Ag Growth International Inc. (TSX: AFN) today reported its financial results for the three and nine months ended September 30, 2011, and declared dividends for December 2011, January 2012 and February 2012.
Overview of Results
Ag Growth achieved record sales in the nine months ended September 30, 2011, due largely to revenues from divisions acquired in 2010 and strength in commercial grain handling. Sales for the quarter ended September 30, 2011 decreased from 2010 due to weather related weakness in western Canada, less than optimal growing conditions in the United States and the impact of a stronger Canadian dollar. EBITDA for the three and nine months ended September 30, 2011 was $12.7 million and $46.4 million, respectively (2010 - $25.6 million and $57.8 million) and adjusted EBITDA was $14.8 million and $44.8 million, respectively, (2010 - $22.9 million and $53.0 million) for the periods then ended.
Diluted profit per share for the three and nine months ended September 30, 2011 was $0.36 per share and $1.69 per share, respectively (2010 - $1.12 and $2.35).
“Our commercial divisions continue to deliver solid results”, said Gary Anderson, president and chief executive officer, “however, we also faced a number of challenges in the third quarter. Sales of portable grain handling, aeration and temporary storage equipment were negatively impacted by a fast and dry harvest in western Canada and an unusual growing season and reduced crop yields in the United States. In addition, our financial results were significantly impacted by start-up challenges at our Twister greenfield plant, while regional market issues, primarily the result of a 2010 drought in northern Europe, negatively impacted our Finland-based Mepu division.”
“While these factors negatively impacted 2011 results, we remain positive about growth for 2012 and beyond. We are confident the start-up challenges at our greenfield storage bin facility will have been largely addressed by the end of 2011, and as a result expect a significant contribution from this product line in 2012. Mepu’s regional market appears to have stabilized and requests for preseason quotations have increased significantly over the prior year. Finally, we remain enthusiastic about our international prospects, as positive agricultural fundamentals are expected to continue to drive international sales, as evidenced by recent successes in Ukraine and Latin America.”
The fourth quarter of the fiscal year is typically a period of relatively low demand for portable grain handling equipment as dealers begin building their inventories subsequent to the completion of harvest. Based on current information, dealer inventory levels and preseason order activity appears to be consistent with historical patterns. Commercial sales in the fourth quarter are expected to exceed the previous year due to strong domestic demand and international sales to Russia, Ukraine and Latin America. Actual results in the fourth quarter may be impacted by revenue recognition including the timing of overseas shipments.
Looking ahead to 2012, demand for portable grain handling equipment in the first and second quarters primarily relates to dealers building inventory in advance of the harvest season. Current dealer inventory levels in both western Canada and the U.S. appear to be at average historical levels.
As 2012 progresses our dealer networks will consider planting intentions and crop conditions when determining the appropriate levels of inventory to carry into harvest. In the U.S., based on early indicators including commodity prices and farmer net income, management anticipates farmers will again plant a large number of acres with an emphasis on corn acres that is supportive of demand for portable grain handling equipment.
In western Canada, farmer sentiment is positive for the future period. Based on current conditions and assuming a return to more typical weather patterns in 2012, management anticipates a return to historical sales levels.
The rate of exchange between the Canadian and US dollars may impact results in the fourth quarter of 2011 and in 2012 compared to prior years. Consistent with prior years, demand in 2012, particularly in the second half, will be influenced by crop and harvest conditions. Changes in global macro-economic factors also may influence demand, primarily for commercial grain handling and storage products.
Results in 2011 were negatively impacted by poor results from our Mepu division that resulted from the carryover impact of the 2010 drought in northern Europe and a spike in steel costs. Mepu has historically been very seasonal, with negative EBITDA in the first and fourth quarters of the fiscal year, and this trend is expected to continue in Q4 2011 and Q1 2012. Management expects results at Mepu in fiscal 2012 to improve over 2011 due to improved market conditions, largely the result of a favorable 2011 harvest, and improved steel cost alignment.
Our commercial divisions delivered strong growth in North America and internationally in 2011 and management expects another strong year in 2012. Order backlogs at commercial divisions remain high as positive agricultural macro-economic factors continue to drive demand. The geographic scope of activity continues to expand beyond the original areas of focus of Russia, Eastern Europe and Latin America to include increased activity in Southeast Asia, the Middle East and Africa.
Ag Growth has continued to invest in its international development with additions to its sales team and recently opened sales offices in Latin America and the Baltic region. Results in 2011 were significantly impacted by start-up issues related to the ambitious ramp up of our greenfield storage bin facility in Alberta. These matters are currently being resolved, however less than optimal operating efficiencies continued into the fourth quarter of 2011. Entering 2012, management anticipates the start-up challenges will largely be resolved however targeted gross margins may not be immediately achieved.
Interest in our storage bin product line remains strong both domestically and overseas and management retains a very positive outlook for contributions from this plant in 2012 and beyond. The new bins have been well received, based on feedback from domestic and international customers.
Ag Growth today announced the declaration of cash dividends of $0.20 per common share for the months of December 2011, January 2012 and February 2012. The dividends are eligible dividends for Canadian income tax purposes. Ag Growth's current annualized cash dividend rate is $2.40 per share.