Viterra first quarter earnings up sharply

by World Grain Staff
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CALGARY, ALBERTA, CANADA — Viterra Inc. announced on March 9 that a record crop in Australia helped to drive its first-quarter net earnings to C$100 million from C$11 million in the first-quarter of 2010.

"Viterra had a strong first quarter, reflecting the value inherent in the integrated model that we have created that combines the benefits of grain and oilseeds origination globally with an international marketing base that is positioned to capture opportunities in response to market imbalances," said Mayo Schmidt, Viterra's president and chief executive officer. "Our value chain maximizes shareholder returns and we are pleased to have delivered first quarter earnings of C27¢ per share, a sharp increase from the C3¢ per share we earned one year ago. With tightening supply and demand fundamentals, rising commodity prices and the associated food security issues that are now at the forefront for many nations, we recognize the importance of agriculture in the global economy and the role that Viterra plays in delivering quality ingredients to customers around the world."

Viterra reported EBITDA of C$211 million compared to C$90 million in the same quarter last year. All segments posted earnings improvements, the company said.

Viterra said that South Australia harvested a record crop during the quarter and contributed C$116 million to EBITDA compared to C$67 million one year ago. In North America, strong quarterly fertilizer pricing and sales, and contributions from the pasta and oat processing businesses acquired in the second half of fiscal 2010 also increased EBITDA.

Consolidated sales and other operating revenues for the quarter increased 38% to C$2.5 billion compared to C$1.8 billion in the first quarter of fiscal 2010. In addition to the record crop in South Australia, higher fertilizer pricing and strong margins from food processing in North America drove gross profit and net revenues from services (gross profit) to C$412 million compared to C$276 million in the first quarter of fiscal 2010.

The company generated quarterly cash flow provided by operations of C$185 million or 50¢ per share compared to C$60 million or C16¢ per share in the first quarter of last year. Free cash flow also increased significantly to C$144 million compared to C$32 million in fiscal 2010.

Viterra said the western Canadian harvest was essentially complete by the end of November 2010. Production for the six major grains is estimated to be 45 million tonnes, down from the 10-year normalized average of 49 million tonnes and about 15% lower than the 2009 crop that produced 52.8 million tonnes of grains and oilseeds.

In South Australia, harvest was substantially complete at the end of February and production is estimated at 9.8 million tonnes for 2011, according to the Australian Bureau of Agricultural and Resource Economics and Sciences' Feb.15 crop report. This is the largest crop on record, exceeding the previous record of 8.9 million tonnes and representing a 38% increase over last year's production of 7.1 million tonnes. The 10-year average for South Australia is approximately 6 million tonnes.

Management anticipates Canadian Grain Commission receipts for the six major grains in Western Canada to be about 31 million tonnes for the 12 months ended Oct. 31, up from its previous estimate of 30 million tonnes.

Management confirmed its global pipeline margin per tonne guidance of C$33 to C$36 per tonne, which will include a full year of gross profit contributions from the International Grain group. Factors supporting this guidance include:

- Strong shipments out of South Australia throughout the next two quarters given the significant crop in storage, the favorable commodity pricing environment and production issues in other grain growing regions of the world.

- Continued export strength out of North America due to strong demand created by supply difficulties in other grain growing regions, robust global pricing for commodities and the continuing drawdown of western Canadian carry-over stocks. Management expects that the Canadian Wheat Board's estimated 17.4 million tonne export target for wheat and barley out of Canada for the 2011 crop year is achievable.

In fiscal 2011, several trends are expected to continue to support strong fundamentals in the Agri-products segment including:

- Strong demand for fertilizer in Western Canada due to improved commodity prices and increased nutrient requirements caused by excess moisture in 2010 and 2011. For fiscal 2011, Management continues to expect that its blended fertilizer margin will be in the range of C$100 to C$120 per tonne.

- Increased demand for canola seeded acreage as a result of higher oilseed prices. Assuming good spring seeding conditions, Management currently estimates that seeded acres of canola will increase to approximately 18 to 19 million acres in 2011 versus about 16.8 million acres in 2010.

These strong fundamentals may be somewhat tempered by an expected reduction in western Canadian seeded acreage in 2011. Management has not changed its view that seeded acreage will decrease by approximately 3 to 4 million acres below the 10-year average of 60 million acres. However, excess moisture last year, coupled with above average snowfall in certain areas of Western Canada this winter, does pose some additional risk, should flooding occur entering the spring planting period.

Viterra’s management expects solid contributions from the Processing segment to continue throughout fiscal 2011 and the combined annual food processing margin to range between C$90 to C$110 per tonne. This is being driven by:

- Strong demand for whole grain, nutritional food ingredients.

- Strong demand for healthy and economical pasta products given the tepid U.S. recovery.

The company’s management said it expects these gains will in part be offset by its malt operations that face some temporary challenges due to excess capacity. Management, however, remains confident in the long-term outlook for the malt processing industry.
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