Owen Hembry: Wrightson answers the big questions

The share price of PGG Wrightson continued its recovery last week after a dramatic crash during February.

At one point the shares lost more than half their value, hitting a year low of 59c and wiping more than $200 million off the market capitalisation of the rural services business.

They closed up 2c on Friday at $1.22.

The share price fall happened because of investor concerns about debt levels, the downturn, the potential cost of a failed partnership deal with Silver Fern Farms, and the refinancing of 30 per cent shareholder (and PGG chairman Craig Norgate's investment vehicle) Rural Portfolio Investments.

Investor concerns about PGG Wrightson were compounded by general market fear about the global economic situation and issues at other listed companies.

However, PGG reached agreement with ANZ, BNZ and Westpac to refinance a $475 million loan facility, financial results were better than some expectations and Silver Fern Farms agreed to mediation.

And last week Rural Portfolio secured funding to cover $46.3 million due to be paid for redeemable preference shares on April 15.

"I guess the important thing is we've been able to put a package together that will take the uncertainty away in terms of the PGW share price," chairman Craig Norgate says.

"While all the issues were valid in themselves I think there's been a lot more made of them than was really the case."

Market commentator Arthur Lim says: "One's got to say it's a credit to Craig Norgate and the company that they've systematically dismantled those concerns one by one."

The PGG refinancing includes a $125 million amortising loan repayable at the end of 2010 and a $275 million loan repayable at September 30, 2011.

PGG expects to repay the amortising loan through improving operating cashflow by targeting a nil cash dividend and a number of cost savings.

A Macquarie Research Equities report says there is some risk to the $125 million target but also a reasonable chance PGG will pull it off. During the next 22 months $60 million must be paid back, with a final bullet payment of $65 million in December 2010, Macquarie says.

The company creates significant free cashflow, the report says, with little capital demand, and if profit is between $40 million and $45 million for the next 20 months PGG should be able to generate approximately $80 million in cashflow to finance the repayment, leaving about $45 million to be found through working capital efficiencies or asset sales.

"The amortisation schedule is relatively aggressive, and there is a risk that come December 2010, PGW will not be in a position to make this bullet repayment, but equally, there is also a chance that credit markets have begun to ease somewhat by then, and it may be easier to refinance," Macquarie says.

The company has answered the big questions and bolstered its foundation but the need to improve cashflow during the biggest global recession in 70 years means there will be no time to sit back and enjoy the view.

BEES KNEES

Managed bee colonies were introduced to New Zealand 150 years ago last week and Federated Farmers bee industry group spokesman John Hartnell says many New Zealanders are unaware of the crucial role bees have played in pastoral farming and horticulture.

"Bees have historically been taken for granted as the free pollinator, however our allied industries are now acutely aware that there is no substitute for the bee, and absolutely no better pollinator on the planet," Hartnell says.

"Therefore, we must have a united approach and we must strive to protect New Zealand's apicultural industry.

"New Zealand has about 351,000 managed colonies in an industry worth about $100 million, with about $70 million of exports last year.

"But the value to New Zealand's economy is somewhere around $12 billion annually [resulting from pollination]," Hartnell says.

Beekeepers are contracted to supply pollination hives. "Today the honey is the by-product, certainly by far the primary role is pollination."

Farmers need to work with the beekeeping community.

"Every day, bees are exposed to, or are at risk from, chemicals sprayed on trees, crops and pasture where bees are foraging. Bees can even be drowned by some irrigation systems."

It costs on average $30-$50 per hive each year to manage the varroa mite.

Feral bee hives help with pollination in the lower half of the South Island but in most of the North Island where the varroa mite has been found since 2000 they had generally been wiped out, Hartnell says.

"If you Google it now in the UK you'll find they're getting to a point where they're concerned there may be no bees at all, which is a huge issue," he says.

"I think the lesson for us is that we need the support of Government to be fully conversant with the problem at the beginning and not when it arrives."

WORLD POTATO CONGRESS

Last year was named the International Year of the Potato by the United Nations, with the humble tuber promoted as a crop to help alleviate hunger and poverty.

This week Christchurch will host the World Potato Congress, where more than 450 people from 42 countries have registered for the "Nourishing Our Future" themed event that runs until Wednesday.

I do like a spud - boiled, roasted, mashed, fried, chipped, baked, hot or cold, pretty much any way but raw - but there are many other tasty vegetables out there.

Why so much interest in potatoes?

Globally potatoes are big business, with world production in 2007 of 325.3 million tonnes, including 72 million tonnes from China.

Terry Olsen is chairman of Potatoes New Zealand which represents the country's 260 growers, who last year produced 515,000 tonnes of potatoes, with a farm gate value of $131 million and with one in four shipped abroad at a total export value of $80.8 million.

The Congress is a once in a lifetime opportunity to showcase New Zealand's potato and allied industry to the world, Olsen says.

Topics at the Congress include climate change, changing consumer tastes and whether potatoes have a future as a biofuel.

Some growers have a long family association with potatoes, Olsen says.

"I guess if there was the correct word to use I would say it's somewhat addictive."

Simple design, endless opportunities, spudtastic.

PS: It appears potatoes are not alone, the International Tomato Congress will be held in Mexico this year.