PGW revises earnings guidance as farmer spending drops
Rural trader PGG Wrightson has revised its operating earnings guidance, saying trading conditions have deteriorated since the last market update in February.
PGW said on August 1 it had agreed to sell PGW Seeds to the Danish seeds giant DLF pending shareholder and regulatory approvals. This ended weeks of speculation over a likely sale, with Australia’s Elders or Holland’s Barenbrug tipped as possible buyers.
Under the agreement, PGW will sell 100% of PGW Seeds for NZ$421 million. DLF Seeds will also assume or repay PGW Seeds’ net debt at June 30 of about NZ$18m.
PGW chief executive Ian Glasson said a lot of work had gone into ensuring a close working relationship between PGW and PGW Seeds under its new ownership. PGW provided a critical retail outlet for PGW Seeds, and similarly PGW needed seeds as part of its offering to farmers.
“So it’s a good synergistic and strategic relationship and that’s what we’ve spent a lot of time locking in.”
The PGW Seeds brand will be licensed to DLF so the company will operate as before, even the reps still wearing the familiar PGW blue pullovers.
“You will see PGW Seeds people in the paddocks alongside PGW Livestock reps or real estate reps or whatever else is there.”
They would continue with the Wrightson name “for some time,” he said.
“On the farm, nothing changes as far as the farm is concerned other than the seed business is now owned by a group of seed growers in Denmark.”
Glasson said it is important that DLF is a cooperative of seed growers who “really get” the seeds business. The offering of seed varieties will grow. “Farmers will not see any change on the field; hopefully we can improve, give a broader offering of seeds and increase the rate of development of new offerings.”
Glasson said all this was decided after a review last year before he arrived at the company in November. The board is yet to decide where next to take the review but it has options including repaying $290m to shareholders in an essentially tax-free capital return.
“Then the question is, do you use the rest to repay debt or grow the business?”
Glasson said DLF’s compelling offer would be good for all stakeholders -- “a substantial amount of cash and it’s a good price for the business”.
PGW with a good rural services businesses with sales of $800m of the $1.2 billion total.
The largely Chinese-owned Agria Asia owns 50.2% of PGW; and Glasson pointed out that Ngai Tahu owns 8% of Agria Asia so the majority shareholding is indirectly NZ-based. It has corporate and mum-and-dad investors, including many rural shareholders, he said.
The proposal will probably be put to shareholders at the annual meeting in October.
