Viterra Inc. (TSX:VT) (ASX:VTA) ("Viterra") today announced an increase in its
second quarter financial results due to strong contributions from its Australian
operations. For the three months ended April 30, 2011, EBITDA increased 37% to
$128 million compared to $93 million in the same quarter last year. Year-to-date
EBITDA was $339 million versus $183 million during the same period in fiscal
2010.
Financial Highlights
(in thousands - except per share items)
Three Months
ended April 30, Better
2011 2010 (Worse)
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Sales and other operating
revenues $ 2,701,860 $ 2,026,944 $ 674,916
Gross profit and net revenues
from services 324,321 269,896 54,425
EBITDA (1) 128,181 93,243 34,938
Net earnings 33,075 18,410 14,665
Earnings per share $ 0.09 $ 0.05 $ 0.04
Cash flow provided by operations(1) 93,830 50,861 42,969
Per share $ 0.25 $ 0.14 $ 0.11
Free Cash Flow (1) 52,956 26,399 26,557
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Financial Highlights
(in thousands - except per share items)
Six Months
ended April 30, Better
2011 2010 (Worse)
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Sales and other operating
revenues $ 5,172,397 $ 3,811,469 $ 1,360,928
Gross profit and net revenues
from services 735,943 545,989 189,954
EBITDA (1) 339,444 183,011 156,433
Net earnings 132,698 29,063 103,635
Earnings per share $ 0.36 $ 0.08 $ 0.28
Cash flow provided by operations(1) 279,090 111,008 168,082
Per share $ 0.75 $ 0.30 $ 0.45
Free Cash Flow (1) 196,838 58,681 138,157
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(1) See Non-GAAP Measures in Section 11.0 of the attached Management's
Discussion and Analysis.
Viterra's Australian operation achieved record shipments during the second
quarter significantly enhancing overall results for Viterra. The business
contributed $65 million to consolidated EBITDA for the quarter and $181 million
on a year-to-date basis, representing increases of 131% and 91% respectively
over the corresponding periods a year ago. Viterra's integration of the
Australian business was virtually complete as of April 30, 2011, with the
Company achieving its targeted $30 million in gross synergies, six months ahead
of schedule. In addition, Viterra has implemented a number of initiatives
throughout the region that have not only lowered its costs per tonne for the
three and six month periods, but have resulted in sustainable cost reductions
throughout the organization.
In North America, solid contributions from grain handling and marketing and the
new pasta and oat processing businesses acquired in the second half of fiscal
2010 also increased EBITDA for the quarter and year to date. While results were
strong, cool and wet weather in Western Canada delayed seeding and has moved a
portion of the Company's agri-product sales and earnings into the third quarter.
Segment EBITDA(1) Contributions by Geography
(in thousands)
Three Months ended April 30, 2011
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Grain
Handling and Agri-
Marketing Products Processing Total % Contribution(2)
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North America $ 58,136 $ 16,619 $ 17,471 $ 92,226 55%
Australia 65,799 4,353 6,086 76,238 46%
International (1,853) - (81) (1,934) -1%
Segment
EBITDA (1) $ 122,082 $ 20,972 $ 23,476 $ 166,530 100%
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Segment EBITDA(1) Contributions by Geography
(in thousands)
Six Months ended April 30, 2011
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Grain
Handling and Agri-
Marketing Products Processing Total % Contribution(2)
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North America $ 108,596 $ 22,429 $ 47,504 $ 178,529 43%
Australia 179,824 7,839 16,608 204,271 49%
International 31,424 - (280) 31,144 8%
Segment
EBITDA (1) $ 319,844 $ 30,268 $ 63,832 $ 413,944 100%
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(1) See Non-GAAP Measures in Section 11.0 of the attached Management's
Discussion and Analysis.
(2) Percentage Contribution based on Segment EBITDA, prior to Corporate
Expenses.
Mayo Schmidt, Viterra's President and Chief Executive Officer, said, "Our
continued success in generating year-over-year earnings improvements reflect
strong market fundamentals, the benefits of Viterra's integrated business model
and our continuous focus on operational efficiencies. From a strategic
perspective, our geographic diversification has delivered to expectations, with
our Australian operations accounting for almost half of Viterra's EBITDA to
date. With significant origination and infrastructure in North America and
Australia and an expanded international grain presence, Viterra is meeting the
growing demand for key agricultural ingredients around the globe."
Consolidated sales and other operating revenues for the quarter increased 33% to
$2.7 billion compared to $2.0 billion in the second quarter of fiscal 2010. For
the first six months ended April 30, 2011, revenues increased 36% to $5.2
billion, compared to $3.8 billion in the same period of fiscal 2010. These
increases reflect strong commodity prices, record shipments through the southern
Australia operation and solid results from the pasta and oat processing
businesses purchased in the latter half of fiscal 2010. These factors also
increased gross profit over the prior year to $324 million (2010 - $270 million)
for the quarter and to $736 million (2010 - $546 million) for the first six
months of the year.
The Grain Handling and Marketing segment generated $122 million in EBITDA for
the quarter compared to $74 million in the second quarter of last year. On a
year-to-date basis, EBITDA was $320 million compared to $183 million a year
earlier. The majority of these increases relate to Viterra's Australian
operations that contributed $66 million in the quarter (2010 - $22 million) and
$180 million (2010 - $86 million) for the first six months of the fiscal year on
stronger shipments, additional storage and handling revenues and increased
domestic merchandising margins. North American quarterly EBITDA of $58 million
versus $44 million last year benefited from increased merchandising and blending
opportunities, an increase in higher margin pulse sales, as well as additional
shipments through the Prince Rupert Grain terminal. The International Grain
group had an EBITDA loss in the second quarter of $2 million as a result of
global events including the earthquake and tsunami in Japan and political unrest
in the Middle East, which caused extreme commodity price volatility. The group
mitigated the impact of these events by employing effective risk management and
hedging strategies to reduce positions consistent with the Company's risk
tolerance levels. EBITDA results from the International Grain group for the
first six months totalled $31 million.
In Viterra's Agri-products segment, EBITDA for the second quarter was $21
million down from the $30 million reported a year ago due to timing differences
caused by late seeding in North America. For the first six months of the fiscal
year, EBITDA was $30 million compared to $18 million in fiscal 2010, a result of
strong fertilizer pricing.
The Processing segment's EBITDA was $23 million for the second quarter and on
par with the same period last year. Viterra's North American food processing
contributed $15 million, while the Company's Australian malt and global feed
operations contributed $7 million and $2 million, respectively. On a
year-to-date basis, the segment's EBITDA was $64 million, compared to $46
million a year earlier. The new pasta and oat processing businesses added $30
million while the Company experienced weaker year-over-year results from
Viterra's Australian malt operation, canola processing and feed operations due
to short-term challenges in each of these industries.
Net earnings rose to $33 million or $0.09 per share for the quarter representing
a significant improvement over the $18 million or $0.05 per share generated in
the same period last year. For the first six months of the fiscal year, net
earnings were $133 million or $0.36 per share, an increase from $29 million or
$0.08 per share in the comparable period of fiscal 2010.
Viterra generated quarterly cash flow provided by operations of $94 million or
$0.25 per share compared to $51 million or $0.14 per share in the second quarter
of last year. This brings the year-to-date cash flow provided by operations to
$279 million versus $111 million during the same period in fiscal 2010. Free
cash flow doubled, rising to $53 million (2010 - $26 million) for the quarter
and $197 million (2010 - $59 million) for the first six months of fiscal 2011.
Seeding Update
Seeding activity in Western Canada is well underway after cool and wet weather
delayed activity until May. Throughout the Canadian Prairies, moisture
conditions are extremely good but have been excessive in some regions and
stalled seeding. Our most recent reports, as of June 5, 2011, indicate that
seeding across the three Prairie Provinces is approximately 80% complete
compared to the historical average for this time of 93%. Approximately 95% of
the Alberta crop has been sown, 80% of the Saskatchewan crop and about 45% of
the Manitoba crop.
In South Australia, both subsoil and topsoil conditions are providing a good
base for seeding that is approximately 80% complete in that region. Farmers in
this region intend to increase their crop plantings by approximately 4% over
last year to about 10 million acres. Wheat plantings are expected to increase 7%
and account for nearly 60% of total seeded acreage in the region. While barley
acreage is expected to be down by 4% to just over 2.0 million acres, canola
plantings are expected to increase 18% to 0.6 million acres as growers take
advantage of good moisture conditions and strong pricing. The Company expects
seeding to be completed throughout the region in about two weeks.
Outlook
Grain Handling and Marketing
In South Australia, the Company expects shipments to remain strong given the
significant crop in storage, the favourable commodity pricing environment and
strong demand. To complement the 8.5 million tonnes, which were received into
our system during the first half of fiscal 2011, there was approximately 1.2
million tonnes of carry-in stocks from fiscal 2010. Viterra currently estimates
carry-over stocks into fiscal 2012 for the Company's Australian system to range
between 2.0 to 3.0 million tonnes.
In North America, according to the Canadian Grain Commission ("CGC"), Canadian
bulk grain exports for the six major grains (which excludes corn and rye), for
the first nine months of the crop year (August 1st to May 1st), were 20.8
million tonnes, compared to the 21.4 million tonnes exported during the same
period in crop year 2010. Export strength is anticipated to continue. This is
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.
The Company now estimates that CGC marketings will be about 31.0 to 32.0 million
tonnes for the 12 months ended October 31, 2011.
The Company confirms its global pipeline margin per tonne guidance of $33 to $36
per tonne, which will include a full year of gross profit contributions from the
International Grain group.
From a regulatory perspective in Canada, the majority Conservative Government
recently announced it intends to provide western Canadian producers with
marketing choice for wheat, durum and barley, which will eliminate the Canadian
Wheat Board's ("CWB") monopoly control and allow it to coexist with the grain
trade. Current indications are that the Government will introduce legislative
changes which will take effect as of August 2012. However, it is early in the
process and few details are available on how this outcome will be achieved.
Viterra is supportive of the Government's direction and is confident in the
Company's ability to operate effectively in an open wheat and barley market, to
serve the needs of farmers, other industry participants, and the new CWB.
Viterra believes it has the necessary expertise today to provide these
additional services to the industry. The Company is committed to working with
the Government, industry, and the CWB to ensure the Canadian grain industry
remains a vibrant and competitive source for agricultural products, and it
intends to actively participate in the process to promote an orderly transition
with positive, sustainable change for the benefit of the western Canadian
agricultural industry.
Agri-products
Despite the late spring seeding season in Western Canada, which delayed second
quarter crop input sales, demand for crop inputs in Western Canada is expected
to remain favourable as the growing season progresses due to the following:
- With higher commodity prices and strong market fundamentals, return prospects
for farmers are positive going into the third quarter of the fiscal year.
- Fertilizer movement to farm has been steady in the first half of fiscal 2011
even with selling prices above last year's and limited seeding progress in
Western Canada at the end of April. The Company expects demand to remain strong
due to improved commodity prices and increased nutrient requirements caused by
excess moisture in 2010 and 2011. The Company continues to predict its blended
fertilizer margin at $100 to $120 per tonne.
- Canola plantings are expected to increase to between 17.0 and 18.5 million
acres versus 16.8 million acres last year, which is positive for the
Agri-products segment as producers typically invest in more crop inputs when
growing oilseeds. The Company estimates that growers will typically invest $110
to $160 per acre on crop inputs for canola compared to $90 to $110 per acre for
wheat.
In April, Statistics Canada published its seeding intentions report, which
suggests that up to 62.5 million acres would be planted, 2.5 million more than
the 10-year average. While the Company agrees with the fundamentals
underpinning optimism in the industry, it is ViterraÆs view, in light of the
excess moisture experienced during April and May on the Canadian Prairies, that
western Canadian acreage will be in the 52 to 56 million acre range, which is up
to 4 million acres above 2010.
Processing
The Company expects stable contributions from the Processing segment for the
remainder of fiscal 2011 and the combined annual food processing margin to range
between $90 to $110 per tonne.
Strong demand for whole grain, nutritional food ingredients and healthy,
economical pasta products, is expected to support continued solid results from
the oat and pasta processing businesses.
Continuing challenges in malt will remain due to excess capacity and sluggish
beer sales in North America and Europe. The Company believes its Australian malt
margins will remain compressed, below pre-recession levels, for the remainder of
fiscal 2011. However, the Company remains confident in the long-term outlook for
this industry.
In addition, margin challenges in canola and feed products are expected to
continue in the near term. Management is taking steps to mitigate the effects of
these issues.
Second Quarter and Year-to-Date Segment Highlights
The following table provides various key financial highlights for the three and
six months ended April 30, 2011 compared to April 30, 2010. The Company's
unaudited Consolidated Financial Statements and accompanying Management's
Discussion & Analysis ("MD&A") for the three and six months ended April 30, 2011
are incorporated fully into this news release. Readers are encouraged to review
the following pages for a full description of the Company's current financial
performance. Viterra will be hosting a conference call for interested parties on
June 9, 2011 at 1:15 p.m. ET (11:15 a.m. MT) to discuss its second quarter and
year-to-date financial results. Details are available on Viterra's website,
under Newsroom at www.viterra.com.
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Second Quarter Segment Highlights
(in thousands - except margins)
Three Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Grain Handling and Marketing
Segment
Gross profit and net revenues
from services $ 214,172 $ 153,764 $ 60,408
EBITDA (1) 122,082 73,589 48,493
Sales and other operating
revenues 2,045,241 1,418,093 627,148
Operating Highlights (tonnes) :
North American Shipments 3,652 4,035 (383)
Australian Receivals 271 59 212
Total pipeline 3,923 4,094 (171)
Consolidated pipeline margin N/A N/A N/A
(per tonne)
Agri-products Segment
Gross profit and net revenue
from services $ 66,563 $ 76,976 $ (10,413)
EBITDA (1) 20,972 29,990 (9,018)
Sales and other operating
revenues 433,741 438,225 (4,484)
Fertilizer 154,410 164,148 (9,738)
Crop Protection 17,800 37,717 (19,917)
Seed 111,623 123,050 (11,427)
Wool 128,966 88,728 40,238
Equipment sales and other
revenue 16,533 17,397 (864)
Financial Products 4,409 7,185 (2,776)
Fertilizer volume (tonnes) 279 371 (92)
Fertilizer margin (per tonne
sold) $ 108.76 $ 78.47 $ 30.29
Processing Segment
Gross profit and net revenue
from services $ 43,586 $ 39,156 $ 4,430
EBITDA (1) 23,476 22,707 769
Sales and other operating
revenues 374,615 290,098 84,517
Processing sales volumes
(tonnes)
Malt (2) 119 136 (17)
Pasta 56 - N/A
Oats 91 54 37
Canola 42 60 (18)
Combined food processing margin
(per tonne sold) $ 98.96 $ 87.55 $ 11.41
Feed sales volumes (tonnes)
North America 439 513 (74)
New Zealand 32 32 -
Combined feed processing margin
(per tonne sold) $ 27.82 $ 31.68 $ (3.86)
Corporate Expenses
EBITDA $ (38,349) $ (33,043) $ (5,306)
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Second Quarter Segment Highlights
(in thousands - except margins) Six Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Grain Handling and Marketing
Segment
Gross profit and net revenues
from services $ 512,613 $ 355,463 $ 157,150
EBITDA (1) 319,844 183,268 136,576
Sales and other operating
revenues 3,987,875 2,761,301 1,226,574
Operating Highlights (tonnes) :
North American Shipments 7,126 7,611 (485)
Australian Receivals 8,509 6,200 2,309
Total pipeline 15,635 13,811 1,824
Consolidated pipeline margin
(per tonne) $ 32.79 $ 25.74 $ 7.05
Agri-products Segment
Gross profit and net revenue
from services $ 120,120 $ 109,575 $ 10,545
EBITDA (1) 30,268 18,056 12,212
Sales and other operating
revenues 726,312 653,588 72,724
Fertilizer 329,389 284,715 44,674
Crop Protection 23,022 41,809 (18,787)
Seed 112,743 123,628 (10,885)
Wool 224,469 157,467 67,002
Equipment sales and other
revenue 28,610 34,021 (5,411)
Financial Products 8,079 11,948 (3,869)
Fertilizer volume (tonnes) 652 681 (29)
Fertilizer margin (per tonne
sold) $ 103.01 $ 68.72 $ 34.29
Processing Segment
Gross profit and net revenue
from services $ 103,210 $ 80,951 $ 22,259
EBITDA (1) 63,832 45,893 17,939
Sales and other operating
revenues 748,525 598,075 150,450
Processing sales volumes
(tonnes)
Malt (2) 245 263 (18)
Pasta 110 - N/A
Oats 194 108 86
Canola 80 119 (39)
Combined food processing margin
(per tonne sold) $ 123.66 $ 92.18 $ 31.48
Feed sales volumes (tonnes)
North America 886 1,051 (165)
New Zealand 75 67 8
Combined feed processing margin
(per tonne sold) $ 26.46 $ 32.00 $ (5.54)
Corporate Expenses
EBITDA $ (74,500) $ (64,206) $ (10,294)
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(1) See Non-GAAP Measures in Section 11.0 of the attached Management's
Discussion and Analysis
(2) Includes contributions from Viterra's 42% ownership interest in Prairie
Malt and its wholly owned Australian malt business
Forward-Looking Statements
Certain statements in this news release are forward-looking statements that
reflect Viterra's expectations regarding future results of operations, financial
condition and achievements and are subject to important risks and uncertainties.
The words "anticipate", "expect", "believe", "may", "should", "estimate",
"project", "outlook", "forecast" or other similar words are used to identify
such forward-looking information. Forward-looking statements in this document
are intended to provide Viterra security holders and potential investors with
information regarding Viterra and its subsidiaries, including Management's
assessment of Viterra's and its subsidiaries' future financial and operational
plans and outlook. All statements included or incorporated by reference in this
news release 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 Viterra and other 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. The risks include, but are not
limited to, those factors discussed in Viterra's MD&A for the year ended October
31, 2010 under the heading "Risks and Risk Management". This MD&A can be found
on Viterra's website at www.viterra.com as well as on SEDAR at www.sedar.com
under Viterra Inc.
About Viterra
Viterra provides premium quality ingredients to leading global food
manufacturers. Headquartered in Canada, the global agri-business has extensive
operations across Canada, the United States, Australia, and New Zealand. Our
growing international presence also extends to offices in Japan, Singapore,
China, Switzerland, Italy, Ukraine, Germany and India. Driven by an
entrepreneurial spirit, we operate in three distinct businesses: grain handling
and marketing, agri-products, and processing. Viterra's 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.
VITERRA
MANAGEMENT'S DISCUSSION AND ANALYSIS
APRIL 30, 2011
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 June 8, 2011. Management prepared this report to help readers interpret
Viterra's unaudited Consolidated Financial Statements for the three months and
six months ended April 30, 2011.
Please read this report in conjunction with the audited Consolidated Financial
Statements and MD&A contained in the Company's Annual Financial Review for the
year ended October 31, 2010, which is available on Viterra's website at
www.viterra.com, as well as on SEDAR at www.sedar.com, under Viterra Inc.
This MD&A and the unaudited Consolidated Financial Statements for the three
months and six months ended April 30, 2011 have been prepared in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP") and are presented in
Canadian dollars unless specifically stated to the contrary.
2.0 Company Overview
Viterra is a vertically integrated global agri-business headquartered in Canada.
The Company was founded in 1924 and has extensive operations across Canada and
Australia, with facilities in the United States ("U.S.") and New Zealand.
Viterra has offices in Canada, the U.S., Australia, New Zealand, Japan,
Singapore, China, Switzerland, Italy, Ukraine, Germany, and India.
As a major participant in the value-added agri-food supply chain, the Company
operates in three interrelated segments: Grain Handling and Marketing,
Agri-products, and Processing. Geographically, Viterra's operations are
diversified across Canada, Australia, New Zealand and throughout the U.S.
Viterra wholly owns pasta production, malt production, oat milling, canola
processing and livestock feed manufacturing operations. Viterra's North American
operations also participate in malt production through a 42% ownership interest
in Prairie Malt Limited ("Prairie Malt") and in fertilizer manufacturing through
its 34% ownership in Canadian Fertilizers Limited ("CFL").
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 around the world.
On May 5, 2010, Viterra completed the acquisition of Dakota Growers Pasta
Company, Inc. ("Dakota Growers"), a 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, 2010.
On August 17, 2010, Viterra completed the acquisition of 21C Holdings, L.P.
("21st Century") a premier U.S.-based processor of oats, wheat and custom-coated
grains. Contributions from this business are included in Viterra's results as of
August 17, 2010.
Viterra's shares trade on the Toronto Stock Exchange ("TSX") under the symbol
"VT" and its CHESS Depositary Interests trade on the Australian Securities
Exchange ("ASX") under the symbol "VTA".
3.0 Summary and Analysis of Consolidated Results
Selected Consolidated Financial Information
(in thousands - except per share
amounts) Three Months
ended April 30, Better
2011 2010 (Worse)
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Sales and other operating
revenues $ 2,701,860 $ 2,026,944 $ 674,916
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Gross profit and net revenues
from services $ 324,321 $ 269,896 $ 54,425
Operating, general and
administrative expenses (196,140) (176,653) (19,487)
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EBITDA (1) 128,181 93,243 34,938
Amortization (49,735) (35,378) (14,357)
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EBIT (1) 78,446 57,865 20,581
Integration expenses (790) (2,195) 1,405
Gain (loss) on disposal of
assets (269) 741 (1,010)
Acquisition derivative - (3,074) 3,074
Financing expenses (28,904) (30,355) 1,451
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48,483 22,982 25,501
Recovery of (provision for)
corporate taxes
Current (3,159) (15,404) 12,245
Future (12,249) 10,832 (23,081)
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Net earnings $ 33,075 $ 18,410 $ 14,665
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Earnings per share $ 0.09 $ 0.05 $ 0.04
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Selected Consolidated Financial Information
(in thousands - except per share
amounts) Six Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Sales and other operating
revenues $ 5,172,397 $ 3,811,469 $ 1,360,928
----------------------------------------------------------------------------
Gross profit and net revenues
from services $ 735,943 $ 545,989 $ 189,954
Operating, general and
administrative expenses (396,499) (362,978) (33,521)
----------------------------------------------------------------------------
EBITDA (1) 339,444 183,011 156,433
Amortization (98,999) (74,203) (24,796)
----------------------------------------------------------------------------
EBIT (1) 240,445 108,808 131,637
Integration expenses (1,301) (3,174) 1,873
Gain (loss) on disposal of assets 574 375 199
Acquisition derivative - (3,074) 3,074
Financing expenses (57,835) (67,586) 9,751
----------------------------------------------------------------------------
181,883 35,349 146,534
Recovery of (provision for)
corporate taxes
Current (4,188) (11,397) 7,209
Future (44,997) 5,111 (50,108)
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Net earnings $ 132,698 $ 29,063 $ 103,635
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Earnings per share $ 0.36 $ 0.08 $ 0.28
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(1) See Non-GAAP Measures in Section 11.0
Consolidated sales and other operating revenues ("sales" or "revenues") for the
second quarter of fiscal 2011 increased 33% to $2.7 billion compared to $2.0
billion in the second quarter of fiscal 2010. For the first six months ended
April 30, 2011 revenues increased 36% to $5.2 billion, compared to $3.8 billion
in the same period of fiscal 2010. The sales improvement for both the second
quarter and first six months of fiscal 2011 reflect strong commodity prices,
increased revenues from its south Australian business due to record shipments,
and solid results from the pasta and oat processing businesses, which were
purchased in the latter half of fiscal 2010. While revenues were strong in
comparison to the prior year, cool and wet weather in Western Canada delayed
seeding and moved a portion of the Company's Agri-product sales into the third
quarter.
Quarterly gross profit and net revenues from services ("gross profit") increased
20% to $324.3 million compared to $269.9 million in the same quarter last year
due to the large crop in South Australia and the new pasta and oat processing
businesses. These factors, along with strong fertilizer prices, increased
year-to-date gross profit 35% to $735.9 million versus $546.0 million in the
comparable period of fiscal 2011. Improved commodity prices and increased
nutrient requirements continue to support strong demand for fertilizer and keep
prices up over last year.
Operating, general and administrative ("OG&A") expenses were $196.1 million in
the second quarter compared to $176.7 million in the comparable period of fiscal
2010. For the first six months of fiscal 2011, OG&A expenses were $396.5
million, compared to $363.0 million in fiscal 2010. The increases primarily
reflect the additional seasonal labour required by Viterra's Australian
operations to handle the record crop, a full complement of costs for the
International Grain group, which was not fully established by this time last
year, costs related to the new pasta and oat milling businesses and higher
accruals for incentive and transformational programs.
EBITDA (see Non-GAAP Measures in Section 11.0) was up significantly to $128.2
million for the second quarter, representing a 37% increase over the comparable
period of fiscal 2010. For the first half of the fiscal year, all three business
segments posted EBITDA improvements, with the majority of the increase coming
from the Grain Handling and Marketing business segment due to Australia's grain
handling operations. The new food processing operations were also strong
contributors. Year-to-date EBITDA has almost doubled coming in at $339.4 million
for the first six months of fiscal 2011 compared to $183.0 million last year.
Viterra's Australian operations contributed $65.1 million to consolidated EBITDA
for the quarter and $181.1 million on a year-to-date basis, representing
increases of 131% and 91% respectively over the corresponding periods a year
ago. In addition to the benefits of the record harvest and subsequent volume
increases, the business implemented a number of initiatives that resulted in
sustainable cost reductions and lowered the cost per tonne for the three and six
month periods.
For further information on segment performance, see Section 4.0 Segment Results.
Amortization for the three months ended April 30, 2011 was $49.7 million
compared to $35.4 million in the same three-month period in fiscal 2010. For the
first six months of the fiscal year, amortization was $99.0 million compared to
$74.2 million in fiscal 2010. The increase relates to the finalization of the
purchase price allocations for ABB Grain Ltd. ("ABB"), Dakota Growers and 21st
Century.
EBIT (see Non-GAAP Measures in Section 11.0) was $78.4 million for the quarter,
compared to $57.9 million in the second quarter of fiscal 2010. For the first
six months EBIT was $240.4 million compared to $108.8 million in fiscal 2010.
----------------------------------------------------------------------------
Financing Expenses
(in thousands) Three Months
ended April 30,
2011 2010 Change
----------------------------------------------------------------------------
Interest on debt facilities $ 33,311 $ 27,372 $ 5,939
Interest accretion 740 929 (189)
Net investment hedge (4,989) - (4,989)
Amortization of deferred financing
costs 1,318 2,847 (1,529)
----------------------------------------------------------------------------
Financing costs $ 30,380 $ 31,148 $ (768)
Interest income (854) (310) (544)
CWB carrying charge recovery (622) (483) (139)
----------------------------------------------------------------------------
Total financing and associated
expenses $ 28,904 $ 30,355 $ (1,451)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financing Expenses
(in thousands) Six Months
ended April 30,
2011 2010 Change
----------------------------------------------------------------------------
Interest on debt facilities $ 61,798 $ 65,937 $ (4,139)
Interest accretion 1,261 1,844 (583)
Net investment hedge (4,989) - (4,989)
Amortization of deferred financing
costs 2,658 4,506 (1,848)
----------------------------------------------------------------------------
Financing costs $ 60,728 $ 72,287 $ (11,559)
Interest income (1,973) (3,800) 1,827
CWB carrying charge recovery (920) (901) (19)
----------------------------------------------------------------------------
Total financing and associated
expenses $ 57,835 $ 67,586 $ (9,751)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Lower levels and interest rates on long-term debt generated savings that more
than offset higher short-term borrowings required to finance higher levels of
non-cash working capital. These savings, combined with the recognition of a
non-cash gain on a net investment hedge relating to working capital funds
advanced to the Australian operations, resulted in lower financing expenses
during the first half of fiscal 2011. For the second quarter of fiscal 2011,
total financing and associated expenses, net of interest income and a Canadian
Wheat Board ("CWB") carrying charge recovery, were down $1.5 million to $28.9
million compared to the same period last year. For the first six months,
financing and associated expenses, net of interest income and the CWB carrying
charge recovery, were down $9.8 million to $57.8 million. Long-term debt was
$1,066.8 million at April 30, 2011 compared to $1,249.5 million at April 30,
2010.
For the second quarter, Viterra recorded a net corporate income tax provision of
$15.4 million, representing an effective tax rate of 31.8% as more revenue was
earned in higher tax jurisdictions. The Company's year-to-date effective tax
rate was 27.0%.
Net earnings for the second quarter were $33.1 million or $0.09 per share,
almost double the $18.4 million or $0.05 per share recorded in the same
three-month period last year. For the first half of fiscal 2011 net earnings
were $132.7 million or $0.36 per share, a significant increase from $29.1
million or $0.08 per share in the comparable period of fiscal 2010.
3.1 Select Quarterly Information
----------------------------------------------------------------------------
Select Quarterly
Financial Information
For the quarters ended
(in millions - except April 30, January 31, October 31, July 31,
per share amounts) 2011 Q2(1) 2011 Q1(1) 2010 Q4(1) 2010 Q3(1)
----------------------------------------------------------------------------
Sales and other
operating revenues $ 2,701.9 $ 2,470.5 $ 1,951.7 $ 2,493.2
Net earnings (loss) $ 33.1 $ 99.6 $ 52.7 $ 63.5
Basic earnings per
share $ 0.09 $ 0.27 $ 0.14 $ 0.17
Diluted earnings per
share $ 0.09 $ 0.27 $ 0.14 $ 0.17
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Select Quarterly
Financial Information
For the quarters ended
(in millions - except April 30, January 31, October 31, July 31,
per share amounts) 2010 Q2(1) 2010 Q1(1) 2009 Q4(2) 2009 Q3
----------------------------------------------------------------------------
Sales and other
operating revenues $ 2,026.9 $ 1,784.5 $ 1,417.1 $ 2,223.5
Net earnings (loss) $ 18.4 $ 10.7 $ (0.9) $ 120.7
Basic earnings per
share $ 0.05 $ 0.03 $ - $ 0.51
Diluted earnings per
share $ 0.05 $ 0.03 $ - $ 0.51
----------------------------------------------------------------------------
(1) Includes results for Viterra's Australian operations.
(2) Includes results for Viterra's Australian operations from September 24,
2009 to October 31, 2009.
A discussion of the factors that have caused variations over the quarters is
found in Sections 6.1 and 6.2 of the MD&A for the fiscal year ended October 31,
2010 and in Section 4.0 Segment Results below. These sections discuss, among
other things, the trends and seasonality of the Company's three operating
segments: Grain Handling and Marketing, Agri-products and Processing.
4.0 Segment Results
4.1 Grain Handling and Marketing
The Grain Handling and Marketing operations accumulate, store, transport and
market grains, oilseeds, pulses and special crops. This business includes grain
storage facilities and processing plants strategically located in the prime
agricultural growing regions of North America and Australia. In its North
American operations, the Company has 83 storage and handling facilities located
throughout Western Canada, as well as six port export terminals (including one
joint venture facility) located in major export locations throughout Canada. In
southern Australia, the Company has 108 storage and handling facilities, which
work in conjunction with its eight wholly owned port export terminals. The
International Grain group, through its sales offices, handles the merchandising
of grains and oilseeds between origination and offshore destination customers.
In addition, the International Grain group sources commodities from locations
where Viterra has no accumulation and storage assets.
Viterra recently signed a long-term lease arrangement with the Port of Montreal
and, effective July 1, 2011, will operate the year-round port with storage
capacity of 262,000 tonnes.
Seasonality
Receipts and subsequent shipments in any given fiscal year are dependent upon
production levels and carry-over stocks from the prior year. Grain flows can
fluctuate depending on global demand, crop size, prices of competing
commodities, as well as other factors noted in the following discussion on
volumes and shipments. In North America, grain shipments are fairly consistent
from quarter to quarter, as are port terminal activities off the West Coast of
Canada. At Thunder Bay, shipments through the Company's port terminals end in
late December, when the St. Lawrence Seaway closes for the winter months, and
typically resume near the beginning of April.
In South Australia, the majority of grain flows into the system during the first
quarter as this is the harvest period, which begins in October and continues
through until the end of January. During the second quarter, the operations
typically receive the last of the grower grain deliveries, with the exception of
a small amount that remains on-farm. Viterra owns and operates approximately 95%
of South Australia's storage and all of its port terminal capacity. The grain
that is delivered into the Company's grain storage and handling facilities is
classified and blended in preparation for export. Viterra and other marketers
then buy these grains and oilseeds and market them directly to destination
customers. Shipping from the Company's port terminals typically commences in
harvest and continues throughout the year. Income is derived from storage and
handling fees including receivals and monthly carrying and out-turn (shipping)
fees. Additional income is derived through handling and shipping of non-grain
commodities year-round from select port terminals.
In addition, the Company's International Grain group earns merchandising margins
for commodities that it acquires from third parties and sells to destination
customers around the world.
Industry Shipments
The western Canadian harvest produced an estimated 45.0 million tonnes of the
six major grains (wheat, barley, oats, canola, flax, and dry peas) in the fall
of 2010. This is below the 10-year normalized average of 49.0 million tonnes and
about 15% lower than the 2009 crop that produced 52.8 million tonnes.
In the second quarter, western Canadian industry shipments of the six major
grains were 8.0 million tonnes compared to 8.8 million tonnes during the
corresponding period of 2010. For the six months ended April 30, 2011, industry
shipments of the six major grains were 15.7 million tonnes, about 7% lower than
the 16.9 million tonnes shipped by this time last year.
South Australian production for 2011 was an estimated 9.8 million tonnes,
according to the Australian Bureau of Agricultural and Resource Economics and
Sciences' ("ABARES") February 15, 2011 crop report. This is the largest crop on
record, exceeding the previous record of 8.9 million tonnes and representing a
38% increase over the previous year's production of 7.1 million tonnes. The
10-year average for South Australia is approximately 6.0 million tonnes.
Viterra's North American Volumes
Viterra's shipments for the three months ended April 30, 2011, were 3.7 million
tonnes compared to 4.0 million tonnes in the second quarter of fiscal 2010. For
the six months ended April 30, 2011, the Company shipped 7.1 million tonnes,
compared to 7.6 million tonnes a year earlier. Viterra's split between CWB
grains and open market grain shipments for the second quarter and first six
months of fiscal 2011, was 45/55 and 44/56 respectively. This compares to a
48/52 split in the second quarter and a 49/51 split in the first six months of
last year.
Viterra's port terminal receipts for the second quarter were 2.2 million tonnes
compared to 2.3 million tonnes in the second quarter of 2010. For the first six
months, port terminal receipts were 4.6 million tonnes versus 4.7 million tonnes
in fiscal 2010. For the quarter and year-to-date periods, over 85% of these
volumes moved to West Coast port terminals to support continued strong demand
from Asian-Pacific countries.
Viterra's South Australia Volumes
----------------------------------------------------------------------------
Viterra's Australian Volume Three Months
(in thousands of tonnes) ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Total shipments 2,360 1,225 1,135
Merchandised volumes
South Australia 725 370 355
Rest of Australia 1,053 1,130 (77)
----------------------------------------------------------------------------
Total merchandised volumes 1,778 1,500 278
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Viterra's Australian Volume Six Months
(in thousands of tonnes) ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Total shipments 3,987 1,860 2,127
Merchandised volumes
South Australia 1,346 660 686
Rest of Australia 1,721 2,240 (519)
----------------------------------------------------------------------------
Total merchandised volumes 3,067 2,900 167
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Viterra's South Australian operations received 0.3 million tonnes of grains,
oilseeds and special crops into its system in the second quarter of fiscal 2011,
compared to 0.1 million tonnes in the second quarter of fiscal 2010. These
volumes brought aggregate receipts during fiscal 2011 to 8.5 million tonnes,
compared to 6.2 million tonnes a year ago. As of the end of the second quarter,
the vast majority of the available crop in the region was received into
Viterra's system.
The Company had a strong shipping program in place for the second quarter and
moved a record 2.4 million tonnes through its South Australia port terminals, a
two-fold increase from the 1.2 million tonnes shipped in the second quarter of
last year. Fiscal year to date, the Company moved a total of 4.0 million tonnes,
compared to 1.9 million tonnes in 2010. High commodity prices and strong demand
have motivated the industry to utilize Viterra's system to ship a significant
amount of grain in the first half of the year.
During the first six months of fiscal 2011, Viterra purchased for its own
account 34% of the grain shipped through its south Australian system. There are
a large number of marketers competing for south Australian growers' grain and,
of this number, more than 10 of them account for the remaining 66% of grain
shipped from the Company's south Australian ports.
Viterra also originated and merchandised 1.1 million tonnes of grains and
oilseeds from third-party facilities throughout the rest of Australia during the
quarter. On a year-to-date basis, Viterra has merchandised 1.7 million tonnes
from the rest of Australia, which is down from the prior year due to drought in
Western Australia and logistical issues caused by wet weather and availability
of freight in the eastern states.
Operating Results
Grain Handling and Marketing
(in thousands - except margins) Three Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Gross profit and net revenues
from services $ 214,172 $ 153,764 $ 60,408
Operating, general and
administrative expenses (92,090) (80,175) (11,915)
----------------------------------------------------------------------------
EBITDA (1) 122,082 73,589 48,493
Amortization (25,678) (17,517) (8,161)
----------------------------------------------------------------------------
EBIT (1) $ 96,404 $ 56,072 $ 40,332
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total sales and other operating
revenues $ 2,045,241 $ 1,418,093 $ 627,148
North American Industry
Statistics (tonnes)
Canadian Industry Receipts - six
major grains 7,640 8,734 (1,094)
Canadian Industry Shipments -
six major grains 7,972 8,813 (841)
Canadian Industry Terminal
Receipts 5,520 5,898 (378)
Viterra - North American
Operations (tonnes)
Elevator receipts 3,344 3,817 (473)
Elevator shipments 3,652 4,035 (383)
Port terminal receipts 2,199 2,279 (80)
Viterra - Australian Operations
(tonnes)
Shipments 2,360 1,225 1,135
Receivals 271 59 212
----------------------------------------------------------------------------
Consolidated Global Pipeline
(tonnes)
North American shipments 3,652 4,035 (383)
Australian receivals 271 59 212
Total pipeline 3,923 4,094 (171)
Consolidated pipeline margin
(per tonne) N/A N/A N/A
----------------------------------------------------------------------------
Operating Results
Grain Handling and Marketing
(in thousands - except margins) Six Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Gross profit and net revenues
from services $ 512,613 $ 355,463 $ 157,150
Operating, general and
administrative expenses (192,769) (172,195) (20,574)
----------------------------------------------------------------------------
EBITDA (1) 319,844 183,268 136,576
Amortization (51,286) (35,625) (15,661)
----------------------------------------------------------------------------
EBIT (1) $ 268,558 $ 147,643 $ 120,915
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total sales and other operating
revenues $ 3,987,875 $ 2,761,301 $ 1,226,574
North American Industry
Statistics (tonnes)
Canadian Industry Receipts -
six major grains 15,917 16,988 (1,071)
Canadian Industry Shipments -
six major grains 15,702 16,877 (1,175)
Canadian Industry Terminal
Receipts 11,165 11,591 (426)
Viterra - North American
Operations (tonnes)
Elevator receipts 6,976 7,402 (426)
Elevator shipments 7,126 7,611 (485)
Port terminal receipts 4,577 4,689 (112)
Viterra - Australian Operations
(tonnes)
Shipments 3,987 1,860 2,127
Receivals 8,509 6,200 2,309
Consolidated Global Pipeline
(tonnes)
North American shipments 7,126 7,611 (485)
Australian receivals 8,509 6,200 2,309
----------------------------------------------------------------------------
Total pipeline 15,635 13,811 1,824
Consolidated pipeline margin
(per tonne) $ 32.79 $ 25.74 $ 7.05
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See Non-GAAP Measures in Section 11.0
Gross profit for the Grain Handling and Marketing segment totalled $214.2
million and was up 39%, or $60.4 million, over the second quarter of last year.
The strong second quarter results brought gross profit to $512.6 million for the
first six months of fiscal 2011 compared to $355.5 million in the previous year.
A significant portion of both the second quarter and year-to-date increases were
due to the performance of Viterra's Australian operations. South Australia
harvested a large crop this year, which has resulted in significant volumes
moving into Viterra's system in the first quarter and record shipments in the
first six months of the year.
On a consolidated basis, the year-to-date pipeline margin per tonne was $32.79
compared to $25.74 last year. During the quarter, North American margins
benefited from increased merchandising and blending opportunities attributable
to market volatility and higher commodity prices, additional pulse sales, which
earn higher margins, and increased shipments through the Company's interest in
the Prince Rupert port grain terminal. Overall, the Company expects annual
volumes through the Prince Rupert port grain terminal to be similar to last
year.
In South Australia, quarterly margins benefited from high volumes, increased
storage and handling fees, as well as solid blending contributions and domestic
merchandising margins. Viterra's consolidated gross margin per tonne is expected
to grow throughout the remaining quarters as its Australian operations earn more
storage, shipping and merchandising revenue. The Company confirms its global
pipeline margin guidance to be in the $33 to $36 per tonne range for the fiscal
year.
OG&A expenses for the Grain Handling and Marketing segment were $92.1 million in
the second quarter of fiscal 2011 compared to $80.2 million in the second
quarter of last year. This brought OG&A expenses for the first six months to
$192.8 million compared to $172.2 million a year earlier. The increase primarily
relates to additional seasonal labour hired in Australia during the first
quarter to handle the record crop, a full complement of costs for the
International Grain group, which was not fully established by this time last
year, and higher costs related to the Company's short-term incentive programs.
The Grain Handling and Marketing segment generated $122.1 million in EBITDA for
the quarter compared to $73.6 million in the second quarter of last year. On a
year-to-date basis, this segment's EBITDA was $319.8 million compared to $183.3
million a year earlier. The majority of these increases relate to Viterra's
Australian operations that contributed $65.8 million in the quarter (2010 -
$22.2 million) and $179.8 million (2010 - $86.2 million) for the first six
months of the fiscal year.
The International Grain group had an EBITDA loss in the second quarter of $1.9
million. On a year-to-date basis, the International Grain group generated $31.4
million in EBITDA. In the corresponding periods of fiscal 2010, the
International Grain group was not fully established and its contributions were
included within North American and Australian results. This group's activities
are driven by opportunities that arise in the market and therefore results can
fluctuate quarter to quarter depending upon varying market dynamics. In the
second quarter, while commodity market fundamentals were strong, global events
including the earthquake and tsunami in Japan and political unrest in the Middle
East, caused uncertainty and extreme commodity price volatility in the markets.
This resulted in a small loss from the group. Viterra mitigated the impact of
these events by employing effective risk management and hedging strategies to
reduce positions, consistent with the Company's risk tolerance levels.
EBIT for the segment was $96.4 million in the second quarter of fiscal 2011,
compared to $56.1 million in the second quarter of fiscal 2010. On a
year-to-date basis, EBIT was $268.6 million compared to $147.6 million a year
earlier.
Outlook
In South Australia, the Company expects shipments to remain strong given the
significant crop in storage, the favourable commodity pricing environment and
strong demand. To complement the 8.5 million tonnes, which were received into
the Company's system during the first half of fiscal 2011, there were
approximately 1.2 million tonnes of carry-in stocks from fiscal 2010. Management
currently estimates carry-over stocks into fiscal year 2012 for the Company's
Australian system to range between 2.0 to 3.0 million tonnes.
In North America, according to the Canadian Grain Commission ("CGC"), Canadian
bulk grain exports for the six major grains, for the first nine months of the
crop year (August 1st to May 1st), were 20.8 million tonnes, compared to the
21.4 million tonnes exported during the same period in crop year 2010. Export
strength is anticipated to continue. This is due to strong demand created by
supply difficulties in other grain growing regions, robust global pricing for
commodities and the continuing draw down of western Canadian carry-over stocks.
The Company now estimates that CGC marketings will be about 31.0 to 32.0 million
tonnes for the 12 months ended October 31, 2011. As expected, producers have
continued to draw down on-farm carryout stocks and, as of March 31, 2011, total
western Canadian on-farm stocks of the six major grains were down approximately
23% from the previous year.
Strong demand for Canadian and Australian exports is indicative of a wider
global trend to draw down wheat and coarse grains in the 2011 crop year. By the
end of July 2011, global stocks-to-use days are expected to be below 70 days, a
sharp reduction from 82 days one year earlier. Reduced global stockpiles of
essential grains have driven global pricing, on a constant dollar basis, for
agri-commodities to a three-decade high. Viterra will continue to watch these
short and longer-term trends and look for opportunities to capitalize on its
position in the global marketplace.
To view a chart of the Global Wheat and Course Grains Stockpiles and Pricing,
please visit the following link:
http://media3.marketwire.com/docs/609vt_image1.jpg
An early assessment of planting intentions for Western Canada and South
Australia show some positive support for the upcoming growing seasons.
Strong commodity prices suggest solid return prospects for farmers in Western
Canada who have indicated that they intend to maximize seeded acreage. However,
seeding activity in Western Canada to date has been hampered by excessive spring
moisture. The ultimate production levels will be determined by the success and
timing of spring seeding, the crop mix, and yields. For more information on
western Canadian plantings please refer to Section 4.2 - Outlook.
From a regulatory perspective in Canada, the majority Conservative Government
recently announced it intends to provide western Canadian producers with
marketing choice for wheat, durum and barley, which will eliminate the CWB's
monopoly control and allow it to coexist with the grain trade. Current
indications are that the Government will introduce legislative changes which
will take effect as of August 2012. However, it is early in the process and few
details are available on how this outcome will be achieved.
Viterra is supportive of the Government's direction and is confident in the
Company's ability to operate effectively in an open wheat and barley market, to
serve the needs of farmers, other industry participants, and the new CWB.
Viterra believes it has the necessary expertise today to provide these
additional services to the industry. The Company is committed to working with
the Government, industry, and the CWB to ensure the Canadian grain industry
remains a vibrant and competitive source for agricultural products, and it
intends to actively participate in the process to promote an orderly transition
with positive, sustainable change for the benefit of the western Canadian
agricultural industry.
In South Australia, plantings for the year are well underway. Farmers in this
region intend to slightly increase their crop plantings by approximately 4% over
last year to 9.6 million acres. Wheat plantings are expected to increase 7% to
5.8 million acres and account for nearly 60% of total seeded acreage in the
region. While barley acreage is expected to be down by 4% to 2.2 million acres,
canola plantings are expected to increase 18% to 0.6 million acres as growers
take advantage of good moisture conditions and strong pricing. As the sowing
program advances, lentil acreage may decline due to strong canola pricing but
lentil acreage is still expected to increase year over year by approximately
20%. This increase will be monitored over the coming weeks as sowing nears
completion. The Company expects planting in the Eyre Peninsula region to be
completed in the next few days, and the Eastern and Central regions in about two
weeks.
In order for port terminal operators such as Viterra to export bulk wheat from
Australia, they must retain accreditation from Wheat Exports Australia ("WEA")
under Australian law. Operators are required by WEA to also have in place an
access undertaking approved by the Australian Competition and Consumer
Commission ("ACCC"), relating to the provision of access to its port terminal
services to other accredited wheat exporters. The current undertakings expire on
September 30, 2011 for all operators.
Viterra has lodged its proposed new undertaking for the period October 1, 2011
to September 30, 2014 for approval. The ACCC has been conducting industry
consultation as part of its regulatory approval process, and Viterra anticipates
the ACCC's draft decision will be published in June. Viterra will then address
any outstanding matters raised by the ACCC, to ensure a timely decision is made
to accept the proposed undertaking. The Company will continue to work with the
ACCC and remains confident that it will gain approval for its proposed
undertaking by September 30, 2011, in order to be granted a three-year renewal
of its accreditation.
4.2 Agri-products
North America
Viterra operates a network of 261 agri-products retail locations throughout
Western Canada, which are geographically dispersed throughout the growing
regions of the Canadian Prairies. Retail locations offer fertilizer, crop
protection products, seed and equipment to growers. The Company's operations in
Western Canada represent approximately 34% share of the market.
For fertilizer, Viterra has a 34% investment in CFL, a nitrogen fertilizer
manufacturing plant in Medicine Hat, Alberta. The Company is entitled to receive
34% of approximately 1.4 million tonnes of merchantable product, split between
granular urea and anhydrous ammonia. The Company also buys and sells fertilizer
from third-party manufacturers.
Viterra offers a comprehensive line of crop protection and seed products through
its western Canadian retail network. The Company, in conjunction with leading
manufacturers, offers a line of 22 private label crop protection products as
well as third-party products. For seed, the Company has a network of research
facilities and agreements, which result in an extensive offering of proprietary
and exclusive varieties, as well as third-party varieties.
The Agri-products segment includes contributions from the Company's financial
products business. As an agent for a Canadian chartered bank, Viterra
FinancialTM, extends unsecured and secured trade credit at competitive rates to
the Company's agri-products and feed products customers.
Australia
In Australia, Viterra operates 16 agri-products depots and six fertilizer
warehouses in South Australia and Victoria, through which it sells and
distributes seed, fertilizer and crop protection products.
Viterra also operates a domestic wool network extending across the agricultural
areas of Western Australia, South Australia and Victoria and is the largest
buyer of Australian wool, exporting to key international markets such as China,
India and Italy.
Seasonality
North America
Retail sales of agri-products are seasonal and correlate directly to the life
cycle of the crop. About 60% of Viterra's annual agri-products sales are
typically generated during the third quarter as producers purchase crop inputs
such as seed, fertilizer and crop protection products. Prior to seeding, Viterra
receives prepayments from farm customers who want to order a portion of their
agri-product requirements for the spring. Actual sales are recorded when product
is delivered. Prepayments, seed bookings, and discussions with customers provide
Viterra with an early indication of seeding intentions. Usually about 12% to 17%
of agri-products sales occur during the second quarter of each fiscal year.
Australia
In Australia, most crop inputs are purchased during the seeding period, which
begins in April and extends into June. Additional sales occur throughout the
growing season to support crop development.
Operating Results
Agri-products
(in thousands - except margins) Three Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Gross profit and net revenues from
services $ 66,563 $ 76,976 $ (10,413)
Operating, general and
administrative expenses (45,591) (46,986) 1,395
----------------------------------------------------------------------------
EBITDA (1) 20,972 29,990 (9,018)
Amortization (9,806) (11,374) 1,568
----------------------------------------------------------------------------
EBIT (1) $ 11,166 $ 18,616 $ (7,450)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Highlights
Sales and other operating
revenues $ 433,741 $ 438,225 $ (4,484)
Fertilizer 154,410 164,148 (9,738)
Crop Protection 17,800 37,717 (19,917)
Seed 111,623 123,050 (11,427)
Wool 128,966 88,728 40,238
Equipment sales and other revenue 16,533 17,397 (864)
Financial Products 4,409 7,185 (2,776)
Fertilizer volume (tonnes) 279 371 (92)
Fertilizer margin (per tonne) $ 108.76 $ 78.47 $ 30.29
----------------------------------------------------------------------------
Agri-products
(in thousands - except margins) Six Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Gross profit and net revenues from
services $ 120,120 $ 109,575 $ 10,545
Operating, general and
administrative expenses (89,852) (91,519) 1,667
----------------------------------------------------------------------------
EBITDA (1) 30,268 18,056 12,212
Amortization (18,808) (22,556) 3,748
----------------------------------------------------------------------------
EBIT (1) $ 11,460 $ (4,500) $ 15,960
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Highlights
Sales and other operating
revenues $ 726,312 $ 653,588 $ 72,724
Fertilizer 329,389 284,715 44,674
Crop Protection 23,022 41,809 (18,787)
Seed 112,743 123,628 (10,885)
Wool 224,469 157,467 67,002
Equipment sales and other revenue 28,610 34,021 (5,411)
Financial Products 8,079 11,948 (3,869)
Fertilizer volume (tonnes) 652 681 (29)
Fertilizer margin (per tonne) $ 103.01 $ 68.72 $ 34.29
----------------------------------------------------------------------------
(1) See Non-GAAP Measures in Section 11.0
Sales and other operating revenues for the Agri-products segment were down
slightly during the second quarter of fiscal 2011 to $433.7 million versus
$438.2 million for the same three-month period last year. The variance is due to
the timing of fertilizer, crop protection and seed sales as a result of delayed
spring seeding in Western Canada. Cool and wet weather across the Canadian
Prairies delayed seeding until May, pushing sales into the third quarter. The
effects of the delayed spring season were in part offset by higher fertilizer
prices in Western Canada and higher wool sales in Australia. Strong demand from
growing international markets such as China and India, increased wool sales by
45% compared to the same quarter last year. On a year-to-date basis, strong
fertilizer pricing and higher Australian wool sales (both in terms of volume and
price) pushed Agri-products segment sales up $72.7 million over the prior year.
----------------------------------------------------------------------------
Consolidated Fertilizer Volumes by Quarter (in thousands of tonnes)
For the quarter ended
Fiscal year 31-Jan 30-Apr 31-Jul 31-Oct Total
----------------------------------------------------------------------------
2011 373 279 - - 652
2010 310 371 699 370 1,750
----------------------------------------------------------------------------
While the Company believes demand for fertilizer will remain strong in Western
Canada due to improved commodity prices and increased nutrient requirements
caused by excess moisture in 2010 and 2011, Canadian fertilizer sales volumes
were down 29% for the quarter and 6% year to date due to the late spring
seeding. Australia had strong fertilizer sales with volumes of 41,000 tonnes for
the second quarter compared to 35,000 tonnes a year earlier, bringing its
year-to-date volumes to 51,000 tonnes versus 43,000 tonnes in fiscal 2010.
Gross profit for the second quarter was $66.6 million compared to $77.0 million
a year earlier, which reflects the impact of late spring seeding in North
America and, in turn, reduced sales volumes. As of the end of April, seeding
progress in Western Canada was about 2% complete compared to about 10% in a
typical year.
On a year-to-date basis, gross profit was $120.1 million, an increase from the
$109.6 million generated in the corresponding period of fiscal 2010. This
increase relates mainly to fertilizer margins that have risen to $103.01 per
tonne in fiscal 2011 compared to $68.72 per tonne a year earlier. Higher average
selling prices and lower natural gas costs on manufactured product have
generated this increase. For fiscal 2011, the Company continues to expect its
fertilizer margin will be in the range of $100 to $120 per tonne. Quarterly
margins per tonne can vary outside this range due to product mix and timing of
purchases for manufactured versus resale tonnes.
OG&A expenses were $45.6 million and $89.9 million, respectively, for the second
quarter and first six months of fiscal 2011 and on par with the corresponding
periods in fiscal 2010.
EBITDA for the second quarter was $21.0 million, down from the $30.0 million
reported a year ago due to timing differences caused by the late seeding in
North America. For the first six months of the fiscal year, EBITDA was $30.3
million compared to $18.1 million in fiscal 2010 as a result of strong
fertilizer pricing.
EBIT for the second quarter was $11.2 million compared to $18.6 million in the
second quarter of fiscal 2010. For the first half of the fiscal year, EBIT was
$11.5 million, compared to a loss of $4.5 million in the corresponding period of
fiscal 2010.
Outlook
Despite the late spring seeding season in Western Canada, which delayed second
quarter crop input sales, there are several trends which are expected to
continue to support strong fundamentals in the Agri-products segment for the
full year.
Seeding activity in Western Canada is well underway after cool and wet weather
delayed activity until May. Throughout the Canadian Prairies, moisture
conditions are extremely good but have been excessive in some regions and have
stalled seeding. Our most recent reports, as of June 5, 2011, indicate that
seeding across the three Prairie Provinces is approximately 80% complete
compared to the historical average for this time of 93%. Approximately 95% of
the Alberta crop has been sown, 80% of the Saskatchewan crop and about 45% of
the Manitoba crop.
In April, Statistics Canada published its seeding intentions report that
suggests that up to 62.5 million acres would be planted, 2.5 million more than
the 10-year average due to strong commodity prices and compelling return
prospects for western Canadian farmers. While Management agrees with the
fundamentals underpinning optimism in the industry, it is our view, in light of
the excess moisture experienced during April and May on the Prairies, that
western Canadian acreage will be in the 52.0 to 56.0 million acre range, which
is up to 4.0 million acres above 2010. Management expects canola plantings to
increase to between 17.0 and 18.5 million acres compared to 16.8 million acres
in 2010.
----------------------------------------------------------------------------
Total Seeded Acreage
Western Canada
----------------------------------------------------------------------------
Special
Crops
All Coarse and
(In Millions of Acres) Wheat Grains Canola other Total(i)
----------------------------------------------------------------------------
5-yr average for 2005-2009 23.2 13.8 14.7 8.6 60.3
----------------------------------------------------------------------------
2011 Forecast(i) 54.0 -
56.0
2010 Estimate(i) 52.0
2009 23.2 12.0 16.1 9.5 60.8
2008 23.4 13.3 16.1 8.6 61.4
2007 20.6 15.6 14.7 7.7 58.6
2006 24.9 13.5 13.0 8.5 59.9
2005 23.7 14.7 13.5 8.8 60.7
----------------------------------------------------------------------------
Source: (i)Viterra estimate
Historical numbers from Statistics Canada, Principal Field Crops report
The predicted increase in canola acreage is positive for the Agri-products
segment given that producers typically invest in more crop inputs when growing
oilseeds. In addition, a large portion of Viterra's higher margin proprietary
and exclusive seed varieties are canola.
To view the Average Crop Input Costs In Canada chart, please visit the following
link: http://media3.marketwire.com/docs/609vt_image2.jpg
For fertilizer, movement to farm has been steady in the first half of fiscal
2011 even with selling prices above last year's and limited seeding progress in
Western Canada at the end of April. The Company expects western Canadian demand
to remain strong due to improved commodity prices and increased nutrient
requirements caused by excess moisture in 2010 and early 2011.
For crop protection products, Viterra will continue to offer its extensive line
of private label products in Western Canada that allow for higher margins as
well as more effective inventory management during the busy spring season. The
Company will also continue to expand its offering of proprietary and exclusive
seed varieties and has furthered its research partnership with the University of
Saskatchewan to ensure the Company has a pipeline of new product offerings in
the future.
In South Australia, moisture conditions are providing a good base for seeding
that is approximately 80% complete in that region. Initial estimates suggest
that, due to strong prices and good moisture conditions, the state is likely to
have increased plantings.
4.3 Processing
Viterra's Processing segment is an important aspect of the Company's value
chain. Overall, this segment extends the Company's pipeline by producing food
ingredients for consumer products companies and food processors around the
world. This segment also consists of feed manufacturing operations that provide
feed and nutritional supplements to the feed industries, primarily in Canada,
the U.S. and New Zealand.
North America
Viterra's North American food processing operations consist of oat and specialty
grain milling, pasta manufacturing, canola crushing and a 42% interest in
Prairie Malt, a single-site malt operation located in Saskatchewan. There are
four oat milling facilities with the capacity to process 540,000 tonnes of raw
oats into 335,000 tonnes of food ingredients annually. The wheat flour mill
operation has the capacity to grind about 100,000 tonnes of grains into 75,000
tonnes of flour and bran, while the two pasta manufacturing facilities have the
capacity to grind 340,000 tonnes of durum wheat and process 254,000 tonnes of
pasta annually. The Company's canola crush facility has the capacity to process
340,000 tonnes of canola into 323,000 tonnes of oil and meal on an annual basis.
In southern China, Viterra is constructing a 680,000 tonne joint venture canola
crushing facility that is expected to be operational in fiscal year 2012.
Viterra is a major player in the North American feed markets. In Canada, feed
manufacturing is conducted at six feed mills and one pre-mix manufacturing
facility. In the U.S., the operations include six feed mills and commodity
blending sites in Texas, Oklahoma, and New Mexico. The Company distributes about
2.0 million tonnes of feed from its North American operations annually.
Australia
In Australia, Viterra is the largest malt processor, operating eight processing
plants strategically positioned across Australia, with production capacity of up
to 500,000 tonnes annually. Approximately 400,000 tonnes are destined for export
markets and 100,000 tonnes are consumed domestically. Viterra supplies malt to
major domestic brewers and international brewers that predominantly supply the
Asian-Pacific region. The Company is currently building a 110,000 tonne malt
facility in Sydney, Australia, which is expected to be completed in fiscal 2012.
In New Zealand, the Company has a presence across the feed supply chain, from
marketing and accumulation to storage, freight, milling and the sale of end-use
products. It is a key importer and distributor of grains and meals to the New
Zealand market. The Company operates three storage facilities in close proximity
to the prime dairy regions. It is involved in maize processing and also operates
a feed manufacturing and distribution business with three feed mills
representing production capacity of approximately 240,000 tonnes annually.
Operating Results
Processing
(in thousands - except margins) Three Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Gross profit and net revenues from
services $ 43,586 $ 39,156 $ 4,430
Operating, general and
administrative expenses (20,110) (16,449) (3,661)
----------------------------------------------------------------------------
EBITDA (1) 23,476 22,707 769
Amortization (12,017) (7,362) (4,655)
----------------------------------------------------------------------------
EBIT (1) $ 11,459 $ 15,345 $ (3,886)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales and other operating revenues $ 374,615 $ 290,098 $ 84,517
Operating Highlights - Food
Sales volumes (tonnes)
Malt (2) 119 136 (17)
Pasta 56 - N/A
Oats 91 54 37
Canola 42 60 (18)
Combined food processing margin
(per tonne sold) $ 98.96 $ 87.55 $ 11.41
Operating Highlights - Feed
Feed sales volumes (tonnes)
North America 439 513 (74)
New Zealand 32 32 -
Combined feed processing margin
(per tonne sold) $ 27.82 $ 31.68 $ (3.86)
----------------------------------------------------------------------------
Processing
(in thousands - except margins) Six Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Gross profit and net revenues from
services $ 103,210 $ 80,951 $ 22,259
Operating, general and
administrative expenses (39,378) (35,058) (4,320)
----------------------------------------------------------------------------
EBITDA (1) 63,832 45,893 17,939
Amortization (24,263) (15,204) (9,059)
----------------------------------------------------------------------------
EBIT (1) $ 39,569 $ 30,689 $ 8,880
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales and other operating revenues $ 748,525 $ 598,075 $ 150,450
Operating Highlights - Food
Sales volumes (tonnes)
Malt (2) 245 263 (18)
Pasta 110 - N/A
Oats 194 108 86
Canola 80 119 (39)
Combined food processing margin
(per tonne sold) $ 123.66 $ 92.18 $ 31.48
Operating Highlights - Feed
Feed sales volumes (tonnes)
North America 886 1,051 (165)
New Zealand 75 67 8
Combined feed processing margin
(per tonne sold) $ 26.46 $ 32.00 $ (5.54)
----------------------------------------------------------------------------
(1) See Non-GAAP Measures in Section 11.0
(2) Includes contributions from Viterra's 42% ownership interest in Prairie
Malt and its wholly owned Australian malt business
Sales and other operating revenues for the Processing segment for the second
quarter were $374.6 million, up $84.5 million or 29% from the comparable period
of 2010. On a year-to-date basis, sales were $748.5 million representing a 25%
increase over the comparable period of fiscal 2010. Sales from the food
processing operations were $430.9 million, compared to $287.0 million for the
same year-to-date period last year, reflecting the addition of new pasta and
coated oats processing in the latter half of fiscal 2010. Sales from the feed
manufacturing operations were $158.7 million in the second quarter versus $151.2
million a year earlier, bringing the year-to-date total to $317.6 million versus
$311.1 million a year earlier.
Second quarter sales volumes from the new pasta business were consistent with
the first quarter at 56,000 tonnes and reflect continued strong demand in the
U.S. In the oat business, volumes reached 91,000 tonnes in the second quarter
and 194,000 tonnes for the first six months of the year. The quarterly and
year-to-date increases of 69% and 80% are due to the addition of 21st Century
oat business, which complemented consistent sales from the existing oat
operations.
Canola crush volumes in the second quarter were 42,000 tonnes and 30% lower than
the prior year's quarter. For the first six months, crush volumes decreased to
80,000 tonnes, compared to 119,000 tonnes a year earlier. The Company has
reduced production at its Manitoba crush facility to 60% of capacity as a result
of difficult margins and is currently developing a specialty oil strategy that
is expected to build upon its expeller-press processing methodology and deliver
sustainable margins over time.
Viterra's malt operations generated sales of $60.9 million for the second
quarter of fiscal 2011 compared to $79.2 million for the same period last year.
On a year-to-date basis, sales were $125.8 million, compared to $165.4 million a
year earlier. The Company's malt operations include eight processing plants
across Australia that account for over three quarters of Viterra's malt
operations and a single malt operation in Western Canada. While sales in Canada
were comparable year-over-year, in Australia malt sales volumes were down 17% in
the quarter and 11% year to date reflecting sluggish customer demand and
softening world malt prices.
On a combined basis, gross margins for the food processing operations were
$98.96 per tonne for the second quarter compared to $87.55 per tonne a year ago.
This increase reflects contributions from the new pasta and oat businesses,
which produce higher margins, offset in part by lower canola margins. While
year-over-year the second quarter combined margin was strong, it was lower than
the year-to-date gross margin of $123.66 per tonne. Higher commodity prices
temporarily eroded the pasta margin in the second quarter as there is a time lag
in passing the raw commodity price increases onto consumers. Fluctuations in
quarterly margins are expected given product mix, timing of pricing and the
impact of supply and demand fundamentals. The Company maintains its annual
guidance range of $90 to $110 per tonne for fiscal 2011.
Viterra's feed products generated a gross margin of $27.82 per tonne in the
second quarter, compared to $31.68 per tonne a year ago. On a year-to-date
basis, the margin was $26.46 per tonne versus $32.00 per tonne in the previous
year. The year-over-year decreases reflect challenging market conditions in both
Western Canada and New Zealand. Excess capacity has caused intense competition
in the western Canadian market and some competitors are reducing price to buy
market share. This has resulted in lower volumes and margins in Western Canada
feed products. In New Zealand, the Company continues to integrate its new
feedmill by improving operating efficiencies and securing sales. In the U.S.,
margins were higher over the prior year as strong dairy and beef prices have
increased purchases of higher margin complex feeds.
OG&A expenses for the Processing segment were $20.1 million for the second
quarter compared to $16.4 million in fiscal 2010 and for the six months were
$39.4 million compared to $35.1 million a year earlier. The increase in OG&A
expenses reflects the addition of the new pasta and oat businesses purchased in
the second half of fiscal 2010. These increases were partially offset by lower
costs and improved efficiencies in the North American feed operation due to
integration efforts.
The Processing segment's EBITDA was $23.5 million for the second quarter versus
$22.7 million for the same period in fiscal 2010. Viterra's North American food
processing businesses contributed $14.8 million to quarterly EBITDA, up from the
$2.8 million contribution in the second quarter of last year. Viterra's
Australian malt operation contributed $6.5 million in the second quarter,
compared with $14.0 million in 2010 while the Company's global feed operations
contributed $2.2 million versus $5.9 million last year. On a year-to-date basis,
the segment's EBITDA was $63.8 million, compared to $45.9 million a year
earlier. The North American food processing businesses contributed $41.6 million
(2010 - $10.0 million) of which $29.7 million was from the new pasta and oat
processing businesses. Australian malt and the Company's global feed
contributions were $17.7 million (2010 - $22.2 million) and $4.9 million (2010 -
$13.6 million), respectively.
Segment EBIT was $11.5 million for the quarter compared to $15.3 million in the
second quarter of fiscal 2010. For the first half of fiscal 2011, segment EBIT
was $39.6 million compared to $30.7 million in the comparable period a year
earlier.
Outlook
The Company expects stable contributions from the Processing segment to continue
through the latter half of fiscal 2011 and the combined annual food processing
margin to range between $90 and $110 per tonne. The segment's performance
reflects the benefits of the Company's diversification strategy to grow its
portfolio of food and feed ingredients businesses.
Demand for whole grain, nutritional food ingredients is strong. With the
economic challenges facing North America, the Company anticipates steady demand
for private label/store brand ready-to-eat cereals and stable consumption of
oatmeal. In addition, as fiscal 2011 progresses, Viterra believes the tepid
recovery in the U.S. will continue to support strong demand for pasta products,
which are healthy and economical.
In the Canadian canola processing operation, the Company is pursuing operational
efficiencies and ongoing cost control measures to offset the impact of poor
margins. In addition, Viterra continues to look for opportunities to secure more
high-margin sales by leveraging its double expeller-press process that produces
specialty oils, non-genetically modified organism ("GMO"), and Hi Oleic oil for
the natural food market. Management expects a modest improvement in
contributions from this operation as fiscal 2011 progresses.
Global malt markets are expected to remain challenged in the near term due to
sluggish beer sales in North America and Europe. This has created excess
capacity and has increased competition across the globe, which impacts industry
margins. For Viterra's malt operations in Australia, the Company believes that
margins will remain compressed, below pre-recession levels, for the remainder of
fiscal 2011. However, Viterra remains confident in the long-term outlook for
this industry.
For the North American feed business, western Canadian operations will be
challenged by overcapacity, intense competition and margin compression in the
near term. However, results are expected to improve with the addition of new
sales personnel and market strategies. In the U.S., the Company expects the
demand for complex feed products will improve in response to strong pricing and
export demand for dairy and beef products.
In the New Zealand feed market, the ongoing recovery in the global economy and
demand from Southeast Asia for dried milk products is driving higher milk prices
and a gradual recovery in this market. These trends are expected to move
producers from commodity feeds to higher margin complex feed products over time.
4.4 Corporate Expenses
----------------------------------------------------------------------------
Corporate Expenses
(in thousands) Three Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Operating, general and
administrative expenses $ (38,349) $ (33,043) $ (5,306)
Amortization (2,234) 875 (3,109)
----------------------------------------------------------------------------
EBIT (1) $ (40,583) $ (32,168) $ (8,415)
----------------------------------------------------------------------------
Corporate Expenses
(in thousands) Six Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Operating, general and
administrative expenses $ (74,500) $ (64,206) $ (10,294)
Amortization (4,642) (818) (3,824)
----------------------------------------------------------------------------
EBIT (1) $ (79,142) $ (65,024) $ (14,118)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See Non-GAAP Measures in Section 11.0
Corporate expenses were $38.3 million in the second quarter of fiscal 2011,
compared to $33.0 million in the same period last year due to higher expenses
related to short-term incentive and stock-based compensation programs and costs
associated with transformational programs. On a year-to-date basis, corporate
OG&A expenses were $74.5 million versus $64.2 million for the first six months
of the fiscal year due to the factors noted earlier plus the impact of inflation
on corporate expenses.
5.0 Liquidity and Capital Resources
5.1 Cash Flow Information
Cash Flow Provided by Operations(1)
(in thousands - except per share
amounts) Three Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
EBITDA (1) $ 128,181 $ 93,243 $ 34,938
Add (Deduct)
Employee future benefits 1,297 1,319 (22)
Other items 136 477 (341)
----------------------------------------------------------------------------
Adjusted EBITDA 129,614 95,039 34,575
Integration expenses (790) (2,195) 1,405
Cash interest expense (31,835) (26,579) (5,256)
----------------------------------------------------------------------------
Pre-tax cash flow 96,989 66,265 30,724
Current income tax expense (3,159) (15,404) 12,245
----------------------------------------------------------------------------
Cash flow provided by operations
(1) $ 93,830 $ 50,861 $ 42,969
----------------------------------------------------------------------------
Per share $ 0.25 $ 0.14 $ 0.11
----------------------------------------------------------------------------
Cash Flow Provided by Operations(1)
(in thousands - except per share
amounts) Six Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
EBITDA (1) $ 339,444 $ 183,011 $ 156,433
Add (Deduct)
Employee future benefits 3,073 2,981 92
Other items 967 823 144
----------------------------------------------------------------------------
Adjusted EBITDA 343,484 186,815 156,669
Integration expenses (1,301) (3,174) 1,873
Cash interest expense (58,905) (61,236) 2,331
----------------------------------------------------------------------------
Pre-tax cash flow 283,278 122,405 160,873
Current income tax expense (4,188) (11,397) 7,209
----------------------------------------------------------------------------
Cash flow provided by operations
(1) $ 279,090 $ 111,008 $ 168,082
----------------------------------------------------------------------------
Per share $ 0.75 $ 0.30 $ 0.45
----------------------------------------------------------------------------
(1) See Non-GAAP Measures in Section 11.0
For the three months ended April 30, 2011, cash flow provided by operations (see
Non-GAAP Measures in Section 11.0) increased by $43.0 million or $0.11 per
share. For the first six months cash flow provided from operations increased
$168.1 million or $0.45 per share. Improved cash flow in fiscal 2011 reflects
higher EBITDA and lower cash financing costs.
----------------------------------------------------------------------------
Free Cash Flow (1)
(in thousands) Three Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Cash flow provided by
operations (1) $ 93,830 $ 50,861 $ 42,969
Property, plant and equipment
expenditures (34,861) (18,549) (16,312)
Intangible assets expenditures (6,013) (5,913) (100)
----------------------------------------------------------------------------
Free cash flow (1) $ 52,956 $ 26,399 $ 26,557
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Free Cash Flow (1)
(in thousands) Six Months
ended April 30, Better
2011 2010 (Worse)
----------------------------------------------------------------------------
Cash flow provided by
operations (1) $ 279,090 $ 111,008 $ 168,082
Property, plant and equipment
expenditures (73,618) (44,098) (29,520)
Intangible assets expenditures (8,634) (8,229) (405)
----------------------------------------------------------------------------
Free cash flow (1) $ 196,838 $ 58,681 $ 138,157
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See Non-GAAP Measures in Section 11.0
Free cash flow is measured by cash flow provided by operations less capital
expenditures and does not reflect changes in non-cash working capital (see
Non-GAAP Measures in Section 11.0). For the three months ended April 30, 2011,
free cash flow increased by $26.6 million to $53.0 million from the comparable
period of the prior year. For the first six months of the fiscal year free cash
flow was $196.8 million, an increase of $138.2 million from the corresponding
period in the previous year. These increases reflect improved EBITDA along with
lower cash interest expense, offset by additional capital expenditures on
property, plant and equipment.
5.2 Investing Activities
Viterra's property, plant and equipment expenditures for the three months ended
April 30, 2011 were $34.9 million compared to $18.5 million for the comparable
period of the prior year. On a year-to-date basis, property, plant and equipment
expenditures were $73.6 million, compared to $44.1 million a year earlier.
Capital expenditures reflect a number of improvements and upgrades undertaken in
the ordinary course of business and additional expansionary projects associated
with the Company's growth.
On an annualized basis, Viterra expects consolidated sustaining capital
expenditures will be approximately $130.0 to $140.0 million, which are expected
to be funded by cash flow provided by operations.
In fiscal 2011, Viterra expects that currently approved growth capital
expenditures will total approximately $85.0 to $100.0 million. These
expenditures are expected to be funded by cash flow provided by operations.
These funds are being utilized primarily for the construction of the Minto malt
facility in Australia and the canola crush joint venture in southern China, as
well as other expansionary projects.
5.3 Non-Cash Working Capital
----------------------------------------------------------------------------
Non-cash Working Capital
(in thousands) As at April 30,
2011 2010 Change
----------------------------------------------------------------------------
Inventories $ 2,002,096 $ 1,263,191 $ 738,905
Accounts receivable 1,132,313 945,502 186,811
Prepaid expenses and deposits 193,890 134,495 59,395
Accounts payable and accrued
liabilities (1,402,247) (1,030,064) (372,183)
----------------------------------------------------------------------------
$ 1,926,052 $ 1,313,124 $ 612,928
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Inventory levels at April 30, 2011 were up significantly to $2,002.1 million
compared with $1,263.2 million at April 30, 2010. The majority of the increase
related to grain inventory values due to higher commodity prices accompanied by
higher volumes of grains on hand in both North America and Australia. Viterra's
Australian inventory values were $656.0 million at April 30, 2011 compared to
$309.0 million at April 30, 2010. Agri-product inventory also increased as the
late spring seeding season in Western Canada resulted in less products being
moved to the farm. Higher fertilizer prices also increased inventory values year
over year.
The Company's inventory value is significantly influenced by commodity prices in
the Grain Handling and Marketing segment and fertilizer prices in the
Agri-products segment. Generally, inventories reach their peak in the January to
April months as harvest in Australia is completed and the North American
agri-products business is building inventory for the high-volume spring sales
season.
Accounts receivable at April 30, 2011 were $1,132.3 million, $186.8 million
higher than at April 30, 2010. The increase primarily reflects higher commodity
prices and the addition of our pasta and oat processing businesses.
Prepaid expenses and deposits at April 30, 2011 were $193.9 million, up from
$134.5 million on April 30, 2010. This was mainly due to higher levels of
prepaids in the Agri-products segment.
Given the increase in inventory and accounts receivable, there was a
corresponding increase in short-term borrowings and accounts payable and accrued
liabilities on a year-over-year basis.
5.4 Financing Activities
----------------------------------------------------------------------------
Key Financial Information (1)
(in thousands - except ratios and As at April 30,
percentages) 2011 2010 Change
----------------------------------------------------------------------------
Cash and cash equivalents $ 178,254 $ 481,445 $ (303,191)
Total debt 1,521,233 1,318,516 202,717
Total debt, net of cash and cash
equivalents 1,342,979 837,071 505,908
Ratios
Current ratio 1.85 x 2.57 x (0.72 x)
Debt-to-total capital 28.1% 27.4% 0.7 pt
Long-term debt-to-capital 19.7% 26.0% (6.3 pt)
----------------------------------------------------------------------------
(1) See Non-GAAP Measures in Section 11.0
Viterra's balance sheet at April 30, 2011 remained strong with total
debt-to-capital of 28.1% (27.4% at April 30, 2010). Viterra had $178.3 million
in cash and cash equivalents and cash drawings of $444.1 million on its $1.6
billion unsecured revolving credit facility ("Global Credit Facility").
The increase in total debt, net of cash and cash equivalents, is primarily due
to increased drawings on the revolving operating lines used mainly to support
increased non-cash working capital offset by lower long-term debt. As explained
below, a significant amount of cash was used to reduce debt during 2010.
Following are the long-term debt facilities that have been repaid since April
30, 2010 using proceeds from short-term borrowings and cash on hand:
----------------------------------------------------------------------------
CAD (in thousands)
----------------------------------------------------------------------------
Term loan Credit Facility $ 377,114
Viterra Australia 283,196
8% Senior Secured Notes Series 2006 -1 100,000
-------------
Total long-term debt repaid subsequent to April 30, 2010 $ 760,310
----------------------------------------------------------------------------
As a result of closing the Global Credit Facility and repaying of the term loan
Credit Facility in fiscal 2010, all security has been released on the Company's
debt including the Senior Unsecured Notes that remain outstanding.
On August 4, 2010, the Company issued a private placement of USD $400 million,
5.95% Senior Unsecured Notes, maturing August 1, 2020. Proceeds were used to
reduce borrowings under the Global Credit Facility and for general corporate
purposes.
On February 15, 2011, the Company issued $200 million, 6.406% Senior Unsecured
Notes, maturing February 16, 2021. This offering was made pursuant to the
Company's short-form base shelf prospectus dated August 6, 2010 and a prospectus
supplement filed on February 10, 2011. The proceeds were used to partially repay
drawings on its Global Credit Facility.
On June 8, 2011, the Company declared a five-cent ($0.05) Canadian per share
dividend, which will be paid on July 28, 2011 to holders of record on July 7,
2011. This is the Company's second dividend payment during the year, following a
five-cent ($0.05) Canadian per share dividend payment on February 10, 2011. The
annual dividend rate is currently ten cents ($0.10) Canadian per share and will
be reviewed semi-annually by the Board of Directors.
5.5 Debt Ratings
The following table summarizes the Company's current credit ratings:
----------------------------------------------------------------------------
Senior
Unsecured
Corporate Rating Notes Trend
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Standard & Poor's BBB- BBB- Stable
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DBRS Limited BBB (Low) BBB (Low) Stable
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Moody's Investors Service Ba1 Ba1 Stable
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5.6 Contractual Obligations
The following table summarizes the Company's outstanding contractual
obligations as at April 30, 2011:
Contractual Obligations
(in thousands) Principal Payments Due by Period
----------------------------------------------------------------------------
Less than 1 to 3 4 to 5 After
Total 1 Year Years Years 5 Years
----------------------------------------------------------------------------
Balance Sheet Obligations
Bank Indebtedness $ 71,003 $ 71,003 $ - $ - $ -
Short-term borrowings 454,463 454,463 - - -
Long-term debt 1,084,576 1,937 1,483 300,998 780,158
Other long-term
obligations 95,961 24,046 27,269 9,807 34,839
----------------------------------------------------------------------------
1,706,003 551,449 28,752 310,805 814,997
----------------------------------------------------------------------------
Other Contractual
Obligations
Operating leases $ 103,779 $ 32,426 $ 45,676 $ 12,272 $ 13,405
Purchase obligations(1) 1,710,852 1,650,014 58,421 1,517 900
----------------------------------------------------------------------------
1,814,631 1,682,440 104,097 13,789 14,305
----------------------------------------------------------------------------
Total Contractual
Obligations $ 3,520,634 $2,233,889 $ 132,849 $ 324,594 $829,302
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Substantially all of the purchase obligations represent contractual
commitments to purchase commodities and products for resale.
5.7 Off-Balance Sheet Arrangements
5.7.1 Viterra Financial
Viterra Financial(TM) provides grain and oilseed producers with secured and
unsecured financing, through a Canadian chartered bank, to purchase the
Company's fertilizer, crop protection products, seed and equipment. Outstanding
credit was $313.6 million at April 30, 2011, compared to $292.8 million at April
30, 2010. Approximately 97% of the current outstanding credit relates to Viterra
Financial(TM)'s highest credit rating categories. The Company indemnifies the
bank for 50% of future losses under Viterra Financial(TM) to a maximum limit of
5% of the aggregate qualified portfolio balance. The Company's aggregate
indemnity will vary at any given time with the size of the underlying portfolio.
As at April 30, 2011, Viterra has provided $7.6 million for actual and future
expected losses.
Viterra Financial(TM) also provides livestock producers with secured and
unsecured financing through a Canadian chartered bank to purchase feeder cattle,
and related feed inputs under terms that do not require payment until the
livestock are sold. Viterra Financial(TM) approved $91.1 million, compared to
$107.1 million in the second quarter of fiscal 2010, in credit applications for
Viterra's Feed Products customers, of which these customers had drawn $52.4
million at April 30, 2011 (April 30, 2010 - $51.3 million). The Company has
indemnified the bank for aggregate credit losses of up to $12.0 million based on
the first 20% to 33% of new credit issued on an individual account as well as
for credit losses, shared on an equal basis, of up to 5% of the aggregate
qualified portfolio balance. The Company's aggregate indemnity will vary at any
given time with the credit rating of underlying accounts and the aggregate
credit outstanding. As at April 30, 2011, the Company had provided about $0.6
million for actual and expected future losses.
6.0 Outstanding Share Data
The market capitalization of the Company's 371.7 million issued and outstanding
shares at June 6, 2011 was $4.1 billion or $10.98 per share. The issued and
outstanding shares at June 6, 2011, together with securities convertible into
common shares are summarized in the following table:
As at June 6, 2011
----------------------------------------------------------------------------
Issued and outstanding common shares 371,685,294
Securities convertible into common shares - stock options 2,527,823
Securities redeemable for common shares - share units 488,895
----------------------------------------------------------------------------
374,702,012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As of April 30, 2011 there were 22.8 million CDIs, which trade on the ASX.
7.0 Related Party Transactions
The Company has transactions with related parties in the normal course of
business measured at exchange amounts, which are comparable to commercial rates
and terms. Related parties include investee Prince Rupert Grain, as well as
grain pools operated by the Company.
There were related party sales for the six months ended April 30, 2011 of $13.7
million (2010 - $6.6 million) and total purchases from related parties were
$26.3 million for the same period in 2011 (2010 - $22.7 million). As at April
30, 2011, accounts receivable from related parties totalled $7.7 million (2010 -
$7.2 million) and accounts payable to related parties totalled $1.8 million
(2010 - $3.9 million). Related party sales, purchases and balances are due
mainly to grain shipping and handling activities conducted through Prince Rupert
Grain as well as marketing activities conducted in operation of the grain pools.
8.0 Other Matters
8.1 Accounting Policy Changes
8.1.1 International Financial Reporting Standards
In February 2008, the Accounting Standards Board ("AcSB") announced that 2011 is
the changeover date for publicly accountable enterprises to replace current GAAP
with International Financial Reporting Standards ("IFRS"). The date relates to
interim and annual financial statements for fiscal years beginning on or after
January 1, 2011, which will be applicable for Viterra's first quarter of fiscal
2012. Viterra will also be required to provide IFRS comparative information for
the previous fiscal period and therefore recording under IFRS will commence on
Viterra's transition date, which was November 1, 2010.
Viterra has undertaken a project to assess and record the potential impacts of
its transition to IFRS.
Viterra has completed the Initial, Detailed Assessment and Design phases of its
project plan. Viterra has started the Execution phase, which will culminate when
the Company issues its first IFRS interim financial statements for the quarter
ended January 31, 2012. For details on the key activities and the status of the
transition see Section 16.1.1 of the MD&A for the fiscal year ended October 31,
2010.
Progress made in the second quarter ending April 30, 2011 continues to track the
Company's communicated project plan and the focus in the third quarter will be
on the following key activities:
- Ongoing recording of IFRS adjustments for the comparative year
- The development of IFRS financial reports for both internal and external use
- Continuous monitoring and assessment of upcoming IFRS standards
- Communication and training
As communicated in Section 16.1.3 of the MD&A for the fiscal year ended October
31, 2010, we anticipated material opening balance sheet adjustments related to
IFRS 1 - First-time Adoption of International Financial Reporting Standards
elections for employee benefits and currency translation differences. In
relation to employee benefits the cumulative actuarial loss that will be
recorded in retained earnings is estimated to be $111.2 million before tax. In
relation to currency translation differences, a cumulative unrealized gain of
approximately $112.3 million from foreign currency translation of foreign
operations and net investment hedges will be recorded in retained earnings.
A significant difference between current Canadian GAAP and IFRS was identified
related to accounting for income taxes. Under IFRS, the tax basis used in
computing deferred taxes of certain intangible and building assets that are not
amortized or depreciated for Australian/New Zealand tax purposes is nil. Under
Canadian GAAP, the tax basis used in computing deferred taxes for these assets
is equal to the deductible amount upon disposal or retirement. This difference
is expected to result in an approximate increase of $27.0 million in the
Company's measurement of its deferred tax liability upon transition to IFRS with
an equal reduction in opening retained earnings. No additional significant
differences between GAAP and IFRS have been identified. For details on the
previously identified differences between GAAP and IFRS see Section 16.1.2 of
the MD&A for the fiscal year ended October 31, 2010.
As described in Section 16.1.3 of the MD&A for the fiscal year ended October 31,
2010 and referred to above, the Company has performed an assessment regarding
IFRS 1 - First-time Adoption of International Financial Reporting Standards.
There have been no significant changes to the expected elections or their
impact.
As Viterra continues to monitor IFRS standards changed or issued there may be
changes to the Company's expectations regarding IFRS, IFRS 1 optional exemptions
and the expected IFRS accounting policies. In addition, Viterra may identify
circumstances or experience changes in its business that may have an impact on
these expectations.
8.2 Critical Accounting Estimates
In preparing the Company's Consolidated Financial Statements, Management is
required to make estimates, assumptions and judgments as to the outcome of
future events that might affect reported assets, liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities. Such
assessments are made using the best information available to Management at the
time. Although Management reviews its estimates on an ongoing basis, actual
results may differ from these estimates as confirming events occur. The
following is an analysis of the critical accounting estimates that depend most
heavily on such Management estimates, assumptions and judgments, any changes,
which may have a material impact on the Company's financial condition or results
of operations. For more information about certain assumptions and risks that
might affect these estimates, assumptions and judgments, refer to Section 13.0,
Forward-Looking Information.
8.2.1 Future Income Taxes
As at April 30, 2011, the Company had loss carry-forwards of approximately $44.6
million, compared to $106.8 million at April 30, 2010. These loss carry-forwards
are available to reduce income taxes otherwise payable in future periods. Of
these losses, $35.8 million will expire between 2013 and 2031, and $8.8 million
are not subject to expiry.
A short-term future income tax asset of $7.7 million has been recorded as at
April 30, 2011 in respect of the Company's unutilized losses. The Company
recognizes the future tax benefit in respect of its losses to the extent it is
more likely than not to be realized. No future tax benefit has been recognized
for $16.2 million of the Company's losses.
9.0 Restructuring and Integration Matters
Dakota Growers
A year after assuming control of Dakota Growers on May 5, 2010, integration
execution continues with many milestones achieved. Most systems, procedures and
employee programs are aligned with Viterra. Synergies are being realized with
the most significant synergies to date being the implementation of the raw
material procurement as well as the elimination of public company costs. Both
system and human resources integration continues on track.
21st Century
Following the acquisition on August 17, 2010, formal integration execution has
been underway since January 2011. The Viterra operating model is in effect and
employee programs continue to be aligned. Synergy commitments have been
identified with the most significant synergies being generated primarily through
revenue and cost efficiency.
Processing Segment Synergies
For the acquisition of Dakota Growers and 21st Century, shareholders should
benefit from annual estimated gross synergies within Processing of approximately
$6.0 million, with the full annualized benefit to be reached in fiscal 2011. To
date, the Company has realized about half of these synergies. The branding
strategy for these businesses has been determined and will roll out in the
coming months.
ABB
On September 23, 2009, the Company acquired all of the issued and outstanding
common shares of ABB, an Australian agri-business. Integration of the business
was virtually complete as of April 30, 2011 with the Company achieving its
targeted $30.0 million in gross synergies, six months ahead of schedule. These
synergies were achieved primarily through revenue and cost efficiency in the
Grain Handling and Marketing segment and through reduced corporate expenses.
Integration costs related to severance and closures incurred by or related to
ABB have been accrued on the balance sheet as part of the acquisition price of
the ABB shares in accordance with the purchase method of accounting, with a
corresponding increase in goodwill. On a pre-tax basis, estimated total net
integration costs for both entities, which include share issuance costs and
refinancing costs, are about $113.2 million. The following table summarizes the
actual costs to April 30, 2011:
Estimated Integration Costs for ABB
(in millions) To April 30, 2011
----------------------------------------------------------------------------
Pre-tax estimated total integration costs $ 113.2
Integration costs already paid (97.5)
----------------------
Remaining integration costs to be paid 15.7
Costs accrued and outstanding (4.7)
----------------------
Estimated costs to be expensed or capitalized $ 11.0
----------------------
----------------------
These costs are being financed by free cash flow.
10.0 Risks and Risk Management
Viterra faces certain risks, which can impact its financial performance. For
information on risks and risk management, readers should review the MD&A for the
fiscal year ended October 31, 2010, which is available on Viterra's website at
www.viterra.com, as well as on SEDAR at www.sedar.com, under Viterra Inc.
11.0 Non-GAAP Measures
EBITDA - Earnings before financing expenses, taxes, amortization, gain (loss) on
disposal of assets, integration expenses and acquisition derivative, and EBIT -
Earnings before financing expenses, taxes, gain (loss) on disposal of assets,
integration expenses and acquisition derivative are non-GAAP measures. Those
items excluded in the determination of EBITDA and EBIT represent items that are
non-cash in nature, income taxes, financing expenses or are otherwise not
considered to be in the ordinary course of business. These measures are intended
to provide further insight with respect to Viterra's financial results and to
supplement information on earnings (losses) as determined in accordance with
GAAP.
EBITDA is used by Management to assess the cash generated by operations, and
EBIT is a measure of earnings from operations prior to financing costs and
taxes. Both measures also provide important Management information concerning
business segment performance since the Company does not allocate financing
expenses, income taxes or other excluded items to these individual segments.
Total debt, net of cash and cash equivalents, is provided to assist investors
and is used by Management to assess the Company's liquidity position and to
monitor how much debt the Company has after taking into account its liquid
assets, such as cash and cash equivalents. Such measures should not be used in
isolation of, or as a substitute for, current liabilities, short-term
borrowings, or long-term debt as a measure of the Company's indebtedness.
Cash flow provided by operations is the cash from (or used in) operating
activities, excluding non-cash working capital changes. Viterra uses cash flow
provided by operations and cash flow provided by operations per share as
financial measures for the evaluation of liquidity. Management believes that
excluding the seasonal swings of non-cash working capital assists its evaluation
of long-term liquidity.
Free cash flow is cash flow provided by operations (prior to any changes in
non-cash working capital) net of capital expenditures, excluding business
acquisitions. Free cash flow is used by Management to assess liquidity and
financial strength. This measurement is also useful as an indicator of the
Company's ability to service its debt, meet other payment obligations and make
strategic investments. Readers should be aware that free cash flow does not
represent residual cash flow available for discretionary expenditures.
These non-GAAP measures should not be considered in isolation of, or as a
substitute for, GAAP measures such as (i) net earnings (loss), as an indicator
of the Company's profitability and operating performance or (ii) cash flow from
or used in operations, as a measure of the Company's ability to generate cash.
Such measures do not have any standardized meanings prescribed by GAAP and are,
therefore, unlikely to be comparable to similar measures presented by other
corporations.
Reconciliations of each of these terms are provided in the table below:
Non-GAAP Terms, Reconciliations and Calculations
(in thousands - except percentages and ratios)
Better
For the Six Months ended April 30, 2011 2010 (Worse)
-------------------------------------------------------------------------
Gross profit and net revenues from
services $ 735,943 $ 545,989 $ 189,954
Operating, general and administrative
expenses (396,499) (362,978) (33,521)
-------------------------------------------------------------------------
EBITDA $ 339,444 $ 183,011 $ 156,433
Amortization (98,999) (74,203) (24,796)
-------------------------------------------------------------------------
EBIT $ 240,445 $ 108,808 $ 131,637
-------------------------------------------------------------------------
Net earnings $ 132,698 $ 29,063 $ 103,635
Amortization 98,999 74,203 24,796
Non-cash financing expenses 3,919 6,350 (2,431)
Employee future benefits 3,073 2,981 92
Net investment hedge (4,989) - (4,989)
Acquisition derivative - 3,074 (3,074)
Future income taxes (recovery) 44,997 (5,111) 50,108
Gain on disposal of assets (574) (375) (199)
Other items 967 823 144
-------------------------------------------------------------------------
Cash flow prior to working capital
changes $ 279,090 $ 111,008 $ 168,082
Property, plant and equipment
expenditures (73,618) (44,098) (29,520)
Intangible assets expenditures (8,634) (8,229) (405)
-------------------------------------------------------------------------
Free cash flow $ 196,838 $ 58,681 $ 138,157
-------------------------------------------------------------------------
As at April 30,
Current assets $3,582,830 $2,887,905 $ 694,925
Current liabilities 1,934,229 1,123,983 (810,246)
-------------------------------------------------------------------------
Current Ratio (Current Assets/Current
Liabilities) 1.85 x 2.57 x (0.72 x)
-------------------------------------------------------------------------
Short-term borrowings 454,463 69,055 (385,408)
-------------------------------------------------------------------------
(A) Long-term debt due within one year 1,937 17,452 15,515
(A) Long-term debt 1,064,833 1,232,009 167,176
-------------------------------------------------------------------------
(B) Total debt $1,521,233 $1,318,516 $(202,717)
-------------------------------------------------------------------------
(C) Cash and cash equivalents $ 178,254 $ 481,445 $(303,191)
-------------------------------------------------------------------------
Total debt, net of cash and cash
equivalents $1,342,979 $ 837,071 $(505,908)
-------------------------------------------------------------------------
(D) Total equity $3,895,366 $3,485,508 $ 409,858
-------------------------------------------------------------------------
(E) Total capital (B + D) $5,416,599 $4,804,024 $ 612,575
Debt-to-total capital (B)/(E) 28.1% 27.4% (0.7 pt)
Long-Term debt-to-capital (A)/(E) 19.7% 26.0% 6.3 pt
12.0 Evaluation of Disclosure and Procedures
Management, including the President and Chief Executive Officer and Chief
Financial Officer, has evaluated the design of Viterra's disclosure controls and
procedures and internal controls over financial reporting (as defined in
National Instrument 52-109 of the Canadian Securities Administrators) as of
April 30, 2011. Management has concluded that, as of April 30, 2011, Viterra's
disclosure controls and procedures and internal controls over financial
reporting are designed effectively to provide reasonable assurance that material
information relating to Viterra and its consolidated subsidiaries and joint
ventures would be made known to them by others within those entities,
particularly during the period in which this report was being prepared.
13.0 Forward-Looking Information
Certain statements in Management's Discussion and Analysis 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 other such matters, are
forward-looking statements. In addition, when used in this Management's
Discussion and Analysis the words "believes", "intends", "anticipates",
"expects", "estimates", "plans", "likely", "will", "may", "could", "should",
"would", "outlook", "forecast", "objective", "continue" (or the negative
thereof) and words of similar import may indicate 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. The risks include, but are not limited to, those factors discussed
in the Company's Management's Discussion and Analysis for the fiscal year ended
October 31, 2010 under the heading "Risk and Risk Management". The uncertainties
and other factors include, but are not limited to, weather risk; food and feed
product safety risk; commodity price and trading risk; sovereign and political
risk; capital market risk; liquidity risk; financial reporting risk; credit
risk; foreign exchange risk; interest rate risk; merger and acquisition risk;
regulatory risk; corporate and social responsibility risk; third-party
relationship risk; information technology risk; talent management and succession
planning risk; and employees relations risk. Many of these risks, uncertainties
and other factors are beyond the control of the Company. All of the
forward-looking statements made in Management's Discussion and Analysis are
qualified by these cautionary statements and the other cautionary statements and
factors contained herein and there can be no assurance that the actual
developments or results anticipated by the Company and its Management will be
realized or, even if substantially realized, that they will have the expected
consequences for, or effects on, the Company.
Although Viterra believes the assumptions inherent in forward-looking statements
are reasonable, undue reliance should not be placed on these statements, which
only apply as of the date of this Management's Discussion and Analysis. In
addition to other assumptions identified in this Management's Discussion and
Analysis, assumptions have been made regarding, among other things:
- western Canadian and southern Australian crop production and quality in 2011
and subsequent crop years;
- the volume and quality of grain held on-farm by producers in North America;
- movement and sales of Board grains by the CWB;
- changes with respect to CWB monopoly control of the marketing of western
Canadian wheat and barley
- the amount of grains and oilseeds purchased by other marketers in Australia;
- demand for and supply of open market grains;
- movement and sale of grain and grain meal in Australia and New Zealand,
particularly in the Australian states of South Australia, Victoria and New South
Wales;
- agricultural commodity prices;
- general financial conditions for western Canadian and southern Australian
agricultural producers;
- demand for seed, fertilizer, chemicals and other agri-products;
- market share of grain deliveries and agri-products sales that will be achieved
by Viterra;
- extent of customer defaults in connection with credit provided by Viterra, its
subsidiaries or a Canadian chartered bank in connection with feed product and
agri-products purchases;
- ability of the railways to ship grain to port facilities for export without
labour or other service disruptions;
- demand for oat, pasta, canola and malt barley products, and the market share
of sales of these products that will be achieved by Viterra;
- ability to maintain existing customer contracts and relationships;
- the availability of feed ingredients for livestock;
- cyclicality of livestock prices;
- demand for wool and the market share of sales of wool production that will be
achieved by Viterra's subsidiaries in Australia;
- the impact of competition;
- environmental and reclamation costs;
- the ability to obtain and maintain existing financing on acceptable terms; and
- currency, exchange and interest rates.
The preceding list is not exhaustive of all possible factors. All factors should
be considered carefully when making decisions with respect to Viterra.
To the extent any forward-looking statements constitute future-oriented
financial information or financial outlooks, as those terms are defined under
applicable Canadian securities laws, such statements are being provided to
describe the current anticipated potential of the Company and readers are
cautioned that these statements may not be appropriate for any other purpose,
including investment decisions.
Viterra disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
developments or otherwise, except as required by Canadian securities laws.
14.0 Annual Management's Discussion and Analysis
This Management's Discussion and Analysis relating to the second quarter ended
April 30, 2011 should be read in conjunction with Viterra's Management's
Discussion and Analysis for the fiscal year ended October 31, 2010. Additional
information relating to Viterra, including the most recent Annual Information
Form filed by the Company, is available under the Company's profile on SEDAR at
www.sedar.com and on Viterra's website, www.viterra.com.
CONSOLIDATED BALANCE SHEETS
(in thousands)
April 30, April 30, October 31,
AS AT 2011 2010 2010
----------------------------------------------------------------------------
(unaudited) (unaudited) (audited)
ASSETS
Current Assets
Cash $ 133,074 $ 349,414 $ 107,428
Short-term investments 116,183 138,810 88,204
Accounts receivable 1,132,313 945,502 995,656
Inventories (Note 3) 2,002,096 1,263,191 1,211,887
Prepaid expenses and deposits 193,890 134,495 107,638
Future income taxes 5,274 56,493 30,067
----------------------------------------------------------------------------
3,582,830 2,887,905 2,540,880
Investments 8,149 9,446 9,661
Property, Plant and Equipment 2,508,261 2,333,400 2,491,047
Other Long-Term Assets 118,954 98,658 123,136
Intangible Assets 153,562 48,113 154,915
Goodwill 772,109 692,621 772,233
Future Income Taxes 4,264 7,882 25,010
----------------------------------------------------------------------------
$ 7,148,129 $ 6,078,025 $ 6,116,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Bank indebtedness $ 71,003 $ 6,779 $ 40,839
Short-term borrowings 454,463 69,055 61,677
Accounts payable and accrued
liabilities 1,402,247 1,030,064 1,151,652
Long-term debt due within one
year (Note 4) 1,937 17,452 2,295
Future income taxes 4,579 633 391
----------------------------------------------------------------------------
1,934,229 1,123,983 1,256,854
Long-Term Debt (Note 4) 1,064,833 1,232,009 896,834
Other Long-Term Liabilities 52,671 60,879 51,351
Future Income Taxes 201,030 175,646 201,580
----------------------------------------------------------------------------
3,252,763 2,592,517 2,406,619
----------------------------------------------------------------------------
Shareholders' Equity
Retained earnings 685,131 454,804 571,013
Accumulated other
comprehensive income (Note 5) 175,919 8 107,192
----------------------------------------------------------------------------
861,050 454,812 678,205
Share capital (Note 6) 3,026,578 3,025,491 3,025,491
Contributed surplus 7,738 5,205 6,567
----------------------------------------------------------------------------
3,895,366 3,485,508 3,710,263
----------------------------------------------------------------------------
$ 7,148,129 $ 6,078,025 $ 6,116,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commitments, contingencies and guarantees (Note 11)
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
April 30, April 30, April 30, April 30,
FOR THE PERIOD ENDED 2011 2010 2011 2010
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Sales and other
operating revenues $ 2,701,860 $ 2,026,944 $ 5,172,397 $ 3,811,469
Cost of sales
(excluding
amortization see
Note 3) (2,377,539) (1,757,048) (4,436,454) (3,265,480)
----------------------------------------------------------------------------
Gross profit and net
revenues from
services 324,321 269,896 735,943 545,989
Operating, general
and administrative
expenses (196,140) (176,653) (396,499) (362,978)
----------------------------------------------------------------------------
128,181 93,243 339,444 183,011
Amortization (49,735) (35,378) (98,999) (74,203)
----------------------------------------------------------------------------
78,446 57,865 240,445 108,808
Gain (loss) on
disposal of assets (269) 741 574 375
Integration expenses (790) (2,195) (1,301) (3,174)
Acquisition
derivative - (3,074) - (3,074)
Financing expenses
(Note 10) (28,904) (30,355) (57,835) (67,586)
----------------------------------------------------------------------------
48,483 22,982 181,883 35,349
Recovery of
(provision for)
corporate taxes
Current (3,159) (15,404) (4,188) (11,397)
Future (12,249) 10,832 (44,997) 5,111
----------------------------------------------------------------------------
Net earnings $ 33,075 $ 18,410 $ 132,698 $ 29,063
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic and diluted
earnings per share
(Note 7) $ 0.09 $ 0.05 $ 0.36 $ 0.08
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
April 30, April 30, April 30, April 30,
FOR THE PERIOD ENDED 2011 2010 2011 2010
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net earnings $ 33,075 $ 18,410 $ 132,698 $ 29,063
Other comprehensive
income (loss), net
of tax
Reclassification of
gain on dedesignated
hedged contracts - (168) - (740)
Unrealized gain
(loss) on cash flow
hedges 7,745 1,585 10,283 (2,939)
Reclassification of
loss (gain) on cash
flow hedges (2,181) (1,502) (607) 3,563
Net investment
hedges 18,151 109 23,892 2,187
Reclassification of
gain on net
investment hedges (743) - (743) -
Unrealized gain
(loss) on available
for sale assets - 1 (1) (5)
Unrealized effect
of foreign currency
translation of
foreign operations 52,656 (10,947) 40,032 (56,274)
Reclassification of
gain on foreign
currency translation (4,129) - (4,129) -
----------------------------------------------------------------------------
Other comprehensive
income (loss) 71,499 (10,922) 68,727 (54,208)
----------------------------------------------------------------------------
Comprehensive income
(loss) $ 104,574 $ 7,488 $ 201,425 $ (25,145)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Other Total
Share Contributed Comprehensive Retained Shareholders'
(unaudited) Capital Surplus Income Earnings Equity
----------------------------------------------------------------------------
(Note 6) (Note 5)
As at
October 31,
2009 $3,025,486 $ 3,476 $ 54,216 $ 425,741 $ 3,508,919
Share
capital
issued 5 - - - 5
Options
exercised - (2) - - (2)
Stock-based
compensation - 1,731 - - 1,731
Other
comprehensive
income
(loss), net
of tax
Reclassification
of gain on
dedesignated
hedged
contracts - - (740) - (740)
Unrealized
loss on
cash flow
hedges - - (2,939) - (2,939)
Reclassification
of loss on
cash flow
hedges - - 3,563 - 3,563
Net
investment
hedges - - 2,187 - 2,187
Unrealized
loss on
available
for sale
assets - - (5) - (5)
Unrealized
effect of
foreign
currency
translation
of foreign
operations - - (56,274) - (56,274)
Net
earnings
for the
period - - - 29,063 29,063
----------------------------------------------------------------------------
As at April
30, 2010 $3,025,491 $ 5,205 $ 8 $ 454,804 $ 3,485,508
Stock-based
compensation - 1,362 - - 1,362
Other
comprehensive
income (loss),
net of tax
Unrealized
loss on
cash flow
hedges - - (17,204) - (17,204)
Reclassification
of loss on
cash flow
hedges - - 11,808 - 11,808
Net
investment
hedges - - (2,022) - (2,022)
Unrealized
gain on
available
for sale
assets - - 8 - 8
Unrealized
effect of
foreign
currency
translation
of foreign
operations - - 114,594 - 114,594
Net
earnings
for the
period - - - 116,209 116,209
----------------------------------------------------------------------------
As at
October 31,
2010 $3,025,491 $ 6,567 $ 107,192 $ 571,013 $ 3,710,263
Share
capital
issued 1,087 - - - 1,087
Options
exercised - (280) - - (280)
Stock-based
compensation - 1,451 - - 1,451
Other
comprehensive
income(loss),
net of tax
Unrealized
gain on
cash flow
hedges - - 10,283 - 10,283
Reclassification
of gain on
cash flow
hedges - - (607) - (607)
Net
investment
hedges - - 23,892 - 23,892
Reclassification
of gain on net
investment
hedges (743) (743)
Unrealized
loss on
available
for sale
assets - - (1) - (1)
Unrealized
effect of
foreign
currency
translation
of foreign
operations - - 40,032 - 40,032
Reclassification
of gain on
foreign
currency
translation (4,129) (4,129)
Dividends - - - (18,580) (18,580)
Net
earnings
for the
period - - - 132,698 132,698
----------------------------------------------------------------------------
As at April
30, 2011 $3,026,578 $ 7,738 $ 175,919 $ 685,131 $ 3,895,366
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
April 30, April 30, April 30, April 30,
FOR THE PERIOD ENDED 2011 2010 2011 2010
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Cash From (Used In)
Operating Activities
Net earnings $ 33,075 $ 18,410 $ 132,698 $ 29,063
----------------------------------------------------------------------------
Adjustments for
items not involving
cash and/or
operations
Amortization 49,735 35,378 98,999 74,203
Future income tax
provision (recovery) 12,249 (10,832) 44,997 (5,111)
Employee future
benefits (Note 9) 1,297 1,319 3,073 2,981
Non-cash financing
expenses (Note 10) 2,058 3,776 3,919 6,350
Loss (gain) on
disposal of assets 269 (741) (574) (375)
Net investment
hedge (Note 10) (4,989) - (4,989) -
Non-cash
acquisition
derivative - 3,074 - 3,074
Other items 136 477 967 823
----------------------------------------------------------------------------
Adjustments for
items not involving
cash and/or
operations 60,755 32,451 146,392 81,945
----------------------------------------------------------------------------
93,830 50,861 279,090 111,008
----------------------------------------------------------------------------
Changes in non-cash
working capital
items
Accounts receivable 142,633 (17,374) (115,820) 9,010
Inventories (78,834) (146,355) (773,645) (314,222)
Accounts payable
and accrued
liabilities (66,379) (24,618) 258,186 (48,420)
Prepaid expenses
and deposits 12,070 107,807 (85,416) (48,366)
----------------------------------------------------------------------------
Changes in non-cash
working capital 9,490 (80,540) (716,695) (401,998)
----------------------------------------------------------------------------
Cash from (used in)
operating activities 103,320 (29,679) (437,605) (290,990)
----------------------------------------------------------------------------
Cash From (Used in)
Financing Activities
Proceeds from
long-term debt 200,525 149 200,525 1,654
Repayment of
long-term debt (521) (7,138) (935) (14,382)
Proceeds
(repayment) of
short-term
borrowings (338,380) (94,389) 376,475 (212,864)
Repayment of other
long-term
liabilities, net (32) (153) (104) (424)
Increase in share
capital (Note 6) 218 3 807 3
Debt financing cost (13,789) - (13,789) -
Dividends paid (18,580) - (18,580) -
----------------------------------------------------------------------------
Cash from (used in)
financing activities (170,559) (101,528) 544,399 (226,013)
----------------------------------------------------------------------------
Cash From (Used in)
Investing Activities
Property, plant and
equipment
expenditures (34,861) (18,549) (73,618) (44,098)
Proceeds on sale of
property, plant and
equipment 907 1,702 1,385 2,290
Business
acquisitions - (3,220) - (3,220)
Business
divestitures - 19,557 - 19,557
Decrease in
investments 57 - 1,429 101
Intangible assets
expenditures (6,013) (5,913) (8,634) (8,229)
----------------------------------------------------------------------------
Cash used in
investing activities (39,910) (6,423) (79,438) (33,599)
----------------------------------------------------------------------------
Increase (Decrease)
in Cash and Cash
Equivalents (107,149) (137,630) 27,356 (550,602)
Cash and Cash
Equivalents,
Beginning of Period 288,767 618,753 154,793 1,033,075
Impact on cash of
unrealized effect of
foreign currency
translation
of foreign
operations (3,364) 322 (3,895) (1,028)
----------------------------------------------------------------------------
Cash and Cash
Equivalents, End of
Period $ 178,254 $ 481,445 $ 178,254 $ 481,445
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash
equivalents consist
of:
Cash $ 133,074 $ 349,414 $ 133,074 $ 349,414
Short-term
investments 116,183 138,810 116,183 138,810
Bank indebtedness (71,003) (6,779) (71,003) (6,779)
----------------------------------------------------------------------------
$ 178,254 $ 481,445 $ 178,254 $ 481,445
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental
disclosure of cash
paid during the
period from
operations:
Interest paid $ 38,934 $ 20,770 $ 62,964 $ 68,569
Income taxes paid $ 17,855 $ 4,743 $ 23,238 $ 9,861
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2011 (unaudited) - in thousands of Canadian dollars, except as noted
1. NATURE OF BUSINESS
Viterra Inc. (the "Company") is a publicly traded, vertically integrated
international agri-business. Business operations include four reporting
segments: Grain Handling and Marketing, Agri-products, Processing and Corporate.
The Company has operations across Canada, the United States ("U.S."), Australia
and New Zealand, as well as marketing and trading offices in Japan, Singapore,
China, Switzerland, Italy, Ukraine, Germany and India.
The Grain Handling and Marketing segment includes grain storage facilities,
joint venture grain facilities, and processing plants strategically located in
the prime agricultural growing regions of North America, Australia and New
Zealand. This segment also includes port terminal facilities located in Canada
and Australia and merchandising offices in Europe and Asia. Activity in this
segment consists of the collection of grain through the Company's primary
storage system, shipping to inland or port terminals, cleaning of grain to meet
regulatory specifications, and sales to domestic or export markets. Earnings are
volume driven. Revenue is also derived through grain handling, blending, storage
and other ancillary services, as well as the sale of byproducts.
The Agri-products segment includes an ownership interest in a fertilizer
manufacturer, fertilizer distribution and a network of retail locations, and
offers financial services such as lending and cash management. Agri-products
sales lines include fertilizer, crop protection products, seed and seed
treatments, equipment, general merchandise and wool.
The Processing segment in North America includes the manufacturing and marketing
of value-added food products associated with oats, canola, wheat and malt barley
for domestic and export markets. This segment also includes activities relating
to formulating and manufacturing of feed products at feed mills and pre-mix
facilities across the western regions of Canada and the U.S. The Processing
segment includes malting plants positioned across Australia and a feed business
in New Zealand.
Weather conditions are the primary risk in the agri-business industry. Grain
volumes, grain quality, the volume and mix of crop inputs sold and ultimately,
the financial performance of the Company, are highly dependent upon weather
conditions throughout the crop production cycle.
The Company's earnings follow the seasonal pattern of grain production in each
geographic location. The volume of grain shipments is relatively stable through
the quarters, but can be influenced by destination customer demand, customer
export programs and producers' marketing decisions. Sales of the Company's
agri-products peak during the growing season, supplemented by additional crop
nutrient sales in the late fall.
2. ACCOUNTING POLICIES
These interim unaudited consolidated statements are based on accounting
principles consistent with those used and described in the October 31, 2010
annual consolidated financial statements. The Company's accounting policies are
in accordance with Canadian generally accepted accounting principles. However,
these financial statements do not include all of the information and disclosures
required for annual financial statement presentation. The interim consolidated
financial statements should be read in conjunction with the Company's annual
consolidated financial statements for the year ended October 31, 2010. All
amounts are reported in Canadian dollars unless specifically stated to the
contrary.
Certain comparative figures have been reclassified to conform to the current
year's presentation.
Future Accounting Changes - International Financial Reporting Standards
In January 2006, the Canadian Institute of Chartered Accountants Accounting
Standards Board adopted a strategic plan for the direction of accounting
standards in Canada. As part of that plan, accounting standards for public
companies would be required to converge with International Financial Reporting
Standards ("IFRS") for fiscal years beginning on or after January 1, 2011 with
comparative figures presented on the same basis. In February 2008, the
Accounting Standards Board confirmed the effective due date of the initial
adoption of IFRS. The Company's transition date was November 1, 2010 with a
conversion date of November 1, 2011. The annual and quarterly financial
reporting for the year ending October 31, 2012 will be the first reported under
IFRS.
3. INVENTORIES
April 30, April 30, October 31,
As at 2011 2010 2010
----------------------------------------------------------------------------
Grain $ 1,007,302 $ 460,543 $ 724,157
Agri-products 865,877 715,766 385,953
Processing
Raw materials and supplies 48,428 28,648 40,393
Work in progress 18,623 2,094 14,366
Finished goods 61,866 56,140 47,018
----------------------------------------------------------------------------
$ 2,002,096 $ 1,263,191 $ 1,211,887
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grain cost of sales includes the cost of inventories, net realized and
unrealized gains and losses on commodity contracts and exchange-traded
derivatives, and freight.
Amortization of $13.6 million and $27.2 million for the respective three and six
month periods ended April 30, 2011 (2010 - $10.1 million and $20.7 million)
related to the manufacture of inventory that has now been sold is included in
amortization expense.
Write-downs related to Agri-products inventory of $1.7 million and $2.8 million
for the respective three and six month periods ended April 30, 2011 (2010 - $0.5
million and $1.5 million) have been included in cost of sales.
4. LONG-TERM DEBT
April 30, April 30, October 31,
As at 2011 2010 2010
----------------------------------------------------------------------------
Viterra
Credit facility $ - $ 305,500 $ -
Series 2011-1 Notes (a) 200,000 - -
Series 2010-1 Notes (USD) (a) 378,560 - 408,080
Series 2009-1 Notes (a) 300,000 300,000 300,000
Series 2007-1 Notes (a) 200,000 200,000 200,000
Series 2006-1 Notes - 100,000 -
Members' term loans 774 1,482 1,114
----------------------------------------------------------------------------
$ 1,079,334 $ 906,982 $ 909,194
Subsidiaries' and proportionate
share of joint
ventures' debt $ 5,242 $ 358,702 $ 5,669
----------------------------------------------------------------------------
Sub-total 1,084,576 1,265,684 914,863
Less: unamortized debt costs 17,806 16,223 15,734
----------------------------------------------------------------------------
Total long-term debt $ 1,066,770 $ 1,249,461 $ 899,129
Less: portion due within one
year
Credit facility $ - $ 13,000 $ -
Members' term loans 567 663 497
Subsidiaries' and
proportionate share of joint
ventures' debt 1,370 3,789 1,798
----------------------------------------------------------------------------
Long-term debt due within one
year 1,937 17,452 2,295
----------------------------------------------------------------------------
Long-term debt due in excess of
one year $ 1,064,833 $ 1,232,009 $ 896,834
----------------------------------------------------------------------------
----------------------------------------------------------------------------
a) Senior Unsecured Notes
Series Series Series Series
Terms(1) 2011-1 2010-1 2009-1 2007-1
----------------------------------------------------------------------------
Issue date February August 4, July 7, August 1,
15, 2011 2010 2009 2007
Principal amount $200,000 $400,000 USD $300,000 $200,000
Interest rate 6.41% 5.95% 8.5% 8.5%
Maturity date February August 1, July 7, August 1,
16, 2021 2020 2014 2017
Fair Value - April 30, 2011 $209,820 $412,000 USD $325,500 $221,000
Fair Value - April 30, 2010 - - $328,500 $219,000
Fair Value - October 31, 2010 - $395,304 USD $330,750 $222,000
Effective interest rate 7.43% 6.19% 9.05% 8.85%
Redemption price(2)
----------------------------------------------------------------------------
Optional redemption, prior to February August 1, July 7, August 1,
16, 2021 2020 2012 2012
----------------------------------------------------------------------------
With net proceeds of public
equity offering(3) n/a n/a 108.5% 108.5%
With all other proceeds See See See See
footnote footnote footnote footnote
(4) (4) (5) (5)
----------------------------------------------------------------------------
Optional redemption, on or after n/a n/a July 7, August 1,
2012 2012
----------------------------------------------------------------------------
2012 n/a n/a 102.125% 104.25%
2013 n/a n/a 100.0% 103.1875%
2014 n/a n/a - 102.125%
2015 n/a n/a - 101.0625%
2016 n/a n/a - 100.0%
(1) The Senior Unsecured Notes, Global Credit Facility and Member Term Loans
are unsecured and rank pari passu with each other.
(2) Expressed as percentage of principal amount at maturity.
(3) For Series 2007-1 and Series 2009-1 redemption limited to no more than
35% of aggregate principal amount of each series. For Series 2010-1 and
Series 2011-1 there is no restriction on aggregate principal amount that
can be redeemed by the Company.
(4) The Series 2011-1 and 2010-1 Notes may be redeemed prior to maturity at
the Company's option in whole or in part at any time at a redemption
price equal to the greater of 100% of the principal amount to be
redeemed or a "make-whole" redemption price, in either case, plus
accrued and unpaid interest.
(5) For Series 2007-1 and 2009-1, when redeeming notes without proceeds
received from one or more public equity offerings, the redemption price
is 100% of principal amount thereof plus Applicable Redemption Premium
as defined in the corresponding Supplemental Trust Indenture Agreement
between the Company and BNY Trust Company.
5. ACCUMULATED OTHER COMPREHENSIVE INCOME
April 30, April 30, October 31,
As at 2011 2010 2010
----------------------------------------------------------------------------
Cash flow hedges(1) $ 4,569 $ 288 $ (5,108)
Net investment hedges(2) 24,058 2,187 165
Reclassification of gain on net
investment hedges(3) (743) - -
Unrealized losses on available for
sale assets(4) (5) (11) (3)
Unrealized effect of foreign
currency translation
of foreign operations 152,169 (2,456) 112,138
Reclassification of gain on foreign
currency translation (4,129) - -
----------------------------------------------------------------------------
$ 175,919 $ 8 $ 107,192
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Net of tax of $(2,222) (April 2010 - $798, October 2010 - $1,612).
(2) Net of tax of $(3,722) (April 2010 - $(769), October 2010 - $(68)).
(3) Net of tax of $116 (April 2010 - nil, October 2010 - nil).
(4) Net of tax of $(8) (April 2010 - $(7), October 2010 - $(8)).
6. SHARE CAPITAL AND STOCK-BASED COMPENSATION PLANS
a) Common Voting Shares
Authorized
Unlimited Common Voting Shares
Common Voting Shares
----------------------------
Number(1) Amount
----------------------------------------------------------------------------
Balance, October 31, 2009 371,596,508 $ 3,025,486
Share issuance for cash 425 3
Adjustment to share capital from contributed
surplus for options exercised - 2
----------------------------------------------------------------------------
Balance, April 30, 2010 and October 31, 2010 371,596,933 $ 3,025,491
Share issuance for cash 88,361 807
Adjustment to share capital from contributed
surplus for options exercised - 280
----------------------------------------------------------------------------
Balance, April 30, 2011 371,685,294 $ 3,026,578
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Number of shares not shown in thousands.
b) Management Stock Option Plan
The maximum number of common shares that may be issued under options issued
pursuant to the Stock Option Plan is approximately 4.2 million common shares.
Once the 2.6 million common shares that can potentially be issued under
currently granted and contingently granted options are deducted, approximately
1.6 million common shares have been reserved for subsequent option grants.
The expense related to stock options is recognized over the vesting period based
on the fair value of options determined by the Black-Scholes option pricing
model with the following weighted average assumptions: risk-free rate 2.5%,
dividend yield 0%, a volatility factor of the expected market price of the
Company's shares of 38%, and a weighted average expected option life of 4.7
years. The Company's stock-based compensation expense for the respective three
and six month periods ended April 30, 2011 was $0.2 million and $1.1 million
(2010 - $0.9 million and $1.7 million).
Weighted Weighted Weighted
Average Average Number of Average
Number of Grant-Date Exercise Options Exercise
Options(1) Fair Value Price Exercisable(1) Price
----------------------------------------------------------------------------
Outstanding
October 31, 2009 1,657,190 $ 12.67 384,391 $ 19.59
Options granted 1,066,914 $ 3.50 $ 9.97
Forfeited (1,088) $ 59.07
Expired (18,000) $ 135.14
Exercised (425) $ 5.90
----------------------------------------------------------------------------
Outstanding
April 30, 2010 2,704,591 $ 10.76 364,877 $ 13.79
Options granted - $ - $ -
Forfeited (57,127) $ 9.59
Expired (11,930) $ 68.19
Exercised - $ -
----------------------------------------------------------------------------
Outstanding
October 31, 2010 2,635,534 $ 10.53 1,639,314 $ 11.05
Options granted - $ - $ -
Forfeited (25) $ 31.00
Expired (19,275) $ 50.07
Exercised (88,361) $ 9.13
----------------------------------------------------------------------------
Outstanding
April 30, 2011 2,527,873 $ 10.27 1,561,384 $ 10.65
----------------------------------------------------------------------------
(1) Number of options not shown in thousands.
The following table summarizes the options outstanding and exercisable as
at April 30, 2011:
Weighted Weighted Weighted
Range of Number of Average Average Number of Average
Exercise Options Remaining Exercise Options Exercise
Price Outstanding(1) Life (Years) Price Exercisable(1) Price
----------------------------------------------------------------------------
$5.90-$ 9.50 865,468 4.57 $ 9.00 567,855 $ 8.99
$9.51-$11.05 1,019,390 5.82 9.97 350,514 9.97
$11.06-$21.56 634,412 4.80 12.12 634,412 12.12
$21.57-$51.00 8,603 0.95 39.31 8,603 39.31
----------------------------------------------------------------------------
2,527,873 5.12 $ 10.28 1,561,384 $ 10.65
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Number of options not shown in thousands.
c) Key Employee Share Units
In the three months ended April 30, 2011 a new stock-based compensation plan,
which is accounted for as equity-settled, was introduced. Each share unit
represents one notional common share that entitles the participant to receive
one common share of the Company, or an equivalent cash amount at the Company's
discretion. The maximum number of common shares that may be issued pursuant to
the Key Employee Share Unit Plan is 6.0 million common shares. Once the 0.5
million common shares that can potentially be issued under currently granted
units are deducted, approximately 5.5 million common shares have been reserved
for subsequent grants. The units vest at the end of various periods determined
at issuance.
The weighted average grant-date fair value and vesting period of each unit
granted during the year is $11.02 and 8 years respectively. The compensation
costs recorded were $0.3 million.
7. EARNINGS PER SHARE
Three Months Ended Six Months Ended
April 30 April 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Net earnings $ 33,075 $ 18,410 $ 132,698 $ 29,063
----------------------------------------------------------------------------
Denominator for basic earnings
per share amounts:
Weighted average number of shares
outstanding(1) 371,685 371,597 371,641 371,597
Basic earnings per share $ 0.09 $ 0.05 $ 0.36 $ 0.08
----------------------------------------------------------------------------
Denominator for diluted earnings
per share amounts:
Weighted average number of shares
outstanding(1) 371,685 371,597 371,641 371,597
Dilutive effect of stock
options(1) 333 43 218 80
Weighted average number of shares
outstanding, assuming dilution(1) 372,018 371,640 371,859 371,677
Diluted earnings per share $ 0.09 $ 0.05 $ 0.36 $ 0.08
----------------------------------------------------------------------------
(1) Number of shares and options in thousands.
8. SEGMENTED INFORMATION
A description of the types of products and services from which the segments
derive their revenue is included in the Nature of Business (Note 1). The
segments' accounting policies are consistent with those described in Accounting
Policies (Note 2). The Company accounts for inter-segment sales at current
market prices under normal trade terms.
Three Months Ended Six Months Ended
Sales and other April 30 April 30
operating revenues 2011 2010 2011 2010
----------------------------------------------------------------------------
Grain Handling and
Marketing $ 2,045,241 $ 1,418,093 $ 3,987,875 $ 2,761,301
Agri-products 433,741 438,225 726,312 653,588
Processing 374,615 290,098 748,525 598,075
----------------------------------------------------------------------------
2,853,597 2,146,416 5,462,712 4,012,964
Less: Inter-segment
sales 151,737 119,472 290,315 201,495
----------------------------------------------------------------------------
$ 2,701,860 $ 2,026,944 $ 5,172,397 $ 3,811,469
----------------------------------------------------------------------------
Inter-segment sales
----------------------------------------------------------------------------
Grain Handling and
Marketing $ 144,477 $ 119,628 $ 274,961 $ 201,531
Processing 7,260 (156) 15,354 (36)
----------------------------------------------------------------------------
$ 151,737 $ 119,472 $ 290,315 $ 201,495
----------------------------------------------------------------------------
Gross profit and
net revenues from
services
----------------------------------------------------------------------------
Grain Handling and
Marketing $ 214,172 $ 153,764 $ 512,613 $ 355,463
Agri-products 66,563 76,976 120,120 109,575
Processing 43,586 39,156 103,210 80,951
----------------------------------------------------------------------------
$ 324,321 $ 269,896 $ 735,943 $ 545,989
----------------------------------------------------------------------------
Operating, general Three Months Ended Six Months Ended
and administrative April 30 April 30
expenses 2011 2010 2011 2010
----------------------------------------------------------------------------
Grain Handling and
Marketing $ (92,090) $ (80,175) $ (192,769) $ (172,195)
Agri-products (45,591) (46,986) (89,852) (91,519)
Processing (20,110) (16,449) (39,378) (35,058)
Corporate (38,349) (33,043) (74,500) (64,206)
----------------------------------------------------------------------------
$ (196,140) $ (176,653) $ (396,499) $ (362,978)
----------------------------------------------------------------------------
EBITDA(1)
----------------------------------------------------------------------------
Grain Handling and
Marketing $ 122,082 $ 73,589 $ 319,844 $ 183,268
Agri-products 20,972 29,990 30,268 18,056
Processing 23,476 22,707 63,832 45,893
Corporate (38,349) (33,043) (74,500) (64,206)
----------------------------------------------------------------------------
$ 128,181 $ 93,243 $ 339,444 $ 183,011
----------------------------------------------------------------------------
(1) EBITDA - Earnings before financing expenses, taxes, amortization, gain
(loss) on disposal of assets, integration expenses and
acquisition derivative.
Amortization
----------------------------------------------------------------------------
Grain Handling and
Marketing $ (25,678) $ (17,517) $ (51,286) $ (35,625)
Agri-products (9,806) (11,374) (18,808) (22,556)
Processing (12,017) (7,362) (24,263) (15,204)
Corporate (2,234) 875 (4,642) (818)
----------------------------------------------------------------------------
$ (49,735) $ (35,378) $ (98,999) $ (74,203)
----------------------------------------------------------------------------
EBIT(2)
----------------------------------------------------------------------------
Grain Handling and
Marketing $ 96,404 $ 56,072 $ 268,558 $ 147,643
Agri-products 11,166 18,616 11,460 (4,500)
Processing 11,459 15,345 39,569 30,689
Corporate (40,583) (32,168) (79,142) (65,024)
----------------------------------------------------------------------------
$ 78,446 $ 57,865 $ 240,445 $ 108,808
----------------------------------------------------------------------------
(2) EBIT - earnings before financing expenses, taxes, gain (loss) on
disposal of assets, integration expenses and acquisition derivative.
9. EMPLOYEE FUTURE BENEFITS
a) Defined Benefit Plans and Future Benefits
The Company's net benefit costs related to defined benefit pension plans and
other future benefits for the respective three and six month periods ended April
30, 2011 were $1.3 million and $3.1 million (2010 - $1.3 million and $3.0
million).
b) Defined Contribution Plans
The Company, including subsidiaries and affiliates, contributes to several
defined contribution plans including multi-employer plans. The Company's total
consolidated defined contribution plan expense for the respective three and six
month periods ended April 30, 2011 was $5.8 million and $11.4 million (2010 -
$3.8 million and $7.8 million).
10. FINANCING EXPENSES
Three Months Ended Six Months Ended
April 30 April 30
-------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Interest on:
Long-term debt $ 18,768 $ 22,042 $ 35,115 $ 49,759
Short-term debt 14,543 5,330 26,683 16,178
Interest income (854) (310) (1,973) (3,800)
CWB carrying charge recovery (622) (483) (920) (901)
----------------------------------------------------------------------------
31,835 26,579 58,905 61,236
Net investment hedge (Note
12(b)ii) (4,989) - (4,989) -
Interest accretion 740 929 1,261 1,844
Amortization of deferred
financing costs 1,318 2,847 2,658 4,506
----------------------------------------------------------------------------
$ 28,904 $ 30,355 $ 57,835 $ 67,586
----------------------------------------------------------------------------
11. COMMITMENTS, CONTINGENCIES AND GUARANTEES
a) Letter of Credit and Bid Bonds
At April 30, 2011, the Company had outstanding letters of credit and similar
instruments of $12.8 million related to operating an agri-business (October 31,
2010 - $15.9 million, April 30, 2010 - $31.4 million). The terms range in
duration and expire at various dates through to August 31, 2015. The amounts
vary depending on underlying business activity or the specific agreements in
place with the third parties. At April 30, 2011, the Company had outstanding bid
bonds and similar instruments of $7.3 million (October 31, 2010 - $5.7 million,
April 30, 2010 - nil).
b) Indemnification of Accounts Receivable - Viterra Financial TM
The Company has a rolling five-year agreement with a Canadian Schedule I
chartered bank to provide credit for qualifying agricultural producers to
purchase crop inputs. The agreement may be terminated at an earlier date by
mutual consent or by either party upon one year's written notice. The Company
indemnifies the bank for 50% of future losses to a maximum of 5% of the
aggregate qualified portfolio balance. The Company's aggregate indemnity will
vary at any given time with the size of the underlying portfolio. As at April
30, 2011, outstanding credit was $313.6 million (October 31, 2010 - $520.0
million, April 30, 2010 - $292.8 million), and the Company's obligation of $7.6
million (October 31, 2010 - $9.1 million, April 30, 2010 - $6.9 million) for
past and future losses is current with the bank in accordance with the Agency
Agreement.
The Company also has a rolling five-year agreement with a Canadian Schedule I
chartered bank to provide loans to Processing customers to purchase feeder
cattle, as well as related feed inputs, with terms that do not require payment
until the livestock is sold. The agreement may be terminated at an earlier date
by mutual consent or by either party upon one year's written notice. The Company
indemnifies the bank for credit losses based on the first 20% to 33% of new
credit issued on an individual account, dependent on the account's underlying
credit rating, with losses in excess of these amounts shared on an equal basis
with the bank up to 5% on the aggregate qualified portfolio balance. The
Company's aggregate indemnity will vary at any given time with the credit rating
of the underlying accounts and the aggregate credit outstanding. As at April 30,
2011, outstanding credit was $52.4 million (October 31, 2010 - $36.1 million,
April 30, 2010 - $51.3 million), and the Company's obligation of $0.6 million
(October 31, 2010 - $0.6 million, April 30, 2010 - $0.5 million) for past and
future losses is current with the bank in accordance with the Agency Agreement.
c) Guarantees
The Company's subsidiary in Australia has entered into a Deed of Cross Guarantee
with certain controlled entities. The effect of this Deed is that the subsidiary
and each of these controlled entities has guaranteed to pay any debts of any of
the companies' party to the Deed in the event their debts cannot be paid as and
when they fall due. The consolidated net assets of the entities party to the
Deed of Cross Guarantee is $1.5 billion.
The Company is contingently liable under several guarantees given to third-party
lenders who have provided certain financing facilities to its wholly owned
foreign subsidiaries. As at April 30, 2011, the maximum amounts of the
guarantees are $98.5 million CAD, $110.5 million USD, $81.8 million AUD and
Japanese Yen ("JPY") 2.0 billion or approximately $311.2 million CAD in
aggregate. As at April 30, 2011, liabilities recorded that have been guaranteed
would include subsidiary short-term borrowings of $10.4 million (October 31,
2010 - $10.6 million, April 30, 2010 - nil).
The Company is contingently liable under several guarantees given to third-party
lenders who have provided long-term financing to certain independent hog
producers. As at April 30, 2011, the current outstanding balance of these
guarantees is $2.0 million (October 31, 2010 - $2.2 million, April 30, 2010 -
$2.4 million). These guarantees diminish as the underlying loans are repaid and
expire in 2014.
The Company's Australian operations self-insure in South Australia for workers'
compensation liability and are subject to a bank guarantee for $1.8 million AUD
(October 31, 2010 - $1.2 million AUD, April 30, 2010 - $1.2 million AUD).
The Company is contingently liable to a finance company for a portion of losses
incurred related to potential producer delinquencies associated with equipment
leases and credit provided for the purchase of fertilizer bins. Given
historically low delinquent rates in conjunction with collateral values of
assets, the Company has accrued no obligation.
d) Asset Retirement Obligations
The asset retirement obligations represent the best estimate by management of
the legal obligations it would incur during the reclamation process relating to
closed facilities and current leases. Reclamation involves the demolition of
facilities and the reclamation of land. Uncertainty exists regarding the
estimation of future decommissioning and reclamation costs.
At April 30, 2011, the Company estimated that the undiscounted cash flow
required to settle the asset retirement obligations was approximately $39.4
million (October 31, 2010 - $38.6 million, April 30, 2010 - $41.0 million),
which is expected to be settled over the 2011 through 2022 period. The credit
adjusted risk-free rates at which the estimated cash flows have been discounted
range from 4.0% to 8.0%.
The Company has a joint venture interest in a fertilizer manufacturer that has
certain obligations with respect to plant decommissioning and land reclamation
upon cessation of operations. The Company has not recorded an asset retirement
obligation for these obligations at April 30, 2011 because it does not currently
believe there is a reasonable basis for estimating a date or range of dates of
cessation of operations.
e) Director and Officer Indemnification
The Company indemnifies its directors and officers against any and all claims or
losses reasonably incurred in the performance of their service to the Company to
the extent permitted by law. The Company has acquired and maintains liability
insurance for its directors and officers as well as those of certain affiliated
companies.
f) Other Indemnification Provisions
From time to time, the Company enters into agreements in the normal course of
operations and in connection with business or asset acquisitions or
dispositions. By their nature, these agreements may provide for indemnification
of counterparties. The varying nature of these indemnification agreements
prevents the Company from making a reasonable estimate of the maximum potential
amount it could incur. Historically, the Company has not made any significant
payments in connection with these indemnification provisions.
g) Other Contingencies
As at April 30, 2011, there are claims against the Company in varying amounts
for which a provision in the financial statements is not considered necessary.
The occurrence of the confirming future event is not determinable or it is not
possible to determine the amounts that may ultimately be assessed against the
Company with respect to these claims. Management believes that any such amounts
would not have a material impact on the business or financial position of the
Company.
12. FINANCIAL AND OTHER INSTRUMENTS AND HEDGING
a) Fair Value
The following table presents the fair value of the Company's financial
instruments and non-financial derivatives where fair value is recognized in the
balance sheet. The table also identifies the financial instrument category and
the level per the fair value hierarchy.
April 30, 2011 April 30, 2010
---------------------------------------------------
Financial
Instruments
Fair Value Level Category Fair Value Level
----------------------------------------------------------------------------
Financial assets:
Cash $ 133,074 1 HFT $ 349,414 1
Short-term investments 116,183 1 HFT-D 138,810 1
Exchange-traded HFT
derivatives 11,079 1 7,327 1
Commodity forward HFT
contracts 86,109 2 94,817 2
Foreign exchange HFT
forward contracts (over
the counter ("OTC")) 113,737 2 35,861 2
Interest rate swaps - 2 HFT 360 2
Available for sale at AFS
fair value 26 1 412 1
Natural gas swaps 1,210 2 HFT - 2
Financial liabilities:
Bank Indebtedness 71,003 1 HFT 6,779 1
Exchange-traded HFT
derivatives 20,792 1 2,580 1
Commodity forward HFT
contracts 63,976 2 49,762 2
Foreign exchange forward HFT
contracts (OTC) 27,475 2 22,285 2
Cross-currency swaps 7,641 2 HFT 2,752 2
Interest rate swaps - 2 HFT 16,701 2
Natural gas swaps - 2 HFT 1,035 2
----------------------------------------------------------------------------
Financial instruments category/guide: HFT Held for trading
HFT-D Held for trading - designated
AFS Available for sale
The aggregate carrying value of financial instruments classified as loans and
receivables is $929.4 million (April 30, 2010 - $818.6 million). The aggregate
carrying value of financial instruments classified as other financial
liabilities is $2.9 billion (April 30, 2010 - $2.3 billion).
b) Financial Risks and Risk Management
The Company faces certain financial risks such as commodity price, foreign
exchange, interest rate, credit and liquidity risk that can impact its financial
performance. The Company is exposed to changes in commodity prices, foreign
exchange rates and interest rates. The Company utilizes a number of financial
instruments to manage these exposures. The Company mitigates risk associated
with these financial instruments through Board-approved policies, limits on use
and amount of exposure, internal monitoring and compliance reporting to senior
management and the Board.
i. Commodity Price Risk
The Company's diverse range of services is spread across the agri-business
supply chain. As a result, the Company is exposed to agricultural and other
related commodity price movements within the market as part of its normal
operations. The Company uses exchange-traded futures and options contracts as
well as OTC contracts to minimize the effects of changes in the prices of
hedgeable agricultural commodities on its agri-business inventories and
agricultural commodities forward cash purchase and sales contracts. Derivative
contracts are valued at the quoted market prices. The Company manages the risk
associated with inventory and open contracts on a combined basis.
All market risk associated with commodity price movement is measured using a
Value at Risk ("VaR") method. The VaR calculation quantifies potential changes
in the value of commodity positions as a result of potential market price
movements from all sources of market risk, whether as a consequence of asset
ownership, customer sales, hedging or position taking.
There is currently no uniform industry methodology for estimating VaR. The VaR
calculation estimates the potential loss in pre-taxation profit over a given
holding period for a specified confidence level. The VaR methodology is a
statistically defined, probability-based approach that takes into account market
volatilities as well as risk diversification by recognizing offsetting positions
and correlations between products and markets. The use of VaR has limitations
because it is based on historical correlations and volatilities in commodity
prices and assumes that future price movements will follow a statistical
distribution. The five-day VaR number used by the group reflects the 95%
probability that the gain or loss in a five-day period will not exceed the
reported VaR based on the previous pricing period. Although losses are not
expected to exceed the statistically estimated VaR on 95% of occasions, losses
on the other 5% of occasions could be substantially greater than the estimated
VaR. The VaR at the balance sheet date is not representative of the risk
throughout the period as the period-end exposure does not reflect the exposure
during the period. In practice, as markets move, the Company actively manages
its risk and adjusts hedging strategies as appropriate.
The Company's Risk Management Policy provides limits within which management may
maintain inventory and certain long or short commodity positions. The Company
has established policies that limit the amount of agricultural commodity
positions permissible, which are a combination of quantity and VaR limits. VaR
levels are reported daily and compared with approved limits. Limits are
regularly reviewed to ensure consistency with risk management objectives, market
developments and business activities.
April 30, October 31,
As at 2011 2010
----------------------------------------------------------------------------
Historical VaR (95%, five-day):
Agricultural commodity price VaR $ 11,125 $ 16,333
ii. Foreign Exchange Risk
The Company undertakes certain transactions denominated in foreign currencies
and, as a result is exposed to foreign exchange risk. The Company is exposed to
foreign exchange risk on commodity contracts which are denominated in foreign
currencies and on its investment in foreign subsidiaries. The Company uses
derivative financial instruments, such as foreign currency forward contracts,
cross-currency swaps, futures contracts and options to limit exposures to
changes in foreign currency exchange rates with respect to its recorded foreign
currency denominated assets and liabilities as well as anticipated transactions.
The Company uses hedge accounting to match the cash flow of some of its
processed products to be sold in foreign funds with its foreign dollar currency
hedging instruments. Maturity dates for the foreign exchange forward contracts
on anticipated transactions extend for approximately 24 months. As at April 30,
2011, the portion of the forward contracts considered to be ineffective is
insignificant. The estimated amount reported in other comprehensive income that
is expected to be reclassified to net earnings during the next 12 months is an
after tax gain of $10.3 million.
The Company has an outstanding $100 million cross-currency swap arrangement in
place in order to limit exposure to a change in the AUD on a portion of its net
investment in its Australian operations. The derivative is used to mitigate the
risk of economic loss arising from changes in the value of the AUD compared to
the CAD. As at April 30, 2011, the portion of the cross-currency swap considered
to be ineffective is nil. During the three months ended April 30, 2011, $100
million of the net investment hedge was discontinued. The gain reclassified from
other comprehensive income that was reported in net earnings relating to the net
investment hedges was $0.7 million after tax and relating to the foreign
currency translation of the net investment was approximately $4.1 million after
tax.
The Company has $400 million USD Senior Notes outstanding the principal of which
had been designated a hedge in order to limit exposure to a change in the USD on
a portion of the Company's net investment in its U.S. operations. As at April
30, 2011, the portion of the hedge considered to be ineffective is nil.
Except as noted above, the foreign currency forward contracts, futures contracts
and options used by the Company are marked-to-market and unrealized gains and
losses are recognized in net earnings in the period in which they occur.
The following table details the Company's sensitivity on the net carrying value
of financial instruments that are denominated in a foreign currency other than
the functional currency in which they are measured as at the balance sheet date,
had currencies moved as illustrated, with all other variables held constant.
Impact On
Other
Impact On Comprehensive
Earnings, Income,
Carrying Value After Tax After Tax
----------------------------------------------------------------------------
10% increase
CAD/USD $ 17,868 $ 427 $ 147
CAD/Euro 103 8 -
CAD/AUD 44,228 (3,191) -
CAD/GBP 27 2 -
CAD/CHF (65) (5) -
AUD/USD 6,841 (588) (2,546)
AUD/Euro (1,582) 83 (82)
AUD/JPY 71 (57) (106)
AUD/NZD (189) 12 -
AUD/Singapore dollars 7 1 -
10% decrease
CAD/USD 17,868 (427) (147)
CAD/Euro 103 (8) -
CAD/AUD 44,228 3,276 -
CAD/GBP 27 (2) -
CAD/CHF (65) 5 -
AUD/USD 6,841 752 3,129
AUD/Euro (1,582) (98) 100
AUD/JPY 71 70 129
AUD/NZD (189) (14) -
AUD/Singapore dollars 7 - -
----------------------------------------------------------------------------
The above sensitivity analysis for foreign currency risk does not take
translation risk into account. Translation exposures arise from financial and
non-financial items held by foreign entities determined to be self-sustaining
operations. Sensitivity on net investments in self-sustaining foreign operations
is therefore not included in the analysis. The sensitivity at the balance sheet
date is not representative of the sensitivity throughout the year as the balance
sheet date exposure does not necessarily reflect the exposure during the year.
iii. Interest Rate Risk
The Company's exposure to interest rate risk relates primarily to the Company's
debt obligations. The Company manages interest rate risk and currency risk on
borrowings by using a combination of cash instruments, forwards and a mixture of
fixed and floating rates.
Based on the April 30, 2011 borrowings, the Company is exposed to interest rate
risk on short-term variable rate borrowings. A 25 basis point change in
short-term variable rates based on the Company's current credit ratings and the
current borrowings would impact after tax earnings by $0.8 million per annum.
During the prior year, the Company entered into derivative contracts in
connection with its plans to issue additional debt. Bond forward contracts were
entered into in order to protect against the risk of economic loss arising from
changes in the interest rates. The debt was issued on February 15, 2011 (Note 4)
and the bond forwards were settled. As a result, each year approximately $1.0
million after tax will be reclassified from other comprehensive income to net
income as financing expense over the term of the debt.
iv. Credit Risk
The Company is exposed to credit risk in respect of its trade receivables.
Credit approval policies and procedures are in place to guide internal credit
specialists in granting credit to new customers as well as in continuing to
extend credit to existing customers. The Company manages this credit risk
through monitoring of credit balances, ongoing credit reviews of all significant
contracts and analysis of payment and loss history. Customers that fail to meet
specified credit requirements may transact with the Company on a prepayment
basis or provide another form of credit support, such as letters of credit,
approved by the Company.
The absence of significant financial concentration of trade receivables, except
as noted below for receivables from the CWB, limits the Company's exposure to
credit risk. Credit risk exposure for the Agri-products and Processing segments
are also partially limited through an arrangement with a Canadian Schedule I
chartered bank which provides for limited recourse to the Company for credit
losses on producer accounts receivable under Viterra Financial TM.
The Company is also exposed to credit risk in the event of non-performance of
its counterparties on its derivative contracts. However, in the case of OTC
derivative contracts, the Company only contracts with pre-authorized
counterparties where agreements are in place and the Company monitors the credit
ratings of its counterparties on an ongoing basis. Exchange-traded contracts
used to hedge future revenues in the Company's grain business are not subject to
any significant credit risk as the changes in contract positions are settled
daily through a recognized exchange.
All bad debt write-offs are charged to operating, general and administrative
expenses. The year-to-date changes in the allowances for losses against accounts
receivable are as follows:
For the three months ended April 30 2011 2010
----------------------------------------------------------------------------
Beginning balance $ 9,907 $ 8,081
Provision for losses 3,387 1,560
Write-offs, net of recoveries (1,467) (1,087)
----------------------------------------------------------------------------
Ending balance $ 11,827 $ 8,554
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company has historically experienced minimal credit losses and, as a result,
it considers the credit quality of the trade receivables at April 30, 2011 that
are not past due to be high. The distribution of trade accounts receivable by
credit quality as at the balance sheet is shown in the following table:
April 30, April 30, October 31,
As at 2011 2010 2010
----------------------------------------------------------------------------
Not past due $ 586,912 $ 555,475 $ 422,440
Past due:
Past due less than 60 days 8,750 14,907 9,995
Past due greater than 61 days and
less than 90 days 3,485 3,144 2,626
Past due greater than 91 days 28,849 42,018 36,888
Allowances for losses (11,827) (8,554) (9,907)
----------------------------------------------------------------------------
$ 616,169 $ 606,990 $ 462,042
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Included in trade accounts receivable is $110.5 million due from the CWB, which
represents a significant concentration of credit risk.
The Company's maximum credit exposure at the balance sheet date consists
primarily of the carrying amounts of non-derivative financial assets such as
cash, short-term investments, accounts receivable and long-term receivables as
well as the fair value of commodity contracts, exchange-traded derivatives and
other non-trade assets included in accounts receivable. Short-term investments
are held with Schedule I (Canada) and A-rated (Australia) banks, and have
maturities of less than three months.
v. Liquidity Risk
The Company's liquidity risk refers to its ability to settle or meet its
obligations as they fall due and is managed as part of the risk strategy.
Liquidity adequacy is continually monitored, taking into consideration estimated
future cash flows including the amount and timing of cash generated from
operations, working capital requirements, planned capital expenditure programs,
debt servicing requirement, dividend policy and business acquisitions. The
Company actively maintains credit facilities to ensure it has sufficient
available funds to meet current and foreseeable financial requirements.
Management believes that future cash flows from operations and availability
under existing banking arrangements will be adequate to support these financial
liabilities.
The following table approximates the Company's remaining contractual maturity
for its financial liabilities and matching financial assets as well as matching
cash flows in designated hedge relationships as at the balance sheet date. The
table below details the undiscounted cash flows of financial instruments based
on the earliest date on which the Company can be required to pay. The table
includes both interest and principal cash flows.
Contractual Within 1 1 to 2 2 to 3
Cash Flows Year Years Years Thereafter
Financial
Assets:
Exchange-traded
derivatives $ 11,079 $ 10,422 $ 657 $ - $ -
Commodity
forward
contracts 86,109 85,848 261 - -
Foreign
exchange
forward
contracts
(OTC) 117,023 110,530 6,445 48 -
Natural
gas swaps 1,210 1,210 - - -
----------------------------------------------------------------------------
Financial
Liabilities:
Bank
indebtedness $ (71,003) $ (71,003) $ - $ - $ -
Short-term
borrowings (454,463) (454,463) - - -
Exchange-traded
derivatives (20,792) (20,706) (86) - -
Commodity
forward
contracts (69,527) (67,969) (1,447) (111) -
Foreign
exchange
forward
contract
(OTC) (30,534) (28,944) (1,509) (81) -
Cross-currency
swaps (8,118) (8,118) - - -
Bond
forward
contracts - - - - -
Natural
gas swaps - - - - -
Other
current
liabilities (1,282,363) (1,282,363) - - -
Long-term
debt,
including
current
position (1,624,482) (78,513) (78,513) (78,508) (1,388,948)
Classified
as other
long-term
liabilities (10,812) - (2,946) (2,430) (5,436)
----------------------------------------------------------------------------
13. MANAGEMENT OF CAPITAL
The Company's objective when managing capital is to strive for a long-term
manageable level of debt to total capital together with maintaining an
acceptable ratio of EBITDA to cash interest. Due to the seasonal nature of the
Company's short-term borrowing requirements, the Company's objective is to
manage the level of debt to total capital between 30% to 40% and to maintain a
rolling 12-month EBITDA that is at least five times the level of cash interest
paid.
Debt to total capital is defined as total interest bearing debt divided by total
interest bearing debt plus the book value of total shareholders' equity.
Interest bearing debt is the aggregate of short-term borrowings, long-term debt
due within one year and long-term debt.
April 30, April 30, October 31,
As at 2011 2010 2010
----------------------------------------------------------------------------
Short-term borrowings $ 454,463 $ 69,055 $ 61,677
Long-term debt due within one year $ 1,937 $ 17,452 $ 2,295
Long-term debt 1,064,833 1,232,009 896,834
----------------------------------------------------------------------------
Total long-term debt $ 1,066,770 $ 1,249,461 $ 899,129
----------------------------------------------------------------------------
Total interest bearing debt $ 1,521,233 $ 1,318,516 $ 960,806
Shareholders' equity $ 3,895,366 $ 3,485,508 $ 3,710,263
----------------------------------------------------------------------------
Total capital $ 5,416,599 $ 4,804,024 $ 4,671,069
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Debt to total capital:
As at the balance sheet date 28:72 27:73 21:79
Four quarter average 25:75 30:70 25:75
EBITDA to cash interest is defined as earnings before financing expenses, taxes,
amortization, gain (loss) on disposal of assets, integration expenses and
acquisition derivative divided by cash interest. Cash interest is net financing
expenses excluding refinancing costs and net investment hedge less non-cash
financing expenses. The ratio is calculated on a rolling 12-month basis.
For the rolling twelve months ended April 30 2011 2010
----------------------------------------------------------------------------
EBITDA $ 674,016 $ 427,714
Cash interest, net 101,270 97,388
----------------------------------------------------------------------------
EBITDA to cash interest: 6.7 4.4
Management uses EBITDA to cash interest to assess interest coverage and the
Company's ability to service its interest bearing debt.
The Company monitors its capital structure and makes adjustments according to
market conditions and seasonal requirements in an effort to meet its objectives.
The Company may manage its capital structure by issuing new shares, obtaining
additional financing, issuing unsecured notes, refinancing existing debt,
repaying current debt, or by paying dividends.
During the period, the Company was in compliance with external covenants
relating to the management of capital.
Abitibi Mining Corp. (TSXV:ABB)
過去 株価チャート
から 5 2024 まで 6 2024
Abitibi Mining Corp. (TSXV:ABB)
過去 株価チャート
から 6 2023 まで 6 2024
