WINNIPEG, May 7, 2020 /CNW/ - Ag Growth International
Inc. (TSX: AFN) ("AGI", the "Company", "we" or "our") today
announced its financial results for the three-months ended
March 31, 2020.
Overview of Results
|
|
|
Three-months Ended
March 31
|
|
2020
|
2019
|
[thousands of dollars
except per share amounts]
|
$
|
$
|
Trade sales
[1][2]
|
228,875
|
216,198
|
Adjusted EBITDA
[1][3]
|
25,650
|
30,637
|
(Loss)
Profit
|
(48,844)
|
13,222
|
Diluted (loss) profit
per share
|
(2.61)
|
0.70
|
Adjusted profit
[1][4]
|
7,281
|
4,991
|
Diluted adjusted
profit per share [1][4]
|
0.38
|
0.27
|
|
|
[1]
|
See "Non-IFRS
Measures".
|
[2]
|
See "OPERATING
RESULTS – THREE-MONTHS ENDED MARCH 31, 2020 – Trade Sales" in our
Management's Discussion and Analysis for the period ended March 31,
2020 ("MD&A").
|
[3]
|
See "OPERATING
RESULTS – THREE-MONTHS ENDED MARCH 31, 2020 – EBITDA and Adjusted
EBITDA" in our MD&A.
|
[4]
|
See "Diluted (loss)
profit per share and diluted adjusted profit per share".
|
AGI results in Q1 2020 were impacted by the COVID-19 crisis as
government or internally mandated production suspensions resulted
in temporary plant closures in Italy, France, Brazil and India. In addition, prior to the emergence of
COVID-19, management anticipated first quarter adjusted EBITDA
would be lower than the prior year due largely to a Commercial
backlog weighted towards the second half of 2020. Notwithstanding,
AGI trade sales in the quarter increased $12.7 million or 6% over Q1 2019 due to strong
Farm sales in the U.S. and the recent acquisition of Milltec in
India. The Company's adjusted
EBITDA margin decreased to 11.2% (2019 – 14.2%) in a seasonally
weak quarter due to the production, supply chain and delivery
inefficiencies caused by COVID-19 as well as the impact of lower
Commercial sales volumes in the quarter and AGI's continued
investment in its technology platform. Loss and loss per share were
negatively impacted by non-cash losses on foreign exchange
translation and the Company's equity compensation swap, while
adjusted profit and adjusted profit per share increased over the
prior year.
"The tail end of our first quarter was impacted by the COVID
crisis however Q1 results were resilient after accounting for the
COVID impact and the weighting of our backlog toward the second
half of 2020", said Tim Close,
President and CEO of AGI. "Following temporary production
interruptions in our international locations and a number of short
disruptions in the US, all operations are currently in production.
COVID will have an impact on our second quarter and the remainder
of the year due to production suspensions and supply chain and
delivery disruptions, as well as the impact COVID may have on our
customers, but backlogs and new order intake remain solid allowing
us to mitigate the impact in the second quarter and into the second
half of the year. There has been outstanding work done by the
AGI team to respond to the COVID crisis. This work has
enabled us to continue to operate, to minimize production
disruption and minimize the impact on our business. In North America, the essential services
declaration granted us the right to work however the actions of the
AGI team allowed us to operate safely, responsibly and to retain
the confidence of all team members."
Diluted (loss) profit per share and diluted adjusted profit
per share
The Company's diluted loss per share for the three-month period
ended March 31, 2020 was $2.61 versus profit of $0.70 in 2019. (Loss) profit per share in 2020
and 2019 has been impacted by the items enumerated in the table
below, which reconciles (loss) profit to adjusted profit. Most
significantly, in Q1 2020 a sharp drop in the Canadian dollar
resulted in non-cash foreign exchange translation losses and the
decline in the Company's share price late in the quarter led to a
non-cash loss on AGI's equity compensation swap, which in the table
below is included in the Loss on financial instruments.
|
|
|
Three-months Ended
March 31
|
|
2020
|
2019
|
[thousands of dollars
except per share amounts]
|
$
|
$
|
(Loss)
Profit
|
(48,844)
|
13,222
|
Diluted (loss) profit
per share
|
(2.61)
|
0.70
|
|
|
|
Loss (gain) on
foreign exchange
|
22,090
|
(2,524)
|
Fair value of
inventory from acquisition [2]
|
-
|
24
|
(Recovery of) M&A
expenses
|
(226)
|
2,137
|
Other transaction and
transitional costs [3]
|
4,740
|
2,624
|
Loss (gain) on
financial instruments
|
24,264
|
(10,438)
|
Loss (gain) on sale
of PP&E
|
57
|
(54)
|
Equipment rework
[4]
|
4,000
|
-
|
Share of associate's
net loss
|
1,200
|
-
|
Adjusted profit
[1][5]
|
7,281
|
4,991
|
Diluted adjusted
profit per share [1][5]
|
0.38
|
0.27
|
|
|
[1]
|
See "Non-IFRS
Measures".
|
[2]
|
Non-cash expenses
related to the sale of inventory that acquisition accounting
required be recorded at a value higher than manufacturing
cost.
|
[3]
|
Includes
restructuring and other acquisition related transition costs, as
well as the accretion and other movement in contingent
consideration and amounts due to vendors.
|
[4]
|
To record the pre-tax
charge for the estimated cost of rework for equipment supplied to
two distinct projects. The charge relates to additional time,
material and services.
|
OUTLOOK
COVID-19
The emergence of COVID-19 is having an adverse impact on AGI's
business, including the disruption of production, its supply chain
and product delivery. The extent, duration and ultimate impact of
COVID-19 and governmental and societal responses thereto is
unknown, and accordingly management is unable to provide specific
guidance on its impact on AGI. We can comment on the business
fundamentals as they stand today to provide context to the
continuing uncertainty going forward. To date, we have experienced
temporary production suspensions in Italy, France, Brazil, India
and the United States.
Engineering, design and quoting activity continued at all of these
businesses during the suspension periods and all plants have
resumed production. AGI operations were captured as essential
services in many regions throughout North
America highlighting the important role we play in the
global food supply chain. Although AGI's business is being
substantially impacted by the COVID-19 related disruptions,
management believes that post crisis demand will be positively
impacted as the world builds additional redundancy into the global
food infrastructure to account for similar events in the
future.
Q2 2020
International production suspensions due to COVID-19 lasted
between 2 and 4 weeks and impacted part of Q1 and into Q2.
Manufacturing activity resumed after the suspensions were lifted at
different points in April, and AGI is currently manufacturing at
50%-80% capacity at these locations. In the United States, internal safety protocols
required AGI to temporarily suspend production on several occasions
in Q2, and these plant closures have generally lasted three to ten
days. To date, there have been no production suspensions in
Canada.
Prior to the COVID-19 crisis, management expected adjusted
EBITDA in Q2 2020 to fall slightly below the record results of Q2
2019, for 2020 adjusted EBITDA to be weighted to the second half
and for annual growth in fiscal 2020 over 2019. Early in Q2, with
all production facilities currently operating, and a backlog that
is 9% over this point in 2019, we expect the COVID-19 impact to be
significant but relatively contained assuming no additional
extended lockdowns are required. The impact on the second
half remains subject to COVID-19 impacts on our markets and
customers.
CURRENT FUNDAMENTALS
Farm
Dealer pull through for portable grain handling equipment in
2020 has been very strong and based on current conditions
management anticipates robust demand for Farm products to continue
as we progress through the 2020 growing season. With AGI's recent
expansion into the U.S., permanent grain storage system space
management believes conditions are favourable to grow our
relatively small market share in 2020 and going forward. Overall,
management anticipates strong demand for Farm products in 2020
based on the following factors, assuming limited additional
COVID-19 impact on farm operations:
- Planted corn acres in the United
States are expected to approximate 95-97 million acres, a
significant increase over the 89 million acres planted in 2019.
Importantly, planting conditions are significantly better than in
2019 when widespread and historic flooding severely impacted
farming operations.
- In western Canada, cool
weather has delayed seeding in most areas. Conditions have recently
improved, and the late spring is not expected to significantly
impact crop volumes. The timing of order intake for Farm products
in Canada has likewise been
impacted by the late spring.
- Total Farm new order intake in April
2020 is similar to 2019 levels.
- As at April 30, 2020, our Farm
backlog in the United States was
10% higher than at the same time in 2019, while in Canada the backlog is flat to the prior
year.
Commercial North
America
In the United States,
Commercial Grain handling activity has been stable but for the last
number of years has been restrained by depressed agricultural
markets and international trade disputes. In addition, the
emergence of COVID-19 has delayed decisions with respect to capital
deployment. Nonetheless, largely due to higher backlogs of
Fertilizer and Food projects, our sales order backlog is 27% higher
than the relatively low backlog of a year ago.
In Canada, the Commercial
market was very active over the last several years due to increased
investment in grain infrastructure, however our Canadian Commercial
backlog has decreased compared to the high levels of a year
ago.
Commercial new order intake is subject to monthly fluctuation as
the business is generally comprised of a relatively small number of
higher dollar value projects. As at April
30, 2020, our Commercial backlog in North America was 2% lower than at the same
time in 2019.
Commercial International
Global trade uncertainties in 2019 created an environment of
uncertainty that lasted through much of the year. Capital projects
were largely put on hold as our customers paused to assess what
facilities they needed by geography to account for the changes in
trade flows. This pause in spending started to impact our sales
intake in the first quarter of 2019 and persisted until the fourth
quarter. The late pickup in project activity in 2019 impacted the
timing of our backlog once it did pick up, pushing project
deliveries out to the back half of 2020.
The increased pace of new order intake experienced in Q4 2019
continued in 2020 and in the first four months of 2020 new
international orders, excluding Milltec (acquired March 29, 2019) increased 21% compared to the
prior year. As a result of increased new orders in late 2019 and
YTD in 2020, our international sales order backlog at April 30, 2020, excluding Milltec, is 42% higher
compared to the same time in 2019. Backlog increases are most
significant in EMEA, Southeast
Asia (excluding India) and
Brazil.
Performance at Milltec, our platform acquisition in India, met expectations in Q1 2020 and is well
positioned for long-term growth. New orders and backlog at Milltec
in April 2020 have been impacted by
the government mandated country-wide closure of businesses, however
the impact is expected to be transient and new orders jumped
dramatically with a partial reopening of certain businesses late in
the month.
Capital decisions related to Commercial projects, particularly
in international markets, appear to be slowing due to the
uncertainty surrounding COVID-19. Management anticipates these
delays will impact Commercial sales in Q3 2020 and Q4 2020, however
the extent and duration of the crisis will determine the extent of
the impact on the pace of project pipeline development and the
subsequent timing of revenue recognition.
Technology
In 2019, AGI demonstrated the success of its AGI SureTrack
subscription model as demand exceeded our capacity and we increased
retail equivalent sales by 70%. In the first quarter of 2020,
retail sales increased by over 200% compared to the prior year and
management anticipates the recent release of AGI SureTrack version
2.0 will facilitate continued growth. In addition, AGI added ERP
functionality to the platform via the acquisition of Affinity and
its Compass product suite in January
2020. AGI SureTrack will move to a new facility in
Lenexa, Kansas, in Q2 2020 to
accommodate the rapid increase in demand. Continued growth in the
SureTrack platform is expected to deepen AGI's relationships with
processors, merchandisers, grain buyers and producers throughout
North America and provide a
significant opportunity for equipment cross-sales.
Summary
As it stands today, planting conditions in North America are substantially better than a
year ago, our Farm backlog is higher than it was at this time in
2019 and Farm new order intake in April
2020 is consistent with the prior year. Likewise, our
Commercial backlogs are significantly higher than the prior year,
with particular strength internationally. Our adjusted EBITDA
margin for the balance of 2020 will be influenced by sales product
mix and investments in our technology business and internal
projects. COVID-19 related production suspensions and related
expenses have impacted Q2 2020 and we expect continuing impacts as
we move through the balance of Q2 and H2 2020. Commercial order
intake for the balance of the year is uncertain as the world
continues to respond to the COVID-19 pandemic. Overall, our total
sales order backlog is 9% higher than a year ago and we are
positive on the resilience of the business in a difficult
period.
See also, "Risks and Uncertainties" and "Forward-Looking
Information".
EQUIPMENT REWORK
In the quarter ended March 31,
2020 the Company added $4
million to the estimate of total costs related to the
previously disclosed equipment rework. The revised estimate is
based on new information obtained as the project progresses towards
completion. Initial estimates were based on extensive investigation
using the preliminary information that was available, and
additional costs have now been identified as we fully assessed the
site and progressed through the rehabilitation work. We have
substantially completed the design and engineering work and
material fabrication, we have factored in increased labour and
material cost and management is satisfied that this increased
amount is a comprehensive estimate of the entire project.
MD&A and Financial Statements
AGI's financial statements and management's discussion and
analysis (the "MD&A") for the three-months ended March 31, 2020 can be obtained at
https://www.newswire.ca/news-releases/ and will also be available
electronically on SEDAR (http://www.sedar.com) and on AGI's website
(http://www.aggrowth.com).
Conference Call
Management will hold a conference call on Thursday May 7, 2020, at 8:00 a.m. EDT to discuss AGI's results for the
three-months ended March 31, 2020. To
participate in the conference call, please dial 1-888-390-0546 or
for local access dial 416-764-8688. An audio replay of the call
will be available for seven days. To access the audio replay,
please dial 1-888-390-0541 or for local access dial 416-764-8677.
Please quote passcode 487649# for the audio replay.
Company Profile
AGI is a leading provider of equipment solutions for agriculture
bulk commodities including seed, fertilizer, grain, feed and food
processing systems. AGI has manufacturing facilities in
Canada, the United States, the United Kingdom, Brazil, France, Italy
and India, and distributes its
product globally.
Further information can be found in the disclosure documents
filed by AGI with the securities regulatory authorities, available
at www.sedar.com and on AGI's website www.aggrowth.com.
NON-IFRS MEASURES
In analyzing our results, we supplement our use of financial
measures that are calculated and presented in accordance with
International Financial Reporting Standards ("IFRS") with a number
of non-IFRS financial measures including "trade sales", "EBITDA",
"Adjusted EBITDA", "gross margin", "funds from operations", "payout
ratio", "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 press release, 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 our 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 share of associate's
net loss. References to "adjusted EBITDA" are to EBITDA before the
gain or loss on foreign exchange, non-cash share based compensation
expenses, gain or loss on financial instruments, M&A expenses,
other transaction and transitional costs, gain or loss on the sale
of property, plant & equipment, gain or loss on disposal of
assets held for sale and fair value of inventory from acquisitions,
equipment rework costs and impairment. 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. See "Operating
Results –EBITDA and Adjusted EBITDA" in our MD&A for the
reconciliation of EBITDA and Adjusted EBITDA to profit before
income taxes.
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. See
"Operating Results - Trade Sales" in our MD&A for the
reconciliation of trade sales to sales.
References to "gross margin" are to trade sales less cost of
inventories, and thereby exclude depreciation, amortization, fair
value of inventory from acquisitions and equipment rework from cost
of sales. Management believes that gross margin provides a useful
supplemental measure in evaluating its performance. See "Operating
Results – Gross Margin" in our MD&A for the calculation of
gross margin.
References to "funds from operations" are to adjusted EBITDA
less IFRS 15 adjustment, interest expense, non-cash interest, cash
taxes and maintenance capital expenditures. Management believes
that, in addition to cash provided by (used in) operating
activities, funds from operations provide a useful supplemental
measure in evaluating its performance. References to "payout ratio"
are to dividends declared as a percentage of funds from operations.
See "Funds from Operations and Payout Ratio" in our MD&A for
the calculation of funds from operations and payout ratio.
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 gain or loss on foreign exchange,
fair value of inventory from acquisitions, M&A expenses or
recoveries, other transaction and transitional costs, gain or loss
on financial instruments, gain or loss on sale of property, plant
and equipment impairment charges, cost of equipment rework and
share of associate's net loss. See "Diluted (loss) profit per share
and diluted adjusted profit per share" in our MD&A for the
reconciliation of diluted profit per share and diluted adjusted
profit per share to profit.
FORWARD-LOOKING INFORMATION
This press release contains forward-looking statements and
information [collectively, "forward-looking information"] within
the meaning of applicable securities laws that reflect our
expectations regarding the future growth, results of operations,
performance, business prospects, and opportunities of the Company.
All information and statements contained herein that are not
clearly historical in nature constitute forward-looking
information, and the words "anticipate", "believe", "continue",
"could", "expects", "intend", "plans", "postulates", "predict",
"will" or similar expressions suggesting future conditions or
events or the negative of these terms are generally intended to
identify forward-looking information. Forward-looking information
involves known or unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from
those anticipated in such forward-looking information. In addition,
this press release may contain forward-looking information
attributed to third party industry sources. Undue reliance should
not be placed on forward-looking information, as there can be no
assurance that the plans, intentions or expectations upon which it
is based will occur. In particular, the forward-looking information
in this press release includes information relating to our business
and strategy, including our outlook for our financial and operating
performance including our expectations for our future financial
results including sales, EBITDA and adjusted EBITDA including our
expectations for adjusted EBITDA in Q2 2020, industry demand and
market conditions, the anticipated impacts of the coronavirus
(COVID-19) outbreak on our business, operations and financial
results; the sufficiency of our liquidity; the launch of V2.0 of
our AGI SureTrack platform and the impact thereof; long term
fundamentals and growth drivers of our business; future payment of
dividends and the amount thereof; and with respect to our ability
to achieve the expected benefits of recent acquisitions and the
contribution therefrom. Such forward-looking information reflects
our current beliefs and is based on information currently available
to us, including certain key expectations and assumptions
concerning: the anticipated impacts of the COVID-19 outbreak on our
business, operations and financial results; anticipated grain
production in our market areas; financial performance; the
financial and operating attributes of recently acquired businesses
and the anticipated future performance thereof and contributions
therefrom; business prospects; strategies; product and input
pricing; regulatory developments; tax laws; the sufficiency of
budgeted capital expenditures in carrying out planned activities;
political events; currency exchange and interest rates; the
cost of materials; labour and services; the value of businesses and
assets and liabilities assumed pursuant to recent acquisitions; the
impact of competition; the general stability of the economic and
regulatory environment in which the Company operates; the timely
receipt of any required regulatory and third party approvals; the
ability of the Company to obtain and retain qualified staff and
services in a timely and cost efficient manner; the timing and
payment of dividends; the ability of the Company to obtain
financing on acceptable terms; the regulatory framework in the
jurisdictions in which the Company operates; and the ability of the
Company to successfully market its products and services.
Forward-looking information involves significant risks and
uncertainties. A number of factors could cause actual results to
differ materially from results discussed in the forward-looking
information, including the effects of global outbreaks of pandemics
or contagious diseases or the fear of such outbreaks, such as the
recent COVID-19 pandemic, including the effects on the Company's
operations, personnel, and supply chain, the demand for its
products and services, its ability to expand and produce in new
geographic markets or the timing of such expansion efforts, and on
overall economic conditions and customer confidence and spending
levels, changes in international, national and local macroeconomic
and business conditions, as well as sociopolitical conditions in
certain local or regional markets, weather patterns, crop planting,
crop yields, crop conditions, the timing of harvest and conditions
during harvest, the ability of management to execute the Company's
business plan, seasonality, industry cyclicality, volatility of
production costs, agricultural commodity prices, the cost and
availability of capital, currency exchange and interest rates, the
availability of credit for customers, competition, AGI's failure to
achieve the expected benefits of recent acquisitions including to
realize anticipated synergies and margin improvements; and changes
in trade relations between the countries in which the Company does
business including between Canada
and the United States. These risks
and uncertainties are described under "Risks and Uncertainties" in
our MD&A, our annual MD&A and in our most recently filed
Annual Information Form, all of which are available under the
Company's profile on SEDAR [www.sedar.com]. These factors should be
considered carefully, and readers should not place undue reliance
on the Company's forward-looking information. We cannot assure
readers that actual results will be consistent with this
forward-looking information. Readers are further cautioned that the
preparation of financial statements in accordance with IFRS
requires management to make certain judgments and estimates that
affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of contingent liabilities. These
estimates may change, having either a negative or positive effect
on profit, as further information becomes available and as the
economic environment changes. The forward-looking information
contained herein is expressly qualified in its entirety by this
cautionary statement. The forward-looking information included in
this press release is made as of the date of this press release and
AGI undertakes no obligation to publicly update such
forward-looking information to reflect new information, subsequent
events or otherwise unless so required by applicable securities
laws.
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SOURCE Ag Growth International Inc. (AGI)