Agricore United emerged from two years of drought and tough market conditions a leaner, stronger, more  efficient company at the end of the 2003 fiscal year. The company today announced a net loss of only $2.4 million or $0.15 per share for the fiscal year ended October 31, 2003, significantly smaller than the net loss of $17.5 million or $0.42 per share for the 12 months ended October 31, 2002. 

Earnings before interest, taxes, depreciation and amortization increased by $25.8 million to $100.5 million for the year as a result of much improved sales of crop inputs and reductions of $28.4 million in operating, general and administrative expenses. Both sales improvement and cost reductions more than offset the lingering negative impact on grain handling gross profit of industry-wide declines in grain shipments experienced in the earlier quarters of 2003 as a result of the 2002 drought.

"For the most part, the drought is now behind us and we've turned a corner in grain handling," says Brian Hayward, Chief Executive Officer. "Already in the final quarter of 2003 our grain shipments have increased by 61 percent over the same quarter last year thanks to the increased production now available from the 2003 crop and our market share improved to 36 percent." A recent release by Statistics Canada estimated production of major grains in Western Canada at about 95 percent of the 10 year average. Crop input sales and revenue from services are also on the rise, increasing $167 million to $856 million at the end of October, 2003 compared to $689 million for the previous year. The growth reflects both a recovery in sales of crop protection products and increased crop nutrient prices. 

"Our commitment to reducing debt continues to be a high priority into the future," continues Hayward. "In fact, over the two years since the merger, the Company still managed to contribute free cash flow of $23 million to debt reduction despite the devastating effects of two years of back to back droughts on operating results." The company's total net funded debt at October 31, 2003 was $510 million compared with $648 million one year ago and $771 million at October 31, 2001. 

Also contributing to the strong year end position of Agricore United was the sale of the Farm Business Communications division on October 9, 2003 which resulted in an after-tax gain of $11.9 million or $0.26 per share. The gain on sale and the after-tax earnings from operations of $821,000 contributed earnings from discontinued operations of $12.7 million or $0.28 per share for the fiscal year ended October 31, 2003.

Agricore United is one of Canada's leading agri-businesses. The prairie-based company is diversified into sales of crop inputs and services, grain merchandising, livestock production services and financial markets. Agricore United's shares are publicly traded on the Toronto Stock Exchange under the symbol "AU". 

FOURTH QUARTER

REPORT FOR THE TWELVE MONTHS ENDED OCTOBER 31, 2003

Q4 Highlights

- Continued Improvement in Leverage Ratio - The Company's total net funded debt at October 31, 2003 (excluding the convertible debenture) was $510 million compared to $648 million at October 31, 2002. The Company reduced its weighted average leverage ratio (net funded debt to capitalization) to 46% for the year ended October 31, 2003 from 55% for the preceding 12 months.

- Improved Liquidity Year-Over-Year - The Company's ratio of current assets to current liabilities increased to 1.3 times at October 31, 2003 from 0.95 times at October 31, 2002. The Company's available uncommitted short-term credit increased about $100 million from October 31, 2002 to October 31, 2003.

- Increased Crop Input Sales and Gross Profit - Crop input sales & revenue from services increased $167 million to $856 million for the fiscal year ended October 31, 2003 compared to $689 million for the 12 months ended October 31, 2002 - reflecting both a recovery in sales of crop protection products and services and increased crop nutrient prices. Gross profit increased $56 million to $204.5 million for the fiscal year ended October 31, 2003 yielding an average margin on sales of 25% (compared to 22% for the 12 months ended October 31, 2002).

 - Grain Handling Turns the Corner - Grain Handling gross profit declined $53.7 million for the year ended October 31, 2003 due to lower industry-wide grain shipments following the 2002 drought. However, grain shipments for the Company increased 61% in the most recent quarter compared to the same quarter last year (industry shipments increased 22% in the quarter) due to the increased production now available from the 2003 crop.

- Improved EBITDA and EBIT (1) - EBITDA increased $25.8 million to $100.5 million for the fiscal year ended October 31, 2003 - improvements in sales of crop inputs and further reductions of $28.4 million in operating, general and administrative expenses more than offsetting the decline in grain handling gross profit arising from the 2002 drought.

- Sale of Farm Business Communications Division - The sale of the Farm Business Communications division on October 9, 2003 generated an after-tax gain of $11.9 million or $0.26 per share. The gain on sale and the after-tax earnings from discontinued operations contributed earnings of $12.7 million or $0.28 per share for the fiscal year ended October 31, 2003.

- Improved Earnings and Cash Flow from Operations - although negatively impacted by the 2002 drought on 2003 grain shipments and profitability, the net loss of $2.4 million (a loss of $0.15 per share including discontinued operations) for the fiscal year ended October 31, 2003 was $15.1 million better than the net loss of $17.5 million (loss of $0.42 per share including discontinued operations) for the 12 months ended October 31, 2002. Cash flow provided by operations of $60.3 million (or $1.20 per share) for the fiscal year ended October 31, 2003 increased $38.3 million from $22 million (or $0.47 per share) for the same 12 months last year.

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(1) Earnings before interest, taxes, depreciation and amortization, gains or losses on asset disposals, discontinued operations net of tax and unusual items ("EBITDA") and earnings before gains or losses on asset disposals, interest, taxes, discontinued operations net of tax and unusual items ("EBIT") are provided to assist investors in determining the ability of the Company to generate cash from operations to cover financial charges before income and expense items from investing activities, income taxes and items not considered to be in the ordinary course of business. Reconciliation of such measures to net income are provided in the Consolidated Statements of Earnings and Retained Earnings and Note 4 to the Consolidated Financial Statements below. The items are excluded in the determination of such measures as they are non-cash in nature, income taxes, financing charges or are otherwise not considered to be in the ordinary course of business. EBITDA and EBIT provide important management information concerning business segment performance since the Company does not allocate financing charges or income taxes to these individual segments.  Such measures should not be considered in isolation of or as a substitute for (i) net income or loss, as an indicator of the Company's operating performance or (ii) cash flows from operating, investing and financing activities, as a measure of the Company's liquidity. Such measures do not have any standardized meanings prescribed by Canadian generally accepted accounting principles ("GAAP") and are therefore unlikely to be comparable to similar measures presented by other companies.

Consolidated Financial Results

Crop Production Services

The sale of crop nutrients, crop protection products and seed increased $150.4 million (22%) for the fiscal year ended October 31, 2003 compared with the same 12 month period in 2002. Sales of $88.4 million for the quarter ended October 31, 2003 increased $41.3 million (88%), largely due to more normal crop nutrient sales in the fall. Crop nutrient tonnes sold only increased by about 100,000 tonnes to 1.1 million tonnes for fiscal 2003 compared to the same period in 2002. Therefore, the bulk of the $113 million increase in crop nutrients sales in 2003 was a result of underlying price increases related to the higher cost of natural gas, the primary component in the manufacture of fertilizer. Crop protection product sales increased $38 million (15%) for the fiscal year ended October 31, 2003, substantially recovering the $56 million decline in sales in the prior year arising from the 2002 drought. A decline in crop protection product sales in the quarter ended October 31, 2003 - the result of dry summer conditions which negatively affected late-season sales - suppressed fiscal 2003 sales by about $10 million compared to 2001. Seed and other sales declined slightly by $1 million in 2003 compared to the same period in 2002.

Gross profit and revenue from services for fiscal 2003 increased $56 million (38%) to $204.5 million from the 2002 level of $148.5 million. For the quarter ended October 31, 2003, gross profit and revenue from services of $90.1 million increased $47.9 million (113%) over the same quarter last year due to stronger crop nutrient sales noted above. Average margins on sales were 24.7% in fiscal 2003, representing an increase of 2.7% from 2002, primarily as a result of higher margins on crop nutrients and crop protection products and an increase in agronomic services provided.

Crop Production Services incurred operating, general and administrative ("OG&A") expenses of $106.9 million for the fiscal year ended October 31, 2003 compared to $109.6 million during the same 12 month period in 2002. The Company achieved this modest $2.7 million (2.4%) reduction, due to merger savings and general cost containment, notwithstanding the significant increase in sales activity that occurred during 2003.

Grain Handling

Industry grain shipments of the major grains as reported by the Canadian Grain Commission ("CGC") declined by 4.3 million tonnes (17%) to 20.6 million tonnes for the 12 months ended October 31, 2003 compared to 24.9 million tonnes for the same 12 months in 2002 (and 32.3 millon tonnes in 2001) as the impact of the 2002 drought on grain shipments in 2003 ran its course. Industry shipments for the most recent quarter ended October 31, 2003 of 7.1 million tonnes exceeded shipments of 5.8 million tonnes for the quarter ended October 31, 2002 by 22% and represented about 87% of the grain shipped in the same quarter in 2000 (prior to the effects of either the 2001 or 2002 droughts). The improved shipping in the most recent quarter of 2003 reflects higher Western Canada production of major grains from the 2003 growing season which is currently estimated by Statistics Canada to be 45.7 million tonnes or 95% of the 10 year average from 1992 to 2001 (i.e., excluding the effects of the devastating 2002 drought).

Consistent with the reduction in industry shipments attributable to the 2002 drought, Agricore United's grain shipments declined by 1.4 million tonnes (16%) to 7.4 million tonnes for the fiscal year ended October 31, 2003 compared to 8.8 million tonnes for the same period in 2002. Company shipments for the quarter ended October 31, 2003 of 2.8 million tonnes exceeded shipments of 1.7 million tonnes for the same quarter last year by 61% and represented 96% of the pro forma(2) level achieved in the quarter ended October 31, 2000. Accordingly, the ratio of the Company's shipments to industry shipments for the quarter ended October 31, 2003 was 39% (2002 - 30%) and for the 2003 fiscal year was 36% (2002 - 35%).

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(2) Pro forma financial information is provided to assist investors in comparing results between periods after giving effect to the Merger.  In particular, results for UGG from comparable periods in fiscal 2001 have been adjusted to give effect to the Merger as if it had occurred on August 1, 2000 and, accordingly, reflect the operating results of Agricore in the current periods as if it had been owned for the same number of days in the comparable prior periods.

The Company handled 3.7 million tonnes of grain at its port terminals for the fiscal year ended October 31, 2003 - a reduction of 1.2 million tonnes (24%) from 4.9 million tonnes handled for the same 12-month period in 2002. The Company handled 1.6 million tonnes for the quarter ended October 31, 2003, an increase of 889,000 tonnes over the 714,000 tonnes handled in the same quarter in 2002. The decline in port terminal handling was more significant earlier in the current fiscal year due to lower shipping arising from the 2002 drought as well as the closure of all Vancouver port grain terminal operations from August 26 to December 16, 2002 - the result of a labour dispute. Consequently, about 50% of the Company's grain shipments were handled through its port terminal operations in 2003 compared to 56% in 2002.

Grain Handling and Merchandising gross profit and revenue from services of $155 million for the fiscal year ended October 31, 2003 declined by $53.7 million (26%) from $208.7 million for the 12 months ended October 31, 2002. The average margin of $20.91 per tonne for the fiscal year ended October 31, 2003 declined by $2.81 per tonne (12%) from $23.72 per tonne for the same period last year. The decline in the margin per tonne reflects:
- a reduced proportion of the grain shipped through the Company's port terminals in 2003 compared to 2002, resulting in a loss of terminal handling revenue;
- reduced margins on tendered Canadian Wheat Board ("CWB") grain in fiscal 2003;
- competitive pressures to handle a dramatically reduced supply of grain following the 2002 drought; and
- more recently, an increase in vessel freight costs due to increased world-wide competition for a limited supply of ocean-going vessels.

Grain Handling and Merchandising OG&A expenses for fiscal 2003 of $136.4 million were reduced by $8.7 million (6%) from the $145.1 million incurred during the same period in 2002 - despite a significant increase in these expenses (of $7.4 million) in the quarter ended October 31, 2003, the result of much higher throughput this year and the effect of the Vancouver terminal labour dispute last year (from August to December 2002). Nevertheless, OG&A expenses do not vary in direct proportion to the volume of grain handled due to the relatively high fixed cost nature of the grain handling system.

As a result of the lower volume of grain handled and therefore gross profit, EBITDA declined by $45 million to $18.6 million for fiscal 2003 compared with $63.6 million for the 12 months ended October 31, 2002. Depreciation and amortization of $35.7 million in fiscal 2003 declined by $1.5 million from $37.2 million in 2002. Accordingly, Grain Handling and Merchandising generated an EBIT loss of $17.1 million for fiscal 2003 compared to EBIT of $26.4 million for the same period in 2002.

Livestock Services

Manufactured feed sales of 816,000 tonnes for the fiscal year ended October 31, 2003 declined by 99,000 tonnes from 915,000 tonnes for the same 12 month period last year - the decline began early in the fiscal year with the liquidation of beef cattle on feed as a result of the 2002 drought. The discovery of a single case of bovine spongiform encephalopathy ("BSE") in Alberta resulted in temporary import bans on Canadian ruminants and ruminant products by the United States and other countries beginning May 20, 2003. While these trade bans did not immediately impact the Company's feed operations, the slow pace at which these bans have been lifted by the United States and Mexico (beginning August 8, 2003), and by other countries more recently, has contributed to a slow recovery of the livestock industry in Western Canada which in turn has continued to suppress the recovery of the Company's feed sales. The trade bans also impacted on the Company's feed exports which represented about 3% of total manufactured tonnes.

Despite the decline in feed tonnes sold, Livestock Services gross profit and revenue from services of $40.4 million for the fiscal year ended October 31, 2003 declined by only $1.1 million from $41.5 million in 2002. Average feed margins increased to $45.94 per tonne for fiscal 2003 from $44.37 per tonne for the 12 months ended October 31, 2002. Feed prices tend to fluctuate in response to input prices and accordingly, the profitability of feed manufacturing tends to be more closely correlated to manufactured tonnes sold rather than sales values.

Swine sales increased by $13.2 million to $44.8 million in fiscal 2003 from $31.6 million for the same period in 2002. Gross profit on swine sales improved $1.2 million for fiscal 2003. Other revenues increased modestly by $738,000 compared to the same period last year, largely due to improved performance by the Company's investment in The Puratone Corporation, the second largest hog producer in Manitoba. 

The Company reduced its Livestock Services OG&A expenses by $400,000 in 2003 compared to 2002. Consequently, EBITDA declined $700,000 to $9.7 million in 2003 from $10.4 million in 2002 and EBIT declined by a similar amount, all of the reduction occurring in the fourth quarter.

The complete report is at http://www.agricoreunited.com