[The following is the first third of Viterra’s news release. To read the complete contents, including charts, click here]
A solid shipping program through Viterra’s (TSX:VT) (ASX:VTA) South Australia grain operations, contributions from its North America pipeline and the addition of pasta manufacturing to its portfolio of assets led to increases in both revenue and gross profit for the third quarter and first nine months of fiscal 2010.
Despite a considerable loss of seeded acreage in Western Canada, Viterra’s consolidated sales and other operating revenues were up $273.0 million to $2.5 billion in the third quarter, bringing year-to-date revenues to $6.3 billion, up $1.1 billion relative to the first nine months of fiscal 2009.
President and Chief Executive Officer, Mayo Schmidt said, “Our results this quarter are in line with our July 8th seeded acreage update. While spring conditions in Western Canada were far from ideal, yields on existing crops are encouraging. It is our view that given current yield projections from field staff, western Canadian production could be in the 44 to 45 million tonne range compared to the 10-year average of approximately 49 to 50 million tonnes. In order to achieve these results, the Canadian Prairies will require frost-free days in September and good harvest conditions well into October. For the Australian business, strengthening commodity prices provided the foundation for growers to price and move their grain through the system and we expect to see that continue over the next several quarters. Clearly our diversification strategy has worked to improve our risk profile and reduce our dependency on one geography.”
The increase in consolidated sales for both the quarter and nine-month periods was primarily due to revenue contributions of $558.5 million in the third quarter and $1.9 billion in the first nine months from Viterra Australia. The results were partially offset by lower third quarter Agri-products sales in North America.
EBITDA (refer to Management’s Discussion and Analysis – Section 10.0 entitled Non-GAAP Measures for the definition) for the quarter was $196.6 million, compared to $204.5 million a year earlier, reflecting higher gross profits for the Corporation, offset by operating general and administrative expenses associated with the Australian business and lower contributions from the North American agri-products operations. For the first nine months of fiscal 2010, Viterra generated EBITDA of $379.6 million compared to $283.5 million, a year earlier. The EBITDA increase of $96.1 million on a year-to-date basis primarily reflects contributions from Viterra Australia, together with new contributions from Viterra’s pasta operation during the quarter.
EBITDA from Viterra’s North American operations was $158.9 million for the third quarter and $247.0 million for the first nine months of the fiscal year. The Company’s Australian operations contributed $37.7 million in the third quarter and $132.6 million in the first nine months of the fiscal year.
Cash flow provided by operations for the quarter was $162.2 million compared to $178.8 million in the prior year’s quarter and $273.2 million for the first nine months of 2010, a 14.5% increase from the $238.6 million generated in the first nine months of 2009.
Viterra’s third quarter net earnings were $63.5 million, which compares to net earnings of $120.7 million in the same three-month period of 2009. For the first nine months of this fiscal year, earnings were $92.6 million, compared to $114.0 million in the same period a year earlier. Results included one-time after-tax re-financing costs of $17.7 million and approximately $9.1 million of additional after-tax amortization costs that were recorded in the third quarter, the latter of which was associated with the purchase price allocation review of the Australian assets during the quarter.
Earnings per share amounts for the quarter were $0.17 per share (2009 – $0.51 per share) and for the first nine months of 2010 were $0.25 per share (2009 – $0.48 per share). The items noted above reduced earnings per share by approximately $0.07 per share. Readers should note that Viterra’s earnings per share information reflect a year-over-year increase in the number of issued and outstanding shares of 134.5 million. The weighted average number of shares outstanding for the quarter and nine months ended July 31, 2010, were 371.6 million, compared to 237.1 million for the three and nine months at July 31, 2009.
President and Chief Executive Officer, Mayo Schmidt added “We look forward to fiscal 2011, as agriculture rebounds and we move beyond the cyclical lows experienced in 2009. Recent weather events around the globe, most notably in Russia and the Black Sea, have led to strengthening prices, placing us in a good position as we prepare for next year,” said Schmidt. “Over the past several weeks, we have seen significant transaction activity within the industry as participants look to take advantage of growing consumer demand. Viterra’s consolidation and expansion initiatives over the past three years allowed us to secure a foothold in leading countries of origin in advance of some of our competitors. Global agriculture has once again taken centre stage, driven by the solid long-term fundamentals that underpin the growth prospects for agricultural production and demand around the world.”
Third Quarter and Year-to-Date Operating Highlights
Viterra’s third quarter North American grain shipments were 4.4 million tonnes compared to 4.7 million tonnes for the same period in 2009 bringing the year-to-date total to 12.0 million tonnes, compared to 13.1 million tonnes shipped in the first nine months of 2009 when the industry experienced record grain production.
Grain shipments for Viterra Australia were 1.7 million tonnes in the quarter, bringing the year-to-date total to 3.5 million tonnes. Viterra purchased approximately 30% of that volume for its own account. Margins in that business were strong in the third quarter reflecting strong movement and merchandising performance.
EBITDA from the Company’s Grain Handling and Marketing Segment was $100.9 million for the third quarter, up $32.1 million from the $68.8 million generated in the third quarter of fiscal 2009. For the first nine months of the fiscal year, the segment contributed EBITDA of $284.1 million, compared to $193.7 million a year earlier.
In Viterra’s Agri-products segment, overall sales for the quarter were $818.9 million compared to $943.3 million for the third quarter last year. The decline primarily reflects the impact of excessive rain on the amount of seeded acreage in Western Canada, offset somewhat by additional revenues from Australia and contributions from new retail operations in Western Canada that were acquired over the last 12 months.
EBITDA from the Company’s Agri-product segment was $105.8 million for the quarter, compared to $147.5 million in 2009. On a year-to-date basis, the segment reported EBITDA of $123.8 million, versus $124.6 million generated in 2009. Last year’s result included a $28.1 million fertilizer write-down.
Sales in Viterra’s Processing segment rose $127.0 million to $330.8 million for the third quarter, a reflection of new contributions from the pasta business, the Australian malt business, Viterra’s canola crush plant purchased in June last year and the addition of the New Zealand feed business. Sales for the first nine months of 2010 were $945.5 million compared to $679.8 million in the same period a year ago.
On an EBITDA basis, the Processing segment generated $21.9 million for the quarter and $67.8 million for the first nine months of 2010, up $12.2 million and $36.8 million respectively. The increases primarily reflect new contributions from the pasta business and the Australian malt operations.
Additional detail on segment results is available in Management’s Discussion and Analysis in Sections 3.0 and 4.0.
Viterra’s balance sheet at July 31, 2010, remained strong with a debt-to-total capital ratio of 22.2%. Subsequent to quarter end, on August 4, 2010, the Company completed a private placement of U.S. Dollars (“USD”) $400.0 million of 5.95% Senior Unsecured Notes. The Notes will pay interest semi-annually on February 1st and August 1st of each year beginning February 1, 2011 and will mature on August 1, 2020. Proceeds from the private placement will be used to reduce borrowings under Viterra’s unsecured revolving credit facility (“Global Credit Facility”) and for general corporate purposes.
For the first nine months of fiscal 2010, free cash flow (refer to Management’s Discussion and Analysis – Section 10.0 entitled Non-GAAP Measures for the definition) increased by $10.0 million to $201.4 million from $191.4 million in fiscal 2009.
Viterra will be hosting a conference call for interested parties on September 8, 2010, at 1:00 p.m. Toronto time, 11:00 a.m. Calgary time to discuss its Third Quarter Financial Report. Details are available on Viterra’s website, under Newsroom at http://www.viterra.com/.
Certain statements in this news release are forward-looking statements and reflect Viterra’s expectations regarding future results of operations, financial condition and achievements. All statements that address activities, events or developments that Viterra or its management expects or anticipates will or may occur in the future, including such things as growth of its business and operations, competitive strengths, strategic initiatives, planned capital expenditures, plans and references to future operations and results, critical accounting estimates and expectations regarding future capital resources and liquidity of the Company and such matters, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance and achievements of Viterra to be materially different from any future results, performance and achievements expressed or implied by those forward-looking statements. A number of factors could cause actual results to differ materially from expectations. These factors and assumptions are further detailed in Viterra’s Third Quarter Financial Report.
Viterra Inc. provides premium quality ingredients to leading global food manufacturers. Headquartered in Canada, the global agribusiness has extensive operations across Western Canada, the United States, Australia, and New Zealand, with Adelaide, Australia as the base for Viterra’s Southeast Asian operations. Our growing international presence also extends to offices in Japan, Singapore, China, Switzerland and Italy. Driven by an entrepreneurial spirit we operate in three interrelated business segments: grain handling and marketing, agri-products, and processing. Our expertise, close relationships with producers, and superior logistical assets allow the Company to consistently meet the needs of the most discerning end-use customers, helping to fulfill the nutritional needs of people around the world.
THIRD QUARTER FINANCIAL REPORT – JULY 31, 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
1.0 Responsibility for Disclosure
Management’s Discussion and Analysis (“MD&A”) was prepared based on information available to Viterra Inc. (referred to herein as “Viterra” or the “Company”) as of September 7, 2010. Management prepared this report to help readers interpret Viterra’s consolidated financial results for the three months and nine months ended July 31, 2010 and July 31, 2009, respectively.
To support the discussion, this report includes information with respect to the agri-business industry, the markets in which the Company operates and trends that may affect operating and financial performance into the future. Please read this report in conjunction with Viterra’s 2009 Annual Financial Review, the 2009 Business Review and the 2009 Annual Information Form, which are available on Viterra’s website at http://www.viterra.com/, as well as on SEDAR’s website at http://www.sedar.com/, under Viterra Inc.
This MD&A, the unaudited Consolidated Balance Sheets, Statements of Earnings, Statements of Cash Flows, Statements of Comprehensive Income, Statements of Shareholders’ Equity and Notes to the Consolidated Financial Statements have been prepared in accordance with Canadian GAAP and are presented in Canadian dollars (“CAD”) unless specifically stated to the contrary.
2.0 Company Overview
Viterra is a vertically integrated global agri-business headquartered in Canada with operations in North America, Australia and New Zealand.
On September 23, 2009, the Company expanded its operations into the southern hemisphere through the acquisition of all of the issued and outstanding common shares of ABB Grain Ltd. (referred to herein as “ABB”, “Viterra Australia” or “Viterra”), an Australian-based agri-business.
On May 5, 2010, Viterra completed the acquisition of Dakota Growers Pasta Company, Inc. (“Dakota Growers”), a United States (U.S.)-based durum miller and leading producer and marketer of dry pasta products in North America. Dakota Growers’ financial contributions are included in Viterra’s results as of May 5.
Subsequent to quarter-end, on August 17, 2010, Viterra completed the acquisition of 21st Century Grain Processing, a premier U.S.-based processor of oats, custom-coated oats and wheat. The company operates two plants in the Central U.S., an oat mill in South Sioux City, Nebraska and a facility that mills wheat near Dawn, Texas. The acquisition will add approximately 98,000 tonnes of annual oat milling capacity to Viterra’s oat milling operations. Contributions from this business will be reflected in Viterra’s fourth quarter as of the closing date of the transaction.
As a major participant in the value-added agri-food supply chain, Viterra’s core businesses are organized among three primary segments: Agri-products sales and services (including financial products), Grain Handling and Marketing, and Processing (which includes both food and feed manufacturing). The consolidation of these segments, beginning in the first quarter of 2010, better aligns Viterra’s external reporting with its internal operating structure.
Geographically, Viterra’s operations are diversified across Western Canada, Australia, New Zealand and the U.S. The Company also has marketing offices in Canada, Australia, Japan, Singapore, Switzerland and Italy. Viterra participates in fertilizer manufacturing through its 34% ownership in Canadian Fertilizers Limited (“CFL”). It has wholly owned feed processing, oat milling, canola crushing, pasta manufacturing and malt processing operations. It also has a 42% interest in Prairie Malt Limited (“Prairie Malt”), a Saskatchewan-based single-site malting facility operated as part of its partner, Cargill Malt’s operations. Viterra is involved in other commodity-related businesses through strategic alliances and supply agreements with domestic and international grain traders and food processing companies. The Company markets commodities directly to customers in more than 50 countries.
Viterra’s shares trade on the Toronto Stock Exchange (“TSX”) under the symbol “VT” and its CHESS Depository Interests (“CDIs”) trade on the Australian Securities Exchange (“ASX”) under the symbol, “VTA”.