Ag Growth International Inc.
TSX : AFN

Ag Growth International Inc.

November 13, 2015 07:00 ET

Ag Growth Announces Third Quarter 2015 Results; Declares Dividends

WINNIPEG, MANITOBA--(Marketwired - Nov. 13, 2015) - 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, 2015, and declared dividends for December 2015 and January and February 2016.

Overview of Results

(thousands of dollars) Three Months Ended
September 30
Nine Months Ended
September 30
2015 2014 2015 2014
Trade sales(1) $134,242 $118,818 $352,121 $317,422
Adjusted EBITDA(1) $20,843 $26,718 $59,671 $65,231
Net (Loss) Profit $(8,638 ) $8,653 $(3,874 ) $23,509
Adjusted profit(1) $8,920 $14,851 $28,223 $31,654
Diluted (loss) profit per share $(0.60 ) $0.65 $(0.28 ) $1.76
Diluted adjusted profit per share(1)(2) $0.56 $1.11 $1.85 $2.37
(1) See "Non-IFRS Measures".
(2) See "Diluted profit per share and Diluted adjusted profit per share".

Adjusted EBITDA decreased compared to very strong third quarter 2014 results due primarily to lower North American sales of on-farm and commercial grain handling equipment. In the United States, the USDA corn production forecast of 13.6 billion bushels represents a relatively large crop but a decrease of 5% compared to 2014. AGI's decrease in on-farm handling equipment sales is partly attributable to this lower crop production but was also impacted by crop variability, farmer and dealer sentiment and by generally dry conditions late in the season that allowed the crop to mature quickly. The expectation of an early and dry harvest lowered in-season orders as it became less likely that a late crop or wet conditions would result in a difficult harvest or a need for farmers to dry their grain prior to storage. Commercial business in the U.S. continued at a reasonable pace however remained below the very strong demand experienced in 2014.

In Canada, crop production generally exceeded expectations however sales were well below the record levels achieved in 2014. Sales decreased significantly at newly acquired Westeel from $49.9 million in the third quarter of 2014 to $29.8 million in the current year. Prior to its May 20, 2015 acquisition by AGI, Westeel aggressively shipped product to its dealers in Q4 2014 and Q1 2015 and as a result high levels of inventory existed at the dealer level when dry conditions led to reduced demand early in the 2015 growing season. A fast and efficient harvest in Canada reduced in-season demand for portable grain handling and aeration products and sales in these lines were also well below the records achieved in 2014, however the decrease was not as significant as the decline experienced in the storage business.

AGI's international business continues to grow and offshore sales in the three and nine month periods ended September 30, 2015, excluding Westeel, increased 9% and 34%, respectively. Sales growth resulted from continued momentum in Latin America and projects with multinational grain handlers in Ukraine. Quoting activity remains robust and management anticipates additional growth offshore in the near-term.

"It has been a rough start at Westeel," said Gary Anderson, CEO of AGI. "But we are taking our lumps up front and as a result expect a better 2016. The challenges were based on an extremely aggressive approach to preseason sales in Q4/2014 and into Q1/2015, as well as drought conditions in much of Alberta and Saskatchewan from early spring to mid-summer. We remain confident in the long term value of these assets and welcome the opportunity for greater participation in our home market in western Canada. In the short while we have worked with the Westeel distribution channels, it is abundantly clear that this brand takes our game to a new level in western Canada. Having achieved our $5 million short-term synergy target, we are now working hard behind the scenes to create the opportunities necessary to develop anticipated market synergies. Meanwhile, AGI's International business continues to gain traction, with sales in the first 9 months up 34% year over year. We anticipate a strong close to 2015 in our offshore markets and early indications for 2016 suggest another year of growth and geographic diversification. We look forward to the upcoming year with excitement in both domestic and offshore markets as we leverage our leading brands in North America and offshore and continue to pursue our development into Brazil."

Diluted profit (per share) and Diluted adjusted profit (per share)

Diluted loss per share for the quarter ended September 30, 2015 was $0.60 (2014 - profit of $0.65) and for the nine months then ended diluted loss per share was $0.28 (2014 - profit of $1.76). The decrease was primarily the result of lower EBITDA, transaction costs related to the acquisition of Westeel and losses on foreign exchange. A reconciliation to diluted adjusted profit per share follows:

(thousands of dollars) Q3
2015
Q3
2014
YTD
2015
YTD
2014
Profit (loss) $(8,638 ) $8,653 $(3,874 ) $23,509
Profit (loss) per share $(0.60 ) $0.65 $(0.28 ) $1.76
Loss on foreign exchange 11,872 5,231 22,288 6,816
M&A activity 1,192 979 4,706 1,159
Non-cash loss on available-for-sale investment 0 0 0 1,100
Loss (gain) on sale of PP&E 2,539 (12 ) 3,148 (930 )
Allowance for net receivables (2) 1,955 0 1,955 0
Adjusted profit (1) $8,920 $14,851 $28,223 $31,654
Diluted adjusted profit per share(1) $0.56 $1.11 $1.85 $2.37
(1) See "Non-IFRS Measures"
(2) In the three months ended September 30, 2015 the Company recorded a provision related to the net balance owing from an international customer that related to sales invoiced primarily in 2013.

OUTLOOK

Management expects fourth quarter sales of on-farm portable equipment to fall below 2014 levels as a quick and efficient harvest in both Canada and the United States has contributed to slightly elevated dealer inventories. In addition, negative farmer sentiment and dealer cash flow considerations continue to impact dealer purchases. As a result, we anticipate dealer participation in preseason programs will be lower than the prior year but we expect it will be roughly in line with longer term averages. AGI's commercial business, both domestically and overseas, is expected to perform well in the fourth quarter and sales are anticipated to exceed 2014 levels. Consistent with prior periods, realized sales are subject to the timing of customer commitment and delivery considerations. Excluding Westeel, management expects adjusted EBITDA in the fourth quarter of 2015 to decrease compared to 2014 as strength in North American and international commercial business is more than offset by lower sales of portable grain handling equipment.

As noted earlier, Westeel inventory at the dealer level is higher than typical due to the rapid pace of shipping in Q4 2014 and Q1 2015, prior to AGI's acquisition of Westeel, and the subsequent weather related decline in demand in western Canada. As a result, dealer participation in preseason storage programs has decreased compared to the record set in 2014. Accordingly, management anticipates sales in Q4 2015 to be significantly below the prior year with a focus on level-loading production in order to optimize longer term margins and stabilize operations. Westeel, including its Italian PTM subsidiary, reported adjusted EBITDA of over $6 million in the fourth quarter of 2014. However, largely for the reasons noted above, management expects adjusted EBITDA at Westeel to be less than $2 million in the fourth quarter of 2015.

Management remains positively biased with respect to fiscal 2016. Although sales and adjusted EBITDA in Q1 2016 are likely to fall below 2015 levels, the result of lower participation in on-farm preseason programs, results for the balance of the year are expected to reflect a return to more typical farmer buying patterns for on-farm equipment, steady demand for domestic commercial products and continued growth in offshore markets. Management anticipates sales of portable handling equipment will reflect the traditional demand drivers of crop production volume and harvest conditions as farmers upgrade or replace augers that are nearing the end of their useful lives. Sales of Westeel storage products are expected to reflect typical buying behavior as AGI manages dealer intake in Q4 2015 so as not to artificially increase dealer inventory levels in advance of the growing season. In 2016, demand for commercial equipment is expected to meet or exceed 2015 levels as management anticipates another year of growth in offshore markets. AGI has a geographically diverse and high quality quote log that includes projects in Eastern Europe, Ukraine and Latin America.

AGI's financial results are impacted by the rate of exchange between the Canadian and U.S. dollars and a weaker Canadian dollar relative to its U.S. counterpart positively impacts profit and adjusted EBITDA. However, a portion of the Company's foreign exchange exposure has been hedged through forward foreign exchange contracts and based on current rates of exchange the Company expects to recognize a significant loss on these contracts in the fourth quarter of 2015 and to a lesser extent in fiscal 2016.

Demand in 2016 will be influenced by, among other factors, weather patterns, crop conditions and the timing of harvest and conditions during harvest. Changes in global macroeconomic 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.

Dividends

AGI today announced the declaration of cash dividends of $0.20 per common share for the months of December 2015 and January and February 2016. 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 2015 January 15. 2016 December 31, 2015
January 2016 February 15, 2016 January 29, 2016
February 2016 March 15, 2016 February 29, 2016

MD&A and Financial Statements

AGI's financial statements and MD&A for the three and nine month periods ended September 30, 2015 can be obtained at http://media3.marketwire.com/docs/AFN1113Q38.pdf and will also be available electronically on SEDAR (www.sedar.com) and on AGI's website (www.aggrowth.com).

Conference Call

Management will host a conference call at 9:00 am (ET) on Friday, November 13, 2015 to review the Company's results for the three and nine month periods ended September 30, 2015. 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 3322709.

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 manufacturing facilities in Canada, the United States, Italy, the United Kingdom and Finland, and distributes its products globally.

NON-IFRS MEASURES

In analyzing our results, we supplement our use of financial measures that are calculated and presented in accordance with IFRS, with a number of non-IFRS financial measures including "EBITDA", "Adjusted EBITDA", "gross margin", "funds from operations", "payout ratio", "adjusted payout ratio", "trade sales", "adjusted profit", and "diluted adjusted profit per share". A non-IFRS financial measure is a numerical measure of a company's historical performance, financial position or cash flow that excludes (includes) amounts, or is subject to adjustments that have the effect of excluding (including) amounts, that are included (excluded) in the most directly comparable measures calculated and presented in accordance with IFRS. Non-IFRS financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies' non-IFRS financial measures having the same or similar businesses. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

We use these non-IFRS financial measures in addition to, and in conjunction with, results presented in accordance with IFRS. These non-IFRS financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our IFRS results and the accompanying reconciliations to corresponding IFRS financial measures, may provide a more complete understanding of factors and trends affecting our business.

In this MD&A, we discuss the non-IFRS financial measures, including the reasons that we believe that these measures provide useful information regarding our financial condition, results of operations, cash flows and financial position, as applicable, and, to the extent material, the additional purposes, if any, for which these measures are used. Reconciliations of non-IFRS financial measures to the most directly comparable IFRS financial measures are contained in this MD&A.

Management believes that the Company's financial results may provide a more complete understanding of factors and trends affecting our business and be more meaningful to management, investors, analysts and other interested parties when certain aspects of our financial results are adjusted for the gain (loss) on foreign exchange and other operating expenses and income. These measurements are non-IFRS measurements. Management uses the non-IFRS adjusted financial results and non-IFRS financial measures to measure and evaluate the performance of the business and when discussing results with the Board of Directors, analysts, investors, banks and other interested parties.

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 gain or loss on foreign exchange, gains or losses on the sale of property, plant & equipment, non-cash share based compensation expenses, certain items considered by management to be unusual and non-recurring in nature and to expenses related to corporate acquisition activity. Management believes that, in addition to profit or loss, EBITDA and adjusted EBITDA are useful supplemental measures in evaluating the Company's performance. Management cautions investors that EBITDA and adjusted EBITDA should not replace 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.

References to "trade sales" are to sales net of the gain or loss on foreign exchange. Management cautions investors that trade sales should not replace sales as an indicator of performance.

References to "gross margin" are to trade sales less cost of sales net of the depreciation and amortization included in cost of sales.

References to "funds from operations" are to cash provided by operating activities before the net change in non-cash working capital balances related to operations and stock-based compensation, less maintenance capital expenditures and adjusted for the gain or loss on the sale of property, plant & equipment. Management believes that, in addition to cash provided by (used in) operating activities, funds from operations provide a useful supplemental measure in evaluating the Company's performance.

References to "payout ratio" are to dividends declared as a percentage of funds from operations. References to "adjusted payout ratio" are to declared dividends paid in cash as a percentage of funds from operations.

References to "adjusted profit" and "diluted adjusted profit per share" are to profit for the period and diluted profit per share for the period adjusted for the non-cash CRA settlement, loss on foreign exchange, transaction costs, non-cash loss on available-for-sale investment, certain items considered by management to be unusual and non-recurring in nature and gain (loss) on sale of property, plant and equipment.

FORWARD-LOOKING STATEMENTS

This MD&A 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", "expect", "intend", "plan", "will" or similar expressions suggesting future conditions or events. In particular, the forward looking statements in this MD&A include statements relating to our business and strategy, including our outlook for our financial and operating performance including our expectations for adjusted sales and EBITDA. 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, currency 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, currency exchange rates, and competition. These risks and uncertainties are described under "Risks and Uncertainties" in this MD&A 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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