After witnessing the staggering strings of debt and financial losses racked up by heavyweights Saskatchewan Wheat Pool and Agricore United in the past decade, why would anyone want to invest money in the grain industry?
Here’s how Brian Gibson of the Ontario Teacher’s Pension Plan explained his organization’s $226 million investment in the new proposed Richardson Agricore Ltd.
“We were attracted to the clear strategy brought forward, the track record of profitability and the potential of the combined companies to create synergies,” said Gibson.
For the track record of profitability, the pension group was looking at James Richardson International. For the first time in its 150 year history, the Richardson clan has revealed the inner financial workings of its grain company, and the results are starkly different from those of SWP and AU.
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Comparing privately held JRI’s profits to those of its publicly traded competitors is difficult. Agricore United’s year end is Oct. 31 whereas JRI’s is Dec. 31. Saskatchewan Wheat Pool underwent massive restructuring in recent years making its results difficult to compare year against year.
However, no matter how you look at it, AU and Sask Pool were both losing a lot of money in the early part of the decade. At the same time, JRI was posting modest profits. For example, in 2004 AU posted a loss of $10.2 million in the year that ended Oct. 31, while JRI’s profit was more than $12 million in the 12 months ending Dec. 31.
AU and Sask Pool have returned to profitability, but JRI’s results are still impressive. In 2006 JRI posted profits of more than $23 million while AU’s profit was $20.6 million.
JRI’s ability to be profitable in drought years like 2002 and 2003 that devastated the finances of its competitors, is all the more notable because it is a much smaller company than the company it is now absorbing.
The comparison of its pro forma last 12 months earnings before interest, taxes, depreciation and amortization, which is one measure of operating profit, shows JRI earning about $76 million in the 12 months ending Jan. 31, while AU earned $158 million, or about double.
The reason JRI has generally been more profitable on a bottom line basis is due to the two companies’ differing debt levels, which place a greater burden on AU.
JRI’s estimates its net debt is $148.5 million, which is slightly less than double its pro forma LTM EBITDA. AU’s net debt of $525 million is about 3.3 times as much as its earnings by the same measure. That means AU has been paying a lot more in interest payments than JRI has been.
The financial results of the Richardson family empire, including JRI, have been a secret, but JRI chief executive officer Curt Vossen sounded proud as he revealed his company’s results.
“Today we are disclosing important information about our assets, businesses, financial performance and balance sheet,” said Vossen.
“It has a history of strong profit growth, driven by an operating philosophy based on efficiency, discipline and a motivated workforce.”
Family leader Hartley Richardson sounded equally pleased about the takeover and about bringing some Richardson money into the public light.
“This is a very proud moment in the history of our family company,” said Richardson.
