Just as football games can be won or lost in the fourth quarter, so can
companies’ financial years.
Just ask Agricore United, which saw a bad fourth quarter turn 2001-02
from a winning year into a loser.
Western Canada’s largest grain company last week reported a net loss of
$33.8 million for the last three months of the fiscal year ending Oct.
31, 2002.
Thanks to that fourth quarter, AU ended its first official year of
operations with a net loss of $17.5 million, or 42 cents per share.
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That compares with a net loss of $14.7 million the previous year.
Earnings before interest, taxes, depreciation and amortization,
considered a key measure of a company’s financial performance, totalled
$76.4 million, down sharply from the $149.8 million in earnings
registered by Agricore and UGG during the previous (pre-merger) year.
Chief executive officer Brian Hayward described 2002-03 as a
“bittersweet” year for AU, created in November 2002 by the merger of
United Grain Growers and Agricore.
“In one year we have made huge strides as an organization,” he told a
year-end news conference. “But the success we’ve achieved in building
this new company has been absolutely overshadowed by the devastating
effects of the weather.”
Drought in the summer and a cold wet fall cut into both grain handling
volumes and sales of farm inputs, the key ingredients to any grain
company’s financial success.
But Hayward said the bottom line would have been a lot worse if not for
significant savings gained as a result of the merger.
“The $140 million reduction in gross profits due to external factors
was mitigated by $92 million in savings from cost reductions from the
merger,” he said.
That’s far ahead of the company’s original forecasts, which projected
savings of $50 million by July 31, 2003.
The biggest single cost reduction came as a result of staff cuts. The
company reduced its workforce by 610 full-time positions to 2,997 as of
Oct. 31, saving $37 million in salaries and benefits.
AU managed to maintain its share of the prairie grain handling market,
at 37 percent, and its average profit margin handling grain, but there
was no way to overcome the impact of two consecutive droughts.
The grain handling division reported gross profits of $45.1 million for
the last quarter and $208.6 million for the year, down from $57.9
million and $283.9 million respectively the previous year. EBITDA in
the grain handling division dipped to $63.5 million from $96.7 million.
Revenues from crop production services, the company’s biggest earner,
declined as a result of lower herbicide sales due to the drought and
lower fertilizer sales due to the cold wet fall.
Gross profits from crop production sales were down by $60 million for
the year to $148.5 million. The fourth quarter actually showed a loss
of $700,000, compared with the previous year’s profit of $18 million.
EBITDA for the year was $38.9 million, down from $79.1 million.
Hayward said the company is “cautiously optimistic” about next year,
given the significant recovery in soil moisture across much of the
Prairies due to the wet fall.
“With commodity prices high and grain stocks low, we think farmers will
have impetus to plant and use crop inputs, because the demand from the
grain market is certainly there and the price is reflecting it,” he
said.
The company is also counting on an increase in canola acreage next year
to boost demand for farm inputs.
He said the company is wellÐpositioned to take advantage of any
improvement in the grain economy next year and will pursue
opportunities that emerge in the industry, raising the possibility of
future acquisitions.
However he declined to be more specific.
Industry observers have said AU may be in a position to buy assets that
might be sold by the financially troubled Saskatchewan Wheat Pool.
