WINNIPEG, Nov. 14, 2019 /CNW/ - Ag Growth
International Inc. (TSX: AFN) ("AGI", the "Company", "we" or "our")
today announced its financial results for the three- and
nine-months ended September 30, 2019,
and declared dividends for December
2019, January 2020 and
February 2020.
Overview of Results
(thousands of dollars
except
per share amounts)
|
Three Months
Ended
September 30
|
Nine Months
Ended
September 30
|
2019
$
|
2018
$
|
2019
$
|
2018
$
|
Trade Sales
(1)(2)
|
261,134
|
243,120
|
770,344
|
719,868
|
Adjusted EBITDA
(1)(3)
|
39,091
|
40,234
|
121,083
|
120,181
|
(Loss)
Profit
|
(2,819)
|
20,744
|
22,919
|
38,479
|
Diluted (loss) profit
per share
|
(0.15)
|
1.14
|
1.21
|
2.25
|
Adjusted profit
(1)
|
17,542
|
12,637
|
42,739
|
46,382
|
Diluted adjusted
profit per
share (1)(4)
|
0.91
|
0.74
|
2.26
|
2.65
|
|
|
[1]
|
See "Non-IFRS
Measures".
|
[2]
|
See "Operating
Results – Trade Sales" in our Management's Discussion and Analysis
for the three- and nine-months periods ended September 30, 2019
("MD&A").
|
[3]
|
See "Operating
Results – EBITDA and Adjusted EBITDA" in our MD&A.
|
[4]
|
See "Detailed
Operating Results - Diluted profit (loss) per share and diluted
adjusted profit per share" in our MD&A.
|
Trade sales in the third quarter of 2019 increased over the
prior year due to higher sales of portable grain handling and
drying equipment, sales growth in Brazil and a strong performance from AGI's
recent acquisition in India. Sales
growth in the quarter was tempered by challenging Farm conditions
in both Canada and the U.S., as
well as by global economic uncertainties and their impact on the
timing of customer commitments, most notably in offshore markets.
Gross margin percentages in the quarter remained strong and were
consistent with 2018 levels, despite the impact of challenging
market conditions on some product lines. Adjusted EBITDA as a
percentage of sales decreased 150 bps compared to Q3 2018 due to
AGI's continued investment in sales and marketing initiatives,
digital tools and its technology platform. The benefit from these
investments is expected to gain momentum in future quarters, and to
accelerate as our end user markets normalize from the transient
items experienced in 2019. Profit and profit per share decreased
compared to Q3 2018 due to non-cash losses on foreign exchange and
the Company's equity compensation swap, as well as a Q3 2019 charge
related to project rework. Adjusted profit and adjusted profit per
share were consistent with the prior year (see "diluted profit
(loss) per share and diluted adjusted profit per share").
"Despite significant headwinds, and excluding acquisitions, AGI
sales in both the quarter and nine-months ended September 30, 2019 were equal to our record
results in 2018," said Tim Close,
President and CEO of AGI. "Inclusive of acquisitions we grew sales
by 7% in both periods as we brought on our platform in India, expanded our food platform into
beverages and grew our technology platform. The contribution from
these three areas further diversifies AGI, adding growth levers
outside of our traditional base in North American grain. Gross
margins and backlogs have remained stable compared to the prior
year and we are positioned well to respond to improving markets in
2020. We will continue to work with our customers as they invest in
their infrastructure and the technologies required to remain
productive and profitable in a challenging and changing
environment."
Diluted profit (loss) per share and diluted adjusted profit
per share
Diluted profit (loss) per share for the three- and nine-month
periods ended September 30, 2019 were
$(0.15) and $1.21, respectively, versus $1.14 and $2.25,
respectively, in 2018. Profit (loss) per share in 2019 and 2018 has
been impacted by the items enumerated in the table below, which
reconciles profit (loss) to adjusted profit. In addition to the
items enumerated in the table, profit (loss) and profit (loss) 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, the net earnings of AGI for the nine
months ended September 30, 2019
includes only two seasonally low quarters of Milltec. Profit (loss)
and adjusted profit in the third quarter of 2019 were also impacted
by a $1.7 million expense related to
amortization of the backlog intangible recorded upon the
acquisition of Milltec, which was fully amortized in Q3 2019, as
well as $0.5 million related to
amortization of the fair value of inventory bump recorded upon
acquisition, which was also fully amortized in Q3 2019.
(thousands of dollars
except
per share amounts)
|
Three Months
Ended
September 30
|
Nine Months
Ended
September 30
|
2019
$
|
2018
$
|
2019
$
|
2018
$
|
Profit
(loss)
|
(2,819)
|
20,744
|
22,919
|
38,479
|
Diluted profit (loss)
per share
|
(0.15)
|
1.14
|
1.21
|
2.25
|
|
|
|
|
|
Loss (gain) on
foreign
exchange
|
4,006
|
(2,413)
|
(2,413)
|
9,920
|
Fair value of
inventory from
acquisition (2)
|
522
|
-
|
1,742
|
1,183
|
M&A (recovery)
expenses
|
(18)
|
582
|
3,046
|
1,450
|
Other transaction
expenses (3)
|
301
|
1,051
|
6,427
|
3,474
|
Loss (gain) on
financial
instruments
|
7,592
|
(7,256)
|
3,060
|
(8,501)
|
Loss (gain) on sale
of PP&E
|
124
|
(71)
|
124
|
145
|
Impairment charge
(4)
|
46
|
-
|
46
|
232
|
Equipment rework
(5)
|
7,000
|
-
|
7,000
|
-
|
Share of associate's
net loss
|
788
|
-
|
788
|
-
|
Adjusted profit
(1)
|
17,542
|
12,637
|
42,739
|
46,382
|
Diluted adjusted
profit per
share (1)
|
0.91
|
0.74
|
2.26
|
2.65
|
|
|
[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.
|
[5]
|
To record 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
Farm
A very late planting in the United
States, combined with poor growing conditions in many
regions, resulted in a delayed harvest and concerns regarding yield
and crop quality. In Canada, mixed
growing conditions throughout the year and a very late harvest have
led to similar concerns. Nonetheless, AGI Farm equipment sales in
North America in the first nine
months of 2019 are higher than the previous year, due to strong
sales of portable grain handling, aeration and drying equipment.
While weather and harvest conditions may temper Farm demand in some
product categories in the fourth quarter, management anticipates
total Farm sales will approximate the fourth quarter of 2018,
largely due to strength in portable grain handling sales. Inventory
levels at the dealer level have been managed prudently throughout
2019 and management does not anticipate excess inventory carryover
into 2020. The underlying demand drivers for AGI Farm equipment
remain strong, and management expects robust demand in all product
categories with the beginning of the new planting season in
2020.
Commercial
AGI's Commercial business has a global footprint and its demand
drivers include global commodity production and consumption,
infrastructure deficiencies in developing markets, storage and
handling efficiencies and food security. Historically AGI has been
focused primarily in the Grain platform, however in recent years
has developed further into the Seed, Fertilizer, Feed and Food
platforms.
In the United States,
Commercial Grain handling activity is stable but for the last
number of years has been restrained by depressed agricultural
markets and international trade disputes. Nevertheless, AGI's
sales order backlog in the United
States is higher than the prior year due to progress in the
Fertilizer and Food categories. In Canada, the Commercial market remains very
active due to continued investment in Grain infrastructure,
including in port facilities and inland terminals. However,
compared to the prior year, the Canadian Commercial backlog has
decreased due to the impact of deliveries made on large Canadian
Grain projects in Q3 2019 and because the 2018 comparative included
a large Fertilizer project.
International sales in 2019 have been negatively impacted by
global economic uncertainties, including trade disputes.
Nonetheless, consistent with commentary from recent quarters, our
sales order backlog is tracking to levels similar to the prior year
and we continue to add to our 2020 order book. Sales in
Brazil continue to gain momentum
due to increasing brand and product awareness and improving
economic conditions in the country. In India, precipitation amounts from the 2019
monsoon now approximate historical averages, and management
anticipates seasonally strong sales in the fourth quarter of 2019.
Overall, management anticipates Commercial sales in the fourth
quarter of 2019 to approximate the prior year.
Summary
On balance, AGI's businesses have performed well in 2019 despite
significant headwinds in North
America and offshore, and management anticipates adjusted
EBITDA in the fourth quarter of 2019 to approximate 2018 levels.
EBITDA percentages in the fourth quarter of 2019 are expected to
decrease compared to the prior year, largely due to investments in
marketing and technology, the impact of poor harvest conditions on
certain product categories, and due to Commercial sales mix.
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 would positively impact 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 faced certain headwinds in the
second half of 2019, we look forward with excitement to increasing
our pace of 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 December 2019, January 2020 and February
2020. 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
2019
|
January 15,
2020
|
December 31,
2019
|
January
2020
|
February 14,
2020
|
January 31,
2020
|
February
2020
|
March 13,
2020
|
February 28,
2020
|
MD&A and Financial Statements
AGI's financial statements and management's discussion and
analysis (the "MD&A") for the three- and nine-months ended
September 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 November 14, 2019, at 8:00 a.m. EST to discuss AGI's results for the
three- and nine-months ended September 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 375219# 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 "Detailed Operating Results –
Diluted profit (loss) 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)