WINNIPEG, Aug. 8, 2019 /CNW/ - Ag Growth International Inc.
(TSX: AFN) ("AGI", the "Company", "we" or "our") today announced
its financial results for the three and six-months ended
June 30, 2019, and declared dividends
for September, October and November
2019.
Overview of Results
(thousands of dollars
except
per share amounts)
|
Three Months Ended
June 30
|
Six Months Ended
June 30
|
2019
$
|
2018
$
|
2019
$
|
2018
$
|
Trade sales
(1)(2)
|
293,012
|
262,651
|
509,210
|
476,748
|
Adjusted EBITDA
(1)(3)
|
51,355
|
49,220
|
81,992
|
79,947
|
Profit
|
12,516
|
12,792
|
25,738
|
17,735
|
Diluted profit per
share
|
0.67
|
0.75
|
1.37
|
1.06
|
Adjusted profit
(1)
|
20,206
|
22,282
|
25,197
|
33,745
|
Diluted adjusted
profit per share (1)(4)
|
1.04
|
1.21
|
1.34
|
1.91
|
[1]
|
See "Non-IFRS
Measures".
|
[2]
|
See "Operating
Results – Trade Sales" in our Management's Discussion and Analysis
for the three and six-months period ended June 30, 2019
("MD&A").
|
[3]
|
See "Operating
Results – EBITDA and Adjusted EBITDA" in our MD&A.
|
[4]
|
See "Detailed
Operating Results - Diluted profit per share and diluted adjusted
profit per share" in our MD&A.
|
Trade sales and adjusted EBITDA were at record levels in both
the three- and six-month periods ended June
30, 2019. Trade sales increased compared to 2018 as demand
for portable Farm equipment in the United
States remained strong, despite a challenging growing
season, and contributions from recent acquisitions in India and France met expectations. Adjusted EBITDA
increased over 2018 as higher trade sales and consistent gross
margin percentages were partially offset by higher SG&A
expenses. Adjusted EBITDA as percentage of sales decreased compared
to 2018, largely due to an anticipated low sales volume quarter in
Brazil, a seasonally low sales
volume quarter in India and the
impact of challenging weather conditions on grain storage systems
sales in the United States.
Profit, profit per share, adjusted profit and adjusted profit per
share in Q2 2019 decreased largely due to transitory items related
to AGI's platform acquisition of India-based Milltec (see "diluted profit per
share and diluted adjusted profit per share").
"Sales and adjusted EBITDA in Q2 2019 exceeded Q2 2018 results
despite challenging conditions in North
America and the timing of sales in Brazil and other international markets." said
Tim Close, President and CEO of AGI.
"Our North American Farm business continued to perform well as the
replacement cycle for portable grain handling equipment remained
stable, wet conditions in the US and increased market penetration
in Canada resulted in higher sales
of drying and aeration equipment. Sales of Commercial equipment in
Canada were very strong due to
continued investment in grain handling infrastructure, including
inland grain terminals and port facilities. In India, Milltec performed well as expected
despite the impact of a late and below average monsoon.
Weather and trade friction combined to impact sales and margin
in the first half of 2019, and we expect these conditions to
persist into the back half of the year. Overall, management
anticipates results in the second half of 2019 will approximate the
second half of 2018, despite near-term challenges related to
historically poor conditions in the U.S. and the delays stemming
from trade related uncertainty in our international business.
In May we launched a subscription model for our SureTrack grain
management platform providing farmers with a complete system of
sensors collecting data to manage, condition and then market their
grain based on actual grain content. The shift to a
subscription model allows farmers to install and utilize our
platform with no payment upfront and one payment per year, paid
post-harvest. This technology platform was further augmented
by our recent investment and strategic agreement with Farmobile
providing a robust data feed to automate the population of field
activity within our SureTrack platform.
We have established a robust and unique technology platform
which has been growing quickly and we are excited about the
potential to continue to build on this business as we provide the
only platform that delivers traceability for grain genetics,
chemical application, growing and storage conditions and a means to
market grain on actual starch, oil, and protein content.
Our business remains resilient in this environment and we are
excited about many opportunities to leverage recent investments to
provide ongoing growth in 2020."
Diluted profit per share and diluted adjusted profit per
share
Diluted profit per share for the three- and six-month periods
ended June 30, 2019 were $0.67 and $1.37,
respectively, versus $0.75 and
$1.06, respectively, in 2018. Profit
per share in 2019 and 2018 has been impacted by the items
enumerated in the table below, which reconciles profit to adjusted
profit. In addition to the items enumerated in the table, profit
and profit per share, and adjusted profit and adjusted profit per
share, were impacted by the addition of 1.9 million common shares
in Q4 2018, the proceeds of which contributed to funding the
acquisition of Milltec on March 28,
2019. Due to the timing of the acquisition, only one
seasonally low earnings quarter is included in the earnings of AGI.
Profit and adjusted profit in the second quarter of 2019 were also
impacted by a $1.3 million expense
related to amortization of the backlog intangible recorded upon the
acquisition of Milltec, which will be fully amortized after Q3
2019, as well as $1.1 million related
to amortization of the fair value of inventory bump recorded upon
acquisition, which will also be fully amortized after Q3 2019.
(thousands of dollars
except
per share amounts)
|
Three Months Ended
June 30
|
Six Months Ended
June 30
|
2019
$
|
2018
$
|
2019
$
|
2018
$
|
Profit
|
12,516
|
12,792
|
25,738
|
17,735
|
Diluted profit per
share
|
0.67
|
0.75
|
1.37
|
1.06
|
|
|
|
|
|
Loss (gain) on
foreign exchange
|
(3,895)
|
6,632
|
(6,419)
|
12,333
|
Fair value of
inventory from acquisition (2)
|
1,196
|
597
|
1,220
|
1,183
|
M&A
expenses
|
927
|
700
|
3,064
|
868
|
Other transaction
expenses (3)
|
3,502
|
2,287
|
6,126
|
2,423
|
Gain (loss) on
financial instruments
|
5,906
|
(1,012)
|
(4,532)
|
(1,245)
|
Loss on sale of
PP&E
|
54
|
286
|
-
|
216
|
Impairment charge
(4)
|
-
|
-
|
-
|
232
|
Adjusted profit
(1)
|
20,206
|
22,282
|
25,197
|
33,745
|
Diluted adjusted
profit per share (1)
|
1.04
|
1.21
|
1.34
|
1.91
|
[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 assets held
for sale at estimated fair value.
|
OUTLOOK
Farm
Historically poor planting conditions in the United States have significantly reduced
the number of acres planted and lowered yield expectations, causing
farmers to be cautious with respect to spending commitments. Demand
for portable grain handling equipment in the United States has remained at 2018 levels
as farmers continue to invest in storage and the replacement cycle
of portable equipment remains stable. Demand for grain storage
systems in the United States has
been impacted by excessively wet conditions, creating yield and
acreage uncertainty and a shortened construction season. Despite
significant headwinds the underlying demand drivers for on-farm
grain handling and storage remain intact. Planted corn acres in
2020 are expected to increase significantly over 2019 and
management currently expects higher demand levels in 2020.
In Canada, crop conditions are
mixed as the impact of a very dry spring was only partially
alleviated by rains early in the third quarter. Grain storage sales
in Canada have been strong,
however the dry start to the season and a rapidly approaching
harvest in some regions has the potential to limit second half
sales of storage and aeration products. Demand for portable
handling equipment is consistent with 2018.
AGI dealers of both portable equipment and grain storage
continue to prudently manage their inventory levels, and as a
result management does not anticipate excess inventory carryover
into 2020. Overall, our Farm backlogs are higher than the prior
year and management expects Farm sales in the second half of 2019
to exceed 2018 levels.
Commercial
AGI's Commercial business has a global footprint and demand
drivers include global grain production and consumption,
infrastructure deficiencies in developing markets, storage and
handling efficiencies and food security.
The Canadian Commercial market remains very active due to
continued investment in grain handling infrastructure, including
port facilities and inland terminals, and AGI's Commercial grain
handling backlog remains at the high levels experienced in 2018. In
the United States, Commercial
activity is stable and comparable to 2018 levels.
Offshore, as anticipated, the timing of customer commitments has
resulted in a deferral of certain projects, and accordingly, the
related revenue will be recognized later than originally expected.
Uncertainly regarding trade tensions has aggravated the customer
decision making process, as market participants seek clarity prior
to finalizing investment decisions. AGI's business in Brazil continues to make progress both in
manufacturing efficiencies and market development. Recent changes
in its sales team and structure and the further advancement of
financing tools has resulted in higher market penetration and a
strong quote pipeline in both Farm and Commercial markets. Sales in
Brazil for the second half of 2019
are expected to increase over the prior year. Our international
backlog has increased significantly in recent months, with large
projects added in EMEA and Southeast
Asia, and our quoting pipeline remains active in all
geographies.
On March 28, 2019, AGI announced
the completion of its acquisition of Milltec, a manufacturer of
rice milling and processing equipment in India. Milltec's sales reflect agricultural
seasonality in India where
historically approximately 70% of their sales have occurred in the
first and fourth calendar quarters. A delayed 2019 monsoon season,
which has not reached historical averages, combined with what is
believed to be transitory liquidity issues in the Indian banking
system, have somewhat lowered sales expectations at Milltec for the
second half of 2019. Management anticipates a return to typical
demand in 2020.
In summary, our Commercial sales order backlog is growing and is
currently higher than at the same time in 2018. Management
anticipates international sales in the second half of 2019, net of
acquisitions, to approximate 2018 levels, however revenue from
certain projects is now expected to be realized in fiscal 2020.
Summary
On balance, AGI's Farm business is faring well and sales in the
second half of 2019, though tempered by challenging conditions in
North America, are expected to
increase over the prior year. AGI's Commercial business will be
impacted by the timing of international projects, and management
anticipates Commercial sales net of acquisitions to approximate
2018 levels. EBITDA percentages in the second half of 2019 are
expected to decrease compared to the prior year, largely due to
international project sales mix and the expectation of a higher
proportion of sales coming from AGI Brazil, and due to the impact
of poor market conditions on AGI's U.S. grain storage systems
business. Overall, management anticipates second half adjusted
EBITDA to approximate record 2018 levels.
Several factors exist today that suggest we are positioned to
enter 2020 on very solid footing. First, there is a growing
expectation that U.S. farmers will plant a record amount of corn
acres in 2020, which may result in increased demand for portable
grain handling equipment and grain storage systems. AGI Brazil
continues to make progress both in manufacturing efficiencies and
market development, and management anticipates improved results in
the country in 2020. Internationally, our backlog related to 2020
has started to build and we currently expect to enter the year with
a strong book of business. Finally, we expect growth from our
platform acquisition in India due
to increased market development and synergies with other AGI
divisions. In summary, while we face certain headwinds in the
second half of 2019, we look forward with excitement to increasing
growth in fiscal 2020.
Trade sales and adjusted EBITDA 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 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 September, October and November
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:
Monthly
dividend
|
Payable
date
|
Record
date
|
September
2019
|
October 15,
2019
|
September 30,
2019
|
October
2019
|
November 15,
2019
|
October 31,
2019
|
November
2019
|
December 13,
2019
|
November 29,
2019
|
MD&A and Financial Statements
AGI's financial statements and management's discussion and
analysis (the "MD&A") for the three and six-months ended
June 30, 2019 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 August 8, 2019, at 8:00 a.m. EDT to discuss AGI's results for the
three and six-months ended June 30,
2019. 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 575044# 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 and amortization. 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 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 – Three and Six Months Ended
June 30, 2019 - 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 and amortization from
cost of sales. Management believes that gross margin provides a
useful supplemental measure in evaluating its performance. See
"Operating Results – Three and Six Months Ended June 30, 2019 – 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, other
transaction and transitional costs, gain or loss on financial
instruments, gain or loss on sale of property, plant and equipment
and impairment charge. See "Detailed Operating Results – Diluted
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, 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 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 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.
SOURCE Ag Growth International Inc. (AGI)