Ag Growth Announces First Quarter 2018 Results; Declares Dividends
WINNIPEG, May 9, 2018 /CNW/ - Ag Growth International Inc. (TSX: AFN) ("AGI", the "Company", "we" or "our") today announced its financial results for the three months ended March 31, 2018, and declared dividends for June, July and August 2018.
Overview of Results
| (thousands of dollars except per share amounts) |
First Quarter March 31 |
|
| 2018 $ |
2017 $ |
|
| Trade sales (1)(2)(4) |
214,097 |
154,689 |
| Adjusted EBITDA (1)(3)(4) |
30,727 |
25,674 |
| Profit |
4,943 |
5,127 |
| Diluted profit per share |
0.30 |
0.33 |
| Adjusted profit (1) |
11,463 |
7,483 |
| Diluted adjusted profit per share (1)(5) |
0.70 |
0.48 |
| (1) |
See "Non-IFRS Measures". |
| (2) |
See "Operating Results – Trade Sales" in the Q1 MD&A. |
| (3) |
See "Operating Results - EBITDA and Adjusted EBITDA" in the Q1 MD&A. |
| (4) |
The Company adopted IFRS 15 in 2018 and as a result recorded sales and adjusted EBITDA of $4.4 million and $1.5 million, respectively, that under IAS 18 had also previously been recognized in 2017. For the purposes of its MD&A, AGI will adjust 2017 results by corresponding amounts accordingly. |
| (5) |
See "Diluted profit per share and diluted adjusted profit per share". |
Trade sales and adjusted EBITDA increased significantly over 2017 due to strong demand for Commercial equipment in Canada, a significant increase in international sales and improved demand for portable equipment in the United States. Sales order backlogs in these areas remain high and sales momentum is expected to continue throughout 2018. In addition, adjusted EBITDA in Q1 2018 benefited from the recent acquisitions of CMC, Junge and Danmare, and was negatively impacted by results from AGI's Brazilian operations. Adjusted EBITDA as a percentage of sales declined compared to Q1 2017, largely due to the April 4, 2017 acquisition of Global Industries Inc. ("Global"), where sales volumes and margin percentages are expected to improve along with increasing demand in the U.S. Farm sector and the further implementation of AGI's lean manufacturing, purchasing programs and restructured sales strategies. Higher adjusted EBITDA was offset by an increase in finance costs related to the Global acquisition and a translation loss on foreign exchange, resulting in lower profit and profit per share, while adjusted profit and adjusted profit per share increased compared to 2017.
"We saw solid performance to start 2018, with 38% sales growth and a 20% increase in adjusted EBITDA," said Tim Close, President and CEO of AGI. "The increase over 2017 was driven by healthy organic growth as well as significant contributions from key acquisitions made over the last twelve months, as we have added new products and capabilities in grain storage and handling, fertilizer, applied technology and engineering and project management. As expected, and similar to Q4, our margins were impacted by our investments in Brazil and in expanding our U.S. platform, however we made significant progress in each area and we remain confident that these initiatives will be strategic additions to AGI going forward. We added to our Food platform during the quarter with the acquisition of Danmare Group. This dynamic company, with an outstanding team, represents the future of our Food platform as we look to partner with our customers to deliver unique products and services globally. Overall, AGI is well positioned heading into Q2 with robust backlogs across the business."
Diluted profit per share and diluted adjusted profit per share
A reconciliation of profit and diluted adjusted profit per share to adjusted profit and adjusted diluted profit per share is below.
| First Quarter March 31 |
||
| (thousands of dollars except per share amounts) |
2018 $ |
2017 $ |
| Profit |
4,943 |
5,127 |
| Diluted profit per share |
0.30 |
0.33 |
| (Gain) loss on foreign exchange |
5,701 |
(582) |
| Fair value of inventory from acquisition (2) |
586 |
- |
| M&A expenses |
168 |
610 |
| Other transaction expenses (3) |
136 |
1,371 |
| Gain on financial instruments |
(233) |
975 |
| (Gain) on sale of PP&E |
(70) |
(18) |
| Impairment charge (4) |
232 |
- |
| Adjusted profit (1) |
11,463 |
7,483 |
| Diluted adjusted profit per share (1) |
0.70 |
0.48 |
| (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
Management anticipates sales of Farm equipment will increase compared to 2017, particularly in the U.S. where pent-up demand for portable equipment has resulted in sales order backlogs significantly higher than in the prior year. Demand is expected to remain strong in Canada, however an early harvest resulted in a degree of inventory carryover, and Canadian Farm sales in fiscal 2018 may not reach the record sales of 2017. Planting progress in most areas of North America is well behind historical averages due to a late spring, which may result in a later than typical harvest, which is generally a positive for AGI. Sales at MFS and Hutch are expected to benefit from increasing demand for grain storage and handling systems in the United States, while sales of NECO grain dryers are expected to increase, primarily due to increasing market penetration in Canada. Gross margins at MFS, Hutch and NECO are expected to improve along with higher sales, further integration into AGI's steel procurement program and the further adoption of lean manufacturing practices. Overall, Farm backlogs are significantly higher than the prior year, and based on current conditions management anticipates that Farm sales and EBITDA in fiscal 2018 will be above 2017 levels.
Commercial sales in Canada are expected to increase significantly in 2018 due to strong demand for grain, feed and fertilizer storage and handling facilities. In the United States, Commercial activity is expected to be stable, due to ongoing maintenance capital expenditure programs and investments to increase capacity and productivity. International sales will benefit from a very strong, geographically diverse sales order backlog, with particular strength in EMEA and South America. In addition, results at recently acquired divisions CMC, Junge and Danmare are tracking to expectations, and accordingly contributions from these divisions will benefit 2018 sales and EBITDA. Overall, management anticipates sales and EBITDA related to Commercial equipment in 2018 will be higher than the prior year.
Management anticipates a positive contribution from AGI Brazil in the second half of 2018, as sales volumes in both the Farm and Commercial sectors are increasing, and manufacturing practices have improved subsequent to the final commissioning of AGI's new manufacturing facility. Sales order backlogs in Brazil are well above the levels of a year ago. Access to capital and a cautious approach to capital investment continue to contribute to a competitive marketplace in Brazil, however AGI anticipates an increase in sales and manufacturing efficiencies will lead to a positive EBITDA contribution in the second half of the fiscal year.
Steel prices have increased significantly in recent months and volatility in steel markets may be exacerbated by U.S. trade actions, including potential import tariffs under Section 232 of the Trade Expansion Act (USA). 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 earnings.
On balance, management anticipates trade sales and adjusted EBITDA in fiscal 2018 will increase compared to 2017, due to strong demand for Commercial equipment in Canada, a significant increase in international sales and improved demand for Farm equipment in the United States. Existing backlogs are high, particularly with respect to the Company's Farm business in the U.S. and its Canadian and international Commercial business. Trade sales and EBITDA in 2018 are expected to benefit from the recent acquisitions of CMC, Junge and Danmare. In addition, improving results in Brazil and a higher contribution from MFS, Hutch and NECO are also expected to contribute to higher EBITDA in 2018.
Trade sales and adjusted EBITDA in 2018 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. Other factors that may impact results in 2018 include trade actions, 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 2018. 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 |
| June 2018 |
July 13, 2018 |
June 29, 2018 |
| July 2018 |
August 15, 2018 |
July 31, 2018 |
| August 2018 |
September 14, 2018 |
August 31, 2018 |
MD&A and Financial Statements
AGI's financial statements and management's discussion and analysis (the "Q1 MD&A") for the three months ended March 31, 2018 can be obtained at https://www.newswire.ca/news-releases and will also be available electronically on SEDAR (www.sedar.com) and on AGI's website (www.aggrowth.com).
Conference Call
Management will hold a conference call on Wednesday, May 9, 2018, at 8:00 a.m. EST to discuss its results for the three months ended March 31, 2018. A news release announcing AGI's results will be issued before markets open on May 9, 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 543132# 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 and Italy 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", "gross margin", "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 Q1 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, gains or losses on the sale of property, plant & equipment, non-cash share based compensation expenses, gains or losses on financial instruments, non-cash contingent consideration expenses, expenses related to corporate acquisition activity, 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 - EBITDA and Adjusted EBITDA" in the Q1 MD&A 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 - Trade Sales" in the Q1 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 – Gross Margin" in the Q1 MD&A for the calculation of gross margin.
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 (gain) loss on foreign exchange, fair value of inventory from acquisitions, transaction costs, non-cash loss (profit) on discontinued operations, contingent consideration expense and gain (loss) on sale of property, plant and equipment. See "Detailed Operating Results – Diluted profit per share and Diluted adjusted profit per share" in the Q1 MD&A for the reconciliation of diluted profit per share and diluted adjusted profit per share to profit as reported.
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, 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 the Q1 MD&A, in our MD&A for the year ended December 31, 2017 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)
Investor Relations, Steve Sommerfeld, 204-489-1855, [email protected]
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