Business Wire

WINNIPEG, Manitoba--(BUSINESS WIRE)--Ag Growth International Inc. (TSX: AFN) (“AGI”, the “Company”, “we” or “our”) today announced its financial results for the three- and six-month periods ended June 30, 2022¹.

Consolidated Segment Results Summary

AGI continued its strong performance in the second quarter with record sales and Adjusted EBITDA, which increased 29% and 43% year-over-year (‘YOY’) for the three-months ended June 30, 2022 (“Q2”), respectively. Our record results were supported by strength across nearly all our segments and geographies as we expanded margins despite supply chain issues, regional disruption in Europe, Middle East and Africa (“EMEA”), and continued cost inflation pressure.

Farm segment sales² and Adjusted EBITDA³ increased 28% and 23% YOY, respectively, in Q2 with strong results from Canada, U.S., Asia Pacific, and South America. Commercial segment sales and Adjusted EBITDA increased 31% and 102% YOY, respectively, in Q2 with a significant growth in Canadian sales and continued growth in the U.S. and Asia Pacific markets. The momentum in Brazil continued with sales and Adjusted EBITDA growing 80% and 105% YOY, respectively, in Q2 and India also experienced significant growth in sales and Adjusted EBITDA, growing 38% and 56% YOY, respectively, in Q2.

With strong order intake, our Digital segment sales increased 31% YOY in Q2, despite continued industry-wide component shortages of critical chips required for production which impacted our ability to meet customer demand. Order intake was very strong and outpaced our ability to manufacture due to the component shortages. Adjusted EBITDA also improved YOY from a loss of $1.9 million to a loss of $1.1 million in Q2.

On a consolidated basis, our loss before income taxes for the three-months ended June 30, 2022 was $2.3 million as compared to a profit of $16.1 million in 2021. This result was due to the loss on financial instruments related to the equity swap, the increase of finance costs as a result the increase in borrowings; the increase in borrowing costs; fees associated with the retirement of our series B and series C secured notes; and the amortization of deferred financing fees from the early redemption of the 2018 Debentures (as defined below) [see “Debt Facilities” and “Debentures” in our Management’s Discussion and Analysis in our MD&A], the increase in finance expense as a result of the impact of foreign exchange on the valuation of our long-term debt, and the revaluation gains in 2021 offset by the increase in sales and gross profit percentage in 2022 [See “DETAILED OPERATING RESULTS” in our MD&A].

“Our strong results and momentum continued in the second quarter with another record result,” noted Tim Close, President & CEO of AGI. “Broad-based strength across our segments and geographies continues to achieve significant growth along with expanding margins. Solid demand across regions and platforms combined with our global strategy to have full systems capabilities in each region continue to deliver strong visibility for continued growth. Our record results year to date combined with this increased visibility going into the second half of the year provides confidence in raising our full-year guidance for Adjusted EBITDA to at least $215 million⁴.”

BASIS OF PRESENTATION

For the year ended December 31, 2021, the effect of foreign currency translations arising from the settlement of accounts receivables and payables recorded in a currency other than the Company’s functional currency have been presented within finance income (expenses); historically, the foreign exchange impact was presented in sales and a reconciliation was made to trade sales as presented in prior press releases and MD&As. This change in presentation effectively eliminates the need for trade sales and therefore sales is presented in this press release with the reclassification of comparative information.

The Company’s change in presentation in its consolidated financial statements was made in accordance with IAS 1 and IFRS 8. Under IFRS 8, a change in accounting policy is permitted if the change results in the financial statements providing more reliable and relevant information about the effects of transactions on the entity’s financial position. In addition, IAS 1 requires an entity to reclassify its comparative information when making such changes in presentation and therefore comparative figures have been restated accordingly.

Description of Business Segments and Platforms

AGI’s demand drivers are closely linked to crop production volumes, global grain movement, and global food and feed consumption levels. A relative lack of investment in food infrastructure in developing regions along with required ongoing maintenance capital requirements in developed regions provide positive demand dynamics for AGI. These core demand drivers are further augmented by increasing population, changing dietary trends, and increased focus on food security infrastructure.

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

The AGI Food platform falls within AGI’s Commercial segment. The Food platform’s end customers are involved in producing processed food and beverages of all types. AGI Food provides full process design engineering, overall project engineering, project management services, and equipment supply. Our process design services result in close partnerships with our customers as we become involved early in the project formation stage. Our project management services include leading the customer project from conception to commissioning and working with our customers to manage all dynamics of the project throughout design and execution. We also manufacture and supply the infrastructure equipment components of these projects. Consistent with our Farm and Commercial segments, our equipment products in the Food platform address the storage, blending, and movement of ingredients involved in each process.

Digital Segment (previously Technology Segment)

AGI’s Digital segment (previously Technology Segment) is built on a foundation of our Internet of Things (‘IoT’) products and technologies. We design, manufacture, and supply IoT hardware that monitors, operates, and automates our equipment and the collection of key operational data for our customers. This operational data is fed into intuitive and rich user interfaces, AGI SureTrack and Plant Manager, to enable our customers to operate and monitor their equipment, record operational activity, manage and market their inventories, and holistically operate their businesses. The IoT product portfolio is a mix of stand-alone hardware including weather stations, soil probes, grain temperature and moisture sensors, and field equipment data (Farmobile PUC) and is further augmented through the digitalization of AGI products. The acquisition of a controlling interest in Farmobile Inc. (“Farmobile”) in 2021 further moves AGI into the middle of the data verification space required by the rapidly developing carbon and traceability markets. This strengthens our unique ability to capture machine and agronomic data across the entire farming process – from seeding through to harvest and into the broader grain supply chain. As a result, we have renamed our Technology Segment as the Digital Segment to recognize the digital evolution of this group. In addition, our digital and technology products offer monitoring, operation, measurement and blending controls, automation, hazard monitoring, embedded electronics, farm management, grain marketing and tools for agronomy, and Enterprise Resource Planning [“ERP”] for AGI dealers and agriculture retailers. These products are available both as standalone offerings, as well as in combination with larger farm or commercial systems from AGI.

OPERATING RESULTS and OUTLOOK ⁵

Farm Segment

Farm segment sales and Adjusted EBITDA increased 28% and 23% YOY, respectively, in Q2 with strong results from Canada, U.S., Asia Pacific, and South America. The demand for portable farm equipment continues to be very robust as this equipment is critical to ensuring smooth farm operations. High crop demand and prices have resulted in robust crop sales resulting in lower overall storage levels on the farm ahead of the upcoming North American harvest which has consequently led to lower grain bin demand. However, this impact is expected to be temporary as the combination of high crop prices and strong crop volumes drive renewed pressure to install and expand farm storage, supporting both maintenance spend to ensure ongoing functionality and incremental investment in storage and handling equipment to accommodate an expanding overall crop size.

The segment backlogs⁶ remains strong, and looking ahead, we anticipate the strong results in our Farm Segment from the first half (“H1”) of 2022 will continue into the second half (“H2”) of 2022.

Canada

Sales increased 11% while backlogs decreased 6% YOY in Q2 as many parts of Western Canada continue to recover from the extreme drought conditions in 2021 that impacted the demand for storage and handling equipment. We anticipated this impact to the Canadian Farm segment in H1 2022 but noted signs of a rebound towards the end of Q2 2022. Management expects that the Canadian Farm segment will continue to rebound in H2 2022 as dealers begin to move their inventory in the upcoming months.

United States

Sales increased 25% YOY in Q2 as brisk demand for portable equipment continued across many growing regions. Demand for portable equipment remains strong with many dealers continuing to report low inventory levels. Our strategy to expand our U.S. dealer base has helped build demand for AGI products within a key sales channel for the segment. Together, these factors have resulted in a 42% increase in U.S. Farm backlog as compared to June 30, 2021. We continue to expect strong results from the U.S. Farm segment in H2 2022.

International

Farm segment sales increased 127% YOY in Q2, with significant growth in permanent handling equipment in South America and Asia Pacific, supported by favorable macroeconomic conditions. Specifically, Brazil’s sales increased 238% YOY in Q2 as strong demand for permanent handling equipment and systems continues in step with expanding crop volume. The results in EMEA have been impacted by the sudden halt to projects affected by the Russia-Ukraine conflict (See “RISKS AND UNCERTAINTIES – Russia-Ukraine Conflict” in our MD&A). However, we have been able to redirect our efforts in other regions thus limiting the disruption on AGI operations and results. Our ability to temporarily pivot away from this region without significantly impacting our overall results highlights the benefit of our diversified growth strategy. With robust quoting pipelines, we anticipate strong results from the various international regions in H2 2022.

Commercial Segment

Commercial segment sales and Adjusted EBITDA increased 31% and 102% YOY in Q2, respectively, with a significant rebound in Canadian sales and continued growth in the U.S. and South American markets. Key contributors to the growth included the Food platform which continues to grow in response to strong customer demand with sales increasing 103% YOY, and 57% net of acquisitions [see “2022 ACQUISITION – Eastern Fabricators” in our MD&A], for the three-months ended June 30, 2022. The increase in Adjusted EBITDA is primarily due to price management, cost control, and scaling on an increased revenue base which helped capture incremental gross margin. In addition, the Canadian Commercial platform continued to rebound with sales and backlog up 101% and 12% YOY, respectively, in Q2.

Looking ahead, we anticipate growth to continue in the Commercial segment in H2 2022. Adjusted EBITDA continues to be an area of focus of the Commercial platform, and similar to the Farm segment, securing components on a timely and cost-effective basis amid the supply chain disruptions has been challenging. Many of AGI’s Commercial platform contracts include provisions to pass along some or all of the key raw material cost increases and open sales quotes are continuously reviewed and updated for changes in market conditions.

Overall, the Commercial segment is seeing strong demand with backlogs up 22% YOY and the Commercial platform and Food platform backlogs increasing 26% and 6% YOY, respectively, which signal a strong performance in the H2 2022.

Canada

Commercial segment sales increased 112% YOY for the three-months ended June 30, 2022. Specifically:

• The grain terminal and grain processing markets resumed capital spending following a temporary decrease in spending after significant build out from 2015 through 2020. Consequently, the Canadian Commercial platform’s backlog is up 12% YOY in Q2.
• Commercial platform sales in Canada increased 101% YOY as increased quoting activities in Q4 2021 and Q1 2022 for grain terminal projects drove a recovery of this sector in H1 2022. We expect the Canadian commercial platform will continue to grow for the remainder of 2022.
• Food platform sales increased 146% YOY, with continued strong demand in Q2 2022 supported by the acquisition of Eastern. The acquisition of Eastern Fabricators (“Eastern”) also provided additional production capacity and resources which helped support the Food platform’s sales growth in Q2 2022.

Management anticipates the momentum will continue in H2 2022 for the Canadian Commercial platform. We also anticipate strong H2 2022 results from the Canadian Food platform driven by the significant demands and robust quoting pipelines in this region.

United States

Commercial segment sales increased 39% YOY for the three-months ended June 30, 2022. Specifically:

• Commercial platform sales in the U.S. increased 23% YOY, with sales growth driven by the demand in commercial infrastructure and supported by a positive export outlook.
• Food platform sales in the U.S. increased 107% YOY, as a result of continued demand in the petfood market and our efforts to develop strategic relationships with key partners.

With robust quoting pipelines and a sizable backlog as at June 30, 2022, we anticipate strong H2 2022 results from the U.S. Commercial platform. Similarly, the U.S. Food platform is also expected to perform well in H2 2022 based on robust quoting pipelines in this region.

International

Commercial segment sales increased 11% YOY for the three-months ended June 30, 2022. Specifically:

• Commercial platform sales increased 6% YOY with solid growth in the Asia Pacific and South America regions - 14% and 5%, respectively - as favourable macroeconomic conditions continue to stimulate commercial infrastructure investment. The EMEA region remained flat as anticipated as the region has been impacted by the Russia-Ukraine conflict. Nonetheless, the impact was substantially mitigated by our ability to pivot efforts in the region to other geographies and lost volumes have largely been replaced by other projects within the EMEA region. Additional information on the potential impact of the conflict between Russia and Ukraine can be found in “RISKS AND UNCERTAINTIES – Russia-Ukraine Conflict” in our MD&A.
• Results from Brazil and India continue to gain momentum as sales increased 9% and 33% YOY, respectively, in Q2.
  • Brazil continued to see very strong demand for AGI products and systems in the Commercial segment, supported by a favorable macroeconomic environment and a significant backlog in Q2.
  • Sales continued to grow in India as demand for rice milling equipment has continued to increase throughout H1 2022 resulting in a 29% increased backlog YOY in Q2.
  • We anticipate both Brazil and India will be strong contributors to our H2 2022 performance.
• Food platform sales increased 74% YOY in Q2, driven by growth across all regions. Both Asia Pacific and South America are relatively new markets for the Food platform and we expect their performance to fluctuate from period to period. However, we anticipate ongoing sales growth in these regions in the near-term supported by ongoing sales and quoting activities.

Overall, we continue to expect significant growth opportunities within the various international regions for our Commercial and Food platforms in the near-term, particularly Brazil and India, supported by favorable macroeconomic conditions. The Russia-Ukraine conflict may temporarily impact our performance in the EMEA region, but our ability to quickly refocus our sales efforts to other regions has significantly reduced the potential impact. The ongoing quoting activities and backlogs support our positive outlook in H2 2022.

Digital Segment

Digital segment sales increased 31% YOY for the three-months ended June 30, 2022. Sales continue to grow as a result of the initiatives taken in 2021 which included adding dealer channels for Digital products, expanding direct sales channels, automating areas of production, and increasing capacity. We continue to realize the benefits of these initiatives as our Digital segment saw record order intake in H1 2022. The increase in sales volume led to Adjusted EBITDA improving 39% YOY in Q2 from a loss of $1.9 million to a loss of $1.1 million.

Overall, we are seeing increased demand for our Digital offerings as more end customers begin to realize the value and efficiencies of digitizing aspects of their operations. We have made significant progress in expanding product development, sales channels, as well as production capacity and expect the momentum to continue in H2 2022. However, the ongoing chip availability issues remain a risk to our ability to produce some pieces of IoT hardware which may impact the timing of our revenue recognition for the foreseeable future.

Summary

Successful execution of our 5-6-7 strategy led to the diversification of our products, geographies, and customers which provided stability and resilience during the trade wars of 2019, the COVID crisis in 2020, the extreme supply chain environment in 2021, and the inflationary pressure and Russia-Ukraine conflict in 2022. This strategy was critical to setup AGI for record results in 2021, despite the challenges of operating a global business amid difficult conditions, and positions the Company for another record year in 2022.

With backlogs up 19% YOY in Q2 over a strong comparable period, and robust quoting pipelines globally, the Company has increased its expected full year 2022 Adjusted EBITDA guidance to at least $215 million with growth over 2021 to be the most pronounced in the third quarter.

See also, "Risks and Uncertainties" and "Forward-Looking Information" in our MD&A and “Forward-Looking Information” in this press release.

The following table presents YOY changes in the Company’s backlogs^[1] as at June 30, 2022: