Ag Growth International reports Q4 net loss of C$3.4M, compared with year-ago earnings of C$3.3M, as total trade sales fall to C$59.9M from C$67.4M
March 14, 2013
– Ag Growth International Inc. (TSX:AFN) ("Ag Growth" or the "Company") today reported its financial results for the three and twelve month periods ended December 31, 2012, and declared dividends for March, April and May 2013.
Results in the first half of 2012 reflected strong operational and financial performance as the Company capitalized on positive industry fundamentals including a record number of planted corn acres in the U.S. and excellent crop conditions in western Canada. In addition, Ag Growth's international sales backlog was significantly higher than the prior year as the Company built upon on recent international success and growing relationships in offshore markets.
The Company enjoyed great success in Canada and internationally in 2012, with both regions attaining record sales levels. Results in the U.S., however, were significantly impacted by a historic drought. The drought signs first appeared in June 2012 and as the drought became more firmly entrenched and its severity more apparent, demand for grain handling equipment, particularly higher margin portable equipment, decreased substantially. The U.S. drought of 2012 is widely considered to be one of the most severe on record, encompassing most major grain growing areas of the U.S. and materially reducing corn production and yield per acre by 13% and 16%, respectively, compared to the prior year.
Trade sales in the year ending December 31, 2012 increased $13.6 million or 5% over 2011. The largest single driver of sales growth 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. Adjusted EBITDA decreased compared to 2011 as the U.S. drought significantly impacted demand for grain handling and aeration equipment, particularly higher margin portable grain handling equipment, in the Company's largest market. Profit per share decreased due to lower adjusted EBITDA and a smaller gain on foreign exchange that negatively impacted profit per share by approximately $0.22 compared to 2011.
Trade sales, adjusted EBITDA and profit per share decreased significantly in the fourth quarter of 2012 compared to 2011. Although fourth quarter trade sales in Canada and internationally continued on their very strong pace, demand in the U.S. decreased significantly due to the severe drought that resulted in a 13% decrease in U.S. corn production. In addition, extremely dry and hot conditions in the U.S. resulted in an exceptionally early harvest that limited in-season demand for portable grain handling equipment.
"Our fourth quarter results, as anticipated, reflect the impact of the 2012 U.S. drought," said Gary Anderson, President and Chief Executive Officer. "Although we continued to enjoy strong fourth quarter sales in Canada and offshore, growth in these regions was not sufficient to offset the impact of the devastating crop conditions farmers experienced in our largest market, the United States."
"As we work our way through the impact of this historic U.S. drought I think it is important to step back and assess the state of the Ag Growth franchise. We enjoy dominant market share in portable grain handling and our brand strength and exceptional distribution will allow us to benefit significantly from a return to normal crop production volumes. Our commercial grain handling brands are amongst the most widely recognized in the world with significant market penetration in the U.S. and overseas. Our ability to bundle industry leading commercial grain handling equipment with our recently developed grain storage product line has enabled Ag Growth to establish a significant offshore market presence and our relationships in these regions are growing and becoming more firmly entrenched. All said, Ag Growth remains an industry leader in grain handling, storage and conditioning."
"We remain very enthusiastic with respect to Ag Growth's prospects in 2013 and beyond. Although the historic 2012 U.S. drought will result in muted demand in the first half of 2013, it is becoming more apparent that optimism is returning to the marketplace and based on current conditions we anticipate a quick return to a positive U.S. agricultural environment. We believe Ag Growth's industry leading brands and diverse product offering positions the Company exceptionally well to capitalize on strong global agricultural fundamentals and we expect to deliver solid growth in both domestic and international markets over the long-term."
Sales of portable grain handling equipment in the first half of 2013 are expected to be negatively impacted by the U.S. drought of 2012. Inventory at the Company's dealer network is slightly higher than typical, reducing their need to replenish inventory levels, while poor 2012 crop production volumes have reduced U.S. farmer grain handling requirements. The new crop season is expected to change these demand dynamics, however, as the market begins to focus on anticipated 2013 crop production volumes.
The USDA, at its 2013 Agricultural Outlook Forum, forecast U.S. farmers will plant 96.5 million acres of corn in 2013 and harvest an all-time record 14.5 billion bushels. The projected harvest would represent a 35% increase in crop production, the primary demand driver for the Company's portable grain handling equipment. 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. impacted demand for commercial grain handling products. Decreased activity in the second half of 2012 resulted in lower backlogs entering 2013 which is expected to result in muted sales in the first half of the year. However, optimism appears to be returning to the marketplace and the Company's backlog of commercial business has now surpassed its backlog at the same time in 2012. Due to longer lead times associated with commercial business, new orders will largely be realized in the second half of the year. Based on improving sentiment and a growing order book management expects a return to strong sales of commercial equipment in the second half of 2013.
Ag Growth enjoyed great success offshore in 2012. In 2013, quoting activity is at new record highs and the Company's international back order is significantly higher than at the same time in 2012. The Company's increasing presence in many offshore markets, particularly the FSU, positions us well for sustained growth. 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. A significant portion of the Company's current international business follows similar seasonal patterns to North America, with sales highest in the second and third quarters.
On balance, the short-term impact of the U.S. drought is expected to temper demand for both portable and commercial grain handling equipment in the United States in the first half of 2013. As a result, management expects adjusted EBITDA in the first half of 2013 to fall below 2012 levels, particularly due to softness in the first quarter. The year-over-year effect of the drought in the first half of 2013 is expected to be significant but is not expected to impact adjusted EBITDA to the degree experienced in the second half of 2012. The Company' payout ratio in the first half of 2013 is expected to increase compared to the prior year however, the Company's dividend policy will not be altered in response to this short-term weather event.
Management remains very optimistic with respect to the Company's prospects in the second half of 2013 and beyond. We look forward with enthusiasm to leveraging the strength of our brands, strong North American market share and rapidly increasing international presence to capitalize on what we believe are strong long-term agricultural fundamentals.
Ag Growth today announced the declaration of cash dividends of $0.20 per common share for the months of March, April and May 2013. The dividends are eligible dividends for Canadian income tax purposes. Ag Growth's current annualized cash dividend rate is $2.40 per share.
Communication with Canada Revenue Agency Regarding Conversion
Upon conversion to a corporation from an income trust in June 2009 the Company received certain tax attributes that may be used to offset tax otherwise payable in Canada. The Canada Revenue Agency has requested for its review information relating to the conversion transaction and the Company has responded to such requests. The Company is confident in the appropriateness of its tax filing position. Additional information may be found in the Company's MD&A.
Dividend Reinvestment Plan
On March 5, 2013 the Company announced the adoption of a dividend reinvestment plan (the "DRIP") that enables eligible shareholders to reinvest all or part of their cash dividends into additional common shares of Ag Growth in an efficient and cost effective manner. Proceeds from the DRIP may be used for organic growth as well as the reduction of long-term
Mepu Goodwill Impairment
In the quarter-ended December 31, 2012 Ag Growth recorded a non-cash goodwill impairment charge of $1.9 million related to its Finland-based Mepu division. Mepu's results in 2011 were negatively impacted by regional weather conditions and in 2012 the division experienced margin compression due largely to the impact of new product development. Mepu reported negative EBITDA in 2011 and 2012 of $0.8 million and $0.9 million, respectively. Under IFRS, an impairment test is performed at least annually that compares the fair value of an asset to its carrying value and based on this test as at December 31, 2012 management concluded the fair value of Mepu was less than its carrying value. While reducing reported results under IFRS, the non-cash impairment charge will not impact the Company's business operations, cash position, cash flows from operating activities or dividend policy.
MD&A and Financial Statements
Ag Growth's financial statements and management's discussion and analysis for the three and twelve month periods ended December 31, 2012 can be obtained at http://media3.marketwire.com/docs/Q4aggrowth855.pdf and will also be available electronically from SEDAR (www.sedar.com) or from Ag Growth's website (www.aggrowth.com).
Ag Growth will hold a conference call on Thursday, March 14, 2013, at 2:00 P.M. EST to discuss its results for the three and twelve month periods ended December 31, 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 4173771.
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. Ag Growth has eleven manufacturing facilities in Canada, the United States, the United Kingdom and Finland, and its sales, marketing, and distribution system distributes product in 48 states, nine provinces, and internationally.
Click here to read the full press release.