MFA strengthens the balance sheet, records excellent profitability
Stop for a minute and consider the current economic/political environment in Washington, D.C. The United States faces serious issues such as the federal debt limit, budget deficits, proposed tax increases and federal health care. As with the rest of the country’s industries, agriculture is not immune to the ill effects of this turmoil.
However, if current commodity prices and interest rates remain at today’s levels, I do not see any serious effects on production agriculture or agribusiness. I realize that’s a big “if.” And I qualify that assessment by saying it is based on the near term of 2 to 3 years.
Long term, we need a balanced budget with reduced spending for stability in the international markets. In the interim, we can plan on government-provided funding being reduced. That will affect agriculture.
Despite this atmosphere, MFA made remarkable financial progress this past year. MFA’s projected earnings ($16 million after taxes) are the best the company has ever achieved from ongoing operations if you exclude the odd year prior to the world financial crisis.
During this fiscal year, retail turned in a record performance in earnings and strong sales growth. Plant foods moved almost 900,000 tons. Crop protection had record unit volumes. Seed had record sales in corn and soybean units.
Feed and animal health rebounded with excellent results, and farm supply sales improved 15 percent to record impressive gains.
All of that business is driven by the economic activity of our farmer/owners, who, in turn, are doing what they do best: they’re producing food, fiber and fuel.
Yet, we all face more hard work ahead in this economy.
During the tumultuous 2008 year that ended with a free fall in the stock market, an upsurge in oil prices and world market collapse, MFA’s balance sheet took a hit. That year proved the wisdom of MFA’s efforts in prior years to focus on balance-sheet strength.
In July of 2009, the management team at MFA developed and implemented a corporate plan to bring MFA’s balance-sheet numbers back up to what we consider acceptable levels. The management team established financial targets for the fiscal year ending in August 2012—one year from now.
We set in motion specific steps to restore MFA’s net worth to $110 million. Today, our net worth stands at $110 million—fully one year ahead of schedule. We planned to restore working capital to $45 million. At year end, MFA’s working capital should be $70 million.
EBITDA is an important indicator of balance-sheet strength. EBITDA measures earnings before interest, taxes, depreciation and amortization. EBITDA had dropped precipitously during the market turmoil. We set $30 million as a target. Today EBITDA stands at $40 million.
In much the same way, our net worth, working capital, cash flow, leverage ratio and coverage ratio are all above our standards (as well as lender requirements).
This financial improvement and the employee esprit de corps evident in the process are what make me proud to be CEO of MFA Incorporated.
MFA employees and the employees of the affiliated MFA locations have can-do attitudes and dedication. I salute that dedication and their professionalism.
Customer relationships and customer retention are outstanding. We have in place effective processes in selling, operations, inventory control, warehousing, credit, logistics and personnel management.
Where does MFA go from here?
Here’s our vision statement:
MFA will increase market share in our existing territory while expanding the business through strategic acquisitions and sales growth into new geography adjacent to MFA’s existing trade territory. MFA will assess and deploy assets to achieve targeted levels of return.
Geographic expansion will strengthen and diversify the business and assets and allow the company to grow. Targeted growth will be 3 percent annually.
To achieve that vision, MFA will expand into territory that allows us to capitalize on our strengths as a premier retail input supplier and grain originator.
MFA will employ its wholesale divisions to complement retail expansion through planned volumes of plant foods, crop protection, seed and feed with targeted levels of return. Wholesale will also concentrate efforts on sales growth in new geography.
We know where we need to go as a company. We know how to get there. By keeping you, the customer, as the focus of our efforts, we’ll get there together.
Bill Streeter is President and CEO of MFA Incorporated.