A strong finish to last year and a good start to this year have given Saskatchewan Wheat Pool officials something to brag about.
Last week, the company reported a net loss of $89.9 million, or $2.40 per share, on sales and operating revenues of $3.33 billion in the fiscal year that ended July 31.
That compares with a loss of $12.9 million or 34 cents a share the previous year.
That was the inescapably bad news contained in the pools’ latest financial results.
The good news, say pool officials, can be found in what happened during the past five months.
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“We’re looking at the trends that happened in the fourth quarter and the beginning of this year, and we’ve seen strong performance,” said chief executive officer Mayo Schmidt, who expects to see “significant improvement” in operating earnings and cash flow in the coming year.
Investors seemed to share some of that optimism, as pool shares traded on the Toronto Stock Exchange jumped $1.09 to close at $4.44 the day after the financial results were released.
“It’s just a little bit of fresh air,” said David Vanderwood, stock market analyst with Odlum Brown of Vancouver.
“The company did a little better than people thought on the operating side and investors are breathing a little sigh of relief.”
For the year as a whole, lower sales and revenues, along with sizable costs associated with elevator closures and the decision to pull out of a grain terminal project in Gdansk, Poland, combined to produce the $89.9 million net loss.
But the pool was able to report fourth-quarter earnings of $7.7 million prior to provisions and writeoffs, compared with $4.7 million a year earlier, while cash flow from operations was $1.12 per share, up from 58 cents last year.
During the three months ending July 31, grain volumes at primary and terminal elevators were higher than a year earlier, contributing to a 39 percent increase in earnings (before interest, taxes and depreciation and provisions) in the company’s crucial grain handling and marketing operations, to $12.5 million.
In the pool’s agri-food businesses, fourth-quarter earnings more than doubled to $6.6 million, while a strong hog industry contributed to a six-fold increase in earnings from livestock production and marketing.
Pool officials say the company has been through the worst of times, closing scores of old elevators, spending $270 million to build 22 new elevators across the West, and getting out of some unprofitable ventures.
Those moves will soon pay financial dividends, they say.
“Those decisions are now behind us, and we can concentrate on managing the co-operative back to profitability,” said president Marvin Wiens.
The pool now has 60 percent of the elevator capacity capable of loading 100-car unit trains. By the middle of next year all of its grain will be shipped in incentive-eligible unit trains of 25 cars or more.
Schmidt said that gives the pool a strategic advantage over its competitors.
“They cannot avoid the closures, they will not be competitive with antiquated infrastructure,” he said.
“They’ll go through the same process and in that process we hope to gain back market share.”
Vanderwood said the fourth-quarter results were better than expected and, combined with a strong new management team, provide some grounds for optimism.
Struggle ahead
But the pool continues to face serious financial challenges, he said.
Those challenges are associated mainly with the company’s “onerous” debt and a cautious investment community.
“They’ve always been the most profitable company historically, but they’ve dug themselves a pretty good hole here,” he said.
“It’s kind of a ‘show me’ attitude.”
Schmidt said paying down debt will be the company’s number one financial priority in the coming year.
“We fully expect to see cash flows almost double next year and that is the way we’ll deal with the debt level of the organization successfully.”
The company will reduce its capital spending to “maintenance” levels of around $60 million, Schmidt added.
That approach won plaudits from an official with a major bond rating agency.
“As a credit rating agency, seeing a significant decrease in their capital spending is exactly what we’d like to see,” said Sean Mason of Dominion Bond Rating Service.
“They’re taking the correct steps.”
The pool is carrying long-term debt of $534 million and is engaged in discussions with lending agencies to renew its lines of credit and re-organize financing arrangements.
Murray Fulton, an agricultural economist at the University of Saskat-chewan, said that while last year’s fourth quarter contained some positive signs for the pool, the massive debt and associated interest costs suggest the company is “a long ways from being in the black.”
Vanderwood agreed, saying while the pool’s improved cash flows means people’s worst fears about the company’s future appear to be unfounded, the “really solid profits” are still a few years away.
