Viterra Inc. (Viterra) has reported sales and other operating revenues of CAD6.8 billion for the fiscal 2008, compared with the sales and other operating revenues of CAD3.5 billion in the previous year-end. It has also reported net earnings of CAD288.3 million, or CAD1.31 per share, for the fiscal 2008, compared with the net earnings of CAD116.5 million, or CAD0.84 per share, in the previous year-end.
For the year ended October 31, 2008, the company generated earnings before interest, taxes, and amortization, gain (loss) on disposal of assets, integration expenses and recovery of (provision for) pension settlement (EBITDA) of CAD532.6 million, an increase of CAD266.8 million compared to the same 12-month period of 2007. Higher gross margins and increased efficiencies in the Grain Handling and Marketing, Agri-products and Agri-food Processing segments were the main drivers for improved earnings in 2008.
Mayo Schmidt, president and chief executive officer, commented, Our continued focus on operational excellence, together with our integration efforts led to record performance this year. We successfully completed the integration of Agricore United and its subsidiaries. In fact, as of October 31, 2008, we delivered a total of CAD110 million in synergies and are confident that we will achieve a full run rate of CAD116 million by January 31, 2009. Productivity gains achieved through the integration, along with our focus on continuous improvements throughout the entire value-added chain had an extremely positive impact on our financial results for 2008.
Fourth quarter consolidated results:
The Grain Handling and Marketing, Agri-products, Agri-food Processing and the Financial Products segments drove higher sales in the most recent quarter relative to the comparable quarter of the prior year. Consolidated sales for the quarter increased CAD430.9 million to CAD1.7 billion in 2008 and contributed to further improvements in gross margins, which raised CAD43.1 million to CAD223.4 million for the quarter.
Consolidated EBITDA for the quarter improved by CAD38.0 million to CAD100.3 million.
Consolidated net earnings were CAD46.8 million (CAD0.20 per share), compared to net earnings of CAD0.8 million in the same quarter of the prior year (CAD0.00 per share).
The company generated cash flow provided by operations of CAD73.1 million (CAD0.31 per share) for the three months ended October 31, 2008, compared to CAD39.2 million (CAD0.19 per share) in the same three months of 2007.
Higher OG&A expenses for the fourth quarter of 2008 were partially offset by consolidated pension and other post employment benefit income of CAD20.4 million. While there were actuarial losses on assets during 2008 due to the downturn in financial markets, pension plan accounting requires that gains and losses are effectively smoothed over future periods, beginning in the following period. The actuarial losses in 2008 will not begin to impact the company’s income directly until 2009.
The management currently anticipates quarterly pension payments of CAD5.6 million in 2009, up from quarterly payments of CAD1.5 million in 2008. The anticipated increase in payments is primarily the result of a reduction in the fair value of plan assets during the year. The funding requirements may increase or decrease depending upon future actuarial valuations.
Corporate expenses for the quarter were CAD17.0 million (2007 – CAD21.1 million) and reflect cost synergies realized from the acquisition of AU, partially offset by higher wages, salaries and costs related to the company’s new employee share purchase plan, short-term incentive accruals and CAD1.1 million of pension income.
Amortization expenses of CAD30.2 million for the quarter decreased by CAD2.1 million compared to the same quarter in 2007, reflecting changes in accounting estimates to the useful lives of certain capital assets.
Consolidated earnings before interest, taxes, gain (loss) on disposal of assets, integration expenses and recovery of (provision for) pension settlement (EBIT) for the company increased by CAD40.0 million to CAD70.0 million for the three months ended October 31, 2008, compared to EBIT of CAD30.0 million for the comparable period of 2007.
Financing costs were CAD6.3 million for the quarter, down CAD7.9 million from the comparable period last year, mainly due to decreased levels of short-term borrowings and lower interest rates on the company’s debt facilities as well as interest income generated on the company’s short-term investments.
Fourth quarter segment results:
In the Grain Handling and Marketing segment, EBITDA for the fourth quarter of 2008 increased by CAD7.7 million to CAD70.1 million, reflecting higher margins per tonne and lower OG&A expenses which included CAD13.8 million of pension income.
Viterra shipped 3.5 million tonnes in the fourth quarter, 0.9 million tonnes less than the same period a year ago. This was due to a 0.5 million tonne decline in industry shipments coupled with a lower company share of industry shipments compared to the same quarter of 2007. Market share for the company was 43.2%, compared to 44.0% in last year’s fourth quarter.
Grain margins improved by 21.9% over the same period last year to CAD31.37 per tonne, reflecting operational efficiencies in the value chain related to freight incentives, handling, cleaning, drying, and blending opportunities that were accentuated by unprecedented commodity prices in 2008, as well as improvements to merchant margins and synergies resulting from efficiencies achieved through the acquisition of AU.
Agri-products sales raised CAD135.2 million to CAD308.0 million during the quarter. The increase was due largely to higher fertilizer prices, offset in part by lower volumes. World fertilizer prices began declining during the latter part of the quarter, prompting producers to delay fertilizer purchases in anticipation of possible lower prices in coming periods. Additionally, excessive moisture levels in parts of Western Canada and a later harvest this fall also led to reduced applications of anhydrous ammonia.
Gross margin in the Agri-products segment remained strong during the quarter, increasing CAD47.8 million to CAD89.8 million. Additionally, in accordance with generally accepted accounting principles (GAAP), management estimates the value of its inventory each period at the lower of cost and net realizable value. Gross margin includes an inventory write-down of CAD24.0 million to reflect the net realizable value of the company’s fertilizer inventory as at October 31, 2008. Excluding the inventory write-down, the net increase in gross margin compared to the prior quarter was CAD71.8 million.
Overall, Agri-products EBITDA improved by CAD34.8 million to CAD44.0 million in the quarter, compared to the same period in 2007, a result of higher gross profit offset, in part, by a CAD13.0 million increase in OG&A expenses. Higher OG&A expenses reflect an asset retirement obligation charge of CAD9.9 million, partly offset by CAD5.5 million of pension income. The balance of additional OG&A expenses reflected additional wages and costs related to the company’s new employee share purchase plan and short-term incentive accruals, offset in part by cost synergies realized during the period.
In the company’s Agri-food Processing segment, sales for the fourth quarter were CAD54.2 million, 10.0% higher than the CAD49.3 million reported in the same quarter ended October 31, 2007. Prairie Malt benefited mainly from improved margins on higher selling prices while Can-Oat’s margins improved due to higher sales prices and improved yields.
EBITDA from this segment of CAD7.1 million improved by 18.1% for the quarter ended October 31, 2008, compared to the same period in 2007, due to improved commodity prices and margins, offset partially by lower volumes and higher operating expenses.