Diversification efforts | Alliance Grain Traders adds more production lines for specialty products
Alliance Grain Traders is continuing its diversification into value-added processing.
The pulse processing giant commissioned a second production line at its food ingredients plant in Minot, North Dakota, during the first quarter of 2014.
The line is operating at 50 percent capacity and should be at 66 percent by the end of the second quarter.
“By the end of calendar year, we may be in a position where we have a Line 3 announced and hopefully getting ready to commission,” company president Murad Al-Katib said during a conference call with investment analysts to discuss AGT’s first quarter financial results.
The Minot plant produces pulse flours, proteins, fibres and starches, which are expected to be in demand by food companies looking for ingredients with a low allergen profile that are gluten-free and non-genetically modified.
But for now, most of the sales from the first production line are going into the pet food sector through an agreement with Cargill.
Al-Katib said AGT’s newly formed food ingredients and packaged food segment has the greatest potential for future profits. The segment includes CLIC International, a Quebec retail packager and canning distributor bought in January.
The segment contributed $132.26 gross profit per tonne compared to $52.53 from the traditional pulses and grain processing segment.
“As we continue to ramp up this segment, you can rest assured I’m not expecting margins to come down,” said Al-Katib.
A lot of the initial costs associated with the first production line won’t be there for later lines.
AGT is considering converting all or part of three processing facilities in Regina, Williston, N.D., and Mersin, Turkey, to pulse ingredients production and fractionation.
Al-Katib said it will help boost capacity use, which is at a disappointing 70 percent. Conversion of the Canadian plant could happen in 2015 if a feasibility and costing exercise supports the decision.
One analyst expressed concern with slumping gross margins in the pulses and grain processing segment of the business, which were down from the first quarter of last year.
“I thought at this point, with higher volumes, that we’d start to see the margins start to improve,” said Jacob Bout with CIBC World Markets.
Al-Katib said the first quarter of 2013 included results from the company’s value-added pasta business, which have since been transferred to the food ingredients and packaged food segment.
“That has now all been stripped out,” he said.
Al-Katib said the company also incurred increased transportation costs in the first quarter of this year because it was forced to ship product through east coast ports due to bottlenecks at the West Coast.
He estimates that that added $800,000 in extra shipping costs during the quarter.
The rail transportation problems reduced earnings before interest, taxes, depreciation and amortization (EBITDA) by an $1.5 to $2 million when he factors in the trucker strike at the Port of Vancouver and poor rail service.
EBITDA for the quarter was $17.1 million compared to $13.6 million for the same period a year ago