PGW
24/10/2012 14:00
ADDRESS
REL: 1400 HRS PGG Wrightson Limited
ADDRESS: PGW: PGG Wrightson Annual Shareholders Meeting Presentation
PGG Wrightson Limited
2012 Annual Meeting
Ellerslie Events Centre, Ellerslie Race Course
(Great Northern Room)
Auckland
Wednesday 24 October 2012 at 2.30pm
Slide 2 - AGENDA, BRUCE IRVINE, DIRECTOR
Welcome
Good afternoon ladies and gentlemen. I am Bruce Irvine, a director of PGG
Wrightson. I am standing in for Sir John Anderson, Chairman of the board of
directors of PGG Wrightson Limited for this meeting as Sir John is unable to
attend today as he has recently undergone surgery on his knee.
Slide 3 - DIRECTORS
Slide 4 - SENIOR MANAGEMENT
Slide 5 - FORMALITIES
Notice of Meeting
Minutes
Proxies
Annual Financial Statements
Slide 6 - CHAIRMAN'S ADDRESS, BRUCE IRVINE
My role will be to lay the groundwork with a high level review of the past
financial year on behalf of the Chairman, Sir John Anderson. Our Managing
Director, George Gould will provide the operational insights into the
underlying businesses and how they are tracking in the current financial
year.
Finally, Rob Woodgate, our Chief Financial Officer, will then run through the
financial highlights from the past year.
At that point there will be an opportunity for questions and general
discussion and I will outline the procedure for that part of the meeting when
we reach it.
Following our general discussion, the business of the meeting comprises of
two resolutions, which are outlined in the notice of meeting. Voting on
these resolutions will be by way of a poll. This year we have introduced the
option for shareholders to cast their votes on meeting business online and by
post. This option provides shareholders with more flexibility and
convenience where they cannot attend in person or by proxy but nevertheless
wish to cast their votes on meeting business. Given that votes can be cast
by shareholders not attending the meeting it makes sense that resolutions be
determined by way of a poll.
Slide 7- OVERVIEW
For PGG Wrightson, the 2011 / 2012 financial year was testimonial to the
company's current strategy - which was to get back to doing the right things
for its clients and its people, to the things that have made it a great
company to be a part of during its 150 year history.
While the story was undoubtedly about the $55 million turnaround in net
profit after tax that we recorded for the year, it was also about the effort
that went in to generate that performance; the elements that continue to
underwrite the board's, our management's and our staff's belief in the
company across all of its business units. A lot of the improvement in NPAT
was due to the absence of "one off" adjustments in the current year. While
there was a modest 12% increase in EBITDA over 2011, this translated into a
significant increase in profitability as that EBITDA was not then subject to
significant non-operating charges and fair value adjustments. By way of
example, last year there was a need to provide against the supply contract to
Silver Fern Farms as the company had not met the supply targets. This was
reversed in the current year as we have exceeded our supply obligations and
are now confident we can continue to do this.
Our Managing Director, George Gould has talked about making things simpler,
and 'returning to the core businesses. Where our clients are concerned that
is 100% the right track to take - and we are committed to providing quality
service and products across the length and breadth of our business.
Our results for the past year reflect our success in doing just that.
While it was largely a year of 'business as usual' there was one notable
transaction: the divestment of PGG Wrightson Finance in August last year,
and we talked at length about this at last year's shareholders meetings. In
that regard the company has made significant progress since the transaction
in exiting the majority of loans held by PGW Rural Capital Limited - a
special purpose subsidiary company formed to hold certain loans retained when
PGG Wrightson Finance was divested to Heartland.
As we noted in the annual report we expect this process to be largely
completed by the end of this calendar year. While the most significant
outstanding loan to Crafar Farms has not yet been repaid it is subject to a
sale contract that has received Overseas Investment Office approval and is
expected to settle in December this year.
The final matter I wish to address before handing over to George is the
company's dividend policy. As already discussed, we are currently focussed
on re-establishing the business and its earnings. We have made good progress
in this regard. We would therefore hope to be in a position to outline our
dividend policy in some detail in the next twelve months.
On behalf of the board I would acknowledge the effort and commitment of our
staff across the PGG Wrightson business. Our appreciation also to Managing
Director, George Gould and his management team for their capable leadership,
unrelenting energy and drive.
Slide 8 - OPERATIONAL REVIEW, GEORGE GOULD, MANAGING DIRECTOR
Thank you Chairman and good afternoon ladies and gentlemen.
It is my pleasure to speak to the operational performance of PGG Wrightson
over the last financial year.
Slide 9 - OPERATIONAL PERFORMANCE
For the year under review the company achieved operating earnings before
interest and tax (EBITDA) of $55 million compared with $49 million last year,
an increase of 12%. Net profit after tax was $24.4 million compared with a
loss of $30.7 million in the prior year. This year's profit was broadly in
line with expectations at the trading level but, obviously a significant
improvement from the 2011 loss.
It is worth noting also the turnaround in net operating cash flow which moved
to $59 million from just $4.9 million last year. In addition to the improved
earnings, this movement came from our focus on working capital and
particularly debtor management.
There were stand out performances from several of our businesses, in
particular from Livestock and Retail aided by record livestock prices and
improved returns at the farm gate. It was gratifying also to see our Real
Estate business return to profitability, while the Wool business was also
successfully re-integrated into the business.
Slide 10 - AGRISERVICES
On the strength of high early season values across most areas of livestock,
the Livestock business unit achieved a stand out financial performance. The
business also built on its dairy presence, with a 38% improvement in dairy
cattle volumes handled for the season. Live dairy cattle export to Vietnam
contributed strongly to earnings while the company also successfully met its
procurement targets with Silver Fern Farms.
In retail, the Rural Supplies business had a strong year, benefiting from
increased revenues across almost all categories on the back of positive
growing conditions through spring and summer. The performance of Fruitfed
Supplies, meanwhile, reflected the decline in grower returns across the major
categories of pip-fruit, kiwifruit, grape and vegetable markets. Throughout
the year we have invested in sales and technical training, undertaking a
store refresh programme and we are seeing the benefits through enhanced staff
engagement and retention.
The Wool business benefited from high wool production due to good feed levels
with more growers moving to contract positions in the wake of volatile
returns.
The Real Estate team had a positive year as confidence returned to the rural
and lifestyle market, reflected in a 54% improvement in revenues from 2011
and a return to profitability. Irrigation and Pumping also improved, with
revenues up 28% on the back of new on-farm irrigation and dairy shed
reticulation development. Our rural training company Agriculture New Zealand
also posted solid results.
Our South American AgriServices business, which focuses on livestock auction
and export, wool, real estate, irrigation and retail also performed well, and
ahead of the prior year.
Slide 11 - AGRITECH
In AgriTech - our seed, grain and nutrition division - the Australian seed
business had a challenging year, with underlying sales significantly impacted
by high rainfalls in our key markets in Victoria and southern New South Wales
for most of the autumn selling season. As in the previous year, there was
either an abundance of feed available to farmers or paddocks which were too
wet to gain access to re-sow. The acquisition of Keith Seeds made in late
2010 struggled initially to deliver the results planned, and in the past
twelve months it achieved sales volume but at much lower margins. The start
of this season looks more encouraging.
Weather was also a factor in New Zealand, however the local seeds business
reported results broadly in line with expectations and last year. While the
2012 harvest was good, it was delayed by the very wet conditions experienced
in Canterbury throughout December and January.
The South American seeds business made gains from forage seed sales in
Uruguay through strengthened relationships with strategic partners. North of
Uruguay, in Brazil, the company achieved registration of a number of
proprietary cultivars and increased forage seed sales in the three Southern
States.
This was a year of getting back to the foundation of our business - and we
have definitely made progress in some key areas. In this regard we have
focused on employing the right people in the right positions, investing in
retaining people with relevant and specialist skills and relationships -
particularly behind the farm gate. As the Chairman mentioned earlier today
we discussed the sale of the PGG Wrightson Finance business in detail at last
year's shareholders meetings. Just over one year on we are pleased to report
that we have made significant progress during the past six months in exiting
the majority of loans held by our subsidiary company PGW Rural Capital.
Excluding Crafar Farms, net finance assets are now at approximately $4
million, while the sale of the Crafar Farms assets is subject to a sale
contract that has received Overseas Investment Office approval and is
expected to settle this calendar year.
I will now hand over to Rob Woodgate who will run through the results in more
detail. I will then provide our outlook for the year ahead.
Slide 12 - FINANCIAL REVIEW, ROB WOODGATE, CHIEF FINANCIAL OFFICER
As was noted earlier the group reported an operating EBITDA of $55.2 million,
from revenues of more than $1.3 billion. George also mentioned the strong
performances in our Retail, Livestock, Real Estate businesses, and also the
conditions that impacted the AgriTech division.
Slide 13 - FINANCIAL PERFORMANCE
Alongside the operational performance we saw the Wool business being fully
consolidated into the 2011 / 2012 numbers, accounting for $47 million of the
uplift in revenues and $7.2 million of operating costs. Operating costs were
up $13 million, of which Wool accounts for over half; other increases were
seen in Livestock with additional agents and in AgriTech with the full year
impact of acquisitions, and we mentioned Keith Seeds earlier.
George also mentioned the Silver Fern Farms procurement agreement. We made
provision for this in last year's numbers for $9.5 million. This season we
met the targets in the agreement and have also put in place actions that
allow us to better meet the supply targets for future seasons. Following on
from this we have changed the basis of provision and the non-operating
results include a release of this provision totalling $5 million associated
with this turnaround.
On the income statement, interest costs have also roughly halved to $13.8
million, from $28.1 million last year in line with reduced debt, decreasing
from $176 million to $124 million - noting that last year also included
accelerated amortisation of fees.
Slide 14 - BALANCE SHEET & CASH FLOW
Cash flow from operating activities is a very positive story, delivering
$58.6 million. After net profit after tax and backing out depreciation,
there was a net improvement in debtors of $25 million and $10 million arising
from a deferred tax asset and provisional tax stemming from the sale of the
finance company back in August 2011.
AgriTech held higher inventories due to the Australian market conditions,
biological assets (through Livestock) was down on last year making the net
inventory marginally up on last year overall.
Under the heading 'Investing Activities', there is a mix of the finance
company being sold at NTA and then the PGW Rural Capital assets coming back
into the business. The 'proceeds from sale' and 'cash paid for purchase of
investments' include the sale proceeds and then the buying back of the PGW
Rural Capital assets. The 'net decrease in finance receivables' relates
specifically to a small cash inflow of the sale and then the assets realised
through the PGW Rural Capital book.
Finally there are $13 million of fixed asset additions with seed related
assets explaining the majority of these. How this cash has then been
employed is explained as $11.5 million of facility supporting PGW Rural
Capital, the repayment of the Convertible Note (being $36 million) made back
in December, and then a repayment of external borrowings (a further $46
million).
On the balance sheet the biggest change is the impact that the finance
company has to total assets and liabilities, otherwise the changes are better
explained through the cash flow.
When we announced the full year results in August we had anticipated that the
Crafar Farms monies would have been receipted by the mid-October; however
recent developments have pushed this out to December. This change has no
material impact on the actual amount we anticipate receiving.
I will now hand you back to George.
Slide 15 - OUTLOOK, GEORGE GOULD, MANAGING DIRECTOR
Unlike in prior years the 2011 / 2012 results were not impacted by one off
items and provisions and with the exception of climatic impacts on certain
businesses, the board of directors, management team and I are pleased with
the overall performance of the group. We have a solid base to work from with
steady earnings growth and a strong balance sheet. We will therefore stay
the course - supporting and providing best service to our clients while
paying attention to the efficiency of our businesses.
The first three months of this year has provided us with further evidence
that we are doing the right thing by our customers and that we also operate
in a seasonal business with some factors beyond our control, namely the
weather. The Retail businesses have started the year well up on last year's
performance, so have the Irrigation & Pumping, and South America
AgriSerivices businesses. This time last year Livestock was seeing record
prices and, largely as we expected, these were not going to be repeated in
the spring period for this year, though tallies are close to last year.
Overall the AgriServices division is up 7% on the same period last year.
The AgriTech businesses are seeing the impact of a cooler than usual spring
in both New Zealand and Australia. Brassica volumes for New Zealand were
back after the first quarter but we are expecting these to pick up this month
and through into November. Australia is back on last year after seeing the
cereal season in New South Wales not take place due to the cooler
temperatures. The Grain trading business has seen increased prices across
wheat, maize and barley and is tracking ahead of this time last year. The
AgriTech division is confident it will improve on last year's performance.
As we have mentioned earlier the overall business is seasonal and we are
probably seeing a return to a 30/70 split in terms of EBITDA over the two
halves of the year. There is no reason why the company cannot build on last
year's results, and that is certainly what the board and management are
working to bring about.
Thank you, I will now hand you back to the Chairman.
Questions and Discussion on the Annual Report etc.
Slide 16 - GENERAL BUSINESS OF THE MEETING
The proposed resolutions will now be considered by the meeting, with all
resolutions to be determined by a poll that will be undertaken by our share
registrar, Computershare. The company's auditors, KPMG will act as
scrutineers. The resolutions and accompanying explanatory notes are set out
in the notice of meeting.
Business - Election of Directors
The notice of meeting records that Sir Selwyn Cushing, Bill Thomas and Tao
Xie (XT) will retire from the board at the conclusion of this meeting.
I would take this opportunity to acknowledge the positive contribution and
valuable counsel each of the retiring directors has provided during their
respective tenures and on behalf of the board I wish them well for the
future.
Sir Selwyn was originally appointed to the Wrightson Limited board in 2005
following the acquisition of Williams & Kettle Limited of which he had been a
director for more than 20 years. His astute business sense and commercial
acumen has been of great assistance to the company. It is pleasing to note
that Sir Selwyn has agreed to remain involved with the PGG Wrightson Employee
Benefits Plan in his capacity as a trustee.
Bill Thomas originally became a director of Pyne Gould Guinness Limited in
1995 and the company has benefited from his insights and in particular his
farming experience. After 17 years as a director for PGG Wrightson and its
predecessor companies Bill believes that the time is right to retire.
XT, the former Chief Executive of PGG Wrightson's majority shareholder Agria
Corporation was instrumental in the structuring of Agria's acquisition and
retires after serving as a director since 30 December 2009.
As previously announced, the board of directors are currently undertaking a
review of the composition and expertise of the PGG Wrightson board. It is
acknowledged that there is a need to maintain farming experience on the PGG
Wrightson board and the review will help inform decisions made in relation to
future director appointments.
The first item of business, item II on the notice of meeting, is the
resolution for re-election of Guanglin (Alan) Lai as a director. There is a
biography for Alan on page 15 of this year's annual report and in the notice
of meeting.
I now move the motions as ordinary resolutions.
Resolution 1: The motion is that Alan Lai be re-appointed to the board.
Are there any matters for discussion or questions concerning the proposed
resolution?
Resolution 2: Auditor's Remuneration: I note the automatic reappointment of
KPMG as the company's auditors under section 200 of the Companies Act 1993.
The proposed ordinary resolution is to authorise the board of directors to
fix the auditors' remuneration.
As is usual with audit fees, due to the complexity and changing nature of the
company's affairs, it is impractical to fix the remuneration at the beginning
of the year.
Are there any matters for discussion or questions concerning the proposed
resolution?
A poll will be conducted in respect of both resolutions at the conclusion of
general business. For those that have not cast postal votes already please
complete you ballot paper at the conclusion of general business and hand this
in to the Computershare desk at the back of the room.
General Business
Closing
End CA:00228807 For:PGW Type:ADDRESS Time:2012-10-24 14:00:06
