Announcement

HALFYR: PGW: PGG Wrightson announces first half result 08:30a.m. 
PGW  
27/02/2019 08:30  
HALFYR  
PRICE SENSITIVE  
REL: 0830 HRS PGG Wrightson Limited  
 
HALFYR: PGW: PGG Wrightson announces first half result  
 
PGG Wrightson Limited (PGW)* Chief Executive Ian Glasson announced today that  
Operating EBITDA** for the six months ending 31 December 2018 was $17.8  
million (compared to the record $23.4 million for the corresponding period  
last year).  
 
Mr Glasson said, "While this result is back on the previous year it is  
slightly ahead of first half Operating EBITDA for the Rural Services***  
businesses for the 2017 financial year. The factors impacting performance  
have been felt across the rural sector and we have confidence that we have  
held, and in some cases grown, our market share. It is important to note  
that this Operating EBITDA result no longer includes any contribution from  
the Seed and Grain business, which is in the process of being sold to DLF  
Seeds A/S. We are confident the transaction will settle in the near future  
and accordingly the Seed and Grain business is now treated as a discontinued  
operation in our financial reporting."  
 
PGW delivered a net profit after tax (NPAT) of $0.3 million for the period.  
This result includes a loss of $8.6 million from the discontinued Seed and  
Grain business.  
 
On the basis of the Rural Services' result the Board has resolved to pay a  
fully imputed interim dividend of 0.75 cents per share on 5 April 2019 to  
shareholders on PGW's share register as at 5pm on 15 March 2019.  
 
Rural Services  
 
Mr Glasson said, "Late last year we advised that while our Rural Services  
businesses had been trading solidly for the first six months of FY2019, we  
signalled that it was likely the half year result would be behind the same  
period last year. That prediction has proven to be accurate. This softer  
result was largely due to a later start to spring sales and a delayed  
recovery following an unseasonably wet period in the last few months of 2018  
across the country."  
 
"In December 2018 the National Institute of Water and Atmospheric Research  
(NIWA) reported that many eastern and inland parts of the South Island  
recorded double their normal rainfall for that time of the year. Wet spring  
conditions throughout the country have favoured milk and beef production,  
with an increase in production by six percent across both sectors due largely  
to strong pasture growth. In contrast, wet growing conditions in most  
regions have delayed pasture renovation and the establishment of both arable  
and winter feed crops. These wet conditions were felt across most of our  
Rural Services businesses impacting the sales mix and some delayed spending."  
 
"Turning to the two operating groups within Rural Services."  
 
Retail and Water  
 
"The Retail and Water group earnings are tracking broadly in line with last  
year. The first six months of the financial year are key for the Retail and  
Water group as it generally delivers more than 85 percent of its full year  
Operating EBITDA during this period. Despite some challenges with the  
weather and excluding the claim event noted below, year-on-year gains  
continue to be made by the Rural Supplies, Fruitfed Supplies and Agritrade  
businesses. However, the Water business continues to experience weak demand  
with the remainder of the year also looking extremely challenging."  
 
"We have confidence that after this financial year Rural Supplies, Fruitfed  
Supplies and Agritrade will again revert to growth."  
 
"Operating EBITDA was $23.0 million for the first half of FY2019, slightly  
back on last year's record $23.6 million, but well ahead of the $18.9 million  
recorded in the first half of FY2017. In addition, a claim event impacted  
the Retail and Water group's otherwise excellent trading result. In  
September 2018 a settlement was reached with a supplier and a number of  
growers in relation to a defective spray that was supplied to PGW and resold  
to fruit growers. The settlement partially compensated PGW for the  
consequences arising from the supply of the defective product with a  
financial impact of approximately $1.8 million that was not recovered.  
Customers were fully compensated."  
 
"Our investment in the Retail business continues with key initiatives, such  
as the rollout of our new retail point of sale system in the first quarter of  
FY2019. The next phase in this digital journey is the establishment of an  
ecommerce solution which is currently in the discovery phase. In addition,  
our investment in technology infrastructure, our people, technical training  
and tools for our team continues."  
 
Agency  
 
"Our Agency business incorporates the Livestock, Wool, Real Estate, Insurance  
and Financial referral commission businesses. Trading for this group is  
weighted towards the second half and contributed $1.6 million Operating  
EBITDA for the six months ended 31 December 2018. This is back, on the  
record first half result for FY2018 of $4.6 million."  
 
"Our Livestock business benefited from the favourable conditions for farmers  
due to good feed supply across most of the country which was buoyed by  
sustained high sheep and beef commodity pricing (with tallies for all stock  
and all sales channels similar to the prior year). However, this was offset  
by continued caution in the dairy sector due to the ongoing effect of  
Mycoplasma bovis and the lack of supply of good quality dairy livestock.  
Investment in the future continues to be a focus for this business with a  
number of digital initiatives and further supply chain developments scheduled  
to be implemented during FY2019. While Livestock is down on earnings at the  
half year mark, it rebounded in January 2019 and is on track to match FY2018  
full year result.  
 
"Despite holding its market share, our Wool business was materially impacted  
(circa $2.0 million) by several factors during the first six months of  
FY2019; mainly the reduction in the number of bales sold compared with the  
same period last year (a significant number of bales that had been stockpiled  
by growers were sold), wet conditions delaying shearing and the export  
business was adversely affected by weaker global demand which flowed through  
to soft international pricing for crossbred wools."  
 
"The Real Estate business again experienced a slow start to the spring and  
summer selling period overall, with the horticultural and viticulture sectors  
proving to be the exception to this trend for the first half of FY2019."  
 
Seed and Grain  
 
"As previously mentioned, the Seed and Grain business is now accounted for as  
a discontinued operation, therefore its performance does not impact PGW's  
Operating EBITDA. The Seed and Grain groups' performance does impact net  
profit after tax, however. For the six months ending 31 December 2018 Seed  
and Grain reported a loss of $8.6 million, compared with a profit of $2.7  
million in the same period in FY2018. This underperformance relates  
primarily to the South American operations, in particular the AgroCentro  
joint venture, of which Seed and Grain acquired the remaining 50 percent  
during the period to now wholly own the business. Conditions in the  
agricultural sector in Uruguay remain challenging given the continuing  
effects of the droughts and floods experienced in the region, combined with  
lower commodity prices."  
 
"For PGW shareholders it is important to note that once the sale of the Seed  
and Grain business completes the risks and rewards of this business will have  
passed to the purchaser effectively from 1 July 2018."  
 
Outlook  
 
"Looking ahead at market conditions for the remainder of FY2019 and beyond  
the signals are somewhat mixed."  
 
"Given the weather-affected spring we've had, there should be some pent-up  
demand for agricultural inputs to come through this coming autumn and spring.  
Milk, beef and particularly lamb prices are strong versus long-term  
averages, suggesting that farm profitability should remain robust.  
Horticulture continues to go from strength to strength - for example in  
December the Ministry for Primary Industries expected horticulture to be the  
fastest-growing export sector, increasing revenues 12 percent for the FY2019  
year."  
 
"There are several counterpoints to these positive signals. Farmer  
confidence surveys in New Zealand continue to reflect a degree of pessimism.  
Much of the country has been drier than usual for this time of year -  
particularly Taranaki and Tasman. Mycoplasma bovis remains a risk factor for  
the beef and dairy sectors, and abroad both Brexit and US-China trade  
relations have the potential to disrupt New Zealand's exports and therefore  
farmer returns."  
 
"On balance we are cautious for the remainder of the year. Weather and  
commodity prices will continue to be risk factors for the business,  
particularly during the months of May and June, which are important  
contributors to the earnings of our Livestock business."  
 
"With that in mind, we expect full year Operating EBITDA for FY2019 will be  
similar to FY2017, in the range of $25 to $30 million," said Mr Glasson.  
 
Seed and Grain transaction update  
 
The sale of Seed and Grain to DLF Seeds A/S is now only conditional upon  
Overseas Investment Office approval and the completion of regulatory filings  
in Uruguay.  
 
The agreed headline price of $434 million (including net debt of $21 million)  
will result in a purchase price of $413 million for the Seed and Grain  
business. After sales proceeds are received on settlement and debt repaid,  
PGW would be expected to have a cash surplus of circa $210 million (subject  
to transaction completion timing, working capital requirements that can  
fluctuate materially through the annual cycle and other transaction wash-up  
items).  
 
Further guidance on the non-taxable capital distribution to shareholders will  
be provided after the remaining conditions are confirmed. Factors impacting  
the capital return include; the ultimate cash surplus, desired ongoing PGW  
debt profile, capital / cashflow requirements and alternative uses of funds  
to support growth etc.  
 
Mr Glasson concluded, "We will continue to keep the market updated as the  
financial year progresses and as matters develop in relation to the sale of  
the Seed and Grain business."  
 
For all media enquiries please contact  
Linda Chalmers  
Group Communications and Brand Manager  
PGG Wrightson Ltd  
Mobile: +64 27 405 3241  
End CA:00331139 For:PGW Type:HALFYR Time:2019-02-27 08:30:50