WINNIPEG, MANITOBA, CANADA — Ag Growth International Inc. (AGI) reported record third-quarter sales and adjusted EBITDDA despite the ongoing coronavirus (COVID-19) pandemic.
The company attributed the increase to continued robust performance in North American Farm markets, EMEA, Brazil and India, which offset lower results in North American commercial markets.
Commercial backlogs were weighted to the third quarter. Sales in the quarter were augmented by a relatively early harvest across North America.
“COVID-19 has had a material impact on North American Commercial markets as customers have delayed projects or are facing challenges in project progress,” AGI said.
AGI reported trade sales of C$282.5 million, an increase of 8.1% from a year ago. Adjusted EBITDA for the quarter was C$51.8 million, an increase of 32.4% from the same period in 2019.
North American commercial sales were down 20% in the quarter while international business continues to excel over the previous year, AGI said.
“Q3 2020 was a record third quarter for AGI in terms of both sales and adjusted EBITDA with broad-based and robust performance across all platforms except for NA Commercial, which has been hardest hit with COVID challenges,” said Tim Close, president and chief executive officer of AGI. “Q3 was also a record quarter for adjusted EBITDA, just beating Q2 2019, which was our prior high water mark. This strong performance in the quarter highlights the benefits of our diversification investments over the past five years, the resiliency of our business and our leadership in the global food infrastructure sector.
“We have taken a significant accrual in the quarter due to an incident that occurred at a customer’s commercial facility, as previously disclosed in September 2020. This incident, in addition to prior warranty costs, are both distinct and rare in our history, and an investigation is currently being conducted to determine the cause of the incident. The company is taking this accrual on the basis of potential required remediation to the equipment that was supplied by AGI.”
The C$40 million accrual in the third quarter 2020 is due to the collapse of a commercial grain storage bin manufactured by AGI at a customer’s commercial project. While the cause of, and the responsibility for, the incident has not been determined, the company is taking this accrual, in accordance with accounting and other disclosure obligations, on the basis of potential required remediation to the equipment that was supplied by AGI to this commercial facility and one other facility.
Looking ahead, COVID-19 has had a substantial impact on project activity, quoting, project development and project progression across North America.
“We expect a rebound in commercial activity post COVID-19 as customers move to address mandatory maintenance, facility automation, capacity expansion, and loading efficiencies,” AGI said.
In Canada over the last few years there has been a cycle of increased spend in infrastructure due to new entrants in the market, which AGI expects to normalize in the coming years. That moderation will be offset by pent up demand from incumbents investing in their infrastructure to address competitive dynamics, including operational and logistical efficiencies.
“We expect a continued trend toward increased capacity, and a relocating of facilities for better rail access to improve logistics, which will require continued investment in the commercial solutions that AGI supplies,” AGI said.
The Canadian Commercial backlog is down 44% compared to 2019 due to a tough comparable period driven by several large projects in the prior year and the impact of COVID-19.
Moving into 2021, AGI expects a rebound in activity across Canada as its customers address pent up capital projects for maintenance, expansion, automation, and productivity.
In the United States, it expects commercial projects to continue at recent levels in the near term with a steady flow of maintenance and smaller capital projects. The US commercial backlog is slightly up compared to Sept. 30, 2019, and AGI expects intake to increase the gap to 2019 in the fourth quarter.
Management said it is pleased with how resilient AGI has been through the challenges that COVID-19 has presented.
Based on existing conditions, management anticipates adjusted EBITDA for 2020 to approximate 2019 results and continued momentum going into 2021.