Speakers talk increasing shareholder value, plant valuation

Source: By Holly Jessen, Ethanol Magazine • Posted: Thursday, June 12, 2014

With current profit levels, ethanol producers are keeping their heads down and working to make as much money as possible for as long as the good times last, said James Eiler, principal of Eiler Capital Advisors LLC, during a presentation held June 11 at the International Fuel Ethanol Workshop & Expo. “It’s just phenomenal the kind of cash being earned by some,” he said, mentioning figures like $17 million or $20 million earned in six months or less.

Eiler was one of four speakers that spoke as part of a presentation on “Increasing Shareholder Confidence by Increasing Overall Plant Value and Providing Adequate Liquidity Opportunities.” Also speaking were Richard Wilichowski, vice president of AccuVal-Liquitec, Scott McDermott, partner with Ascendant Partners Inc. and Donna Funk, member of the biofuels group of Kennedy and Coe LLC. The panel was moderated by Tom Bryan, editor in chief of Ethanol Producer Magazine.

Eiler addressed the question of how a single standalone ethanol plant optimizes shareholder value. One way is to be a low-cost provider and control the local grain pool. Producers can also merge with another ethanol plant to lower operating costs, he said. Looking ahead to a potential sale, companies can work to optimize their operations. Or, another strategy is to “double down” for another 10 years by investing in incremental technologies.

Wilichowski gave an overview of what ethanol producers should look for in a valuation expert. It’s important to ask a lot of questions to find the right company with the right experience. If the right questions aren’t asked it could create problems down the road with the auditor or banker. “It just creates a headache,” he said.

McDermott talked about the importance of leadership and a clear strategic plan for the future. “It starts with the board and senior manager,” he said, later adding that. “If you are not working toward a plan for success you are almost certainly planning for failure. The biggest risk is not having a strategy. And we say, hope is not a strategy.”

The industry is going from “tactical budgeting” to developing a long-term vision. By knowing the company’s strong and weak points, ethanol producers can improve its weaknesses and provide value for shareholders. “[So they] stick with you in good times and bad,” McDermott said, adding that although most plants have little to no debt, if times get hard again, getting money from banks may be hard so producers will need to return to shareholders.

Funk talked about a variety of ways producers could create liquidity, if that strategy works for their particular company. That could be through a stock buy-back program or implementing employee stock ownership plans, both options that could have tax advantages. Another option is through trading platforms or taking the company public. One option that is often overlooked is asking investors if they want to buy more units. If there is an investor that wants to buy a larger amount of units several shareholders could sell their stocks together or, if there are investors that want to buy fewer units, a stock split might be a good solution. “Ask around, be more proactive,” she said.