AGI Announces Second Quarter 2019 Results; Declares Dividends

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AGI Announces Second Quarter 2019 Results; Declares Dividends

Canada NewsWire

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)

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