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Ag Growth Announces First Quarter 2018 Results; Declares Dividends

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Ag Growth Announces First Quarter 2018 Results; Declares Dividends

Canada NewsWire

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

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