Ag Growth International Inc. today reported its financial results for the three and nine month periods ended September 30, 2012, and declared dividends for December 2012, January 2013 and February 2013.
Overview of Results
Trade sales in the three and nine month periods ending September 30, 2012 increased $1.6 million (2%) and $20.7 million (9%) over the same periods in the prior year. The largest single driver of sales growth in the three and nine month periods was a substantial increase in international business, particularly in the countries of the former Soviet Union. Also contributing to growth in sales was robust demand in western Canada and the acquisition of Airlanco. The company achieved sales growth despite a decline in U.S. sales that resulted from a severe drought that significantly impacted third quarter demand.
Adjusted EBITDA decreased in the third quarter of 2012 as the U.S. drought reduced demand for the company’s higher margin on-farm grain handling equipment. For the nine-month period ending September 30, 2012, adjusted EBITDA increased over the prior year as the company significantly increased its sales in the Canadian and international markets and due to robust demand for on-farm equipment in the United States prior to the appearance of drought conditions.
Net profit and diluted profit per share increased in the third quarter of 2012 as lower adjusted EBITDA was more than offset by lower transaction costs, a higher gain on foreign exchange and a lower effective tax rate. For the nine month period ended September 30, 2012, diluted profit per share decreased $0.05 per share as a large gain on foreign exchange in 2011 was only partially offset by lower transaction expenses and a lower effective tax rate in the current year.
“After a strong first half in which the company demonstrated significant operational improvements and a return to higher levels of profitability it is certainly disappointing that the historic drought that has gripped our key U.S. market will negatively impact our second half results”, said Gary Anderson, President and Chief Executive Officer.
“Somewhat overshadowed by the impact of the drought has been a number of very positive developments on which I am pleased to report. Perhaps most significant is our success in international markets in 2012. The hard work of our international sales and support team has resulted in increased market awareness and substantial repeat business which we fully expect will support continued growth offshore. I was able to visit Russia and Ukraine in October 2012 and I came away very impressed by the increased presence of AGI in these markets and the breadth and depth of the relationships developed over the last several years. Our offshore sales are up 35% over the prior year and with quoting activity at record highs we remain very confident in our strategy of bundling commercial grain handling equipment with large diameter storage bins manufactured at our Twister facility.”
“We have undertaken a number of new product development initiatives in 2012 which we feel will contribute greatly to our success in future years. In 2013 we will manufacture 90’ and 105’ storage bins and will introduce commercial capacity grain drying equipment. We believe the ability to bundle these products previously sourced from third parties with our market leading commercial handling equipment will further enhance our growth in offshore markets. Also in 2013 we will launch a newly designed high capacity Westfield grain auger which we expect will further enhance Westfield’s position in the portable grain handling market.”
“We expect to enter 2013 ready to capitalize on what we believe are long-term positive agricultural fundamentals. Although the fourth quarter of 2012 will be impacted by the historic drought in the United States and we expect some softness to persist into 2013, we look forward to the challenges and opportunities in the upcoming year and expect to deliver solid growth both domestically and overseas.”
Outlook
The severe U.S. drought in 2012 significantly reduced crop production volumes and resulted in a very early and efficient harvest. As a result, the company expects limited in- season sales in the fourth quarter of 2012. The poor harvest also resulted in limited inventory carryover which is likely to reduce participation in the company’s fourth quarter preseason booking programs and may temper demand for portable equipment in the first and second quarters of 2013. Management believes U.S. farmers are likely to plant a significant number of corn acres in 2013 to capitalize on high commodity prices and accordingly, based on current conditions, management is optimistic with respect to demand for portable grain handling equipment in the second half of 2013.
The widespread drought in the U.S. also impacted the company’s commercial businesses. Negative market sentiment and an outlook for lower commercial handling volumes in the short-term delayed the launch of certain domestic commercial business in 2012, particularly on smaller, regional projects. Although quoting activity for 2013 business has increased recently, due to lead times associated with commercial business domestic demand in the next several months is expected to be constrained. However, based on current conditions management expects a return to normalized conditions in the second half of 2013.
Crop production in Canada increased slightly compared to 2011 and dealer inventories post-harvest are consistent with historical levels. Although dry conditions later in the growing season resulted in an early harvest and tempered fourth quarter in-season sales, management expects participation in preseason programs to be consistent with previous years. Looking ahead to 2013, management expects the company’s commercial business will continue to grow and based on current conditions expects another strong year in portable grain handling, storage and conditioning.
Ag Growth enjoyed great success offshore in 2012 and expects growth in international business to continue in 2013. Quoting activity is at record highs and the company’s growing presence and distribution in many offshore markets, particularly in the former Soviet Union, positions the Company well for the upcoming year. In 2013 the company will also introduce 105 foot diameter storage bins and commercial capacity grain drying equipment which will further complete Ag Growth’s industry leading commercial product offering.
On balance, the short-term impact of the U.S. drought and the early U.S. harvest is expected to temper fourth quarter demand for both portable and commercial grain handling products in the United States. As a result, sales and adjusted EBITDA in the fourth quarter of 2012 are expected to be well below the fourth quarter of 2011. The company’s fiscal 2012 payout ratio will increase compared to 2011 however the company’s dividend policy will not be altered in response to this short-term weather event.
Management remains optimistic with respect to the company’s prospects in 2013. Although the 2012 drought resulted in higher than typical inventory carryover at our U.S. dealers, the impact is not expected to extend beyond the second quarter of 2013. In the upcoming year U.S. farmers may again plant significant corn acreage to capitalize on high commodity prices which would then be expected to result in robust demand for portable grain handling equipment in the second half of 2013. Demand in the Canadian market is expected to be strong in 2013 and Ag Growth remains very optimistic with respect to its international business and the potential of bundling commercial grain handling equipment with storage bins and other Ag Growth products. In summary, although management anticipates some softness in the United States in first half of 2013, based on current conditions the company anticipates a return to favourable conditions with the new crop year and expects sales and adjusted EBITDA in 2013 to increase significantly compared to the drought impacted results of 2012.
Dividends
Ag Growth today announced the declaration of cash dividends of $0.20 per common share for the months of December 2012, January 2013 and February 2013. The dividends are eligible dividends for Canadian income tax purposes. Ag Growth'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
Ag Growth's financial statements and management's discussion and analysis for the three and nine month periods ended September 30, 2012 can be obtained at http://media3.marketwire.com/docs/Q3aggrowth.pdf and will also be available electronically from SEDAR (www.sedar.com) or from Ag Growth's website (www.aggrowth.com).
Conference Call
Ag Growth will hold a conference call on Wednesday, November 14, 2012, at 1:30 P.M. EST to discuss its results for the three and nine month periods ended September 30, 2012.
To participate in the conference call, please dial 1-866-226-1792 or for local access dial 416-340-2216. An audio replay of the call will be available for seven days. To access the audio replay, please dial 1-800-408-3053 or for local access dial 905-694-9451. Please quote pass code 1516766.
