by the predicted impacts of the early onset of El Niño and dry season across the central country, as it did not materialize through the critical spring period. There was a lot of rain for most areas during this period, with the prevalence of cooler temperatures. This led to increased grass cover and good feed reserves. The flow-on effect has reduced sales of stock food and some brassica crops. Our goal of having the best trained people in the sector is evident in the growth of our animal health offering. We are taking a proactive approach related to the onset of drench resistance. Drench resistance is accelerating, and the financial impact on sheep and beef farmers will be significant.
PGW has proactively moved to get ahead of the challenge and provide market-leading support and advice to our clients on this topic. We have begun building an awareness of our frontline staff on the issue, increasing their knowledge of how best to manage drench resistance through farm management practices and build toolboxes, and will allow our teams to assist clients. Our Fruitfed Supplies business's first half was impacted by Cyclone Gabrielle, which occurred in February 2023. A number of our plants at Gisborne, Hastings lost large areas of crop and therefore acquired less product in this current season. Many clients lost their entire season's crop last year, causing cash flow impacts. Due to falling returns and the impact of the cyclone, we have seen a slowing in horticulture development over the last 12 months as growers look to consolidate their existing businesses and remediate properties.
Returns in some sectors have been softer. Therefore, avocado and kiwi fruit industries have experienced weaker demand and declining returns, with prices from some crops at levels not seen for several years. These lower returns have seen the amount clients spend on some product lines reduce. At the same time, we've seen land use changes as some growers diversify their products and invest in other ranges, increasing opportunities across the core categories that we supply to our clients. Our PGW Water business has continued to invest in specific field training for our technicians. This increased client referrals and new returning customers across our service branches due to our team's increased field operational skill set. Some staff vacancies were difficult to fill at the beginning of the period, and we lifted our expectations of employees' skill sets, while we have started to see an increase in quality applicants.
Our Agritrade, which is our wholesale business, commenced a review of its business strategy with a focus on areas that generate value growth. The primary emphasis to date has been about optimizing the supply chain dynamics with a goal of reducing customer order frequency and adding minimum order volumes. This reduction enhances operational efficiency by reducing the operational overheads, greenhouse gas emissions, and enhances customer service. Additionally, the focus has extended to identifying and addressing non-profitable products to ensure that our inventory better aligns with market demands and continues to contribute meaningfully to our revenue. These refinements of our model aim to position our wholesale business for sustained growth in an evolving landscape. Tensions on the key Red Sea trade route are contributing to longer shipping times and higher freight costs for some products. Shipping companies are diverting trade from the Red Sea and Suez Canal.
Supply chain pressures like those seen during COVID-19 could return if the conflict continues for products shipped via these routes. On our turn to the trading performance of the agency business. Our agency group includes livestock, wool, and real estate. Agency delivered operating EBITDA of NZD 1.4 million for the first six months of the 2024 financial year, a reduction of NZD 12.2 million compared to the same period last year. Revenue was NZD 81.6 million, down NZD 3.1 million compared to the prior period. High on-farm inflation, softer commodity prices, elevated interest rates have led to subdued purchasing from farmers, with reduced volumes of livestock being traded, particularly in the North Island cattle and dairy markets. Poor land prices have squeezed commission revenue, with weaker Chinese demand and increased Australian supply causing prices to fall. A stronger relationship with clients contributed to maintaining their market share throughout these tough times.
During the period, we grew our supply chain partnerships and increased volumes. GO-STOCK returns were up significantly compared to the prior period, reflecting the attractiveness of products to clients. It remains a popular product for our clients, assisting them with their cash flow management and allowing capital to be used elsewhere. bidr's growth in the first half of the year was assisted by the installation of weekly sale-yard auctions at Stratford and Tauranga, as well as an increased number of online farm hybrid auctions for commercial sheep and beef from the North Island. Many were inaugural sales and a replication of the traditional on-farm auction model used in the South Island. Despite the turbulent global situation, New Zealand's dairy market is holding its own and remaining profitable, reflecting the high quality of the product.
Our velvet business has continued to grow, with significant new contracts agreed with both local and international buyers. China announced late in 2023 that imported velvet will need to be dried before it can be classified as a traditional Chinese medicine. This will require a different approach given that New Zealand exports mainly frozen velvet, which can be more cost-effectively processed in China and results in some uncertainty in the 2024-2025 season. New Zealand government officials have engaged in constructive discussions with their Chinese counterparts to have a classification pathway that the industry is hopeful will have potential for longer-term benefits. We've progressed the roll-out of new technology by improving the technical information our reps can access on their tablets and in the field. The total number of wool bales sold was ahead of the same period last year, although prices were strong or remained suppressed.
It was encouraged due to increases in prices compared to last season. Top-quality, well-prepared crossbred fleeces do command premiums. Our market share, especially in the fine wool market, has grown on the back of profitable contracts offered to growers. We grew our wool contract business with links, which links wool growers with manufacturers domestically and internationally and provides growers with surety of price. We saw increased inquiries from domestic and international retail brands, with a number of overseas clients visiting. The focus is to better understand the supply chain, with particular emphasis on the outlook of New Zealand primary wool production and farming practices. Our wool exporting subsidiary, Bloch & Behrens Wool (NZ) Ltd, increased its Wool Integrity New Zealand brand profile nationwide, collaborating with Hyundai Country Calendar and giving away generous vouchers to redeem wool at the Wool Integrity store.
These initiatives increased the online sales and total orders and improved customer return rates. Supporting the wool industry is important to our business. Excuse me. We continue our sponsorships in support of the Wool in Schools program with two mobile and interactive classrooms known as Woolsheds, traveling through the country and promoting the virtues of the wool. PGG Wrightson's Vetmed National Shearing Circuit commenced in October with five rounds of competition across the country. Excuse me for a moment. I'll take a drink of water. New Zealand's real estate market has endured a difficult time. North Island sales, in particular, have been low, with a volume of transactions significantly back in the business transacted in the FY 2021 and FY 2022 years. However, during the period, there were four sales greater than NZD 10 million in the South Island, and residential sales in the South Island have exceeded expectations.
There is increased activity in recent times at dairy farms, with higher levels than those seen in the past years. Orchards have seen an upturn in interest, with more properties poised to come to market in autumn. In the rural sector, the most challenging area is sheep and beef farms, where values are not to be reset. Our Tauranga real estate office relocated to new premises in Te Puna, which allows the benefits of a more modern building and increased brand profile in the area. Turning to our balance sheet, and in particular, cash flow and debt. Cash flow from operating activities saw a NZD 6.8 million outflow, a NZD 28.1 million improvement compared to the prior corresponding period. Operating EBITDA was NZD 11.2 million lower than the comparative period. The capex for the group of NZD 36.1 million was NZD 33.4 million lower than the prior six-month period.
The group received good collections from customers, with overdue rates lower than the 31st December 2022. In addition, income tax payments were also NZD 7.7 million lower for the prior period, which included tax payments on the record FY22 financial performance. Financing costs were NZD 1.4 million higher as a consequence of higher interest rates. Capital expenditure was NZD 6.9 million, an increase of NZD 700,000 versus 31st December 2022, and included investment in our business improvement program. The group paid the FY23 final dividend of NZD 0.10 per share, or NZD 7.8 million in October 2023. Interest-bearing debt was up NZD 1.4 million compared to 31st December 2022 at NZD 96.9 million. The group renewed and extended its bank facilities in December 2023. The renewed facilities have a term ending in February 2026 and now provide total facilities of NZD 185 million, an increase of NZD 25 million therein for future growth opportunities, including GO-STOCK.
Given the current challenges faced in the sector and the broader economy and the impacts these have on our clients' businesses, the PGW board has been determined not to pay an interim dividend. The board considers that as appropriate and approved measures to take at this present time. At a broader level, the PGW board is also assessing its ongoing dividend payout ratio given the need to strike the right balance between sustainable dividend, sustainable distributions for shareholders, whilst retaining sufficient earnings and the best interests of the company to allow it to effectively execute upon a strategy. As a business we're, determined to improve our safety performance in advancing our health and safety and wellbeing program strategy, we continue to focus on our key critical risks, improving our team members' health and safety and wellbeing skill sets, competencies, and mindsets.
To assist this, a new health, safety, and wellbeing fundamentals training program has been developed to provide all team members with its fundamentals of how we review safety at PGW, alongside the key roles played as an organization and its team members. We've also made progress reducing risks through our three highest risk areas, being working with animals, driving vehicles, and mobile plant, by ensuring those closest to these risks are intimately involved in designing the relevant safety controls. We continue to reap the benefits of investing in our people through our Academy Technical College sales training programs. Alongside our Winterg arden leadership and capability development program, we have developed a series of roadshows to enhance management skills across our leaders. Our strong employment brand sees us continue to attract and retain high-caliber team members.
We continue the implementation of a significant investment, which has impacted on both operating expenditure and capital expenditure, in our company-wide business development program to simplify PGW's IT systems. This program will simplify our technical IT environment and standardize business processes, providing benefits of greater efficiency, flexibility, and better utilization of our data. During the period, batch tracking for some products and retail pricing products was completed. A comprehensive batch tracking service provides traceability, allowing us to trace the source, origin, or production conditions of raw materials and final products and differentiate those from our competitors, and will be extended to our full range in the next financial year. We updated our retail pricing system to Microsoft D365, a cloud-based portfolio, which improves operational efficiency.
It's been just over a year since the Max Rewards p rogram was relaunched, and the team is pleased to see the positive impacts of the program, with new members joining, current members being retained, and higher engagement and redemptions. The Max Rewards stands to be a popular feature of our PGW marquees at national field days such as Mystery Creek in the Waikato, the New Zealand Agricultural and Pastoral Show here in Canterbury, and more recently, the South Island Field Days just outside of Gore. The team will delve further into member acquisition, member attention, further opportunities, and internal stakeholder development programs and implement new reporting over the next 12-18 months. We've included a useful strategy report, sustainability report, I should say, in our half-year report and referred to pages 14-15 for the update of our program and work in this area.
Turning to outlook and guidance. The group's outlook remains cautious with the agricultural sector and international marketplaces facing various challenges, including the impact of El Niño conditions that are now settled across the country. Lower meat pricing, in particular sheep and lamb, higher input costs, softer commodity pricing for primary exports, and subdued demand from our largest export market, China. The carryover impacts of Cyclone Gabrielle, together with supply chain challenges associated with offshore conflicts and our higher interest costs, all contribute to temper the short-term outlook prospects. Sheep meat prices are at their lowest range in a decade, and higher volumes of Australian meat can weigh on international demand, with key dynamics impacting the market.
While pressure on sheep meat pricing is anticipated to continue in the near future, there is expectation we will see improved trading across the major stock types as the countryside dries out and the current abundance of grass diminishes. Beef prices are expected to remain stable. Although beef farmers are more optimistic, there is concern about the year ahead, which may translate into reduced investment intentions. Dairy prices have improved dairy farmer confidence in recent weeks, with Global Dairy Trade auctions recording higher prices and increasing payout expectations. The removal of remaining tariffs on dairy exports to China allows New Zealand products to enter China duty-free and provide an advantage over some international export competitors. The outlook for horticulture is positive, with good kiwifruit and apple and pear crops expected to be harvested in the coming weeks.
Kiwifruit is predicted to deliver improved fruit quality and higher volumes compared to last year. Wine exports are expected to be reduced this season and increased into next season. Overall, horticulture is anticipated to produce stronger export volumes from this year's harvest without the impact of events such as Cyclone Gabrielle, with further growth into next year. We see some positive gains in the real estate market as we move into 2024. Sentiment is improving, and current implications suggest that sales levels will grow in the months ahead, with more orchards poised to come onto the market in autumn. New Zealand's EU free trade agreement will progressively come into effect during 2024, providing improved conditions in the European markets.
While the factors impacting market sentiment are mixed and slightly pessimistic in the near term, we are confident the PGW remains a strong position to capitalize on the opportunities as they arise and maintain the positive performance trend that PGW has demonstrated in the past five years. Longer-term prospects for New Zealand's primary sector remain strong, and the Ministry for Primary Industries is predicting steady growth. While noting the green shoots of a recovery in our clients' confidence in the sector, we remain cautious as to on-farm and on-orchard spend. We see a period of debt reduction by clients given the recent commodity price cycles and ongoing recovery costs related to Cyclone Gabrielle or North Island plants. On balance, we remain cautious and expect to see subdued activity over the remainder of the financial year.
Given the mixed signals and the macroeconomic environment, we have revised our forecast Operating EBITDA guidance for the year to 30 June 2024 to around NZD 50 million. On behalf of the board and executive team, we extend our gratitude to our nationwide team of passionate people for their dedication for delivering an exceptional service every day. We appreciate our suppliers who work with us to navigate ongoing challenging supply chains for some markets and to enable us to meet our clients' needs. Our clients' enduring support has been pivotal to our success over 170 years, and we thank them for trusting in us. We appreciate their loyalty and fostering enduring relationships we continue to build over time and allow us to better understand your businesses and improve our offerings. We will continue to work hard to exceed your expectations and deliver outstanding service.
To our shareholders, we recognize your commitment to PGW and continue to focus on executing our strategy and delivering sustained results. Our 2024 half-year report is available on the regional stock exchange website under our PGW ticker and also on PGW's website. That concludes the formal part of this presentation, and I now open the call to questions via the operator. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask a question. Your first question comes from Christian Bell with Jarden. Please go ahead.
Good morning, Stephen team. Firstly, can you hear me okay?
I can hear you okay. Thanks, Christian.
Cool. Thank you. So my first question starts off so you've got some pretty pessimistic commentary, noting farm and orchard spending indicators are down across the board and continue to point downward, less horticultural development from the cyclone compounded by lower margins due to inflation. But you're still expecting to achieve a second half in line with the PCP. So can you just explain the key driver that underpins that second half result and what makes you confident on achieving it?
Good question. Thank you, Christian. So we have gone through the business on a line-by-line basis in terms of resulting with the forecast that we had. You recall we gave market guidance of around NZD 52 million in late October as part of our annual shareholder meeting. The bulk of our business is phased towards the first half of the calendar of the first half of the financial year, being the period 1 July to 31 December. So we've got those locked in. We've also seen the trading results for the January month and coming towards the conclusion of the February month. So we know we were tracking in that regard. The second half of the year is weighted towards our livestock business results, and in particular, that's around the dairy herds transactions, and we have a read on that data, and also the genetics bull beef market.
Again, we have a read on that market as well. So with the first half result locked in, the January and February results visible to us, forecasting processes that we have internally, and the weighting of trading versus first half versus second half, we're able to land on a reasonable expectation around our forecast of around NZD 50 million for the period end of 30 June.
Okay. So if we could just sort of compare your performance that you're expecting in the second half of this year compared to the second half of last year? Are you basically assuming that you're going to have stronger dairy trading? Are you able to sort of fill in the gaps there for me, just what areas that you're expecting?
We're seeing an upward ticket demand for dairy animals, Christian, and prices holding pretty well in that regard. And that's driven off the sentiment with the lift on the Global Dairy Trade. And we actually had some sales in the genetics bull market that were actually deferred out of June 2023 into July 2023 because of cyclone impact, and they'll be transacted in this year. And they are quite significant sales, particularly in the East Coast area. And we see that. So we have that that'll add some revenue that wasn't in the last year's financial results. So those two factors are the key drivers for the results.
How much would you say that deferred revenue was worth?
I'd have to go back and get that number. It's a reasonable number in terms of results because the bull market, genetics market, is a significant contributor out of the Gisborne and East Coast area, Christian. Those properties were just inaccessible during the June period last year.
Okay. So you're confident on those two areas of strength offsetting what seems like a weaker environment for the likes of other meat trading and also real estate that likely is going to, there's potentially interest rates, there's a chance that they actually go higher again. So you're confident that you've been conservative enough on those other areas?
Yes, we are. Yeah, we are. Sheep trading is not weighted in the second half. But yes, it is through January and February, and we've had visibility of those numbers. And we are expecting the softness in the real estate market to generally continue over the next week while we factor those into our forecasts.
Okay. So I guess it's sort of I guess having sort of gone through that, you're also not paying an interim dividend despite improved cash flows. Net debt hasn't really changed. And then sort of as you've just explained, you're pretty confident on your second half guidance that it's going to be similar to the PCP. So not paying a dividend at all when you paid NZD 0.12 per year does appear to sort of contradict at least your near-term confidence. So can you kind of help reconcile the difference in messaging there? Either second half maybe is a and hard to know, but maybe it is a bit optimistic, or perhaps you're worried a bit beyond that over the next 12-18 months? Can you sort of help, yeah, reconcile the messaging there?
As we outlined, Christian, the board had the opportunity to consider dividend at yesterday's board meeting. They've taken a cautious approach with the on-farm debt and the financing costs for our own debt internally. As you say, there is a possibility of interest rates rising. They will consider the debt sorry, the dividend position as part of our year-end results based on the trading that they see. So it is a cautionary position from the board and also retains income within the business, but it allows us to deliver on our strategy.
Okay. So would it be fair to say that the board is being more cautious than you are in your guidance?
No. No, I wouldn't say that because the board are part of the guidance sign-off process. Let me remind you that our EBITDA last year was NZD 61.2 million for the full year, and we're now at NZD 50 million. So there has been a material change in the marketplace as well as rising interest rate costs. So naturally, the board is cautious to make sure that we are in a healthy position to take advantage of those opportunities.
Okay. And then just following from that, I can't remember and it's not on your website, but I don't think you have a set policy range as a payout ratio of your NPAT sort of stated in the public domain. Forgive me if I'm wrong. But I guess that sort of.
That's correct. Jarden analyst asked that question. That was Christian, so yeah.
Yeah. We do have a dividend policy on our website, Christian, but you're correct that it doesn't have a payout ratio in it. It just lists a bunch of factors that the board considers in determining whether to declare a dividend or not.
Yeah. So I guess that's averaged above 90% probably for the last two to three years. So are you able to sort of please provide some sense as to what the thinking is there? Potentially, if possible, I guess what type of rate what type of percentage you might be what is in sort of consideration compared to that 90% to provide some sort of context. And then secondly, part beta that would be, is that purely to protect against interest rates, or perhaps is it for growth? In which case, could you would you be able to explain what those opportunities are? Again, coming back to what looks like a difficult outlook, at least in the netter.
So I've dealt with the first part of the question, sorry, the second part of the question first. But your answer there emerged in part of your question. That is, the considerations are the cost of interest rates potentially rising on us. I mean, they are expensive relative to what we've seen over the last few years, and we are a tight-margined business. That's a fact of the nature of our and your analysis would support that. So it's to deal with that issue and also to the growth opportunities that exist in the business. In terms of those growth opportunities, we've seen them in a couple of areas. That's in our product innovation area. We've seen it in the growth of our GO- STOCK opportunity. And of course, we've got ongoing investment in our IT program, which will create business efficiency as far as the business is concerned.
We've outlined which has been a program of work and will be delivered into the F2025 year, which is next financial year. We're on track for that. To the first part of your question, which was what sort of ratios is the board thinking about, that's an active question that's under consideration by the board, and they will give they'll have further to say about that in the future.
Okay. Cool. And then obviously, you've sort of been in the well, I guess, in the media with this Agria sort of shareholder activism. So are you able to sort of have you had any more contact since your last update? Are you able to provide a bit of a summary on the conversations you've had? And also, do you have any insight as to what the motivation is for that recent activism?
Just clarify the second part of the question for me. You dropped out a wee bit. What motivates?
Agria is motivated, so the second part was, do you have any sort of sense of what their motivation is for their activism?
So two parts to my answer, Christian. Firstly, which is two parts to your question. Firstly, this is a matter for the PGW board to deal with. Management are focused on the results and the operational performance of the business. The second part of the question is that I'm not engaged with the shareholders in this matter. So I have nothing further to add in that regard.
Okay. And sorry, I just had one more question. So first half 2024 sales for agency were flat, and that was despite low livestock volumes and real estate activity. So how did you actually manage to keep your sales flat?
How did we manage to keep sales flat?
Yeah, yeah. It seemed like everything was kind of against you, but you still managed to keep your top line the same as the PCP. So just how did you actually achieve that? Yeah, yeah.
Yeah. Yeah, yeah. Sorry. So the three business units within the agency business, Christian, so firstly, you've got livestock, you've got wool, and you've got our real estate businesses. So if you go to our segmental reporting, if you go onto the website and to the announcement through the NZX, you'll see some detail in that regard. Although it doesn't break down the individual performances within those business units. The reality is that our wool business was stronger, and we've commented on that in our commentary. Our livestock businesses, we saw animal volumes very similar to year-on-year in the sheep space, although values were back that 28%. So that tells you that we were in what is a declining sheep market. So it tells you we're actually holding good market share in that regard against our competitors.
And some of our initiatives around GO-STOCK and supply chain initiatives in that regard, which is where we link farmers with suppliers, so the meat companies, have been growing in the uptake from a client-based perspective. And then cattle volumes are very similar year-on-year, and prices are actually holding up in that regard. So we've actually done pretty well from a market share perspective. It's been the value that's been the influencer from a contribution perspective. And also, we have processed and we talked about our velvet business. We've transacted velvet on what we call a principal basis. So we've taken ownership of the velvet product, and then we sell that out into the market. Previously, that was done on an agency basis. So the product was, we simply transacted the commissions through our financial statements.
Now, I wouldn't want to give cause or pause to think that that created additional risk because those contracts were backed by complete documentation with the international market that we have had dealing with for a couple of years with particular customers, customer, I should say. And there has been securitizations through the process in terms of the payments for that particular product, so before we even purchased a sheep product out of them. But it is a slightly different treatment in terms of our accounting treatment for those because we do own them for a period of time. And then there is, of course, the real estate business has been softer as we've commented on. So I hope that gives you a bit more flavor as the breakdown of the agency business.
Yep. That's great. Thank you. Actually, sorry, if I could just squeeze one more question in. What was the cost out that you were expecting from the recent software investment that you've sort of been, I think, ends in FY2024? So sorry, just remind me what that was worth, and are you expecting that to be an uplift in FY2024?
I'll turn that question over to when you say cost out, Christian. That's the one-off operating cost to establish the program of work, which won't be repeated in the subsequent years.
That's right.
That's what you're talking about there, isn't it? Yeah, yeah. We'd have to go away and get that. I mean, you're quite right, Christian. We did talk about that in previous we'll come back to you on that because I just can't remember the number of problems we had, and I don't want to give you a number on the fly. You don't mind. But that is true. There will be costs repeated sorry, costs incurred in this financial year that won't be incurred in the subsequent periods.
From FY24?
There'll be some into FY25, but they'll start to reduce from FY25 because the program of work that stood up in FY25.
Great. Thank you very much for answering my questions. Appreciate it.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We will just pause if there's any more questions to enter the queue. There are no further questions at this time, and I'll hand back to Mr. Guerin for closing remarks.
Thank you, operator, and thank you all for taking the time to listen to this presentation today. I wish you all a very good day. Thank you.
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