Efficiencies from its merger, strong grain movement and high fertilizer prices helped Viterra to more than double its profit over 2007.
The company formed after Saskatchewan Wheat Pool bought Agricore United posted a $288.3 million profit in the year that ended Oct. 31, 2008, up from $116.5 million the year before.
“We are coming off, certainly, a record year driven by a number of things. One is the market opportunities, efficiencies in the combination of the two heritage companies has been significant,” said Mayo Schmidt, Viterra chief executive officer.
The company capped the year with a strong fourth quarter profit of $46.8 million or 20 cents a share, up from $842,000 in the same period last year. Analysts had expected eight cents a share and the performance caused National Bank Financial to raise its share price target to $12.50, up from $11.75.
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The share price fluctuated in the $9.10 to $9.75 range late last week.
The company produced a report comparing the 2008 fiscal year to the same 12-month period in 2007 that includes results from Agricore United beginning May 29, 2007.
When the Pool bought Agricore United it forecast synergies from merging the two companies would total $90 million. The savings were actually $110 million and could climb to $115 million by the quarter that ends Jan. 31, Schmidt said.
With a strong balance sheet, $440 million from an equity drive last spring and a large borrowing capacity, the company is ready to expand to give it more geographical diversity.
Schmidt said the company is looking at regions that have the same type of agriculture, legal system and social culture, meaning the United States, Australia and Europe. With the meltdown in corporate share prices in the last year, the opportunities are numerous, but the price must be right, he said.
“In recent months we have reviewed a number of acquisitions or alliances that could have added to our size, but we also understand what it means to be patient,” he said.
“We are identifying quality assets, strong management team, complementary market positions, but they must be available at the right price.”
Waiting has not hurt because stock values continue to fall.
“It really is working in our favour, but there will be a point, obviously, in a year or year and a half from now this market will turn.”
The target investments would be in the range of $500 million to $2 billion.
The company is upbeat about 2009 results.
Doug Wonnacott, the senior vice-president of the agriproducts group, said ammonia fertilizer applications last fall in Western Canada were about 60 percent of what was expected.
He said the company expects overall fertilizer demand will be comparable to last year, meaning there will be a rush for fertilizer this spring to make up for the lower fall purchases.
“With the shift likely from ammonia to urea in the spring we are going to see additional volumes of urea moving … . With this additional demand, and assuming we have a normal spring season, there is going to be tremendous logistical constraints.”
Fertilizer retail sales started to pick up in January, he said.
“A lot of that is the belief that we have probably hit the bottom on nitrogen pricing.”
He also said the company has booked more than 80 percent of its expected seed sales.
“We certainly do not see any reduction in terms of (seeded) acreage and we don’t see any surprises of crop selection.”
Viterra handled 14.7 million tonnes in 2008, up from 12.5 million the year before. Its country elevator receipts amounted to a 43.4 percent market share, compared to 34 percent last year.
Its gross margin on grain handling soared to $32.22 per tonne, up $6.81 from the year before thanks to efficiencies and strong profits from blending grain that peaked in price during the year.
Grain handling and marketing earnings before interest, taxes, depreciation and amortization (EBITDA), a key business measure, rose to $299.3 million, up $128.6 million from the year before.
The company believes that with lower grain prices this year it will be unable to sustain the record per tonne margin and forecasts it will fall to $26, but that is still above the historical average of $21 for the Canadian grain handling system.
The agriproducts business saw improved sales and margins on fertilizer, chemicals, seed and equipment.
Fertilizer sales were $1 billion for the year compared to $475.7 million for the same period of 2007. Higher fertilizer prices and additional volumes sold through the company’s expanded network contributed to the increase.
By the fourth quarter fertilizer prices had begun to fall and to reflect that it had to include an inventory write-down of $24 million.
Sales in the company’s agrifood processing segment were $198.3 million for the year, an 18.8 percent increase over the prior year, while EBITDA rose to $29 million, a 59.3 percent increase over the year before. The improvements were due to stronger demand for products sold by Prairie Malt and Can-Oat Milling.
The livestock and feed business saw improved feed sales but the EBITDA fell to a loss of $6.1 million because of the disposal of the Puratone hog business, which had been inherited from AU, and settlement of contractual obligations with several hog producers.
Financial services contributed EBITDA of $8.8 million, up from $3.9 million in 2007.
Corporate operating, general and administrative expenses increased to $75.3 million from $56.5 million in 2007. The 2007 number included only five months of AU costs.
