AG GROWTH INTERNATIONAL INC. AG GROWTH INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Dated: May 8, 2023
This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the audited consolidated comparative financial statements and accompanying notes of Ag Growth International Inc. ("AGI", the "Company", "we", "our" or "us") for the year ended December 31, 2022, the MD&A of the Company for the year ended December 31, 2022 and the unaudited interim condensed consolidated financial statements of the Company and accompanying notes for the three-month period ended March 31, 2023. Results are reported in Canadian dollars unless otherwise stated.
This MD&A is based on the Company's unaudited interim condensed consolidated financial statements for the three-month period ended March 31, 2023 ("consolidated financial statements") based on International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), unless otherwise noted.
This MD&A makes reference to certain specified financial measures, including non-IFRS financial measures, non-IFRS ratios and supplementary financial measures. These specified financial measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement our financial information reported under IFRS by providing further understanding of our results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. Please refer to the "NON-IFRS AND OTHER FINANCIAL MEASURES" section of this MD&A for more information on each specified financial measure.
This MD&A contains forward-looking information. Please refer to the cautionary language under the heading "Risks and Uncertainties", "Forward-Looking Information" and "Financial Outlook" in this MD&A and in our most recently filed Annual Information Form, all of which are available under the Company's profile on SEDAR [www.sedar.com].
SUMMARY OF RESULTS | ||||
Three-months ended March 31 | ||||
[thousands of dollars except per share amounts, | 2023 | 2022 | Change | Change |
percentages and basis points ("bps")] | $ | $ | $ | % |
Sales | 347,016 | 292,031 | 54,985 | 19% |
Adjusted EBITDA [1][2] | 48,112 | 41,323 | 6,789 | 16% |
Adjusted EBITDA Margin % [3] | 13.9% | 14.2% | (30) bps | (2%) |
Profit before income taxes | 21,626 | 20,590 | 1,036 | 5% |
Profit | 16,357 | 15,171 | 1,186 | 8% |
Diluted profit per share | 0.82 | 0.72 | 0.10 | 14% |
Adjusted profit [1][4] | 4,854 | 2,296 | 2,558 | 111% |
Diluted adjusted profit per share [3][4] | 0.25 | 0.12 | 0.13 | 108% |
- This is a non-IFRS measure and is used throughout this MD&A. See "NON-IFRS and OTHER FINANCIAL MEASURES" for more information on each non-IFRS measure.
- See "DETAILED OPERATING RESULTS - Profit (loss) before income taxes and Adjusted EBITDA".
- This is a non-IFRS ratio and is used throughout this MD&A. See "NON-IFRS and OTHER FINANCIAL MEASURES" for more information on each non-IFRS ratio.
- See "DETAILED OPERATING RESULTS - Diluted (loss) profit per share and diluted adjusted profit per share".
Consolidated Operating Segment Results Summary | ||||
Three-months ended March 31 | ||||
2023 | 2022 | Change | Change | |
[thousands of dollars] | $ | $ | $ | % |
Sales [1] | ||||
Farm | 182,382 | 150,828 | 31,554 | 21% |
Commercial | 164,634 | 141,203 | 23,431 | 17% |
Total | 347,016 | 292,031 | 54,985 | 19% |
- The sales information in this table are supplementary financial measures and are used throughout this MD&A. See "NON- IFRS and OTHER FINANCIAL MEASURES" for more information on these supplementary financial measures.
Three-months ended March 31 | ||||
2023 | 2022 | Change | Change | |
[thousands of dollars] | $ | $ | $ | % |
Adjusted EBITDA [1] [2] [3] | ||||
Farm | 38,452 | 28,749 | 9,703 | 34% |
Commercial | 21,878 | 19,844 | 2,034 | 10% |
Other [4] | (12,218) | (7,270) | (4,948) | 68% |
Total | 48,112 | 41,323 | 6,789 | 16% |
- See "BASIS OF PRESENTATION"
- This is a non-IFRS measure and is used throughout this MD&A. See "NON-IFRS and OTHER FINANCIAL MEASURES" for more information on each non-IFRS measure.
- See "DETAILED OPERATING RESULTS - Profit (loss) before income taxes and Adjusted EBITDA" and "DETAILED OPERATING RESULTS - Profit (loss) before income taxes and Adjusted EBITDA by Segment".
- Included in Other is the corporate office, which is not a reportable segment, and which provides finance, treasury, legal, human resources and other administrative support to the segments.
Three-months ended March 31 | ||||
2023 | 2022 | Change | Change | |
% | % | basis points | % | |
Adjusted EBITDA Margin % [1] [2] | ||||
Farm | 21.1% | 19.1% | 200 | 10% |
Commercial | 13.3% | 14.1% | (80) | (6%) |
Other [3] | (3.5%) | (2.5%) | (100) | 40% |
Consolidated | 13.9% | 14.2% | (30) | (2%) |
- See "BASIS OF PRESENTATION"
- This is a non-IFRS ratio and is used throughout this MD&A. See "NON-IFRS and OTHER FINANCIAL MEASURES" for more information on each non-IFRS ratio.
- Included in Other is the corporate office, which is not a reportable segment, and which provides finance, treasury, legal, human resources and other administrative support to the segments. The Adjusted EBITDA Margin % for Other is calculated based on total sales since it does not generate sales without the segments.
Sales and Adjusted EBITDA1 increased 19% and 16% year-over-year ("YOY"), respectively, again setting new all-time records for both the level of sales and Adjusted EBITDA for the first quarter ("Q1"). Adjusted EBITDA margin % remained relatively consistent with prior year. Q1's Adjusted EBITDA
1 This is a non-IFRS measure and is used throughout this MD&A. See "NON-IFRS and OTHER FINANCIAL MEASURES" for more information on each non-IFRS measure.
2
increased by $6.8 million, driven by higher sales across all segments, including significant contributions from Canada Farm, U.S. Farm, and India. Gross margin remains consistent YOY with operational efficiencies, sales growth in the Farm segment with a sales mix that favored portable grain handling equipment, and increased volume in Canada Farm storage equipment all contributing. Increased volume in the Commercial segment, and the positive impact of lower steel prices compared to the previous year, also contributed to consistent gross margin result. The increase in the Other segment costs was related to several one-time expenses which we expect to normalize out over coming quarters. The strong sales and Adjusted EBITDA performance over last year's historic Q1 highlights the robust pace of organic growth as well as the initial impact of the several of our operational excellence initiatives aimed at growing the business.
The Farm segment delivered strong results in Q1 with sales and Adjusted EBITDA growing by 21% and 34% YOY, respectively, and continuing the strong momentum of a record performance in 2022. In Canada, the U.S., and Asia Pacific, sales increased for both portable grain handling and permanent equipment as the strengthening of demand from last year continued into 2023. Adjusted EBITDA margin increased to 21% from 19% YOY, primarily reflecting a mix tilted towards portable equipment, higher margins in permanent equipment due to lower steel prices, and overall higher volumes in North America.
For the Commercial segment, Q1 sales and Adjusted EBITDA increased 17% and 10% YOY, respectively. Sales growth was driven by significant activity in our Asia Pacific and South America markets. Adjusted EBITDA margin was impacted by the anticipated slow down in our Food platform as well as a larger than usual mix of buy-resellthird-party components on a number of large commercial projects that typically have lower margins. We anticipate these trends to return to normalized levels towards the end of 2023 based on our ongoing efforts to strengthen the order book.
Internationally, Brazil and India continue to see a strong growth trajectory with sales increasing 9% and 19% YOY, respectively, supported by both domestic and export sales. Brazil continued to see strong demand in the Commercial segment and Q1 results reflected the higher mix of Commercial vs Farm sales. While Commercial volume tends to be lower margin on a percentage basis, given the higher mix of buy-resellthird-party components, the gross margin dollar contributions tend to be higher. Larger and high-profile Commercial projects also help boost AGI's brand awareness and demonstrate our capabilities across the region. In India and the Southeast Asia region, the demand for rice milling equipment remains robust, providing meaningful and consistent contributions to our international growth and overall corporate performance. Our success in growing our international businesses highlights the benefits of our regional diversification strategy and the sustained demand for AGI equipment in critical growing regions.
Looking out across 2023, our quoting pipelines are highly active and we continue to see strong interest from customers within all segments and regions who continue investment in critical infrastructure equipment and solutions. Supported by an order book2 up 7% YOY, we are raising our full year 2023 Adjusted EBITDA guidance to be at least $265 million3, up from our previous guidance of at least $260 million.
- This is a supplementary financial measure and is used throughout this MD&A. See "NON-IFRS and OTHER FINANCIAL MEASURES" for more information on this supplementary financial measure.
- Adjusted EBITDA for the year ended December 31, 2022 was $234.7 Million. See "Reconciliation of Adjusted EBITDA to profit (loss) before income taxes for the years ended December 31, 2022 and 2021", "BASIS OF PRESENTATION", "RISKS AND UNCERTAINTIES", "FORWARD-LOOKING INFORMATION", "FINANCIAL OUTLOOK" and "NON-IFRS and OTHER FINANCIAL MEASURES.
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BASIS OF PRESENTATION
On December 29, 2022, the Company announced that it would be reorganizing its digital business to better reflect changes in its operations and management structure. As a result of this change, the Company has identified its reportable segments as Farm and Commercial, each of which are supported by the corporate office. The previously identified Digital segment is now included within the Farm segment, and the Food platform which was a sub-segment of the Commercial segment is now amalgamated into the Commercial segment. These segments are strategic business units that offer specific products and services to their respective markets. Certain corporate overheads are allocated to each segment based on revenue as well as applicable cost drivers. 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.
Description of Business Segments
Farm Segment
AGI's Farm segment focuses on the needs of on-farm customers, and its product offerings includes: grain, seed, and fertilizer handling equipment; aeration products; grain and fuel storage solutions; and grain management technologies (see "BASIS OF PRESENTATION").
Commercial Segment
AGI's Commercial segment focuses on commercial entities such as port facility operators, food processors and elevators. Its product offerings include: larger diameter grain storage bins and high- capacity grain handling equipment; high-capacity seed and fertilizer storage and handling systems; food and feed handling storage and processing equipment; aeration products; automated blending systems and control systems; and project management services and food engineering solutions (see
"BASIS OF PRESENTATION").
OPERATING RESULTS and OUTLOOK 4 | ||||
Sales by Geography 5 | ||||
Three-months ended March 31 | ||||
2023 | 2022 | Change | Change | |
[thousands of dollars] | $ | $ | $ | % |
Canada | 87,143 | 56,713 | 30,430 | 54% |
U.S. | 150,345 | 139,055 | 11,290 | 8% |
International | ||||
EMEA | 30,439 | 28,817 | 1,622 | 6% |
Asia Pacific | 38,914 | 31,934 | 6,980 | 22% |
South America | 40,175 | 35,512 | 4,663 | 13% |
Total International | 109,528 | 96,263 | 13,265 | 14% |
Total Sales | 347,016 | 292,031 | 54,985 | 19% |
- See "BASIS OF PRESENTATION", "RISKS AND UNCERTAINTIES", "FORWARD-LOOKING INFORMATION" and "FINANCIAL OUTLOOK".
- The sales information in this section are supplementary financial measures and are used throughout this MD&A. See "NON- IFRS and OTHER FINANCIAL MEASURES" for more information on these supplementary financial measures.
4
Sales by Segment and Geography 5 | ||||
Farm Segment | ||||
Three-months ended March 31 | ||||
2023 | 2022 | Change | Change | |
[thousands of dollars] | $ | $ | $ | % |
Canada | 67,742 | 35,982 | 31,760 | 88% |
U.S. | 94,994 | 85,031 | 9,963 | 12% |
International | ||||
EMEA | 2,172 | 3,631 | (1,459) | (40%) |
Asia Pacific | 10,081 | 6,533 | 3,548 | 54% |
South America | 7,393 | 19,651 | (12,258) | (62%) |
Total International | 19,646 | 29,815 | (10,169) | (34%) |
Total Sales | 182,382 | 150,828 | 31,554 | 21% |
Commercial Segment | ||||
Three-months ended March 31 | ||||
2023 | 2022 | Change | Change | |
[thousands of dollars] | $ | $ | $ | % |
Canada | 19,401 | 20,731 | (1,330) | (6%) |
U.S. | 55,351 | 54,024 | 1,327 | 2% |
International | ||||
EMEA | 28,267 | 25,186 | 3,081 | 12% |
Asia Pacific | 28,833 | 25,401 | 3,432 | 14% |
South America | 32,782 | 15,861 | 16,921 | 107% |
Total International | 89,882 | 66,448 | 23,434 | 35% |
Total Sales | 164,634 | 141,203 | 23,431 | 17% |
The following table presents YOY changes in the Company's order book[1]:
Region | |||||
United | |||||
Canada | States | International | Overall | ||
Segments | % | % | % | % | |
Farm | 66% | 11% | (11%) | 25% | |
Commercial | (50%) | 5% | (3%) | (7%) | |
Overall | 22% | 9% | (4%) | 7% |
- This is a supplementary financial measure and is used throughout this MD&A. See "NON-IFRS and OTHER FINANCIAL MEASURES" for more information on this supplementary financial measure.
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Ag Growth International Inc. published this content on 08 May 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 May 2023 22:49:01 UTC.
