DBRS Confirms Viterra Inc. at BBB (low), Stable Trends

DBRS has today confirmed Viterra Inc.’s (Viterra or the Company) Issuer Rating and Senior Unsecured Notes rating at BBB (low) with a Stable trend.

Viterra’s earnings profile remains sound for the current rating category based on its leading market position in the Canadian grain handling industry and enhanced geographic diversification following the integration of ABB Grain Ltd. (ABB). Viterra’s acquisition of ABB closed on September 24, 2009; F2010 was the first year that included ABB results for the entire period. Consolidated revenue increased 24% to $8.3 billion for F2010 including $2.3 billion of contributions from the Australian operations which more than offset the effects of lower volumes and commodity prices on the Company’s grain handling and marketing operations in North America. Operating income increased sharply in F2010 with EBITDA of $518 million versus $324 million in F2009. The results include $176 million in EBITDA contributions from Viterra’s Australian operations, with the remaining increase mainly attributable to new pasta and oat processing operations in the United States and strong fertilizer sales in the fourth quarter. Viterra’s financial profile remains strong for the current rating category based on its elevated cash generating capacity and reasonable long-term debt levels.

Going forward, DBRS expects Viterra’s earnings profile to remain stable on the back of its enhanced scale and diversification. DBRS expects F2011 will be an exceptional year based on the strong performance in Australia early in the year. That said, DBRS maintains its original view that Viterra should generate EBITDA between $500 million and $600 million in normal condition years following the acquisition of ABB and the U.S. segments.

This should translate into operating cash flow of $375 million to $425 million, while maintenance capex is expected to run in the $130 million to $140 million range. The Company has initiated a dividend that will require $40 million of cash in F2011, which DBRS expects will grow. Therefore, Viterra should generate free cash flow of more than $200 million in normal condition years; however, Viterra is expected to continue investing in new business opportunities within the agricultural sector. As such, DBRS will remain focused on the nature, magnitude and pace of the Company’s growth strategy, but expects that it will be carried out in a disciplined manner with an aim of keeping Viterra placed in the BBB range. DBRS expects the Company’s gross long-term debt to “normal conditions” EBITDA to settle at close to 2.0x and remain consistent with an investment grade profile.

Notes: All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Grain Companies, which can be found on our website under Methodologies.