Ag Growth International Inc.

Ag Growth International Inc.

August 13, 2014 18:54 ET

Ag Growth Announces Record Second Quarter Results; Declares Dividends

WINNIPEG, MANITOBA--(Marketwired - Aug. 13, 2014) - Ag Growth International Inc. (TSX:AFN) ("AGI" or the "Company") today announced its financial results for the three and six month periods ended June 30, 2014, and declared dividends for September 2014, October 2014 and November 2014.

Overview of Results

(thousands of dollars) Three Months Ended
June 30
Six Months Ended
June 30
2014 2013 2014 2013
Trade sales (1) $112,422 $93,882 $198,603 $153,795
Adjusted EBITDA (1) $23,207 $16,706 $36,804 $23,952
Net Profit $13,638 $5,956 $14,856 $9,355
Diluted profit per share $0.98 $0.46 $1.11 $0.73

(1) See "Non-IFRS Measures".

Trade sales and adjusted EBITDA were at record highs in the three and six months ended June 30, 2014 as favourable crop conditions in North America and continued investment in agricultural infrastructure lead to robust demand for on-farm and commercial grain handling, storage and aeration equipment. Record North American crop production in 2013 resulted in depleted inventory levels throughout AGI's distribution network, resulting in high levels of preseason demand in the first half of 2014 as dealers rebuilt their inventory levels. Excellent crop conditions in 2014 have further stimulated demand as dealers prepare for what is forecast to be another excellent harvest. Demand for commercial grain handling equipment remained strong due to investment in capacity and efficiency upgrades in North America and in response to a significant storage and handling infrastructure deficit in many overseas markets. As a result, first half sales were at record levels in all geographies, with Canadian sales 35% above 2013 and 17% over the previous record, U.S. sales 27% higher than 2013 and 19% over the previous record and international sales 26% higher than 2013 and 7% over the previous record. AGI continued to grow its offshore footprint in the first half of 2014 with higher sales and committed business in a number of regions including Ukraine, Latin America and the Asia-Pacific. These favourable demand drivers combined with continued strong gross margins resulted in record adjusted EBITDA in the first half and a positive outlook for the balance of 2014 (see "Outlook").

"We are very pleased to report record sales and adjusted EBITDA for the second quarter of 2014," said Gary Anderson, President and Chief Executive Officer. "With what is forecast to be another huge crop looming the market environment for our on-farm equipment is simply excellent and our employees are working hard to meet projected market demand. The commercial equipment market in North America remains strong on both sides of the border as the North American grain handling infrastructure continues to size up and modernize in response to the trend towards increased crop production. In Canada, the dissolution of the Canadian Wheat Board monopoly has spurred incremental investment as commercial grain handlers seek efficiencies and expand their footprint to compete for supply. Offshore, our business continues to grow in a number of regions including Ukraine, Latin America and the Asia-Pacific. The political situation in Ukraine remains volatile however many of our customers are moving forward with their projects and we expect to ship over $50 million of product to the region over the next several quarters. We have made excellent strides to diversify our international business, particularly in Latin America where we have won a number of large contracts and expect to add new business in the near future. On balance, the business of AGI is in very good shape and we look forward with excitement to the balance of 2014 and beyond."



Crop conditions in North America are generally very positive. The August 12, 2014 Crop Production Report issued by the USDA estimates 2014 corn production in the United States will slightly exceed the record harvest of 2013 of 13.9 billion bushels. Growing conditions in western Canada have been favourable and another large crop is expected despite the loss of approximately 5% - 10% of total acres due to wet spring conditions and localized flooding this summer. As a result, demand for on-farm grain handling, storage and aeration is at elevated levels and, consistent with 2013, management anticipates strong sales 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 further 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. Accordingly, the Company's backlog for commercial equipment remains high and demand in the second half is expected to approximate record 2013 levels.

AGI's international business has grown substantially in recent years and committed international business as at June 30, 2014 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 as at June 30, 2014 sales plus outstanding orders are approximately $11.6 million, compared to total sales in 2013 of $2.4 million. AGI anticipates additional contracts in Latin America will be finalized in the near future with a portion of the new business to be shipped in 2014. 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. The Company's U.S. dollar denominated sales exceed U.S. dollar denominated expenses and accordingly a weaker Canadian dollar relative to the U.S. dollar positively impacts adjusted EBITDA. For the year ended December 31, 2013, AGI's average rate of exchange was $1.03 and based on the current rate of exchange AGI's financial results in 2014 may continue to benefit from a weaker Canadian dollar compared to the prior year. 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 the second half of 2014 compared to the prior year.

Consistent with prior years, sales in the second half of 2014 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 prices 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 $21 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.

In the six months ended June 30, 2014 sales to RUK were $12 million and as at June 30, 2014 committed orders for future shipments to RUK approximate $53 million, the significant majority of which are in Ukraine. Sales in the first six months of 2014 were largely consistent with expectations and reflect AGI's production scheduling as well as customer timelines. Of the $53 million in committed orders, management estimates $15 million to $20 million will ship in fiscal 2015. The majority of the 2015 shipments relate to a large port facility and reflect both the complexity of the project as the site continues to undergo design changes as well as delays related to financing structure that resulted in part from the unrest in Ukraine. Of the $53 million in committed orders, $20 million will be shipped based on existing export credit agency facilities or cash deposits while shipment of the remaining $33 million is subject to receipt of additional export credit agency support or cash deposits.

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, a deterioration in or expansion of the current political, social or military situation or if the current situation is protracted. Export Development Canada is currently reviewing new credit applications on a case-by-case basis and future business in the region may be constrained in the absence of export credit agency support.


AGI today announced the declaration of cash dividends of $0.20 per common share for the months of September 2014, October 2014 and November 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
September 2014 October 15, 2014 September 30, 2014
October 2014 November 14, 2014 October 31, 2014
November 2014 December 15, 2014 November 28, 2014

MD&A and Financial Statements

AGI's financial statements and management's discussion and analysis for the three and six month periods ended June 30, 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 Thursday, August 14, 2014, at 10:00 a.m. EST to discuss its results for the three and six month periods ended June 30, 2014. To participate in the conference call, please dial 1-866-225-0198 or for local access dial 416-340-2216. 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 passcode 8095499.

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 "trade sales" are to sales net of the gain or loss on foreign exchange. References to "EBITDA" are to profit before income taxes, finance costs, depreciation, amortization and impairment charges related to goodwill, intangibles or available for sale assets. 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. Management believes that, in addition to sales, profit or loss and cash flows from operating, investing, and financing activities, trade sales, EBITDA and Adjusted EBITDA are useful supplemental measures in evaluating the Company's performance. Trade sales, EBITDA and Adjusted EBITDA 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 and Adjusted EBITDA 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 and Adjusted EBITDA 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.

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