Regina, Saskatchewan
March 10, 2005
Saskatchewan Wheat Pool
recorded consolidated sales and operating revenues of $322
million in the second quarter of fiscal 2005 similar to the
sales generated in the same quarter of fiscal 2004. Strong
second quarter fertilizer sales through the Pool’s retail
operations coupled with increased Agri-food Processing sales
offset a 7% decline in the value of grain sales due primarily to
the impact of lower commodity prices.
For the first six months of fiscal 2005, the Pool generated
sales of $551 million compared to $610 million for the same
period a year earlier. The variance primarily reflects lower
non-Board commodity prices overall.
Second quarter EBITDA, or earnings before interest, taxes,
depreciation and amortization, was $14.0 million, compared to
$25.5 million in last year’s second quarter. EBITDA for the
year’s first six months was $11.9 million, compared to EBITDA of
$34.5 million last year. The primary variance between
the two periods relates to lower grain margins because of the
late harvest, which resulted in having to pay high purchase
premiums and shipping costs to secure the required quality
commodities to meet its sales commitments in the first six
months. This year’s EBITDA includes approximately $1.6 million
in positive one-time items, while in the first six months of
last year there was approximately $7.1 million in positive
one-time items.
Chief Executive Officer, Mayo Schmidt says, “Operating results
for the quarter are in line with our expectations given the poor
quality crops available to grain handlers this year. The
business continues to gain momentum and we look forward to
strong sales and cash flow for our core operations in the peak
spring selling season. This, together with the balance sheet
benefits we anticipate from a successful recapitalization
initiative and our planned $150 million underwritten rights
offering, will restore the Pool to a strong financial and
competitive position. It will allow us to build on the many
efficiency measures and financial improvements we have
implemented since 2000.”
Interest expense was $8.7 million for the quarter, including
$3.0 million of non-cash accretion. For last year’s second
quarter, interest expense was $9.2 million, including $2.6
million of non-cash accretion. Interest expense in the first
six months of 2005 totaled $18.1 million with $5.9 million of
non-cash accretion, which compares to $19.4 million in the first
six months of last year including $5.1 million of non-cash
accretion.
Amortization for the quarter
was $6.8 million compared to $6.0 million a year earlier. Total
amortization for the six months ended January 31, 2005 was $13.3
million up from the $12.0 million in the first six months of
last year.
EBIT, or earnings before interest and taxes, for the quarter was
$7.1 million, down from $19.5 million in the same period in
2004. In the first six months of this year, the Pool’s EBIT
loss was $1.4 million, compared to 2004 EBIT earnings of $22.5
million.
For the quarter, the net loss from continuing operations was
$0.9 million compared to earnings from continuing operations of
$9.5 million last year. For the six months, the net loss from
continuing operations was $16.5 million compared to net earnings
from continuing operations of $2.4 million in the first six
months of 2004.
The net loss for the second
quarter was $0.9 million ($0.03 per share) compared to a net
loss of $4.8 million in the second quarter last year ($0.05 per
share). On a year-to-date basis, the net loss was $16.5 million
($0.11 per share) compared to $14.6 million ($0.13 per share) in
the first six months of 2004.
Cash flow from continuing
operations recovered to a breakeven level for the six months
ended January 31, 2005 from an $8.1 million negative position at
the end of the first quarter. The company expects to generate
significant cash flows by year-end, particularly in the last
three months, its traditionally strongest quarter.
Operating Results
Grain Handling and Marketing
The Pool’s Grain Handling and Marketing segment shipped 1.8
million tonnes of grain and oilseeds in the second quarter of
fiscal 2005, up 12% from the 1.6 million shipped in last year’s
second quarter. On a year-to-date basis, shipments were 3.3
million tonnes, an increase of 9% from the previous year. This
compares favourably to the industry, which, in the first half of
2005, experienced a 5% increase in western Canadian shipments of
the six major grains.
Producer deliveries into the Pool’s primary elevators were 1.8
million tonnes during the quarter, which is up 22% from the
second quarter last year. On a year-to-date basis, producer
deliveries totaled 3.4 million tonnes versus 3.1 million tonnes
in the first six months of 2004, reflecting increased production
in Saskatchewan, the Pool’s primary market region. The Pool’s
western Canadian market share at January 31, 2005 was 23%
compared to 21% after the first six months of 2004.
Total port terminal volumes through the Pool’s wholly owned
export facilities were 1.1 million tonnes in the second quarter,
up approximately 19% from the second quarter of 2004.
For the six months, the Pool’s wholly owned ports received 2.0
million tonnes of grains and oilseeds, which is on par with the
previous year’s period.
Six Months Ended January 31
Volumes
(in thousands of metric tonnes)
| |
2005
|
2004
|
Increase
(Decrease)
|
| Primary elevator
receipts |
3,439
|
3,136
|
10%
|
| Primary elevator
shipments |
3,324
|
3,039
|
9%
|
| Terminal
operations |
|
|
|
| Vancouver
|
1,175
|
1,241
|
(5)%
|
| Thunder Bay
|
844
|
753
|
12%
|
| Share of
affiliates |
288
|
156
|
85%
|
| Total terminal
operations |
2,307
|
2,150
|
7%
|
The Pool’s pipeline margin per tonne for the quarter was $16.76,
up from the $14.84 per tonne generated in the first quarter, but
behind the $20.43 earned in the second quarter of last year.
Margins in the first six months of 2005 ($15.88) are lagging
2004 levels ($22.29) because of this year’s poor crop quality,
low commodity prices and the abundance of feed grain in the
Prairie system. The early frost and delayed harvest has made it
difficult to secure sufficient quantities of grains and oilseeds
to meet sales commitments in the first six months. As well, CWB
storage and interest revenue is down due to lower inventory
levels. Management believes that margins will strengthen through
the remainder of the year but will remain approximately 10% to
15% behind the $20 to $22 average margin per tonne that is
typical in a normal year.
EBITDA from the Grain Handling and Marketing segment for the
quarter was $8.0 million, which compares to $19.8 million of
EBITDA generated in the second quarter of fiscal 2004. On a
year-to-date basis EBITDA was $9.5 million (includes $1.6
million of one-time items) compared to $32.5 million (includes
$6.5 million of one-time items). After excluding all one-time
items, EBITDA for the six months declined by approximately $18.1
million. EBIT for the quarter was $5.1 million compared to
$17.5 million last year, and $4.0 million for the six months
compared to $27.8 million in the first half of 2004.
Agri-products
The Pool’s Agri-products segment generated a 14% increase in
sales during the second quarter of 2005, driven by increased
fertilizer demand. Because of the late harvest in the fall of
2004, fertilizer applications in the first quarter were slow.
However, during the second quarter, farmers were able to apply
significant amounts of fertilizer post harvest. On a
year-to-date basis, the Agri-products segment generated $127.4
million in sales, up from the $125.0 million in the first six
months of 2004. This increase was driven by more fertilizer
sales and to a lesser extent an increase in the sale of seed.
The second quarter is typically the slowest period for crop
protection product sales as most of those inputs are purchased
in the spring.
EBITDA for the quarter more than offset the first quarter loss.
EBITDA was $5.4 million, which compares to $4.0 million in the
second quarter last year. Year-to-date Agri-products EBITDA was
$2.0 million, about double the EBITDA generated in the first six
months of 2004. EBIT for the quarter was $2.8 million up from
$1.7 million in the second quarter last year. On a year-to-date
basis, EBIT was a loss of $3.2 million versus a loss of $3.7
million. Because of the seasonality of the business, the
majority of the earnings in this segment are recorded in the
fourth quarter given the significance of the spring selling
season on earnings and the fixed cost nature of the Pool’s
expansive Western Canada retail operation.
“The new management team driving our Agri-products segment has
been performing well and is implementing new business strategies
that are allowing this essential core operation to gain momentum
in the marketplace”, says CEO Schmidt. “We are excited with
their progress.”
Agri-food Processing
The Agri-food Processing segment generated sales for the quarter
of $30.0 million compared to $26.1 million in sales during the
second quarter of 2004. On a year-to-date basis, sales were up
6% to $61.1 million versus $57.3 million in the previous year.
Strong demand for whole oat flour and finished products through
Can-Oat produced sales that were slightly ahead of last year.
Prairie Malt sales were up 24% compared to the previous year’s
period when the company experienced abnormally low sales because
of poor crop quality. This year, additional sales were also
generated in the Japanese and North American markets.
Segment EBITDA for the quarter was $5.1 million just slightly
below the $5.6 million earning in the second quarter of 2004.
On a year-to-date basis, EBITDA was $8.9 million compared to
$9.2 million for the first six months of 2004. Both Prairie
Malt and Can-Oat generated similar EBITDA relative to last
year’s first six months. Segment EBIT for the second
quarter was $3.8 million compared to $4.4 million and on a
year-to-date basis was $6.4 million compared to $6.6 million in
2004.
Outlook
The Pool’s grain shipments for fiscal 2005 are expected to
exceed 2004 levels, the extent to which will be dependent on a
number of factors including grain prices, exports and the
potential for a good crop next year. If grain prices remain
low, farmers may choose to hold back a portion of their crop in
an effort to blend it with a higher quality crop next year.
However, if prospects for the next year’s crop are good,
farmers will also have to ensure they have adequate storage
on-farm, which would force grain into the marketplace during the
spring and early summer months. The ability to secure export
demand for lower quality grains and oilseeds for the remainder
of the year will also be key to 2005 volumes.
For the Pool’s Agri-products business, current moisture
conditions are encouraging for the spring selling season.
Fertilizer sales are expected to be brisk in the spring if
moisture conditions hold. There is also potential for a good
crop protection products sales season given poor fall weed
control. However, the Pool’s Agri-products business is highly
seasonal and its results remain dependent upon farmers’ seeding
intentions and good growing conditions throughout the season.
Saskatchewan Wheat Pool is a
publicly traded agri-business headquartered in Regina,
Saskatchewan. Anchored by a Prairie-wide grain handling and
agri-products marketing network, the Pool channels Prairie
production to end-use markets in North America and around the
world. These operations are complemented by agri-food
processing and strategic alliances, which allow the Pool to
leverage its pivotal position between Prairie farmers and
destination customers. The Pool’s Class B shares are listed on
the Toronto Stock Exchange under the symbol SWP.NV.B.
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