WINNIPEG, MANITOBA, CANADA — Ag Growth International Inc. (AGI) reported a 3% increase in adjusted EBITDA for 2020, and a 20% increase in the fourth quarter, despite overall flat sales year over year.
"We are pleased with the relatively strong performance of AGI in Q4 and 2020 given the difficult environment and the impact on our markets from COVID-19," said Tim Close, president and chief executive officer of AGI. "Momentum was robust across AGI as we came into 2021 and has accelerated since the beginning of the year with, as of today's date, consolidated backlogs now up approximately 40% over this time last year. A variety of factors are contributing to this growth with the majority of the of the momentum coming from market share growth and solid performance in many of our key regions including Brazil, India, EMEA, the US and our NA Farm segment. A rebound in commercial activity, high planting expectations globally, strong crop prices and steel dynamics are also contributing to the strong environment."
The company reported adjusted EBITDA of C$149.3 million for the year, and C$27.8 million for the fourth quarter ended Dec. 31, 2020. Sales for the year were relatively flat at C$1 billion.
North American Commercial markets were the most impacted by COVID-19 as large capital projects saw routine delays due to planning challenges, general market uncertainty and a tendency for our customers to be focused on status quo operations. All together these factors resulted in an overall decrease in sales within the North American Commercial segment of 27% versus 2019.
International regions were strong despite COVID-19 challenges. EMEA and South America manufacturing facilities continue to show operational performance improvements resulting in enhanced margins despite COVID-19 related production interruptions. South America continues to have substantial sales growth of 18% versus 2019 coming from growing market share. Asia Pacific saw strong sales, growing 36% over 2019 or an increase of 6% excluding the March 2019 Milltec acquisition. EMEA Commercial markets were also impacted due to COVID-19 and project delays resulted in an overall decrease of 10%.
AGI said it continues to make progress on the remediation of the commercial grain storage bins that were involved in a collapse in September 2020.
The company has recorded a total estimated cost of C$70 million for the two affected customer sites and that estimate has not changed.
It is moving forward with the remediation work for one of the customers and expect to be completed by the fall. One of the customers has decided to resolve the issue themselves with other suppliers.
AGI expects that insurance proceeds will partially offset the costs. As indicated, insurance proceeds will not be available until after completion of remediation work.
Looking ahead, macro conditions are positive globally with crop volumes, crop prices, and trade flow all trending positively. There has been a notable change in trade volumes as China rebuilds their swine herd and global crop inventories trended downward in many regions throughout 2020. While AGI demand drivers are more closely linked to crop volumes, trade practices, and consumption levels, the increasing crop prices do provide a favorable tailwind for its markets.
Management expects that expanded planting intentions in North America combined with a post COVID-19 rebound in project activity will drive demand for grain and fertilizer systems. While COVID-19 had a substantial impact on project activity, quoting, project development and project progression across North America, the impact on projects in western Canada was more severe than in the US as growth projects were placed on hold in favor of essential maintenance.
The Canadian Commercial backlog was down 55%; however, management believes that the impact of COVID-19 on Canadian commercial projects is temporary and investment in commercial infrastructure in Canada will begin to increase in the back half of 2021. Eastern Canada is already seeing increased project activity leading to an expectation for an earlier rebound as compared to Western Canada. Overall, quoting activity has seen increased activity month over month indicating a positive trend in this impacted region.
Commercial trend lines are also positive in the United States and management expects sales to continue to improve with a steady flow of maintenance and smaller capital projects in the near term. The trade tensions that have contributed to delays in capital investments in the US Commercial space over the last two years appear to be improving as crop export volumes normalize. US Commercial backlogs have increased 30% compared to the prior year leading to further expectation of growing investment across the US grain infrastructure.
Overall, management expects a rebound in the International Commercial space in 2021 with the ease of trade tensions and positive macroeconomic fundamentals.