PGG Wrightson’s funding banks are allowing it 21 months to pay down its debt to "levels acceptable in the current credit environment’’.
Included in a $475 million refinancing package from the ANZ, BNZ, and Westpac is a $125m amortising facility which PGW will pay down by December next year - $60m in progress payments and the balance on maturity date.
PGW was carrying out working capital initiatives to improve operating cash flow, planned to sell some non-core property and will not pay a cash component in future dividends, with all these measures providing funds to go towards the debt, said managing director Tim Miles.
The working capital projects involve improved inventory management (with stock levels at $174m at balance date, up from $154m a year earlier), overdue debtors, and improvements in supplier terms of trade.
The funding package finalised in time for last Thursday’s half year result announcement also contains $275m in core debt till September 2011 and $75m of seasonal debt till April next year. Miles said this arrangement refinanced all the company’s existing facilities.
PGW’s equity of $413.6m at December 31 made up just 26.4% of the total assets of $1.56 billion. The equity ratio a year earlier was 32%. The net tangible asset backing fell to 29c a share, from 47c.
The group trading units - rural supplies, technology (grains and seeds), and finance - are operating strongly, but most interest in the results presentation was in the various one-off writedowns, the refinancing and the stability of the two major shareholdings in the company.
A total $47.1m of writedowns, including $35m in the value of its shareholding in New Zealand Farming Systems Uruguay, overshadowed the $31m in group operating profit, with the bottom line also suffering from an increase in interest costs to a net $16.4m.
PGW also recognised a $17m charge on its failed deal to invest in Silver Fern Farms, including $6.75m of its own costs and the balance a compensation offer which has been publicly rejected by the other party. Miles said the decision to make a $10m provision had not been done lightly, but was based on a principled process and expert advice.
The bottom line loss for the six months ended December 31 was $32.7m.
Miles disagreed with a questioner claiming that the debt repayment schedule was ambitious, saying the banks had been very thorough in how the company could manage the process. "We are not relying on one stream to repay it, a lot of work has gone into this.’’
The debt is slightly more expensive than the current terms, with an average cost of 9% to 9.5% from about 8.5% average now.
Chief financial officer Mike Sang said PGW had reduced net debt from about $425m at balance date to about $410m now and was targeting a $400m figure by June 30.
PGW chairman Craig Norgate said the two major shareholders, Rural Portfolio Investments (RPI) and Pyne Gould Corporation (PGC) had reaffirmed their commitment to the company.
PGC has signalled that its move to a banking licence will mean it does not plan to remain a long term investor in PGW but Norgate said it "has no intention to sell in this market’’.
Norgate is a principal of RPI and he said that arrangements to redeem $42.5m of preference shares (through which it holding in PGW is funded) were well advanced and did not involve any sale of shares.
PGW’s share price has taken a battering since last September on negative new on the failure to make the Silver Fern investment, and the value of the Uruguay dairy farm investment. They had recovered slightly last week, and rose 7c to 79c after the result was released.
The Uruguay investment was written down to $16.88m at December 31 from $50.95m last June 30. Present market value is just over $11m. Norgate said the group expected dairy commodity prices to bottom out and recover after the European supply season ends about August.
The directors were questioned why PGW entered into an unconditional agreement to buy the planned half share in Silver Fern for $220m.
Miles said Silver Fern had insisted on taking an unconditional agreement to its shareholders. He said PGW did have committed bank funding, but this was tied in with an equity component.
The equity was not raised beforehand because it was not needed unless the Silver Fern deal proceeded and there was doubt if the required 75% Silver Fern shareholder vote would be achieved. The vote in early September was positive, but when PGW went out to raise capital it was straightaway "overtaken by events in the financial markets’’ - including the failure of large US institutions - and the raising could not be completed.
## PGW is paying a 5c a share interim dividend by way of a bonus share issue without any buyback option for shareholders. The company says it is looking at an arrangement in which a third party might underwrite a buyback provision for future dividends.
