Ag Growth Announces Third Quarter 2017 Results; Declares Dividends

WINNIPEG, Nov. 10, 2017 /CNW/ - Ag Growth International Inc. (TSX: AFN) ("AGI", the "Company", "we" or "our") today announced its financial results for the three and nine-month periods ended September 30, 2017, and declared dividends for December 2017 and January and February 2018.

Overview of Results

Trade sales in Q3 2017 increased significantly over the prior year as improved demand for portable equipment in the U.S. Farm market and contributions from acquisitions more than offset a decrease in Commercial sales that resulted in part from the timing of customer deliveries. Higher trade sales did not translate into higher adjusted EBITDA due to a negative EBITDA contribution from AGI's Brazilian operations and because EBITDA margins at recently acquired divisions, though in line with management expectations, do not yet reflect the full impact of realized purchasing and personnel synergies and ongoing margin improvement initiatives. As a result, adjusted EBITDA in Q3 fell slightly below the very strong 2016 comparative. Adjusted profit declined from 2016, the result of higher interest and depreciation expenses, while profit and profit per share in Q3 increased over 2016 as lower adjusted profit was more than offset by a gain on foreign exchange in 2017, compared against a loss in 2016.

"We saw solid performance in our legacy farm businesses, with strong sales and margins year over year." said Tim Close, President and CEO of AGI. "Our Commercial businesses have strong momentum, however sales were lower in the quarter due to timing of projects. Overall margins were lower on a blended basis due to our project in Brazil and the impact of recently acquired businesses, however we are confident that our integration work and strategies in place will turn these margins around in the near term. Overall performance YTD shows significant progress in all parts of AGI as we head through the end of 2017 and into 2018."

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.

OUTLOOK

The Canadian Farm market remains healthy due to positive farmer economics and successive favorable harvests. However, the hot and dry weather that appeared early this summer continued throughout Q3, expediting harvest and negatively impacting demand for aeration and storage equipment later in the quarter, and similarly is expected to have a slight negative impact on demand in the fourth quarter. In the United States, demand for portable grain handling equipment continues to benefit from improving farmer economics and pent up demand. In addition, a late harvest in certain regions is expected to positively impact Q4 sales. On balance, excluding the acquisition of Global Industries, Inc. ("Global"), management anticipates the Company's North American Farm sales in the fourth quarter to approximate 2016 results.

Canadian Commercial activity remains robust due to investments in Canadian grain handling infrastructure and the continued evolution of Canadian fertilizer distribution. In the United States, Commercial sales are expected to increase compared to 2016 as shipments deferred from Q3 are realized in the fourth quarter and into 2018. International Commercial sales are expected to increase compared to the prior year, due to continued robust demand in Europe, the Middle East and Africa ("EMEA") and revenue related to recently consummated contracts in the Black Sea Region and South America. Overall, management expects Commercial sales in the fourth quarter of 2017 to increase over the prior year.

AGI has completed the first phase of its integration of Global and management expects to realize short-term purchasing and personnel synergies of approximately $5 million. In addition, management believes there is an opportunity for future margin expansion through increased adoption of lean manufacturing and improved manufacturing processes. In the fourth quarter of 2017, U.S. demand for grain storage systems is expected to remain subdued in what is traditionally a seasonally weak quarter for Global.

On balance, management expectations with respect to the fourth quarter of 2017 are generally consistent with the outlook provided in the Company's management's discussion & analysis for the three and six-month periods ended June 30, 2017, as the addition of Commercial sales deferred to the fourth quarter is offset by lower than previously anticipated demand in the Canadian Farm market. Offshore, management anticipates a negative EBITDA contribution from operations in Brazil will be more than offset by an increase in international project business. On balance, management anticipates results in Q4 2017 will be above the prior year.

Looking ahead to 2018, management anticipates sales and EBITDA growth will result from a number of factors, most notably continued investment in Canadian Commercial infrastructure and an increase in Commercial international project sales. AGI's domestic and international Commercial backlog as at September 30, 2017, includes a higher than typical book of business for 2018. AGI's Farm business in the U.S. is expected to benefit from an incremental improvement in farmer economics and replacement of portable handling equipment, however the demand environment for U.S. storage systems is not expected to improve significantly and Farm demand in Canada may fall below the robust demand experienced in 2017. AGI's results in fiscal 2018 are also expected to benefit from an increased contribution related to its fertilizer platform, improved year-over-year results in Brazil and the realization of synergies at Global. On balance, based on current conditions, management anticipates continued year-over-year sales and EBITDA growth in 2018.

Demand in the fourth quarter of 2017 and fiscal 2018 will be influenced by, among other factors, weather patterns, crop conditions and the timing of harvest and conditions during harvest. Changes in global macroeconomic factors as well as sociopolitical factors in certain local or regional markets may influence sales. Consistent with prior periods, Commercial sales are subject to the timing of customer commitment and delivery considerations. A stronger Canadian dollar relative to its U.S. counterpart negatively impacts AGI's profit and adjusted EBITDA, and future results may be impacted if the recent strengthening of the Canadian dollar is sustained. While 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, a number of factors, including the timing and pace of input price increases and U.S. trade action, may impact input pricing.

Dividends

AGI today announced the declaration of cash dividends of $0.20 per common share for the months of December 2017 and January and February 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:

MD&A and Financial Statements

AGI's financial statements and management's discussion and analysis (the "Q3 MD&A") for the three and nine month periods ended September 30, 2017 can be obtained at http://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 Friday, November 10, 2017, at 9:00 a.m. EST to discuss the Company's results for the three and nine-month periods ended September 30, 2017. 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 053415 # for the audio replay.

Company Profile

Ag Growth International Inc. is a leading manufacturer of portable and stationary grain handling, storage and conditioning equipment, including augers, belt conveyors, grain storage bins, grain handling accessories, grain aeration equipment and grain drying systems. AGI has manufacturing facilities in Canada, the United States, Italy, Brazil, South Africa and the United Kingdom, and distributes its products globally.

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", "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 Q3 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. Adjusted EBITDA excludes the results of former AGI divisions Applegate and Mepu as the previously announced strategic review of these assets resulted in their sale in 2016. 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 Q3 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 Q3 MD&A for the reconciliation of trade sales to sales.

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 Q3 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 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 the Q3 MD&A, in our MD&A for the year ended December 31, 2016 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)