Saskatchewan Wheat Pool has posted a loss for the third consecutive quarter.
The company reported a net after-tax loss of $36.4 million, or 97 cents per share for the quarter ended April 30, compared to a loss of $9.7 million, or 26 cents per share for the same period one year ago.
One factor contributing to the loss is an $8.2 million cost “associated with a single international transaction as an accredited exporter of the Canadian Wheat Board.”
Company officials say it involves a sale of grain to Iraq under the United Nation’s Food for Oil Program.
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“Iraq rejected portions of the shipment,” said chief financial officer Lyle Spencer.
“That ended up with us having to pay certain costs like demurrage and detention.”
Chief executive officer Mayo Schmidt wouldn’t elaborate on why Iraq didn’t pay any of those costs, except to say, “that’s all under consideration.”
Schmidt said the poor third-quarter results stem from a lot of house cleaning and restructuring. The loss prior to provisions was $18.9 million.
The provisions include a $28.2 million charge relating to the March 7 announcement that the pool was stepping up elevator closures, eliminating an additional 63 elevators and laying off an estimated 275 workers this year.
At the new rate of consolidation, the company will be down to 100 elevators by July 31, 2001, and will have completed Project Horizon, its elevator consolidation plan, one year ahead of schedule.
The pool also budgeted for a $5.1 million loss relating to its 39 percent investment in Agro Pacific Industries Ltd., a British Columbia feed manufacturer that applied for court protection in April.
“Agro Pacific is one we really weren’t expecting,” said Spencer, who admitted the pool has had a “rather unusual” number of writeoffs this year.
Schmidt said writeoffs are part of cleaning house.
“In five short months we’ve readjusted the business, realigned it, and cleaned up a lot of the balance sheet with businesses that weren’t adding anything to the profitability of this company,” he said.
“We are moving very hard toward a focus on our grain originating and our processing and our destination customers, which is really the core and heart of the company.”
At least one bond rating agency downgraded the pool following the release of the third-quarter results. Canadian Bond Rating Service Inc. dropped the pool’s rating for unsecured notes and commercial paper by one level.
Dominion Bond Rating Service is not taking any action until officials have talked to the pool’s management team. Dominion has knocked the pool’s rating down two notches since January and tacked on a negative trend to that rating in May.
The agency sees some positives in pool actions, including the announcement that it will not pay dividends on its Class B non-voting shares this year.
“I think it’s unfortunate for the shareholders, especially when it had such a high yield, that that was cut,” said DBRS analyst Sean Mason.
But the move will save the company $15 million this year.
“We see it from a credit standpoint as a positive,” he said.
Although the writeoffs are painful, Mason believes the company is taking the right steps by pruning its operations.
“Saskatchewan Wheat Pool has taken a strategy of diversification and is now pulling back out of that.”
He said the strategy might have worked if the company could have relied on a stable core business, but the grain handling side has been performing poorly.
The grain handling and marketing business lost $13.4 million before provisions for the first nine months of the year compared to operating earnings of $400,000 in 1999. The company blames the results on low commodity prices.
One item highlighted in third-quarter results was that grain handling volumes at pool’s primary elevators are up 29 percent from the same quarter last year, putting year-to-date volumes seven percent ahead of 1999. But that is below the industry average of an 11 percent increase in grain handling volumes, which indicates the pool has lost some market share to competitors.
“Some of the new multinationals have taken some significant market share from all of the traditional competitors here in Canada,” said Schmidt.
The pool’s agri-products business lost $6.6 million for the first nine months of fiscal 2000 compared to a $6.7 million earning at the same time last year. But the busiest period is yet to come and officials are expecting strong fourth-quarter sales of inputs.
Two segments posted earnings for the quarter and for the first three quarters of the year; agri-food processing and publishing.
Looking ahead to the fourth quarter, pool officials are anticipating more challenges.
“I think it’s going to be another tough quarter,” said Spencer.
“We’re looking forward to next year.”
Part of the reason for the bleak outlook is another provision slotted for the fourth quarter, when the pool will account for a $35 million after-tax loss as a result of removing its interest in an ocean terminal in Gdansk, Poland.
