Viterra posts “record” income for 2008

The merger of Canada’s No. 1 and 2 grain handlers has beat the new company’s own expectations for “synergies” under the Viterra brand name.

The grain company, which officially formed in May 2007 from the merger of Agricore United into Saskatchewan Wheat Pool, on Tuesday posted results for its first full fiscal year ending Oct. 31, with profit of $288.3 million on $6.78 billion in sales and other revenues.

Direct comparisons aren’t available, but that’s well out ahead of the $111.4 million profit in the 15-month fiscal year the company posted ending Oct. 31, 2007, only part of which included AU’s operating results. Viterra’s 2007 also included an extra fiscal quarter to bring heritage SaskPool’s year-end in line with heritage AU’s.

The company said Tuesday that its improved earnings in fiscal 2008 were driven mainly by higher gross margins and “increased efficiencies” in its grain handling and marketing, agri-products and agri-food processing segments.

The company as of last March had targeted $96 million in ongoing “synergies” from the merger but has cleared that target, according to Viterra CEO Mayo Schmidt.

“In fact, as of Oct. 31, 2008, we delivered a total of $110 million in synergies and are confident that we will achieve a full run rate of $116 million by Jan. 31, 2009,” he said in the company’s fourth-quarter release Tuesday, citing “productivity gains” through the marriage of the two firms.

In its grain handling and marketing operations, Viterra reported gains on its “operational efficiencies” on top of the higher commodity prices seen in 2008 and higher merchandising margins “through the management of additional volumes of open market grains and specialty crops.”

Viterra’s agri-products arm also saw higher retail sales among all product lines. Fertilizer prices rose “dramatically” on tight world supplies and increased demand spurred by higher commodity prices.

In the company’s agri-food processing business, sales improved on stronger demand for products from both Can-Oat Milling and Prairie Malt, Viterra said.

Offsetting its gains slightly were losses and provisions from the company’s stake in Puratone, inherited from AU. Expenses in Viterra’s livestock feed and services division included included $15.3 million in losses for the year, due to settlements of some contractual obligations with hog producers.

“The company does not have any further exposure to hog production, but will continue to supply feed to the industry,” Viterra said.

Into 2009

Grain margins for fiscal 2009 aren’t expected to reach 2008 levels, Viterra said Tuesday, given the recent drops in commodity prices, but management said it anticipates margins in the $26 per tonne range, “well above” the $21 per tonne historical averages in the Canadian grain handling system.

Commodity prices softened somewhat in later 2008, but net incomes of western Canadian producers are expected to be “some of the best on record,” the company said, noting farm cash receipts in 2008 were up, ranging from increases of 12 per cent in Manitoba to 25 per cent in Saskatchewan.

Looking ahead in the fertilizer business, production cutbacks by major manufacturers are expected to lead to tight supplies in the spring, Viterra said. On top of that, farmer demand is expected to be strong “given the need to replenish soil nutrient levels after the record harvest of 2008.”

As well, the company said, seed bookings for the spring have been “progressing as expected” while sales of equipment such as corrugated storage bins continue strong on farmers’ increased cash flow in 2008.

In Canada’s livestock sector, lower feed ingredient costs and a “softening” loonie are expected to be positive for feed manufacturers in fiscal 2009. Dairy and poultry farms’ demand for feed are expected to remain steady; Canada’s hog sector “is recovering and as such, demand may be light in the near-term.”

“The right price”

Schmidt on Tuesday confirmed that Viterra is still in shopping mode for new acquisitions, but not for just any company.

“In recent months, we have reviewed a number of acquisitions or alliances that could have added to our size,” he said. “But we also understand the value of being patient.

“We are identifying businesses with quality assets, strong management teams and complementary market positions, but they must be available at the right price.”

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