Last year was one for the books at Federated Co-op Limited.
“From a financial perspective, 2020 really consisted of two distinct parts. The first four months went pretty much as planned and the last eight months went nothing like as planned,” said chief executive officer Scott Banda during FCL’s annual meeting March 1, which for the first time in 92 years was held on-line.
“We were on budget at the end of February last year and then (came) the collapse of energy volumes due to the pandemic, and that, combined with already declining refinery margins, had a significant impact on our earnings,” he said to the nearly 300 delegates representing local co-operative associations from across Western Canada.
FCL recorded revenues of $7.9 billion, down 13.5 percent from $9.2 billion in 2019.
Earnings were $177 million in 2020 versus $959 million the previous year.
From its 2020 profits, $117.5 million in patronage allocations were returned to local co-ops and communities compared to the $649 million paid out in 2019.
Banda said FCL expected to face economic headwinds in 2020, especially in the energy sector, which was already experiencing pricing challenges due to the market-share battle between Russia and Saudi Arabia that eroded oil prices.
But the reduction of $1.3 billion in energy earnings was mostly caused by the pandemic as fuel production dropped in line with demand as people worked from home and drove less.
FCL also went into 2020 with a heated labour disruption at the Co-op Refinery Complex in Regina involving FCL and Unifor Local 594 that lasted six months before the two sides ratified a seven-year collective bargaining agreement.
However, ensuing boycotts and blockades during the lockout had little effect on FCL’s overall bottom line.
“As far as the financial impact, it was minimal,” said Banda. “If we look back at that disruption, we ran flat out through the entire period. We operated safely, reliably. We produced all the fuel we would normally need to produce for the spring and summer. So that was no impact and operating costs go down with a lot fewer people onsite,” he told reporters during a virtual press conference.
Another major disruption came with the Calgary Co-op’s departure from FCL to source its food products from another distribution partner starting in April 2020.
As a result, FCL closed its Calgary Food Distribution Centre and eliminated 200 jobs.
“Calgary Co-op was buying about $380-odd million from us… half of that disappeared. The reality for us in 2020 was it had no impact. The growth in our food sales across Western Canada and all the other co-ops met or exceeded what Calgary took away from the organization,” Banda said.
Growth in FCL’s food operations was one of the bright areas to immerge as sales soared along with a pivot toward e-commerce.
“Food was the big wild card. As people stayed home, they bought local, they bought groceries. We saw a significant uptick in our food business. It went up and down throughout the year as it always does, but right at the start of the pandemic, when people were hoarding and panicking, the food business was run off its feet,” he told reporters.
“We saw our food business grow significantly throughout the year, particularly in those mid-sized markets where we are a large player.”
The home and building sector had strong growth as consumers tackled home-based projects. Agriculture business lines also experienced stable, more predictable results.
In October, FCL officially opened its third regional fertilizer terminal in Grassy Lake, Alta., to deliver crop-nutrition products to farmers.
Last year was also a financial milestone after local co-ops at the local earnings level set a profit.
“In 2019, prior to FCL patronage and loyalty payments, all local co-ops combined lost $113 million. For 2020, it is now forecast that at the local level before FCL patronage and loyalty, local co-ops will make $27 million. That’s a $150 million difference, a $150 million turnaround at the local co-op level. That is simply remarkable,” Banda said to delegates.
“COVID protocols limited travel. It caused people to stay home, especially many rural residents who would often travel to nearby cities. Many people rediscovered their local co-op and the outstanding people who work there and our sales numbers show it.”
Outside FCL’s energy portfolio, diverse business lines played a key role in shoring up the financials last year.
“2020 was a reminder of the importance of diverse business lines and we will definitely continue our diversification strategy,” he said.
However, FCL’s energy business poses the largest sustainable opportunity and the greatest challenge.
“It’s an important business, not only for its size, but it is also the base of many of co-op’s local offerings. However, it is a business in transition. We are facing an energy transition over time. It’s not a cliff in front of us. This change impacts both the production and the demand side of our operations,” said Banda.
“We will continue to focus on our energy roadmap for the long term and find opportunities, but it will mean change — maybe different types of production. If so, where should they be? How much should we invest? All of this is on the table right now.”