PGG Wrightson Limited (PGW) Earnings Call Transcript

Goodbye, and welcome to the PGG Wrightson full year results announcement. [Operator Instructions] I would now like to hand the conference over to Mr. Stephen Guerin, Chief Executive Officer. Please go ahead.

Thank you, Ashley. Good morning, and welcome to the PGG Wrightson results presentation for the financial year to 30th of June 2026. As Ashley has introduced, I am Stephen Guerin, the Chief Executive Officer for PGG Wrightson [indiscernible] today to provide a brief overview of our results for the financial year to June 2026. With me on this webcast are Peter Scott, our CFO; and Julian Daly, our General Manager of Corporate Fields, who is also the Company Secretary. During the call today, I will cover year's financial results, our trading performance key themes and initiatives and some thoughts on the year ahead. There will be some time for questions at the end of the call, both on the telephone call and via the new technology we're using today. For guys who are on the webcast and the slide and which you'll see details when you have been registering for the webcast. Julian Daly, will be acting as a moderator for those questions on slide. Before I start today, I'd like to acknowledge PGW's 175th year-end anniversary. Since May 1851, when George Gold opened first general store, PGG Wrightson and the businesses have come before have walked alongside [indiscernible] of grows, adapting to changing markets, new technologies and shifting needs of our rural communities. The predecessor companies include PGG Pinedale Guinness -- right enema, Dalgety and Williams & Kittel, which we on here to join the business and many more. As we like to say, the PGGW today leverages now 175 years of heritage while embracing innovation to shape the future of agriculture. Turning to our financial results. I'll comment briefly on our headline results for the year ended 30th of June 2026. Operating revenue of $1.1 billion, up $99 million or 10% on the prior financial year. Operating EBITDA of $64.3 million, up $8.2 million or 15% on the prior financial year. Net profit after tax of $15.6 million up $4.9 million or 46% on the prior financial year. Earnings per share of $20.6 per share, up $6.5 per share on the prior financial year. Cash flow from operating activities of $52.6 million, up $40.2 million on the prior financial year. Falling included a final dividend of [ $5.5 ] per share which is $0.10 per share for the full year has been cleared by the directors. Now FY '26 results of disciplined progress across 3 markets, the strategic key performing caters measures that contribute to our long-term success. That's the financial performance, our safety performance and the experience we deliver to our customers. In terms of each of those business. Our EBIT KPI, which is normalized earnings before interest and tax of greater than 10%, double most growth over 3 years on a rolling cycle. Follow the FY '26 result, we achieved the business measure with a growth of 91% over the 3 years rolling cycle, reflecting significant increase of earnings. A target of 10% growth return on capital over the 3-year rolling cycle. We missed this measure with an average of 8.1% over the 3-year cycle, impacted by the tough market conditions we experienced in FY '24. Our earnings per share target for FY '26 of [indiscernible]. We exceeded our earnings per share target with our [ $0.206 ] per share result, benefiting from much lower improved operating result across the rural supplies, livestock and real estate businesses in particular. Our safety performance, the continuous and improvement of PGW's total recordable injury frequency, right, and I'm pleased to report that PGW reported a 3.5% decrease in our true compared to the prior year, ensuring our people return home safe and well each day is a collective priority, and we are committed to building a stronger and safer and orientated culture within the business. Our customer experience KPI which is a concern of annual improvement of PGW's net promoter score measures. Independent market research has confirmed a significant year-on-year increase of PGW's net promoter score in FY '25 -- to FY '25, meeting our KPI. Given the importance of customer experience to sustainable business performance we focus on continuous improvement in this widely used measure of customer satisfaction and all based on customers well in list to recommend that business to others. [indiscernible] the group products. Our strategy continues to guide decisions to making across the group, providing a framework for investment, innovation and growth. By refurbishing our prioritized economic drivers, we have strengthened our customer offering, enhanced operational capability and continue to build on PGW's as a trusted partner to farmers and growers. During FY '26, we've made further progress on several initiatives designed to strengthen our customer offering, build intentive capability, to support long-term growth Key initiatives [indiscernible] of June included the acquisition of [indiscernible] the manufacture of the [ Nexsan and Witmer ] Animal Health brands which has been distributed through the ag trade to our rural supplies and fruitful supply stores, other rural merchants and vet practices. [indiscernible] provides a strong strategic fit to reverse integration strategy and builds our animal health product offering. Establishing our private Blue a global portfolio of Richard agrichemical active ingredients which improves our supply chain resilience and provide customers greater choice. We leased a new R&D facilities, which expanded our R&D capability through investment in a dedicated R&D station Hastings, supporting innovation and accelerate the delivery of eveness based solutions farmers and growers. Our livestock supply chain partnerships came momentum during the year with increasing volumes being directed through preferred [indiscernible] channels. PGW recorded 23 production operated greenhouse [indiscernible] from our FY '21 baseline. This figure is currently undergoing [indiscernible] so we have some caution to confirm that in the due course. This is primary attributed to the continued rollout of our hybrid vehicles into our fleet. Dairy real estate sales, volumes increased 30% and horticultural sales volume increased 60% year-on-year. We expanded our Go stock offering to provide farmers with great financial flexibility while supporting long-term customer growth and loyalty. Our PGW [indiscernible] business consolidated its option activist a national open a all auction creating single marketplace to max bioparticipation, competition McGraw's wall across New Zealand. Our better platform market penetration contributed deepen the market penetration for his product to expand digital live stock networks, increasing transaction volumes and provide customers with greater market excess and flexibility. Approximately 30% of all of [indiscernible] were placed through the better platform reflecting the growing online role of digital participation in live stock markets. The strong seasonal nature of our business means most of our earnings occur in the first half of the financial year. The retail and water business contributes more strong than the first half, reflecting the strong spring trading activity. Livestock typically generates a large portion of the turn to the second half of the year due to the timing of livestock transactions and dairy forward contracts. Revenue of $1.1 billion represents an increase of $99 million or 10% over the prior year. This marks the first time PGW has exceeded $1 billion in revenue since the divestment of [indiscernible] which is a positive indicator of the continued growth of our business. The retail and water business operating revenue of $851.2 million was up $78.3 million or 10%. Our agencies Group operating revenue was $221.5 billion, up $20.5 million or 10%. Turning to each of the both business units within the group. The Regional Water Group first. This business unit recorded operating EBITDA of $44.5 million, an improvement of $2.3 million or 6% from the prior year's results. The rural supplies business benefit from reinvestment [indiscernible] farms activity by our customers. Rural supplies delivered strong results supported by favorable market conditions and sales execution across the business. [indiscernible] confidence remained positive across most sectors support creased old farm spending and investment. [indiscernible] supply business experienced a solid year with an increased revenue despite challenging conditions across part of the hot cultural sector. Market conditions varied across the sectors during the year. The [indiscernible] tremendous performance, supported by ongoing watch development and continued investment across the industry. The [indiscernible] sector remains subdued, with reduced harvest and low wind production impacting demand across several product. [indiscernible] had also experienced lower returns continuing to constrained margins. Turning to our agency business. The agency business is levered operating EBITDA of $29 million up a notable $5.5 million or 23% on the prior year's results. Our livestock business saw elevated livestock prices across [indiscernible] Catandairy markets, supporting an outstanding financial results for the livestock business. favorable international demand for red meat improved farm economics, stronger farmer confidence and robust [indiscernible] and finishes. [indiscernible] while broadened environment prior year, albeit a small reduction of volumes transacted. [indiscernible] strong more industry experienced renewed tunes, which saw cross-retail prices reached their high levels of decades been [indiscernible] oil prices nearly doubled, significantly improved returns. Our [indiscernible] limited increased export [indiscernible] into key international markets, particularly Europe, despite an overall decline [indiscernible] production. [indiscernible] by participation in competition for growers walk from across New Zealand. Our real estate FY '26 results saw a significant uplift of real estate activity resulting in improved performance. Favorable trading conditions, particularly in dairy and water culture, the balance free markets underpinned. Market conditions have been largely positive for farmers growers over the past year, and as already noted, and I'll call out a few points on the slide included [indiscernible] sector benefiting from Frontera's capital [indiscernible] return to key markets, such as dairy, red meat and horticultural categories, [indiscernible] some continuing challenges in the [indiscernible] and the wine sector responding to a changing consumption habits or the invest. Turning to profit after tax. Our net profit after tax of $15.6 million was an increase of $4.9 million or 46% on the FY '25 year result. This as a result of improved operating EBITDA result versus FY '25, fair value gains on foreign exchange derivatives. This year includes a full amortization expense for the Microsoft D365 enterprise reporting platform that went live in April 2025. [indiscernible] reported strong operating cash flows of $52.6 million, an increase of $42.2 million versus FY '25. This resulted from improved financial performance of the business along with favorable working capital movements compared to the prior year. Operating cash flows represented cash generated by PGW's day-to-day trading activities and is a key measure of the group's ability to convert earnings to cash well-funded working capital and supporting future growth. Cash flow from investing activities, invested cash flows of $24.5 million, an increase of $10.3 million from FY 2025, reflects a combination of inorganic growth through the Nexen acquisition, and ongoing investment capability and technology to support the group's long-term strategy. The acquisition of Nexen [indiscernible] strategic capital allocation designed to strengthen PGW's market position and expand earnings opportunities. Our working capital saw a $7.3 million increase in working capital, which was largely driven by the growth of our gross stock book effect continued customer for livestock financing solutions, higher livestock prices. The investment of Gostock receivables supports a core strategic initiative and contributes to strengthening customer engagement. Expense Gostlow underlying working capital reduced reflecting continued focus on inventory and receivables management. Net interest bearing debt or otherwise referred to as in [indiscernible]. The group ended the year with NIBD of $2.4 billion higher than $88 million, reflecting the strong operating cash flows and the Blumenstein investment undertaken during the year. The group has maintained a prudent balance sheet with funding [indiscernible] acquisition and the growth of the gross stock portfolio. On a like-for-like basis, exploring these strategic growth investments in NIBD reduced, highlighting the strength of the underlying cash generation performance within the group. Small increase in debt versus the prior year, the small increase of debt versus the prior year demonstrates the group's continued flows, cash flow management and capital efficiency. Investment in both Nexen and Gastar expect to support future growth and strengthen PGW's long to competitive position. This August 2029, share consolidation, PGGW delivered a total shareholder return of 4.6% and exceed the [indiscernible] index of 25.5% by 19.1 percentage points over the same period. Turning to outlook. [indiscernible] agriculture enters FY '27 from a position of relative strength, supported by healthy international demand and favorable conditions across key market sectors. Strong returns of red meat, Dairy and Hanacans continue to provide positive [indiscernible] supported farmer profitability and investment. While the outlook is positive, we've seen a pleasing start to FY '27 some areas of challenge remain: geopolitical tensions, supply chain disruptions, elevated input costs and potential impact on the dry conditions continue to present risks -- drive conditions on a number of key farming and [indiscernible] could impact production, cash flows and customer confidence. In addition to this, we have early-year dynamics, which may contribute to degree of course. [indiscernible] narrow or farm is also expected to remain challenging in the near term. New Zealand recently signed [indiscernible] a free trade agreement, which provides additional optimism for future growth to improve market access. Although our conditions across the agriculture remained favorable, the critical spring training period remains ahead of us, and it's too soon to provide guidance on the expected FY '27 performance. PGW expects to be in a better position to provide FY '21 guidance at our 30 October annual shareholder meeting. In closing I like to acknowledge dedication of our people across the country and I think our customers and [indiscernible] their continued support trust. This concludes our 2026 financial presentation. I open the webcast for questions. Firstly, on those on telephone, and thank you very much for your participation. Ashley I'll now hand back the slide to you, and I'll just remind you for those on the webcast and the slow applications before we take questions. Thank you very much.

[Operator Instructions] There are no phone questions at this time. I'll now hand back to Stephen Guerin.

Steve we have one question for you on Slido here, so I'll just read that out. The outlook commentary remains positive, but what is the biggest risk to achieving another strong result in FY '27?

Thanks for those online who posted that question. And that was Julian's voice of the background who's acting as a moderator for today. The risks in terms of the FY '27 result fall into 2 areas. The commodity cycle price position that that impacts the returns for our growth, and it depends to their confidence levels. And in weather, they are the 2 factors. While at the moment, you would say that the commodity price cycle looks positive, whereas there is certainly uncertainty and increased commentary about the impact of El Nino out there. time will tell as to how that actually plays out because of this forecast.

Another question online regarding the mix and acquisition -- the question is, -- how has Nexen performed relative to the acquisition case for the business. And we would be likely to see the full benefits of this acquisition being realized.

We are very pleased with the habit the Nexsan business as part of our family. We've had a relationship that goes back over 10 years with the business. And we saw a really strategic opportunities to invest in the business to grow both the Nexsan business and PGW as well. The business has settled in well. We have good data around what -- how the business before the acquisition and has traded ahead of expectations in terms of that. We have a number of initiatives underway in terms of future product portfolio growth, and they have actually traveled with the Nexen team and China just the last few months to visit some of the suppliers, I'm confident that that's going to be delivered on a start from this year. And we're welcome to see that provide a return to our shareholders and to our [indiscernible] opportunities. Animal Health is one of those areas where we haven't seen a lot of innovation in the marketplace. So [indiscernible] strategic investment. -- underpins our performance, and we're really confident that will [indiscernible] ahead of expectations because they're focusing in the first 11 months of business within our organization.

I have a follow-up question on Nexan. Have the -- other stock in Station or big companies like [indiscernible] stopped selling Nexen and Fitment products since the acquisition?

No. They continue to support the product brands. So that's just very pleasing to see. We were very transparent. We have a team that's engaged with those customers. As we see that we do treat them as customers and they continue to support the brand.

Another question, has AI disrupted the work of our technical advisers somewhat.

It's a really good question. Right at the moment, the short answer is no. There are certainly a number of AI tools out of the marketplace. Customers are experimenting with those. We ourselves are experimenting with those. We have the research facility, I spoke about earlier on in the [indiscernible] we're in the process of setting government digital twin for that research facility. So we're going to see that -- we can model send scenarios of that environment. And it's an area of investment for us. We have both in terms of the technology and staff that are -- we've got our teams to support the innovation that we're seeing. And we continue to monitor what's going on in the world as well. That tends to travel it's neat to see what's going on. Our observation at this point in time is New Zealand is well placed around innovation, and we have pieced out there well placed. The challenge is not going to bleeding edge on the stuff as well.

Other question in relation to the Nexen acquisition, can we disclose the Nexen revenue, EBITDA and EBIT?

[indiscernible] to turn to you because we do have we've got some information in our financial reports.

Yes, we. This is Peter Scott here actually. We do actually disclose the financial accounts that Nexan revenues of $8.1 million generated a net profit after tax of $1 million. We don't really go into EBITDA because that's commercially sensitive. But as Stephen mentioned before, the 11 months, been very positive from an acquisition point of view, and we're very pleased with the performance of Nexan.

But that notes [indiscernible] of the financial stress.

[indiscernible] operating cash flow increased significantly during FY '26. How much of this improvement is sustainable versus being driven by timing impacts of working capital movements?

It's sustainable to the extent that we're reliant on the performance, strong performance and commercial turns to our customers are receiving. We, as a business, are equally focused on working capital. And we've got a number of initiatives underway in terms of our planning of our inventory. As we go further up to supply chain as a business, we need to take greater control and deliver a better planning for our working capital and as said, we've got a number of editions underway in their space. And I'm really pleased to see that the retail team, in particular, which were most of our working capital from an inventory perspective is concentrated. I have that as a major project within their business. The cash flow cycle, we're monitoring what's going on with [indiscernible] business. We want to -- we scan across the sector as well. and going to pure information with our banker bank syndicates. And in the near term, we are confident around the cash flows of our position of our business. You'll see in our notes that we have reviewed our banking facilities of both the financial statements, and we've modeled out our cash flow as part of that process out over the next few years, and that gives us some confidence based on the underlying results we are protecting in the business.

Question now in relation to net debt, Do we and team to reduce net debt over FY '27?

Well, as Stephen just mentioned, cash flows were strong FY '26 operating cash flow being $52 million. It depends on the year ahead from a performance from an EBITDA performance, of course, and that we constraining our net working capital. However, if there are growth opportunities such as investment and GoStock product, then we would -- then that might lead to an increased net debt. But we've seen this year that [indiscernible] has gone up $7 million and that we would want that to continue to grow actually is one of our strategies. If you look in the financial statements, too, you'll see that we've expanded our facilities with banks to an upper limit of $265 million from $185 million. And a lot of that is to account for continued growth in the GO products. So depending on what happens over the year, we could see an increase from a GO perspective.