Ag Growth International Inc.

Ag Growth International Inc.

May 14, 2014 07:30 ET

Ag Growth Announces Record First Quarter Results; Declares Dividends

WINNIPEG, MANITOBA--(Marketwired - May 14, 2014) - Ag Growth International Inc. (TSX:AFN) ("AGI" or the "Company") today announced its financial results for the three month period ended March 31, 2014, and declared dividends for June 2014, July 2014 and August 2014.

Overview of Results
(thousands of dollars) Three Months Ended March 31
2014 2013 Change
Trade sales (1) $86,181 $59,913 $26,268
Adjusted EBITDA (1) $13,603 $7,246 $6,357
Net Profit $1,218 $3,399 $(2,181)
Diluted profit per share $0.09 $0.26 $(0.17)
Adjusted diluted profit per share (1)(2) $0.52 $0.08 $0.44
(1) See "Non-IFRS Measures".
(2) Excludes non-cash losses on foreign exchange translation, a non-cash expense upon redemption of AGI's 2009 debentures and gains on the sale of property, plant & equipment. See "Profit and Profit per Share" below.

Trade sales and adjusted EBITDA were at record highs in the first quarter of 2014 due to robust demand across all business lines and geographies. Sales in Canada in the first quarter of 2014 increased 39% over the prior year and were 19% higher than the previous record established in 2012. Sales were very strong across all on-farm product lines including grain augers, storage bins and aeration products. In the United States, strong demand for on-farm grain augers as well as commercial grain handling equipment led to record sales of $49.2 million, an increase of 32% compared to the first quarter of 2013. International sales of $13.9 million exceeded the prior year by $7.8 million as AGI entered 2014 with a higher level of committed business in Eastern Europe and South America. Favourable demand drivers for on-farm and commercial equipment and continued strong gross margins resulted in record adjusted EBITDA in the first quarter and a positive outlook for the balance of 2014 (see "Outlook").

"We are very pleased to report record sales and adjusted EBITDA for the first quarter of 2014," said Gary Anderson, President and Chief Executive Officer. "Diluted profit per share, adjusted for the impact of non-cash foreign exchange translation, was $0.52, compared to $0.08 in 2013, after adjusting for the gain on the sale of our manufacturing facility in Saskatoon. As anticipated, demand in the first quarter was very strong due to the excellent market dynamics in North America that resulted from high levels of crop production in 2013. In addition to record sales in Canada and the United States, our international sales in the first quarter were well above the prior year due to strong sales in Ukraine and South America. Although a late spring has slowed planting progress, expectations are for a high number of planted acres in North America and another large crop and, along with a high level of committed business outside of North America, we look forward to the balance of 2014 with enthusiasm."

Profit and Profit per Share

The comparison of diluted profit and diluted profit per share between the quarter ended March 31, 2014 and the prior period is significantly impacted by non-cash losses on foreign exchange translation and the gain on the sale of a redundant manufacturing facility in 2013. The table below provides a comparison between the periods adjusting for these items:

(thousands of dollars) Three Months Ended March 31
2014 2013

Per Share
Per Share
Profit and diluted profit per share as reported $1,218 $0.09 $3,399 $0.26
Significant reconciling items:
Non-cash loss on foreign exchange translation 4,825 0.36 2,344 0.18
Non-cash expense on redemption of 2009 debentures (2) 854 0.07 0 0.00
Gain on sale of property, plant and equipment 0 0.00 (4,702) (0.36)
Adjusted profit and diluted profit per share (1) $6,897 $0.52 $1,041 $0.08
(1) See "Non-IFRS Measures"
(2) Incremental accretion and finance costs related to the early redemption of the Company's 2009 debentures.



AGI entered 2014 on a very positive note. Record crop production in North America in 2013 resulted in strong demand for on-farm portable grain handling equipment and low post-harvest inventory levels throughout AGI's North American dealer network. In addition, moderating agricultural commodity prices have incentivized farmers to retain more of their 2013 crop on the farm and logistical challenges in Canada have limited the ability of the producer to sell their crop, resulting in higher levels of storage and increased demand for storage, aeration and handling equipment. Accordingly, off-season demand is higher than typical and participation in the Company's annual preseason programs was very strong as dealers rebuild their inventory in advance of the 2014 growing season.

AGI's backlog for portable handling equipment remains at record levels which bodes well for sales in the second quarter of 2014. Demand for on-farm portable handling equipment in the second half of 2014 will be influenced by a number of factors including the volume of grain grown and conditions during harvest. In its 2014 Prospective Plantings report released on March 31, 2014, the USDA projected that U.S. farmers would continue to plant historically high levels of corn and soybean acres with an estimate of 91.7 million corn acres (decrease of 4% from 2013) and 81.5 million soybean acres (increase of 6% from 2013). These levels of planting are supportive of a large crop and demand for on-farm portable grain handling equipment. In addition, in its most recent Crop Progress report, the USDA reported U.S. farmers had planted just 29% of total projected corn acres as at May 4, 2014. Although 2014 planting is more advanced than the extremely late planting season experienced in 2013, progress at this date over the last five years has averaged 42%. A late planting is suggestive of a later harvest which typically results in increased demand for AGI products as more equipment is replaced during harvest and the Company's in-season sales period is prolonged. Based on current conditions, management expects strong demand for portable equipment in the second half of 2014.

Demand for commercial equipment remains very strong as North American commercial grain handlers continue to focus on efficiencies and expansion of capacity in response to fluctuating agricultural commodity prices and a long-term trend towards higher grain production. In Canada, the dissolution of the Canadian Wheat Board monopoly may stimulate demand for commercial equipment as grain handlers expand their network of inland collection points to compete for supply and invest in capacity and efficiencies at the port. AGI's commercial handling equipment business has also benefited significantly from our continued growth in offshore markets.

AGI's increasing presence in international markets has resulted in record levels of quoting activity and committed international business is significantly higher compared to the prior year. In 2014 management expects to transact significant business in Eastern Europe, particularly Ukraine. Current political volatility in the region, however, has the potential to delay the shipment of committed orders and may defer new business (see "AGI Activity in Ukraine"). AGI expects sales to increase in a number of its international markets, including Latin America where committed business is currently over $11 million, compared to total sales in 2013 of $2.4 million. In addition, the Company has obtained new orders in Africa and continues to grow its business in the Asia Pacific region. Based on current conditions, management anticipates overall international sales in 2014 to exceed the record levels achieved in 2013.

AGI's financial results are impacted by the rate of exchange between the Canadian and U.S. dollars. A weaker Canadian dollar positively impacts sales and gross margin percentages when comparing to prior periods. For the year ended December 31, 2013, AGI's average rate of exchange was $1.03. The Canadian dollar weakened in the latter portion of 2013 and based on the current rate of exchange AGI's financial results in 2014 may benefit from a weaker Canadian dollar compared to 2013. A portion of the Company's 2014 foreign exchange exposure has been hedged through forward foreign exchange contracts.

On January 20, 2014, AGI redeemed its outstanding 7.0% convertible debentures with cash on hand and proceeds from the December 2013 issuance of 5.25% convertible debentures. Management expects lower cash interest expense related to outstanding debentures will benefit profit per share in 2014.

Consistent with prior years, sales in 2014, particularly in the second half, will be influenced by weather patterns, crop conditions and the timing of harvest and conditions during harvest. Changes in global macro-economic factors as well as sociopolitical factors in certain local or regional markets, including the ongoing uncertainty and volatility in Ukraine, and the availability of credit and export credit agency support in offshore markets, also may influence sales, primarily of commercial grain handling and storage products. Results may also be impacted by changes in steel and other material input costs and the rate of exchange between the Canadian and U.S. dollars.

AGI Activity in Ukraine

AGI's international growth strategy has been very successful and in recent years offshore sales have increased significantly. In 2013, sales to Russia, Ukraine and Kazakhstan ("RUK") were $57 million (2012 - $27 million), with a significant majority of these in Ukraine. AGI currently has accounts receivable in RUK of $19 million, the value of which are 90% insured by Export Development Canada ("EDC"). We do not believe recent events in Ukraine have resulted in a significantly higher risk related to the collection of these receivables. AGI has no physical assets located in RUK.

Our business in Ukraine, as is the case with most of our new business in emerging markets, is primarily comprised of turn-key projects that bundle our commercial grain handling equipment with large diameter storage bins and are sold to large corporate farms, commercial grain handlers and port facilities. Our customers in Ukraine are predominantly well capitalized entities that either qualify for EDC insurance, direct financing or are able to pay cash in advance of shipment, and they generally transact a significant portion of their business in U.S. dollars and accordingly are largely insulated from volatility in local currencies. We remain in regular contact with our customers in the region and to date there has not been an indication that their capital expenditure plans have been substantially impacted by the recent events and accordingly we continue to ship product to Ukraine.

AGI's plans for 2014 include a continuing significant amount of business in Ukraine and as at the date of this press release committed business in RUK approximates $70 million. Consistent with the prior year, first quarter sales were somewhat constrained as project specifications and customer delivery requirements were finalized and accordingly sales to RUK in Q1 2014 were $7 million. Of the remainder, approximately $21 million will be shipped in 2014 based on existing export credit agency facilities or cash deposits. Shipment of the final $42 million of existing committed business is subject to receipt of additional export credit agency support or cash deposits. Accordingly, although the capital expenditure plans of these customers have not been altered by recent events, certain shipments may be delayed due to export credit agency approval or Ukrainian currency controls.

The situation in Ukraine and the region is very fluid. Although at this time our customers have not changed their view with respect to our capital projects this may change if the situation worsens. Our business may also be adversely affected in the event of negative developments with respect to currency controls, trade sanctions or export credit agency support, a deterioration in or expansion of the current political, social or military situation or if the current situation is protracted.


AGI today announced the declaration of cash dividends of $0.20 per common share for the months of June 2014, July 2014 and August 2014. The dividends are eligible dividends for Canadian income tax purposes. AGI's current annualized cash dividend rate is $2.40 per share.

The table below sets forth the scheduled payable and record dates:

Monthly dividend Payable date Record date
June 2014 July 15, 2014 June 30, 2014
July 2014 August 15, 2014 July 31, 2014
August 2014 September 15, 2014 August 29, 2014

MD&A and Financial Statements

AGI's financial statements and management's discussion and analysis for the three month period ended March 31, 2014 can be obtained at and will also be available electronically from SEDAR ( or from AGI's website (

Conference Call

AGI will hold a conference call on Wednesday, March 14, 2014, at 1:00 p.m. EST to discuss its results for the three month period ended March 31, 2014. To participate in the conference call, please dial 1-800-396-7098 or for local access dial 416-340-8527. An audio replay of the call will be available for seven days. To access the audio replay, please dial 1-800-408-3053 or for local access dial 905-694-9451. Please quote pass code 4891211.

Company Profile

Ag Growth International Inc. is a leading manufacturer of portable and stationary grain handling, storage and conditioning equipment, including augers, belt conveyors, grain storage bins, grain handling accessories, grain aeration equipment and grain drying systems. AGI has eleven manufacturing facilities in Canada, the United States, the United Kingdom and Finland, and distributes its products globally.

Non-IFRS Measures

References to "EBITDA" are to profit before income taxes, finance costs, depreciation, amortization, and goodwill and intangible impairment. References to "Adjusted EBITDA" are to EBITDA before the Company's gain or loss on foreign exchange, gains or losses on the sale of property, plant & equipment and expenses related to corporate acquisition activity. References to "trade sales" are to sales excluding the gain or loss on foreign exchange. References to "adjusted profit" and "adjusted diluted profit per share" are to profit and diluted profit per share adjusted for gains on the sale of property, plant and equipment, non-cash foreign exchange losses and non-cash expenses related to the accelerated amortization of accretion and finance costs upon redemption of AGI's 2009 debentures. Management believes that, in addition to sales, profit or loss and cash flows from operating, investing, and financing activities, trade sales, EBITDA, Adjusted EBITDA, adjusted profit and adjusted diluted profit per share are useful supplemental measures in evaluating the Company's performance. Trade sales, EBITDA, Adjusted EBITDA, adjusted profit and adjusted diluted profit per share are not financial measures recognized by International Financial Reporting Standards ("IFRS") and do not have a standardized meaning prescribed by IFRS. Management cautions investors that trade sales, EBITDA, Adjusted EBITDA adjusted profit and adjusted diluted profit per share should not replace sales or profit or loss as indicators of performance, or cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows. AGI's method of calculating trade sales, EBITDA, Adjusted EBITDA, adjusted profit and adjusted diluted profit per share may differ from the methods used by other issuers.

Forward-Looking Statements

This press release contains forward-looking statements that reflect our expectations regarding the future growth, results of operations, performance, business prospects, and opportunities of the Company. Forward-looking statements may contain such words as "anticipate", "believe", "continue", "could", "expects", "intend", "plans", "will" or similar expressions suggesting future conditions or events. In particular, the forward looking statements in this press release include statements relating to our business and strategy, including our outlook for our financial and operating performance. Such forward-looking statements reflect our current beliefs and are based on information currently available to us, including certain key expectations and assumptions concerning anticipated grain production in our market areas, financial performance, business prospects, strategies, product pricing, regulatory developments, tax laws, the sufficiency of budgeted capital expenditures in carrying out planned activities, foreign exchange rates and the cost of materials, labour and services. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from results discussed in the forward-looking statements, including changes in international, national and local business conditions, weather patterns, crop planting, crop yields, crop conditions, the timing of harvest and conditions during harvest, seasonality, industry cyclicality, volatility of production costs, agricultural commodity prices, the cost and availability of capital, foreign exchange rates, and competition. These risks and uncertainties are described under "Risks and Uncertainties" in AGI's management's discussion and analysis for the three month period ended March 31, 2014 and in our most recently filed Annual Information Form. These factors should be considered carefully, and readers should not place undue reliance on the Company's forward-looking statements. We cannot assure readers that actual results will be consistent with these forward-looking statements and we undertake no obligation to update such statements except as expressly required by law.

Contact Information

  • Ag Growth International Inc.
    Steve Sommerfeld
    Investor Relations