Viterra takes $28M bath on fertilizer in Q1

An inventory writedown on fertilizer has led Canada’s largest grain company to kick off fiscal 2009 with a quarterly net loss of $32.95 million.

Regina-based Viterra on Wednesday posted the loss on gross revenues of $1.38 billion in its first quarter ending Jan. 31, down from a $41.22 million net profit on $1.32 billion in sales in its year-earlier period.

“A decision by farmers to defer fertilizer purchases to the spring and lower fertilizer margins, together with the impact of a decline in grain margins and volumes in the first quarter were the main reasons for the variance,” the company wrote of the difference in earnings from the same period in 2008.

But a Q1 operating loss is “not unusual” for an agribusiness such as Viterra, “particularly if fall fertilizer applications do not materialize”, CEO Mayo Schmidt said in the company’s release Wednesday.

To that end, the company said, as anticipated in its 2008 year-end report, it wrote down $28.1 million on its fertilizer inventory position as of Jan. 31.

Higher fertilizer prices factored into the revenue from the company’s agri-products segment in the quarter. Q1 agri-products revenue was $186.2 million, up from $166 million, an increase the company credited to sales of seed, crop protection products and equipment.

“While fertilizer sales were higher in the quarter, the increase reflects higher prices relative to the same period a year ago,” Viterra wrote. “As expected, fertilizer volumes were down quarter-over-quarter reflecting growers’ decisions to delay fertilizer applications in the fall in anticipation of lower pricing as they moved toward the spring months.”

Looking at the year ahead in terms of farmers’ fertilizer purchases, Schmidt said prices have “begun to stabilize on most product lines” and farmers are taking product home.

“They understand all too well the logistic and supply challenges that can occur when fall purchases are pushed into the spring selling season,” Schmidt said. “Viterra is working diligently with its suppliers to ensure products are strategically positioned to meet the significant fertilizer demands that we expect to experience in the next two quarters.”

More generally, Schmidt said he still expects a “solid financial year in 2009. Farmers are now working closely with us to make sure they are positioned with the right products to plant a profitable crop in the spring.

“As such, we anticipate good demand for our agri-products and service offerings, particularly in our third quarter, which is the period in which we generate the bulk of our earnings.”

Market share

Viterra’s Q1 grain handle was 3.8 million tonnes, down from 4.2 million for the year-earlier quarter. Canadian Wheat Board shipments were “on par” with last year, but “open market products lagged the previous year’s quarter, primarily due to timing.”

The company said it expects to see movement pick up “substantially” through the rest of the year, given the size of the 2008 crop and “an increase of approximately one million metric tonnes of grain receipts that are expected to be made available to the industry.”

And Viterra’s Q1 market share, based on primary elevator receipts of the six major grains, sits at 44.1 per cent, up from 41.5.

The company’s livestock feed and services wing also posted stronger Q1 results, with sales of $193.7 million, up from $119.2 million, but noted those increases were due largely to feed milling operations Viterra bought in 2008.

Viterra noted that its added costs in Q1 also included “repair and maintenance expenditures that were necessary to bring a number of assets that were acquired from Agricore United up to Viterra’s quality standards” after AU was merged into Saskatchewan Wheat Pool to form Viterra in 2007.

As well, the company is now paying “an increase in wages and salaries across Viterra that reflects the company’s new five-year collective bargaining agreement, a new incentive plan for employees and the implementation of a common compensation platform that aligned salaries and eliminated wage inequities” between heritage SaskPool and AU employees.

On the other side of the ledger, Viterra said its balance sheet “remains one of the strongest in the industry” with a total debt:capital ratio of 25 per cent at Jan. 31, compared to 38 per cent at the same time last year.

Viterra in Q1 also renewed its grain volume insurance program for fiscal 2009, “securing coverage of up to $60 million to protect against production declines in the western Canadian market.”

As well, Viterra booked a total of $121 million in “synergies” related to SaskPool’s acquisition and integration of Agricore United, “which represents both a full run rate of synergies and the final report to shareholders on these numbers.”

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