Good morning, everyone. Welcome to the PGG Wrightson's results announcement for our six months results for the period ending 31st of December 2020. I'm Stephen Guerin, the Chief Executive Officer for PGG Wrightson, I'm pleased to provide you an overview of our interim results for the 2021 financial year. Joining me on the call today are Peter Scott, our CFO, Julian Daly, our General Manager of Corporate Affairs, who is also our company secretary. I want to acknowledge the whole PGG Wrightson team, what has been an extremely busy first six months for the 2021 financial year. Their continued resilience, commitment, and passion is heartening. On behalf of the board and executive team, thank you very much. I'll summarize our results for our trading year, there will be time for questions.
During my presentation, I will refer predominantly to operating EBITDA, which is a non-GAAP measure that allows us to best describe the business operations. I will refer also to our ultimate bottom line net profit after tax, the formal GAAP measure. The key results to note are revenue of NZD 499.3 million, which is up 6%. Operating earnings before interest, tax, depreciation, and amortization, known as operating EBITDA of NZD 42.1 million, up NZD 7.4 million or 21%. Net profit after tax of NZD 18 million was up 41%. The board have declared a fully imputed interim dividend of NZD 0.12 per share. We've seen very strong performances from our retail, livestock, and real estate businesses. We have a strong balance sheet and improvement in cash flows from the prior comparative period. We have reconfirmed our full-year operating EBITDA guidance of around NZD 57 million.
Turning to the trading performance on a business unit basis and give you some further context there. Firstly, our retail and water business. Our retail and water business includes our Fruitfed Supplies stores, Rural Supplies stores, water business, our Agritrade wholesale subsidiary business. The first six months of the 2021 financial year provided a very good start, with all business units with the retail and water trading ahead of the corresponding period last year. Operating EBITDA for this group was NZD 35.8 million, up 15%, and the revenue was NZD 413.4 million, up 8% on the solid performance of the first half last year. Superior technical ability of our staff and our very stable workforce, while supported by our technical expertise and R&D teams, have contributed to an increase in market share.
Growth has also been supported by the uptake of our new PGW e-commerce offering, which was launched in June 2020. While online orders are relatively small channel for us at this time, we're seeing orders come from all corners of the country, which serves to increase the awareness of our product range as well influencing in-store purchases and attracting new customers. In Rural Supplies, we have seen solid growth across most categories. The outlook for our Rural Supplies business is tempered with sheep and beef farmers cautious about the mixed company schedules which are back on last year. The dairy farmers are more positive, with solid payouts expected. The forecast remains very positive for our Fruitfed Supplies business, with positive returns for the sector and stability in prices being obtained by our growers.
Crops not affected by the recent weather events are in good health, with harvest for a number of significant crops underway or commencing shortly. The horticultural sector continues to be buoyant. It's experiencing good yields, profitable returns, and positive outlook, which is further driving investment and further development. Our market-leading Fruitfed Supplies business is diversified across a range of crops and continues to adapt to our customers and market needs. We're heartened by the improvement of our water business in the first half trading results, following restructure of the business undertaken at the beginning of this financial year. It's pleasing to see these early positive signs, and we see room for further gains for our water business as we focus on growing our service offering. We are conscious of the challenges in the international supply chains, given widespread disruption caused by the impacts of COVID-19.
We are remaining vigilant in the space and doing what we can to mitigate supply risk for Agritrade and wholesale business. Our stores have reviewed their forecast and stock levels and are ordering for the early delivery to assist the continuity of supply in coming months. That's more about the spring trading conditions from July onwards rather than the remaining trading months of this financial year. Excuse me. Our agency business incorporates the livestock, wool, real estate, and referral commission businesses. Trading for our agency business group delivered an operating EBITDA of NZD 9.5 million for the first six trading months of the 2021 financial year, an increase of 44% compared to the same period last year, and revenue of NZD 84.8 million, in line with the same period last year.
With many parts of the country coming out of drought conditions, we saw a number of farmers rebuilding their capital stock numbers. Buoyant prices and widespread rains throughout the South Island have created good conditions for plenty of site feed on farm, stimulating farmer confidence. Strong global demand for dairy persists, with farm gate prices continuing to rise and underpin confidence in the dairy sector. With capital available to support growth of our GO-STOCK livestock grazing program for trading and finishing beef and sheep, we've increased the promotion of our GO-STOCK offering. With good demand for this popular livestock trading solution, we expect to see further demand and utilization of GO-STOCK. bidr continues its commitment to offering buyers and sellers of livestock, as a seamless online trading experience, whether they're bidding on-farm or at saleyard auctions.
Following the launch of their on-farm hybrid auctions for on-farm and auctioneer sales, bidr has announced it will expand its offering into live streaming auctions at saleyards from April 2021. Uncertainty around global markets and the effects of COVID-19 are causing farmers to take a more conservative approach than normal in the cattle and lamb trading space. The venison market has been affected, with schedules having been reduced by over half for most companies, only processing if they have orders. Turning to our real estate business. All three categories of our real estate business, including the rural, lifestyle, and residential, experienced the strongest six months of sales in the past six years. Every sector of rural, particularly sheep and beef, grazing, and finishing properties, experienced significant activity, with dairy farms also enjoying heightened interest.
The outlook for our real estate business for the second half of the financial year remains positive, subject to the availability of listings, especially within the lifestyle and residential sectors. We anticipate there will be steady inflow of rural properties with new rural listings coming into the market for the traditional autumn selling period. Our wool business, PG W Wool, continues to proactively navigate the depressed crossbred wool business associated with international demand challenges, supply chain issues accentuated by impacts of the global pandemic. Despite these challenges, operating EBITDA for the PGW Wool was up modestly compared to the same period last year. Thinking about environmental and sustainability issues, during the first half of the financial year, the Retail Environmental Strategy Group has been involved in a range of projects.
They've studied and summarized our new Healthy Waterways legislation and ran more than 40 internal virtual training sessions across the country, updating and informing many members of our business about the immediate changes to policy and the effect it will have on our customers and their operations. The team have also worked on recycling initiatives with our store network, with the new Alexandra Fruitfed and Rural Supplies store being set up as a trial site for new environmentally beneficial practices around waste management. At a national level, the team have contributed to various bodies in developing sustainability policy by contributing to and interacting with the Ministry for Primary Industries, the Ministry for the Environment and Environmental Protection Authority and Agrecovery.
Thinking about our people. Leading Safety undertook a PGW Group-wide safety and wellbeing review in July 2021 to assess PGW's progress in our approach to safety and wellbeing in the areas of strategy, framework, culture, and compliance. The findings have helped reshape our safety and wellbeing strategy roadmap, which will be focused for the remainder of the FY21 and beyond. The key objective of our safety and wellbeing strategy is to ensure our senior leaders have visibly demonstrated their commitment to this area through their actions. Through activities, our senior leaders actively participate at our sites, our safety leadership walks, and conduct critical control checks to learn and understand what can be done to help improve our safety performance.
These are designed to engage with team members in the field by observing how work is done and how effective controls are, which we refer to as our critical risk matters, have been implemented in keeping our people safe. As part of our cultural learning, we've also reviewed our response to the announcement of the global COVID-19 pandemic and lockdowns. It's pleasing to learn our people consider our response to the COVID-19 lockdowns was very well managed, alongside the valuable lessons we learned. Most pleasingly, the review highlighted the talents of our people with a recurring theme. There was a willingness to adjust and get on with what was required in some challenging and uncertain conditions. The key recommendations to ensure PGW was better prepared for subsequent lockdowns or other large-scale disruptive events have been taken on board to aid our preparedness.
A number of actions have been implemented, including the refreshing of our business continuity policy and business resilience initiatives. The COVID-19 response working group remains in place and meets regularly to monitor developments and consider developments as they arise, including Sunday a week ago, when we swung into action with the announcement of alert level changes. I will now turn to a detailed discussion around the financials. Our cash flow and debt. Cash flow from operating activities for the period of 31 December 2020 saw a NZD 3.9 million inflow and a NZD 18.8 million improvement on the prior period's results. Capital expenditure was NZD 1.5 million, NZD 3 million lower than the comparative period, with cash flows from disposal of property, plant equipment and investments totaling NZD 0.5 million.
Net interest-bearing debt as at 31st December 2020 was NZD 39.2 million, which was 34% lower than December 2019. PGW renewed and extended its banking facilities during this reporting period. Dividend. Following the strong performance of the business over the first half of the year, the board have declared a fully imputed interim dividend of NZD 0.12 per share, which will be paid on the 24th of March 2021 to shareholders on PGW's share register at 5:00 P.M. on the 3rd of March 2021. Turning to some other initiatives we have operating in the business. Last Friday, we announced a new joint venture relationship with BrokerWeb Risk Services Limited, known as BWRS. That was announced internally to PGW and the marketplace, and will take, BWRS will take PGW customer referrals and provide leading insurance broking services to them for the wider rural community.
The relationship has a strong strategic fit for us, given that BWRS already have a solid presence in the rural sector, and our association will provide an excellent opportunity to deliver another important tailored service to our customer base. BWRS's brokers have local knowledge, access to market-leading insurance products, risk advice, which our customers will benefit from. Both PGW and BWRS place outstanding customer service at the center of everything we do and focus on building enduring relationships by working together to deliver outstanding service. Turning to the outlook. Global markets continue to support New Zealand's primary exports and international supply chains, which may pose some challenges in the short to medium term. Following the rollout of vaccines to our trading market countries, we anticipate these will ease over time.
While these dynamics are at play, we are seeing reasonable confidence from our farmers and grower customers and remain optimistic about the prospects for the sector. Although there will always be unforeseen events, PGW and the country are in a stronger position than we were at the outbreak of the virus last year to navigate this. The directors are very pleased with the progress achieved in the first half of the financial performance of the business.
We remain cautiously optimistic about the remainder of the financial year and believe the company is well-placed to deliver our 2021 full-year operating EBITDA guidance of around NZD 57 million. We'll continue to keep the market updated as the financial year progresses. Our 2021 half-year report is available on the stock exchange website under our PGW ticker. The growth of our business would not be possible without the ongoing commitment of our PGW team.
On behalf of the board and the executive team, I want to thank our 1,800 exceptional individuals who get out of bed every day thinking about our farmer clients. With their support, we can deliver the results we have to our shareholders, and we thank the team for that. That brings to a close the full part of our presentation, and we now open the line for questions through our operator. Thank you.
Thank you, ladies and gentlemen. We will now begin the question and answer session. To ask a question, you may press star one on your telephone and wait for your name to be announced. To cancel your request, you may simply press the pound or the hash key. Please note there will be a short pause as questions are being collated. We thank you for your patience. Once again, it's star then the number one on your telephone to ask a question. Our first question comes from Guy Hooper from Forsyth Barr. Your line is now open, Guy.
Yeah, thank you. Morning, everyone. Well done, team, on a good interim result. Looks like a very strong agency result in the half. Can you give us a bit of a breakdown of that performance? How much of it is driven by something, I guess, a bit more one-off in nature, like the rebuild of a capital stock versus underlying growth in agency?
I'll get Peter to give you a bit of detail there, Guy. Thanks for the question. I just want to clarify a point. While I referred to the 44% lift in the agency business, the first half trading results are actually significantly driven out of the retail result. I refer back to our operating EBITDA, the group was NZD 42.1 million. Of that, the retail's result was NZD 35.8 million. The agency result was up significantly from a percentage perspective, year-over-year, but the result at the group level was actually driven out of the retail and water group. Peter, could you just refer to Guy's question in a bit more detail around the agency result?
If I look at the agency result, Guy, I would say a couple of things. Livestock was sort of half-year on half-year, so December the previous year, about flat. Wool was up close to NZD 1 million, and real estate was up NZD 3 million. That accounts for us going up from NZD 6.5 million- NZD 9.5 million. As Stephen said earlier, real estate has had a huge six months, probably one of the best that we've seen. That's the biggest difference in agency when you compare half-year on half-year.
The second half of the year, Guy, is a livestock story.
Yep.
That drives the results in the second half, as stocks come off farm and move into the meat company supply chains. Of course, we have dairy herd settlements across the late April, May window as well. That's a numerous effect in the second half. Operator, do we have any other questions?
Please press star one if you need to ask a question to our presenter. Hit star one to ask a question. Our next question comes from Christian Bell from Jarden. Your line is now open, Christian.
Yep. Hi, team. Well done on the result. My first question is just following off the back of Guy, if I could just piggyback. Just within agency, do you guys make quite a good margin on the real estate business, hence why margin's expanded quite materially half on half?
Yeah. Short answer there is we do, Christian. Couple of things. The margin determination is higher than some of our other business units. It's also a business unit that has very little working capital in it, so a true agency model in that respect. The margin determination can come from the mix of properties. There's going to be no surprise in this, it's just commercial reality. If you're selling a large-scale property, NZD 10+ million, don't quote me on the specific numbers, but you're going to pay a lower commission than, say, you were selling a lifestyle block. That's just the nature of the marketplace.
Our mix, what we saw in the first part of the trading year, the first six months, we probably saw a weighting towards lifestyle properties and residential properties. Our margin improved as there was a sentiment around move to the regions, and move into lifestyle blocks. Our margin improved in that space. As we saw the latter part of the six months conclude, there was confidence in securing larger rural properties. We saw, as a result, the mix of sales. We saw an increased number of larger property sale and our margin naturally declined a wee bit as far as that's concerned. It is a good margin business for us.
You do see the activity within the property sector keeping strong going forward. What gives you confidence over that?
The nature of sales that we're seeing, and we're seeing properties that have been on the market for some period of time selling. We've seen the days listing timelines, in terms of anything up to that NZD 7 million-NZD 8 million, there's not too much difficulty selling. The properties in and above that NZD 10 million take a bit longer, but there is interest in there. We've got a shortage of supply as we come out of the Christmas period. There was a shortage of supply, and we are seeing that ramp up now as people think about the autumn selling window, which is another one for the marketplace. On a daily basis, we have our inquiries list. We have a league table around inquiries, listings, and we can monitor that data. That's what we're seeing. It's telling us, Christian, that there's good demand there in the forthcoming period.
Christian, it's Peter here. Just one other comment on that is the real estate team are seeing pressure on values increasing a little bit as well. That actually, of course, leads to an increase in, not necessarily margin percentage , but certainly an increase in the earnings that we get from our real estate business too.
Right. Okay. Sorry if I'm a bit ignorant on this stuff, but just forgot what I was going to say. Yeah, just for the rural real estate, is that more dairy kind of stuff? Because otherwise, is that coming from dairy for the rural, as opposed to meat?
Good question. I'll actually go on to explain a comment about our residential point as well, just in the context of what's going across New Zealand. The demand is across all areas. Across sheep and beef, horticultural land, and dairy properties. There's no particular sector that's actually a standout there, Christian. Thank you for that question. Just to clarify, which I read out, we refer to residential. Ours is what I call rural residential. We only operate in rural locations. We're not in the big markets of Auckland, Wellington, Christchurch, for example. It is in a limited number of areas. That's because the PGW brand in those rural locations is well-recognized by farming communities with family, et cetera, looking to buy properties.
Why is activity good in the meat sector when prices are so low?
It's a good question. There just seems to be an interest in farming as a diversification away from some of the other investment options. To follow up that point, some of the ability for banks in terms of lending to a sheep and beef farmer, they are actually restricting some of their lending in terms of what they're prepared to lend. These are properties that have been purchased with equity. It just is that people want a diversification away from other investment opportunities that are around.
Right. Okay, cool. Understood. Just moving into retail and water. What I don't understand is, how are you seeing investment Well, correct me if I'm wrong. Is there investment across the entire retail sector? What I don't understand is when you look at national rural lending figures, they're quite significantly down. Are you able to sort of connect the dots there for me? If that's possible.
Two things there. We would say that the lending, sorry, the capital investment is heavily weighted towards the horticultural sector. We're not seeing the same capital investment take place in the rural sector. And in the horticultural sector, if you look at where the investment is coming from, it's coming from multinational viticultural companies and a number of, let's call them, go to market with equity investments. The MyFarm's- type investments that you see advertised and those sorts of investment offerings. It is equity funded out of mum and dad funds or other international equity funds. It's that sort of stuff. You wouldn't necessarily see it sitting in debt lending from banks.
Right. Okay. Okay. So, just expanding on that. Just noting the sort of weakness in rural, sorry, in rural commodity prices really. Why is there still growth in that part of the business?
Because the nature of our offering is a science-based lead offering, and we are picking up market share in that space, Christian.
Okay. Is it more of a market share thing as opposed to a natural market growth?
I would say the market is, in terms of the sheep and beef markets, relatively flat. There is some increased confidence in the dairy sector. Those two are kind of linked from a rural supplies activity perspective. Generally speaking, you would say it is relatively flat.
Okay, cool. Oh, sorry, actually just skipping back into agency. The higher stock numbers in the first half. You did mention before that the second half is typically your peak period for livestock trading. The stronger first half in livestock, do you expect that to pull back the second half peak?
We've taken that into account into our forecast. Year-on-year, we've seen falls in values of animals by about 10%, Christian. We've taken that into account into our forecast.
Is that second half?
Sorry, Christian, I was just going to say, remember the second half too does include where we have dairy herd sales as well.
Yes. Yeah.
In April, May, that period, yeah.
Dairy herd prices are actually holding up okay.
Okay, cool. That potentially might lead into my next question, which is more of a overall type of one, but that might be one of the reasons. You've maintained guidance after quite a strong first half. Why is the implied second half quite weak given such a positive start?
Yeah. Look, it's the nature of our business actually, Christian, that the first half is heavily weighted towards retail and water, and they roughly make up sort of 80%-85% of our result. That does actually influence our overall results for the full year. It's the way that our business is actually configured.
If you think about the farming cycle, Christian, our retail and water business, we're planting crops, we're managing crops through the spring window.
Yep.
We have a high weighting in that volume wise. We come to this point of the year, farming calendar, crops are being harvested. We step out of the process at that point in time. We do have our livestock will start to pick up from a trading perspective, and the dairy herd. The second half of the year is about livestock. The retail world, yes, there are people still buying retail inputs, including, for example, autumn agronomy inputs for re-grassing as maize crops come out of harvest. The weighting is the natural cycle of both business units. The retail business falls its weighting and the livestock business increases its weighting. The two businesses are not the same size. That's just the reality, and that plays into the results that we see.
Okay, cool. Sorry, I'm looking at things on a pre-IFRS basis, so I'm looking at it from a first half EBITDA of NZD 31 million, going to full year of NZD 35 million. The implied NZD 4 million of EBITDA per year for us still looks quite weak when you take into account the seasonality, when you compare it to previous years, and especially after such a strong period. Are you guys just being overly conservative given the current trading or are you able to elaborate on that a little bit?
Yeah. One thing that happens, Christian, is that as Stephen said, livestock comes through in the second half of the year, but you've got fixed costs that remain in our biggest business unit, which is retail . You actually have an EBITDA loss, for example, in June, for the month of June alone. That's why actually it might look really skewed towards the first half, but that is the case, it is skewed way towards the first half.
I know it's skewed, but it looks like when you compare the second half to previous second halves, which would also have that skew, this looks a little bit weak. If you look at it from a NZD 4 million in the second half.
Yeah. We haven't necessarily looked at the second half. Well, the second half of last year was actually obviously influenced by lockdown. That's probably one that we would discount to an extent. Going back several years, we would have had seed and grain in there, of course, as well. They were an autumn part. In the retail business, it's almost when they get to May and June, they're just incurring fixed costs and there's not that much trading in those months for retail.
Correct. Okay, cool. No, understood. Thank you. Sorry to go on.
No, that's okay. It's a fair question, actually.
Fair question. It's what we're conscious of as a business.
We ask ourselves sort of that one.
Cool. If I could, I've just got a couple more questions, just bear with me, please. The better margins this period, do you think they are sustainable going forward?
Uh.Yes.
Is that predominant within agency that's based on real estate activity and retail and water? Is Is that, What's that based on?
Well, the point is respect to agency, it's that point earlier on around the mix of properties from a real estate perspective. In respect to retail, it's around the product mixes that we've got. We're seeing new innovation and chemistry come through in that space and as environmental footprints are considered, and new chemistry does cost more. It's an opportunity around margins. There has to be, to get the return on investment that the international research companies make in the space.
Okay, cool. What does growth look like going forward? If it's possible, are you able to pull out two main drivers of that, from an earnings perspective? Will it come from retail and water or agency and then top line or margin growth?
Are you talking about up to June or beyond June, Christian?
In the next couple of two to three years.
Right. Okay. Okay. We would see the main drivers of our revenue improvement of the business, ongoing improvement of the business, coming from the retail and water business, and then followed by the livestock business. I'll come to you as to why that is. Firstly, the size and scale and reach of our retail and water business, the innovation in terms of our R&D programs, will see the investment that's taking place and will continue to take place around horticulture crops. Those crops become permanent in about the second year, and therefore they require good levels of ongoing input every year to maintain the crops. That's our sweet spot. Yes, the capital developments are a good place of revenue earner for us, but managing crops going forward is what we do best and is our PGW sweet spot. It's a comment that I've made previously.
We are good at bringing new innovation and science to the marketplace in this area. We look and have product on our trial programs that are five years in advance of market release. We are leading innovators in that space, and we probably have the best understanding of what's going on in that area. Turning to the livestock area, why in that space? We've got varying initiatives going on in the supply chain space. We have our GO-STOCK facility, and we've built that from NZD 0 a couple of years ago NZD , 0 on our book. We've got headroom in our balance sheet, and we've got facilities in place now for mid NZD 30 million, and that will build as we go out to this end of this financial year.
We see the opportunity moving forward in that space for us to be able to facilitate that. That's a revenue stream that we see opportunity to build. There is some product innovation that we've got in that area. We aren't in a position to announce that today, but we've got some further product innovations in that space. We go to our bidr online trading platform, and we've got other agencies using that business. Not just PGW, there are six other agencies outside of PGW that allows us to be more efficient around how we operate our livestock business. That'll be the three big areas that we would see opportunity for growth, Christian.
Okay. That's fantastic. Super helpful. Thank you for that detailed explanation. That's real good. To back that up, are you going to be increasing your CapEx spend?
We're in the process of considering our budgets right at the moment. We wouldn't see significant increase at the moment around CapEx spend based on what we spend on an annual basis.
Yeah.
We try and ensure that we get the right balance between the performance of the business and the returns to shareholders. There's always a tension on those things. We've got 92 stores in our footprint. We've been on an upgrade program for those over the last couple of years. I have had the pleasure of opening Mayfield and Alexandra store last week. I'll officially open the Taupō store this week. We've got Darfield on our radar, which is we're moving to the new Darfield site in about the end of March. We tend to do a certain number of projects every year. We do three or four projects a year. We manage our CapEx spend that way rather than going out for 10 projects, for example.
Right. Cool. Just the final one. End of last year when you raised your guidance, you also said that you'd pay a dividend of at least NZD 0.10 per share. Why have you gone for NZD 0.12 when guidance hasn't actually changed?
If you look at our headroom position available in the business, the directors felt that in terms of the marketplace, when we give market guidance in December, we're always naturally cautious, and we don't want to over egg the omelet in terms of market expectations. Having seen the results at the end of December alongside the January results, and given the balance sheet strength that we have, and the fact that we paid no dividend also for the year ended 30 June 2020, the directors felt it was an approved opportunity to reward shareholders for their patience.
Perfect. Sweet. Thanks, guys. Appreciate your patience. Sweet. Thank you.
That's okay, Christian.
Cheers.
Once again, if you would like to ask a question, you may press star one from your telephone keypad. There are no further questions at this time, Stephen. I'm sorry. We have a question from Mark O'Connor from O'Connor Corporate. Your line is now open, Mark. Mark O'Connor, your line is now open. You may ask a question.
Sorry about that. I was on mute. Hi, Peter. That was a good result. You made a comment earlier in the presentation about retail business, about increasing market share. Can you make some comment around what's driving that, please?
It's Stephen here, Mark. Thanks for your question. I'll answer that question. Firstly, it's our people. We've invested strongly in our people. It's the science we have behind our programs, our research programs, and just continual focus on delivering good science-based solutions to customers. We've seen that resonate with customers as they see the challenge around their environmental or the ways that they operate their farms and their properties from an environmental perspective. Good science will assist them in terms of the challenges that they have, but also assist them in terms of the quality, crop outcomes, or pasture growth that they achieve. That story is resonating with them very well. It's probably us talking about our story so much, not so much about us talking about what others may be doing in that space, but the science story is certainly resonating with customers.
All right. Thank you very much.
Once again, to ask a question, you may press star one from your telephone.
Thank you, Albert. It doesn't appear that we have any further questions. If that's the case, if anyone wants further clarity, happy to email it through to us. Otherwise, we will end the call. Thank you all for listening for us today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.