AGI Announces Third Quarter 2021 Results

Canada NewsWire

WINNIPEG, MB, Nov. 10, 2021

WINNIPEG, MB, Nov. 10, 2021 /CNW/ - Ag Growth International Inc. (TSX: AFN) ("AGI", the "Company", "we" or "our") today announced its financial results for the three and nine-months ended September 30, 2021.

[thousands of dollars except per share   Three-months Ended September 30 
amounts] 
                                         2021$     2020$     Change$   Change% 
Trade sales ([1][2])                      313,859   282,450    31,409      11% 
Adjusted EBITDA ([1][3])                   46,298    51,769   (5,471)    (11%) 
Adjusted EBITDA Margin % ([1][3])             15%       18%      (3%)    (17%) 
Profit (loss)                                (73)  (12,261)    12,188      n/a 
Diluted profit (loss) per share            (0.00)    (0.66)      0.66      n/a 
Adjusted profit ([1])                      19,784    32,276  (12,492)    (39%) 
Diluted adjusted profit per share 
 ([1][4])                                    1.02      1.62    (0.60)    (37%) 
[1]  See "Non-IFRS Measures". 
[2]  See "OPERATING RESULTS -- Trade Sales" in our Management 
      Discussion and Analysis for the period ended September 
      30, 2021 ('MD&A'). 
[3]  See "OPERATING RESULTS -- EBITDA and Adjusted EBITDA" 
      in our MD&A. 
[4]  See "Diluted profit (loss) per share and diluted adjusted 
      profit per share". 

Strong demand for AGI's products across most regions resulted in consolidated trade sales increasing 11% year-over-year ('YOY') for the three-months ended September 30, 2021. As anticipated, the rise in input costs impacted adjusted EBITDA resulting in a 11% decline YOY for the three-months ended September 30, 2021. Consolidated backlogs continued to remain strong and were up 99% over September 30, 2020, with broad-based strength across all segments and geographies.

"Our team continued to execute very well amid challenging supply chain conditions," noted Tim Close, President & CEO of AGI. "While supply chain dynamics led to margin compression, comprehensive supplier and market initiatives mitigated the full potential impact in the quarter. We are seeing cost increases ease and input availability improve, meaning margins will steadily improve into the fourth quarter and 2022. Our backlog has continued to grow into the fourth quarter and sits at record levels setting up for a very strong fourth quarter and 2022."

Farm segment trade sales grew 11% while adjusted EBITDA declined 8% YOY, respectively, for the three-months ended September 30, 2021, as we continue to see strong demand for both portable and permanent handling equipment. Commercial segment trade sales and adjusted EBITDA grew 10% and declined 19% YOY, respectively, for the three-months ended September 30, 2021, with strength in the U.S., Asia Pacific, and South America markets.

The decrease in adjusted EBITDA margins was fully expected given the rapid rise in input costs and constricted supply chain for all inputs throughout 2021. Active and substantial price increases, contract modifications, and shorter quoting periods served to significantly mitigate the full extent of the supply chain issues.

The demand for Farm segment equipment continues to be very robust as customers focus on securing critical products based on the increase in crop volumes and the potential for supply chain disruption. Farm backlog is up 202% over prior year as of September 30, 2021, with considerable strength across all geographies including the U.S. as well as Brazil.

The Commercial segment is also seeing strong demand as backlogs are up 76% YOY with the Commercial platform and Food platform contributing 62% and 153% increases, respectively, signaling a strong outlook for Q4 2021 and Q1 2022.

Within the Farm and Commercial segments, we had notable strength in the quarter from our Brazilian operations. Brazil continued to gain momentum with trade sales and adjusted EBITDA growing 128% and 70% YOY, respectively, for the three-months ended September 30, 2021. The Food platform is also gaining scale and was a notable contributor to the Commercial segment with trade sales increasing 46% YOY, led by the U.S. market with 118% YOY trade sales growth for the three-months ended September 30, 2021.

In our Technology segment, the third quarter was marked by continued progress on a variety of strategic priorities to facilitate sales growth and margin stability. Technology segment trade sales increased 41% and 49% YOY for the three and nine-months ended September 30, 2021.

With backlogs up 99% at the end of September and very robust quoting pipelines globally we expect a strong finish to 2021 with positive dynamics heading into 2022.

UPDATE ON REMEDIATION WORK

Progress on advancing the remediation work as it relates to the previously disclosed grain bin incident continued in the quarter with remediation work nearly complete at one of the two customer sites. At the second customer site, the site of the grain bin incident, the customer has decided to remediate themselves and with other suppliers. To-date, the Company has spent approximately $41.0 million of the $77.5 million total accrual.

Earlier in 2021, two legal claims related to the bin collapse were initiated against the Company for a cumulative amount in excess of $190 million. The investigation into the cause of and responsibility for the collapse remains ongoing. The Company is in the process of assessing these claims and has a number of legal and contractual defenses to each claim. No further provisions have been recorded for these claims. The Company will fully and vigorously defend itself. In addition, the Company continues to believe that any financial impact will be partially offset by insurance coverage. AGI is working with insurance providers and external advisors to determine the extent of this cost offset. Insurance recoveries, if any, will be recorded when received.

Additional information on the provision for remediation can also be found in "OPERATING RESULTS ---- Remediation Costs" in our MD&A.

COVID-19

The emergence of COVID-19 had an adverse impact on AGI's business, including the disruption of production, our supply chain, and product delivery. While AGI experienced temporary production suspension early in the pandemic in 2020, there has not been any significant production suspension or interruptions in 2021 as a result of COVID-19.

AGI operations were identified as essential services in many regions throughout North America, highlighting the important role the Company plays in the global food supply chain. Although AGI's business has been impacted by the COVID-19 related disruptions, management continues to believe post-crisis demand will be positively impacted as the world builds additional redundancy into the global food infrastructure to account for similar events in the future.

AGI is currently fully operational across all manufacturing locations globally, with no loss of productive capacity owing to COVID-19 during Q3 2021. However, headwinds stemming from the pandemic have impacted the availability and cost of raw materials required for production. Various disruptions in the supply chain including steel supply and logistics have caused significant delays on a number of projects which impacted the timing of revenue recognition in Q3 2021. In addition, potential restrictions and lockdowns in countries such as Brazil and India that have been severely impacted by COVID-19 may cause supply chain disruptions and temporary production suspensions. Our 2021's results remain subject to the effect of COVID-19 on our manufacturing facilities, markets, and customers.

Additional information on the impacts of COVID-19 can also be found in "OUTLOOK" and "OPERATING RESULTS - Trade Sales" in our MD&A.

BASIS OF PRESENTATION

On January 1, 2021, the Company reorganized its business segments to better reflect changes in its operations and management structure. As a result of those changes, the Company identified three reportable segments: Farm, Commercial, and Technology, each supported by the corporate office. These segments are strategic business units that offer different products and services, and each is managed separately. Certain corporate overheads are included in the segments based on revenue. Taxes and certain other expenses are managed at a consolidated level and are not allocated to the reportable operating segments. Financial information for the comparative period has been restated to reflect the new presentation. In the segment disclosure that follows, we have also included product platforms in order to provide additional information within a segment that may be useful to the reader. Specifically, our Commercial segment includes the Commercial and Food product platforms.

Description of Business Segments and Platforms

Farm Segment

AGI's Farm segment includes the sale of grain, seed, and fertilizer handling equipment, aeration products, grain and fuel storage solutions, and grain management technologies.

Commercial Segment

AGI's Commercial segment includes the sale of larger diameter grain storage bins, high-capacity grain handling equipment, seed and fertilizer storage and handling systems, feed handling and storage equipment, aeration products, automated blending systems control systems, and food processing solutions.

Food Platform