Saskatchewan Wheat Pool’s operations performed better and earned more money this year, but one-time charges caused net earnings to drop well below last year’s profit.
The company handled more grain, made more money on each tonne it handled, sold more inputs and processed products and lowered interest costs by converting a large portion of its debt to equity.
But the bottom line was affected by charges including a $15 million provision for settling a dispute with the Grain Services Union regarding a deficit in the jointly funded pension plan.
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The result was a year-end profit of $531,000 compared to $12.09 million last year. Without the one-time costs, net earnings would have been $16.8 million.
Mayo Schmidt, pool president and chief executive officer, said the balance sheet is strong, positioning the pool for growth.
“I do believe that our industry is poised for significant change,” he said.
Grain prices are rising, the export forecast is strong and farmers’ incomes should improve this year. But Schmidt believes the grain handling sector needs consolidation and renewal.
“With our strong balance sheet and industry leadership, we will seek out opportunities to support this renewal. We are positioned for growth.”
The company expects to spend about $40 million in capital projects in the coming year, up by about a third from 2006. The money will go to projects such as the expansion of the CanOat facility in Portage la Prairie, Man., slated to open in February, improvements at West Coast terminals and possible investments in value-added processing.
Biofuel is also a possibility.
“There are a number of approaches made to our organization both in terms of supply and the potential to participate,” he said.
The biofuel sector has momentum, but the future direction will depend on government direction and economics, Schmidt said.
“We will be exploring those opportunities in the context of our growth objectives that we set forth with our board of directors. We are keenly interested in that segment.”
But while there are opportunities for investment, Schmidt said the grain handling sector in Western Canada has too much capacity.
“The simple math is that we have an excess of 25 percent capacity in the countryside today that isn’t being utilized.”
To be efficient, elevators should be able to handle in a year 8.5 times their storage capacity, he said. Western Canada’s elevators have a storage capacity of 5.2 million tonnes so that means they should handle about 44 million tonnes. In reality they handle about 33 million tonnes, or 75 percent of their potential.
Sask Pool hopes $15 million will be enough to resolve the pension problem.
The company’s jointly funded pension plan is short money to cover members’ benefits and the issue has been before the federal pension regulator.
Schmidt said the company believes it has no legal responsibility to cover the plan’s deficit.
“However, to put this issue to rest, the pool submitted a final offer to the union to wind up the plan as of Sept. 30. In return, we would fund 50 percent of a calculated deficiency to a maximum of $20 million.”
The $15 million set aside in the fourth quarter is the minimum amount the pool thinks it needs to cover this offer.
The GSU is considering the offer.
Other report highlights included a 15.5 percent increase in grain shipments in 2006, rising to 7.9 million tonnes. That exceeded the industry’s 12.3 percent year-over-year gain.
Canadian Wheat Board shipments rose two percent while non-board crop shipments rose 39 percent.
“The largest factor was our decision to focus on margins and limit our involvement in the (CWB) tendering process,” Schmidt said.
The gross margin on handling rose 8.3 percent to $22.26 per tonne thanks to higher canola margins, gains from blending, more efficient asset and grain pipeline use and increased drying revenue.
The company shipped 24.1 percent more grain through its port terminals during the year. The Vancouver operation posted exceptional gains thanks partly to efficiencies achieved though a venture that sees the pool and JRI International jointly manage their terminals in that city.
Agriproduct sales rose 5.1 percent to $540.3 million. Fertilizer sales accounted for 62 percent of that and pesticides 25 percent.
Agrifood processing sales rose 3.2 percent to $122.3 million. CanOat Milling’s sales rose 7.5 percent on higher demand for finished products like oat flakes, bran and bran flour.
The pool’s 42.5 percent ownership in Prairie Malt’s sales fell 7.7 percent. The plant at Biggar, Sask., suffered from the stronger Canadian dollar, higher energy costs and competition from what the pool called an overbuilt malt industry in North America and Europe.
