Rural trader braces as commodity prices dip

The listed company last week reported its second-best financial result since a major restructure in 2019.

For the financial year ending June 30, 2023, operating EBITDA of $61.2 million was down $6.0 million (9%) and net profit after tax of $17.5 million was down $6.8 million (28%).

However, revenue grew to $975.7 million and was up $23 million (2%) compared to the prior year.

Chief executive Stephen Guerin told Dairy News that softening sheepmeat prices had an impact on the results.

But he points out that dairy and beef prices started to come down in the second half of the financial year so the impact was limited on the latest results.

"Softening dairy prices will have more impact in this year's results. We have flagged a more challenging year ahead."

PGW reported a record result last year, its best since the seed business was offloaded in 2019.

Guerin says PGW is now quite a different business to what it was before the sale of the seeds business.

The drop in commodity prices is also impacting PGW's real estate business.

While properties are being listed, sale volumes are well down.

Guerin says he expects more listings in spring but very few buyers.

Apart from softening commodity prices, farm sales are also being impacted by high interest rates, uncertainty around regulations and the upcoming election.

Presenting its results last week, PGW noted that macro trading conditions for the year have been volatile with increasing input costs, inflationary pressures, and falling commodity returns for clients.

"A wet and cold spring delivered frosts which affected a number of crops.

"Two cyclones through late summer also resulted in significant crop and rural infrastructure damage in the North Island.

"In the context of these market condition, we are heartened by the performance of the business and what has been achieved this financial year.

"We are proud of the way our team responded to the demands experienced in their regions and the extraordinary efforts of many in the way they supported each other, our clients, and their communities in need."

The PGW board has declared a fully imputed final dividend of 10c/share bringing the total dividend for the year to 22c/share.

PGW's Retail & Water Group was a star performer with earnings up 3% to $54m.

Guerin says increased sales were recorded in the animal health, fencing, general merchandise, and horticultural categories.

"We transacted increased business volumes with the same level of staff, which is something we are very proud of and testament to the commitment of our team members.

"Our clients appreciate the superior technical ability of our people who are backed by our dedicated research and development team.

"We will continue to build on this point of difference to ensure we maintain and increase our market share."

Global supply chain disruptions following Covid-19 caused PGW to carry higher levels of inventory to ensure it could provide clients with the right products at the right time. Guerin notes that elevated inventory levels caused some challenges with storage and working capital management.

"As international shipping delays are easing, there is more certainty regarding deliveries.

"We have adjusted inventory levels, given that we do not carry the same quantities of buffer stock as was considered necessary in the prior year."

The Rural Supplies business recorded its best performance ever, exceeding last year's record result, with strong sales across a range of categories.

"We continued to grow market share and delivered an outstanding result in a shrinking market," says Guerin.

"To achieve growth on last year is an exceptional result given the climatic challenges and demonstrates the strength of our Rural Supplies business.

"Our people are passionate and motivated to go the extra mile for our hardworking clients.

"We are winning new business and seeking opportunities with key accounts, in animal health, forestry, and the ever-changing landscape of our traditional business."

Agency Group Earnings Down

PGW's Agency group made up of the Livestock, Wool, and Real Estate businesses saw earnings down 26% on last year.

PGG Wrightson's real estate business endured a tough market last financial year.

Revenue was $188.8 million, which was broadly in line with the prior year's result, down just $0.6 million.

Stephen Guerin says the livestock business achieved a solid performance in a difficult market.

"Whilst there were challenges through softer sheep pricing, significant wet weather events in the North Island and declining tallies in some stock lines, there were also positive outcomes for the year.

"The wet conditions contributed to greater pasture growth than normal which created unseasonal trading during the summer and autumn seasons."

Revenues received for cattle were robust, with higher prices received compared to the prior year.

This was driven by healthy pricing achieved throughout the year which was assisted by abundant feed and increases in export volumes.

"Sheep pricing was below expectations throughout much of the year as demand was slow to recover in our key export markets," says Guerin.