AFN Ag Growth International Inc

WINNIPEG, March 14, 2019 /CNW/ - Ag Growth International Inc. (TSX: AFN) ("AGI", the "Company", "we" or "our") today announced its financial results for the three months and year ended December 31, 2018, and declared dividends for March, April and May 2019.

Overview of Results

Trade sales and adjusted EBITDA increased significantly in the fourth quarter of 2018 due to strength in international markets, continued momentum in the Canadian Commercial market and contributions from acquisitions. Adjusted EBITDA as a percentage of sales in the quarter reflected seasonal patterns and was consistent with 2017. AGI Brazil posted a loss for the quarter, despite an increase in sales, largely due to a significant warranty provision related to damaged steel and expenses incurred in delivery and assembly as we improve our distribution model in Brazil. In the quarter, net profit was negatively impacted by a non-cash foreign exchange loss on U.S. dollar denominated debt and a non-cash loss on the Company's equity compensation swap, however adjusted profit and profit per share increased significantly compared to the prior year.

"A strong fourth quarter closed off a record year for AGI in 2018", said Tim Close, President and CEO of AGI. "We made significant progress against our 5-6-7 strategy throughout 2018, resulting in organic sales growth of 12.8%. We kicked off 2019 with three acquisitions as AGI added significantly to its Food platform and made two transformational additions, one to its technology platform and more recently to establish a solid platform in India. Moving into 2019, a prolonged winter has impacted projects and deliveries, pushing some sales into the second quarter, however we expect continued organic growth in 2019 augmented with significant contributions from acquisitions."

Trade sales and adjusted EBITDA for the year ended December 31, 2018 were at record levels, significantly exceeding 2017 results. Farm sales increased over 2017 as higher sales in the U.S. and contributions from acquisitions more than offset an expected decrease in Canada from record 2017 levels. Continued momentum in the Canadian grain and fertilizer platforms along with robust international demand resulted in a significant increase in Commercial sales over the prior year. Net profit was negatively impacted by the non-cash foreign exchange loss on U.S. dollar denominated debt and the non-cash loss on the Company's equity compensation swap, however adjusted profit and profit per share increased significantly compared to the prior year. AGI entered 2019 with record backlogs and anticipates continued momentum in both its Farm and Commercial businesses (see "Outlook").

Diluted profit per share and diluted adjusted profit per share ^[5]

Diluted profit per share for the year ended December 31, 2018 was $1.56 [2017 - $2.08^[5]]. Profit (loss) per share in 2018 and 2017 has been impacted by the items enumerated in the table below, which reconciles profit to adjusted profit:

OUTLOOK

Successive large crops in the United States and market expectations for another large planting in 2019, coupled with recent underinvestment in grain storage, has resulted in an on-farm storage deficit in the U.S. Accordingly, although farmer economics in the U.S. remain challenged, AGI anticipates strong demand for grain storage systems in 2019. In addition, sales of portable grain handling equipment are expected to benefit from high crop volumes and the replacement nature of the product. In Canada, Farm economics remain positive and management anticipates strong demand in 2019. In Both the U.S. and Canada, a challenging winter and what appears to be a late spring are expected to dampen sales in Q1 2019. However, anticipated growth rates are expected to return upon commencement of the new crop season in Q2 2019. Based on current conditions, management anticipates that total Farm sales and adjusted EBITDA in 2019 will exceed 2018 results.

AGI's Commercial backlog in Canada remain very strong due to continued investment in Canadian commercial grain handling and fertilizer infrastructure, and accordingly management anticipates robust sales in 2019. In the United States, Commercial activity is expected to remain stable compared to 2018. AGI's international sales backlog is significantly higher than the prior year and momentum is expected to continue throughout 2019 due to strong levels of quoting activity in most regions, including EMEA and Latin America. Accordingly, Commercial backlogs in Canada and offshore remain significantly higher than the prior year. Commercial sales are expected to be weighted towards the second half of 2019 due to challenging winter conditions in North America and customer construction schedules. Overall, management anticipates sales and adjusted EBITDA related to Commercial equipment in 2019 will exceed strong 2018 results.

AGI Brazil entered 2019 with a record sales order backlog that includes a strong Farm component as well as substantial South American commercial projects. New order intake has accelerated over recent quarters and momentum is expected to continue in 2019. In addition, margins are expected to improve in 2019 and over the longer term as AGI continues to apply lean practices on all aspects of the organization, including manufacturing, logistics and customer service. Accordingly, management anticipates adjusted EBITDA in Brazil in 2019 will be higher than the prior year and further improvements are expected over the long-term, however quarterly results may vary as AGI Brazil navigates the complexities of being a start-up company with ambitions of rapid growth in Brazil.

In summary, management anticipates 2019 sales and adjusted EBITDA will increase significantly compared to the prior year. The anticipated growth compared to 2018 is expected to be weighted towards the second half of 2019 due to difficult winter conditions in North America and customer construction schedules. Overall, positive Farm demand drivers in North America are expected to drive sales growth in grain storage systems and portable handling equipment and Commercial sales are anticipated to be very strong in Canada and internationally. Based on existing backlogs, quoting activity and positive demand drivers, management expects record results in 2019 and looks forward with excitement to the upcoming fiscal year.

On March 11, 2019, AGI announced that it had entered into binding purchase agreements to acquire 100% of the outstanding shares of Milltec Machinery Limited ("Milltec") for $109.5 million, plus the potential for up to an additional $38.4 million based on the achievement of financial targets. The transaction will be funded by AGI's revolving credit facility.  For the twelve months ended January 31, 2019, Milltec's sales and EBITDA were $56.2 million and $10.1 million, respectively. Milltec's sales reflect agricultural seasonality in India, and historically approximately 70% of their sales have occurred in the first and fourth calendar quarters.

Trade sales and adjusted EBITDA in 2019 will be influenced by, among other factors, weather patterns, crop conditions, the timing of harvest and conditions during harvest and changes in input prices, including steel. The Company endeavors to mitigate its exposure to higher input costs through strategic procurement of steel, sales price increases and limiting the length of time commercial quotes remain valid, however the pace and volatility of input price increases may negatively impact financial results. Other factors that may impact results in 2019 include the impact of existing and potential future trade actions, the ability of our customers to access capital, the rate of exchange between the Canadian and U.S. dollars, changes in global macroeconomic factors as well as sociopolitical factors in certain local or regional markets, and the timing of Commercial customer commitments and deliveries.

Dividends

AGI today announced the declaration of cash dividends of $0.20 per common share for the months of March, April and May 2019. 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:

MD&A and Financial Statements

AGI's financial statements and management's discussion and analysis (the "MD&A") for the three months and year ended December 31, 2018 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, March 14, 2019, at 8:00 a.m. EDT to discuss AGI's results for the three months and year ended December 31, 2018. To participate in the conference call, please dial 1-888-390-0605 or for local access dial 416-764-8609. 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 774689# for the audio replay.

Company Profile

AGI is a leading provider of equipment solutions for agriculture bulk commodities including seed, fertilizer, grain, and feed systems with a growing platform in providing equipment and solutions for food processing facilities.  AGI has manufacturing facilities in Canada, the United States, the United Kingdom, Brazil, South Africa Italy and France 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 "EBITDA", "Adjusted EBITDA", "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 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 the 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 from continuing operations before income taxes, finance costs, depreciation, and amortization. References to "adjusted EBITDA" are to EBITDA before the Company's gain or loss on foreign exchange, non-cash share based compensation expenses, gains or losses on financial instruments, M&A expenses, other transaction and transitional costs, gains or losses on the sale of property, plant & equipment, gains or losses on disposal of assets held for sale, fair value of inventory from acquisitions 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 – Year Ended December 31, 2018 – EBITDA and Adjusted EBITDA" and "Quarter Ended December 31, 2018 – EBITDA and Adjusted EBITDA" in our MD&A for the year ended December 31, 2018 for the reconciliation of EBITDA and Adjusted EBITDA to profit from continuing operations 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 - Year Ended December 31, 2018 – Trade Sales" and "Operating Results – Quarter Ended December 31, 2018 – Trade Sales" in our MD&A for the year ended December 31, 2018 for the reconciliation of trade sales to sales.

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 loss (gain) on foreign exchange, fair value of inventory from acquisitions, transaction costs, M&A expenses, other transaction and transitional costs, loss on sale of property, plant and equipment, (gain) on disposal of assets held for sale, impairment charge and non-cash accretion related to early redemption of the 2013 Convertible Debenture. See "Detailed Operating Results – Year Ended December 31, 2018 – Diluted profit per share and diluted adjusted profit per share and "Quarter Ended December 31, 2018 – Diluted profit per share and diluted adjusted profit per share" in our MD&A for the reconciliation of adjusted profit to profit.

In addition, the financial information in this press release relating to Milltec's sales and EBITDA is derived from Milltec's financial statements, which are prepared in accordance with generally accepted accounting principles in India, which differ in some material respects from IFRS, and accordingly may not be comparable to the financial statements of AGI or other Canadian public companies.

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, industry demand and market conditions, and with respect to our ability to achieve the expected benefits of recent acquisitions and the contribution therefrom including from purchasing and personnel synergies and margin improvement initiatives. Such forward-looking information reflects our current beliefs and is based on information currently available to us, including certain key expectations and assumptions concerning: 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 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 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 for the year ended December 31, 2018 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.

SOURCE Ag Growth International Inc. (AGI)