Ag Growth International Inc.
TSX : AFN

Ag Growth International Inc.

November 11, 2014 07:50 ET

Ag Growth Announces Record Third Quarter Results; Declares Dividends

WINNIPEG, MANITOBA--(Marketwired - Nov. 11, 2014) - Ag Growth International Inc. (TSX:AFN) ("AGI" or the "Company") today announced its financial results for the three and nine month periods ended September 30, 2014, and declared dividends for December 2014, January 2015 and February 2015.

Overview of Results

(thousands of dollars) Three Months Ended
September 30
Nine Months Ended
September 30
2014 2013 2014 2013
Trade sales (1) $ 118,818 $ 116,537 $ 317,422 $ 270,332
Adjusted EBITDA (1)(2) $ 26,718 $ 24,142 $ 65,231 $ 49,519
Net Profit $ 8,653 $ 12,718 $ 23,509 $ 22,073
Diluted profit per share $ 0.65 $ 0.95 $ 1.76 $ 1.73
Diluted adjusted profit per share (1) $ 1.09 $ 0.77 $ 2.32 $ 1.51
(1) See "Non-IFRS Measures".
(2) To better align the Company's Adjusted EBITDA metric with operating cash flow AGI has revised its method of calculating Adjusted EBITDA to exclude non-cash share based compensation expenses. For the three and nine month periods ended September 30, 2014 this non-cash expense was $1.8 million (2013 - $0.8 million) and $3.5 million (2013 - $2.2 million), respectively. See "Explanation of Operating Results" in the accompanying management's discussion and analysis (the "MD&A") for comments on the expense and "EBITDA Reconciliation" for a reconciliation from Profit before Taxes to Adjusted EBITDA and EBITDA.

The third quarter of 2014 was the fifth consecutive record quarter for AGI in terms of both trade sales and Adjusted EBITDA. Sales of on-farm portable grain handling equipment increased in the quarter against a very strong 2013 comparative as AGI responded to heightened demand that resulted largely from the expectation of a record corn crop in the U.S. Commercial equipment sales also increased significantly as AGI directed its production capacity in the quarter towards domestic demand that resulted from continued investment in agricultural infrastructure. International sales decreased compared to a record Q3 2013 as significant gains in Latin America were more than offset by weakness in AGI's Finland-based Mepu's regional market and the previously disclosed delay in certain Ukrainian projects. AGI's international backlog greatly exceeds the prior year and management expects a strong fourth quarter with a significant book of business carried into 2015. As a result of a robust international order book combined with a very large, and late, crop in the U.S. management anticipates a very strong fourth quarter and holds a positive view towards the Company's entry into 2015 (see "Outlook").

"We are very pleased to report record Adjusted EBITDA for the fifth consecutive quarter," said Gary Anderson, President and Chief Executive Officer. "We are grateful for the exceptional efforts put forth by our employees to ensure that our customers' in-season demands were satisfied. Double digit growth in our portable grain handling space substantiates our assertion that the primary demand driver for our business is crop volume rather than commodity prices. With back to back record corn harvests in the USA and resultant low post harvest dealer inventory, AGI can expect continued strong demand from its core market into 2015."

"International sales held up remarkably well given the crisis in Ukraine. Our team has done an outstanding job solidifying business in the region while concurrently developing rapid growth in other parts of the world. Our international sales in the first ten months of 2014 plus the order backlog at the end of October 2014 totaled an impressive $123 million, compared to $92 million at the same time in 2013. Our momentum in Latin America is reflected in these numbers where at the end of October 2014 sales for the year plus outstanding backlog totaled $23.5 million compared to $3.4 million in 2013. I am also pleased to say that the execution of our organic growth strategy in Brazil is officially under way. We are very fortunate to have attracted several highly experienced and respected industry players to form the nucleus of our Brazilian team. Our sales office in Sao Paulo opened November 1st and the quotation of commercial grain handling projects is underway. We look forward to our growth in Brazil leading to a much more diverse international profile."

Profit and Profit per Share

The comparison of diluted profit and diluted profit per share between the current and prior periods is significantly impacted by the non-cash items in the table below:

Three Months Ended
September 30
Nine Months Ended
September 30

(thousands of dollars)

2014

2013

2014

2013
Profit as reported
Diluted profit per share as reported
$
$
8,653
0.65
$
$
12,718
0.95
$
$
23,509
1.76
$
$
22,073
1.73
Significant reconciling items:
Loss (gain) on foreign exchange
5,231

(717
)
6,816

2,211
Non-cash share based compensation expense (2) 745 (124 ) 496 (372 )
Non-cash loss on available-for-sale investment 0 0 1,100 0
Loss (gain) on sale of property, plant and equipment (12 ) 1 (930 ) (4,666 )
Adjusted profit (1)
Diluted adjusted profit per share (1)
$
$
14,617
1.09
$
$
11,878
0.77
$
$
30,991
2.32
$
$
19,246
1.51
(1) See "Non-IFRS Measures".
(2) The third quarter of 2014 included a non-cash share based compensation expense of 0.7 million that related to employee service periods from January 1, 2013 to June 30, 2014 as the Company increased its estimate of the ultimate payout under the share based compensation plan. The expense related to previous service periods is reflected as an adjustment in the table above.

OUTLOOK

Overview

AGI's primary demand driver in North America is the volume of grain grown, followed by the magnitude of on-farm storage, commodity prices and conditions during harvest. The industry environment currently is suggestive of very high levels of demand as U.S. farmers are expected to harvest a record crop and moderating and volatile commodity prices may incentivize producers in Canada and the U.S. to store more grain on the farm, resulting in increased use of handling equipment as well as higher sales of storage and aeration equipment. As well, a late harvest in the U.S. has led to a prolonged in-season sales period.

Sales of portable handling equipment have benefited from these demand drivers and strong on-farm demand is anticipated to continue as the U.S. harvest progresses well into the fourth quarter of 2014. Management anticipates low levels of inventory throughout the Company's U.S. distribution network post-harvest will lead to strong dealer participation in preseason programming, increasing demand later in the fourth quarter but more significantly in the first half of 2015. Demand for commercial equipment remains very strong as North American commercial grain handlers continue to focus on efficiencies and add 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.

AGI's international business has grown substantially in recent years and the Company's international order backlog as at September 30, 2014 is significantly higher compared to the prior year. Current political and economic volatility in Ukraine, however, has delayed completion of a large port project and may defer new business (see "AGI Activity in Ukraine"). Management anticipates a favourable outcome with regards to the delayed Ukrainian order however at the time of writing it is difficult to predict whether shipping will resume in 2014. The Company has added new business and continues to quote on new projects in Ukraine, primarily with multinational grain handlers. AGI expects sales to increase in a number of its international markets, including Latin America where as at October 31, 2014 sales for the year plus outstanding orders are approximately $23.5 million, compared to total sales and backlog is $3.4 million in 2013. In addition, the Company continues to grow its business in Africa and the Asia Pacific region. On balance, management is pleased with its expanding international footprint, particularly its momentum in Latin America, however based on current conditions overall international sales in 2014 are not expected to reach the record levels achieved in 2013.

On balance, strong North American demand for portable and commercial grain handling equipment are anticipated to drive results in the fourth quarter of 2014 and based on current conditions management anticipates fourth quarter Adjusted EBITDA will exceed the record 2013 results. Management expects to enter 2015 with excellent backlogs both domestically and overseas and remains very optimistic regarding the Company's prospects for the upcoming year.

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 foreign exchange exposure has been hedged through forward foreign exchange contracts.

Consistent with prior years, sales 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 has accounts receivable in RUK of $32 million as at October 31, 2014, 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 although some projects are experiencing delays there has not been an indication that their plans have been substantially impacted by the recent events. We have been awarded new business in the region in recent months and we continue to ship product to customers in Ukraine.

In the nine months ended September 30, 2014 sales to RUK were $29 million and as at September 30, 2014, the Company's order backlog for future shipments to RUK approximate $41 million, the significant majority of which are in Ukraine. The Ukrainian backlog is heavily weighted towards a large port project that continues to experience delays related to economic volatility in the country. Management is in regular contact with the customer and as a result of recent developments is increasingly optimistic the Company will resume shipping in the near future. AGI has added new business and continues to quote on new projects in Ukraine, primarily with multinational grain handlers, as business development in the agricultural sector continues despite the existing political and economic volatility.

The situation in Ukraine and the region is very fluid. Although at this time our customers have not changed their view with respect to AGI projects this may change if the situation alters. 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.

Dividends

AGI today announced the declaration of cash dividends of $0.20 per common share for the months of December 2014, January 2015 and February 2015. 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
December 2014 January 15, 2015 December 31, 2014
January 2015 February 13, 2015 January 30, 2015
February 2015 March 13, 2015 February 27, 2015

MD&A and Financial Statements

AGI's financial statements and management's discussion and analysis for the three and nine month periods ended September 30, 2014 can be obtained at http://media3.marketwire.com/docs/AFN1110Q329.pdf and will also be available electronically from SEDAR (www.sedar.com) or from AGI's website (www.aggrowth.com).

Conference Call

Management will host a conference call at 8:30 am (ET) on Tuesday, November 11, 2014 to review the Company's 2014 third quarter financial results and discuss the Westeel Transaction. Persons who wish to participate can access the call using the following numbers: 416-340-2216 or 1-866-225-0198. A presentation outlining the Transaction will be available on AGI's website at www.aggrowth.com.

The conference call will be webcast at: Q3 Financial Results and Westeel Transaction.

A replay of the conference call will be available until November 24, 2014. Those who wish to access the replay may use the following numbers: 905-694-9451 or 1-800-408-3053 (passcode: 9819564).

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, impairment charges related to goodwill, intangibles or available for sale assets, non-cash share based compensation expense, non-cash loss on available-for-sale investment and loss (gain) on sale of property, plant and equipment. 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, non-cash share based compensation expenses and expenses related to corporate acquisition activity. Management believes that, in addition to sales, profit or loss and cash flows from operating, investing, and financing activities, trade sales, EBITDA, Adjusted EBITDA and adjusted profit are useful supplemental measures in evaluating the Company's performance. Trade sales, EBITDA, Adjusted EBITDA and adjusted profit 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 and adjusted profit 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 and adjusted profit 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 nine month period ended September 30, 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.
    Investor Relations
    Steve Sommerfeld
    204-489-1855
    steve@aggrowth.com