Banks put heat on PGG Wrightson to pay debt By MARTA STEEMAN, Business editor - The Press Last updated 05:00 28/08/2009
PGG Wrightson is planning to raise capital and wants a new cornerstone investor after its banks put the heat on for repayment of $200 million of debt by next March.
PGGW has been forced to renegotiate its bank debt package after a slump in rural trading in the second half of the financial year. Yesterday it posted a $66.4m loss for the June 2009 year from revenue of $1.29 billion, 8 per cent higher than the year before.
The loss was caused by one-off costs $49.6m from the failed merger with Silver Fern Farms and the $39.2m fall in the value of its stake in New Zealand Farming Systems Uruguay.
Keith Smith, who recently replaced Craig Norgate as chairman, said PGGW could not give a reliable forecast of earnings for the 2010 year because of the uncertainty about the timing of a recovery.
No dividend was declared, and Smith said he could not say when dividends would return, but the company was considering non-cash dividends such as bonus share issues.
Rural Portfolio Investments, owned by rural investors Norgate and Dunedin's McConnon family, is the cornerstone shareholder in PGGW with a 27 per cent stake. Pyne Gould Corporation is the other major shareholder with 20 per cent.
Managing director Tim Miles said there had been no indication from the two main shareholders that they wanted to exit PGG Wrightson.
But the company wanted to bring in another major investor or investors, Miles said. PGGW had engaged First New Zealand Capital and UBS to review capital needs. It would update its plans to meet the new bank repayment schedule when the review was completed.
The banking package terms have been extended by 15 months but the banks want a bigger earlier payment of $200m by the end of March next year. In the previous agreement $125m had to be paid by December next year.
In June PGGW notified its banks of a potential breach of its financial covenants. A waiver from the covenants was received from the banking syndicate and South Canterbury Finance, which lent PGGW $25m earlier this year to help it settle with SFF.
PGGW's $66.4m loss was a large swing from the $73m profit of the previous year. Both years' results had similar trading (operating profits), $30m for the June 2009 year and $32.9m for the June 2008 year.
Miles said the $30m trading profit was a strong performance in difficult conditions.
The company was getting its fair share of rural services business but "a lot less money is being spent".
Miles said the company was in the throes of a restructuring to take costs out of its business and connect better with its customers. A 10 per cent fall in staff numbers, mostly through attrition, had translated to a wages and salary savings of 7 per cent. Regional operations had been reorganised. Twelve new regional managers had been appointed. Costs were being cut in fuel and travel and the vehicle fleet had switched to diesel.
Ad Feedback Several divisions had performed well. Rural supplies revenue was up but the margin was down because of costs related to the importation of palm kernel. The seeds business had performed strongly and horticulture was holding up well but real estate had slumped with a drop of $9m in earnings (earnings before interest tax depreciation and amortisation). Sheep farmers were doing well but they were not opening their wallets. Dairy farmers were having a tough time and PGGW had seen that in spades in the autumn.
