It’s not fun to show up at annual meeting after annual meeting to make excuses for poor financial performance.
“It’s frustrating,” said Agricore United chief executive officer Brian Hayward after presenting better, but still what he described as “not adequate,” yearly financial results at the company’s annual meeting.
“We’re people who like to succeed. We like things to be going and moving in the right direction. When you go into work and you’re always dealing with problems, it’s less energizing than if you’re going in and dealing with opportunity.”
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But both Hayward and Archer Daniels Midland Corp. chair G. Allen Andreas said the stage is set for dramatically improved results for agriculture in general and AU in particular if the company can finally experience a normal year.
AU reported a net profit of $13 million in 2005, its first profit since the Agricore-United Grain Growers merger, and an operating profit of $75 million.
Hayward said the company’s losses in 2003 were due to the massive drought on the western Prairies and its 2004 results were hammered by the widespread frost that ruined many crops.
Crops were better in 2005, but still suffered from local problems, such as flooding in Manitoba that left 1.5 million acres unseeded. Farmers were also hurt by the impact of BSE, which kept many from spending money on livestock and grain inputs.
Shareholders didn’t quibble with Hayward’s explanations and recently AU shares have been rising in the expectation of better times. Hayward said a year in which the company can handle a bigger crop would show dramatically better results.
The company has usually made about $20 per tonne in gross margin (not including operating expenses.) During the 1990s, Agricore and United Grain Growers handled between 12 and 15 million tonnes per year, but since 2003 it has only been handling about 10 million tonnes per year.
Hayward said the Agricore-United Grain Growers merger occurred when the two companies had been making about $500 million in gross profit, but the drought and other problems knocked that down by $150 million.
Hayward said that if a normal proportion of the 2005 crop moves to market this year and AU gets its usual share, it will move about 11.5 million tonnes, which should provide about $30 million in extra gross profit.
One bright spot in the past few years has been the $317 million in losses AU can write off against its profits in coming years. Hayward said he expects those accrued losses, which have been building since before the AU merger, will mean that the company will pay no income tax for the next five years on its profits.
Hayward said signs are positive in world grain markets, even if that’s hard for farmers to see.
“The ingredients are there. I’ve been in this industry long enough to see those cycles come and go.”
Andreas, head of ADM and a member of AU’s board of directors, said in an interview that he’s bullish about the future of agricultural commodities and today’s trough is far from permanent.
“We have a very tight supply and demand balance in today’s world, and with a little adverse weather conditions anyplace across the world, we could see very dramatic shifts in the valuation of agricultural crops,” said Andreas, whose company owns a minority share in AU.
