Agricore United, Winnipeg, reported record net earnings of $21 million ($.43 per basis and diluted share) on sales of $3 billion for the year ending Oct. 31, 2006. This compares to 2005’s $12.5 million ($.25 per share) and $2.8 billion, respectively. Agricore attributed the 64 percent increase in earnings to a 12 percent improvement in grain handling shipments, as well as improved results in the livestock segment.
“In 2006, Agricore United continued its momentum of the past four years and recorded its highest EBITDA, cash flow and earnings since the merger of United Grain Growers Ltd. and Agricore Cooperative Ltd. in 2001,” said Brian Hayward, Agricore United CEO. “We have demonstrated the capacity to generate significant cash flow and bottom line results and I’m particularly encouraged by our performance as we move into a process of evaluating and responding to the hostile takeover offer we recently received from Saskatchewan Wheat Pool. While our board will formally respond to the offer shortly, my view is that their offer significantly undervalues Agricore United and its prospects.”
Agricore reiterated last week that shareholders and debenture holders should not respond to the SaskPool offer (GM Nov. 27, p. 1, Nov. 13, p. 1) until after the board has assessed the offer. The company noted that the offer does not expire until Jan. 24, 2007, and the Agricore board expects to have a recommendation and circular complete by mid-December. In the meantime, SaskPool announced Nov. 28 that it has commenced mailing its official offer and circular to Agricore owners.
Agricore results improved in the fourth quarter, though it remained in the loss column at $6.8 million ($.16 per share) on sales of $706.8 million, versus the year-ago loss of $13 million ($.29 per share) on sales of $566 million.
Agricore said a drop in crop nutrient sales of $28 million in 2006 was the main reason for a $44 million decline in crop input sales for the year. This was attributed to higher fertilizer prices in the spring, which limited fertilizer applications, as well as the absence of fertilizer sales in the first quarter of 2006, as most sales were completed prior to November 2005. Crop protection sales declined by $17 million, mainly due to reduced sales prices on products coming off patent protection and regional weather conditions that impacted weed emergence in June, a key sales month.
Overall, results were off in Agricore’s Crop Production Services segment, which includes crop nutrients, crop protection, and seeds. 2006 EBITDA from the segment was down $23 million, to $50.3 million on sales of $788.6 million from the year-ago $72.9 million and $835.8 million, respectively. Gross profit and net revenue from the segment decreased by $28 million for the year, with Agricore noting industry-wide pressures on fertilizer margins due to volatile natural gas prices. These were partially offset by higher margins on crop protection products and $5 million in cost containment. Results for the fourth quarter remained in the EBITDA loss column at $10.2 million on sales of $69.8 million, versus the year-ago loss of $10.6 million and sales of $67.6 million.
For 2007, Agricore is very upbeat regarding the grain markets, saying that the drought in Australia and more corn in the U.S. will likely mean more wheat production in Canada. Likewise, Hayward noted the ethanol/biodiesel boom, saying that estimates are that 25 percent of the U.S. corn crop may go to ethanol production by 2010-11.
In other news, Agricore expects to save $8 million in 2007 due to plans to redeem 9 percent convertible unsecured subordinated debentures on Jan. 10, 2007. The principal amount withstanding of $105 million will be settled by issuing limited voting common shares, and the outstanding accrued interest will be settled with cash.