Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PGG Wrightson Ltd (PGWFF, Financial) has maintained steady gross margins despite challenging market conditions.
- The company has successfully consolidated market share in most categories within its retail business.
- PGG Wrightson Ltd (PGWFF) has implemented a self-led R&D model to strengthen its core competencies in seed, ag chem, and fertilizer.
- The company has made significant investments in IT systems to improve operational efficiencies, with expected benefits in FY26.
- PGG Wrightson Ltd (PGWFF) has seen positive demand for its GO-STOCK grazing program, which frees up capital for farmers.
Negative Points
- Operating EBITDA decreased by $17 million compared to the previous financial year.
- Net profit after tax (NPAT) fell by $14.5 million from the prior year.
- Revenue declined by $59.7 million, marking the first drop since FY18.
- No final dividend was declared for FY24 due to difficult trading conditions.
- The retail & water business experienced a 24% drop in operating EBITDA, reflecting reduced farmer and grower spending.
Q & A Highlights
Q: EBITDA margin was down 1.5 percentage points, while gross margin was flat. What accounts for this difference? Were there added fixed costs during FY24?
A: Peter Scott, CFO: The margins were slightly reduced in the livestock area due to the mix of product sales. Some costs, like insurance and rates, increased more than expected due to inflationary pressures. Stephen Guerin, CEO: The insurance market and volume to the China market on a principal position impacted stock margins, but other business units remained flat year-on-year.
Q: Does the principal versus commission sales impact gross margin or EBITDA margin?
A: Peter Scott, CFO: It mainly impacts gross margins but also affects EBITDA margin overall.
Q: Given the stable gross margin, have you been able to pass on cost inflation to customers?
A: Peter Scott, CFO: It's challenging to pass on all inflationary pressures. We've controlled costs by restricting travel and recruitment. We aim not to pass on these pressures to customers, who are already under financial strain.
Q: What key lever has kept your gross margins stable despite cost pressures?
A: Stephen Guerin, CEO: Our technical offering is crucial. Customers value our technical service and quality products, especially for essential crops and feed, which helps them optimize returns in a tight market.
Q: Is FY24 the trough, or could things worsen?
A: Stephen Guerin, CEO: I hope FY24 is the trough. Factors like cyclone recovery, good harvest quality, and improved beef prices suggest potential improvement. Reduced interest rates and better dairy pricing also contribute positively.
Q: Will the IT system investment lead to cost savings in FY25?
A: Stephen Guerin, CEO: Not in FY25. The implementation is scheduled for early 2024, with efficiencies expected in FY26. Peter Scott, CFO: We anticipate $3-4 million in cost savings from operational efficiencies and reduced investment levels in FY26.
Q: Will the dividend policy be updated at the October ASM?
A: Stephen Guerin, CEO: We will provide a guidance update in October. The Board will review the dividend policy, but it's too early to specify any dividend details. More clarity is expected around the half-year results in February.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
