Viterra reports decrease in first-quarter earnings

by World Grain Staff
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CALGARY, ALBERTA, CANADA — Viterra reported on March 8 that net earnings for the first-quarter were C$78 million, or C21¢ per share, compared to C$101 million, or C27¢ per share, for the same period last year.

For the three months ended Jan. 31, the company generated EBITDA (excluding North American feed) of C$189 million compared to C$210 million in the previous year.

"Viterra delivered impressive first quarter results despite the challenging economic environment. Our vertically integrated business model and irreplaceable assets in strategic locations proved resilient," said Mayo Schmidt, Viterra's president and chief executive officer. "We are the number one grain handler in Canada and South Australia with extensive and world-class assets in both country and port locations. This network gives us complete control of our supply chain from the farm to destination customers around the world, allowing us to maximize margins on our core commodities at each step in the supply chain, and to return those benefits to shareholders."

Grain Handling and Marketing's EBITDA was C$183 million compared to C$200 million in the prior year. The consolidated global pipeline margin for the first quarter of fiscal 2012 increased to C$27.08 per tonne compared to C$25.48 per tonne a year earlier, reflecting increased shipments and higher handling fees.

This positive contribution was offset by lower grain receipts in Australia, as fiscal 2011 benefited from a strong crop, and additional costs associated with higher shipments, improved service to producers and new operations and marketing offices added within the last 12 months.

The recently expanded International Grain group generated solid results for the quarter, increasing revenue with more sales activity while delivering typical merchandising margins versus the record results achieved in the first quarter of 2011. In a more normalized commodity price environment, we expect gross margin to keep pace with revenue growth.

Agri-products' EBITDA increased 45% to C$15 million as favorable fall weather supported fertilizer application and pricing. Fertilizer margins averaged C$129.79 per tonne for the first quarter of fiscal 2012 compared to C$98.71 per tonne in the prior year.

Processing's EBITDA (excluding North American feed) was C$23 million compared to C$37 million in the first quarter of fiscal 2011 as a result of lower contributions from the company's pasta and malt operations.

"Viterra has demonstrated its ability to consistently generate top-quartile financial results," said Schmidt. "We remain focused on continuing to increase shareholder value by optimizing the performance of our existing asset base and our strategy of disciplined growth has positioned us to achieve this. In fiscal 2011, Project BEST achieved C$51 million in cost reductions and revenue enhancements, and to build on this we have implemented additional company-wide programs to drive our costs down even further. With our feed business, we recently decided to exit the North American feed operations as we believe we can redeploy the capital elsewhere to generate higher returns. In processing we look forward to the start up of our highly-efficient malt facility in Australia that will allow us to earn higher returns from this business."

Global demand for agri-commodities remains strong and is expected to continue through the remainder of the fiscal year. In conjunction with the strong global market fundamentals, both of the company's core origination geographies have successfully completed their harvests, providing ample volumes for Viterra to move through its facilities in the remainder of fiscal 2012.

The company confirms its global pipeline margin guidance for fiscal 2012 at C$38 to C$41 per tonne.

In South Australia, the company expects shipments to be strong throughout the year given the volume of grain in its system and ongoing solid demand from key export markets. To complement the 6.6 million tonnes the company received into its system during the first quarter of fiscal 2012, there was approximately 1.8 million tonnes of carry-in stocks from fiscal 2011. Management currently estimates carry-over stocks into fiscal 2013 to range between 800,000 and 1.3 million tonnes.

In North America, Viterra continues to believe that Canadian Grain Commission marketings will be approximately 31 million to 33 million tonnes for the 12 months ended Oct. 31.

This is a function of relatively solid prices and demand for all marketed commodities. This is expected to result in a slight decrease of on farm carry-out stocks at the end of fiscal 2012.

Viterra remains confident that as of Aug. 1, producers in Western Canada will benefit from the ability to market their wheat, durum and barley to buyers of their choice. In this new environment, Viterra expects to increase its earnings by leveraging its global grain marketing network in key export growing regions, attracting additional volumes and optimizing its operational efficiencies.

As previously announced, Viterra expects to begin realizing modest benefits in the fourth quarter of 2012, with more significant impacts in 2013. In fiscal 2014 and beyond, the company anticipates its annual EBITDA to increase by C$40 million and C$50 million per annum. This guidance is based on the assumption of an increase in consolidated global pipeline margin of C$2.00 to C$2.50, which includes a 1.0% to 2.5% market share increase.



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