Impressive performance in 2011 | Company must borrow to complete Regina refinery expansion
Federated Co-operatives Ltd. posted a hefty profit in 2011, but the organization will be borrowing money in the next year, which will affect future returns seen by its members.
Chief executive officer Scott Banda told the organization’s annual meeting Feb. 27 that sales totalled $8.3 billion in 2011, up more than $1 billion from the numbers in its previous annual report.
From that, FCL posted a return of $839 million, with $537 million going back to its members as patronage dividends.
“The performance of your co-operative in 2011 was impressive,” Banda told the assembly of retail co-op representatives.
The numbers were “simply outstanding,” he said.
Vic Huard, FCL’s vice-president of corporate affairs, said the organization attained or exceeded its budget goals in all areas, including its crop supplies, feed, food, forest products, general merchandise and petroleum businesses.
However, the organization will still need to borrow cash as it completes an expansion to its refinery in Regina and builds a petroleum storage and distribution facility in Alberta.
“These are significant capital projects. If you combine the two, we’re well into the high two billions and pushing $3 billion,” said Huard.
“We’ve got great cash position, but there are very few companies, I dare say anywhere in the world, that could execute those kind of capital projects and not enter into a borrowing position.”
Huard said the decision to borrow had been planned by the company and shouldn’t surprise its members.
“Those events will impact our bottom line and ultimately impact the patronage allocation back to you, our members,” Banda said.
“As great as 2011 was, let’s remember a little bit of prudence into the future.”
The financial impact of an October explosion at Regina’s Consumers’ Co-operative Refineries Ltd., which has yet to return to full operations, is expected to be minimal, said Huard.
FCL members have 2,500 retail locations in 500 communities in Western Canada.
Huard said FCL took on 249 capital projects in 2011, which includes both new facilities and renovations. The organization is also expanding its warehouse capacity in Saskatoon by as much as 50 percent, he added.
“We’re the last food distribution warehouse left in Saskatoon,” he said. “Others have abandoned the market. We haven’t. We’re investing in it.”
Sales of almost $5.8 billion in its petroleum businesses lead the way for FCL, followed by food sales at $1.8 billion.
Sales of crop supplies at $289 million were down from 2010, which the organization’s annual report attributed to high levels of inventory following “extreme weather conditions” in 2010 and further weather-related problems in southeastern Saskatchewan and southwestern Manitoba in 2011.
Banda identified increased competition, both from new players in the petroleum sector and large American retailers such as Walmart and Target, as a future challenge for locally invested co-ops.
“We know our competition is more sophisticated and larger than ever before. They are moving fast and we must evolve at the same rate.”