Winnipeg, MB, October 16, 2019 – Ag Growth International Inc. (“AGI”) (TSX: AFN) announced today that its third quarter financial results will include a pre-tax charge of $7 million related to the estimated cost of rework for equipment supplied to two distinct projects. The charge relates to additional time, material and services required to ensure the projects meet AGI’s high standard for quality.
The third quarter charge is based on a preliminary estimate of the total cost of the rework. Before taking into account this unusual charge, management anticipates second half adjusted EBITDA will approximate 2018 levels, consistent with guidance provided in its Q2 MD&A.
“Accountability is a core principle at AGI,” said Tim Close, President and CEO of AGI. “We are incurring this charge to stand behind our partnership with our customers. We complete hundreds of projects globally each year and complete each one with a focus on our customers. The cause of this rework has been identified, quarantined, and mitigated. Additional policies, procedures and appropriate changes have been made to ensure this is a one-time event. Our global product and projects teams are better than ever, and we will continue to build the expertise that earns the confidence of our customers.”
AGI Company Profile
AGI is a leading provider of equipment solutions for agriculture bulk commodities including seed, fertilizer, grain, feed and food processing systems. AGI has manufacturing facilities in Canada, the United States, the United Kingdom, Brazil, France, Italy and India, and distributes its product globally.
Preliminary Financial Information
The estimated pre-tax charge to be taken in AGI's financial results for the three and nine months ended September 30, 2019 and our guidance for the remainder of the year are based on, among other things, the anticipated costs of the rework of the related equipment, including the additional time, material and services required to ensure the applicable projects meet AGI’s high standard for quality, and AGI's financial results for the three and nine month periods ended September 30, 2019. The actual rework costs and AGI's financial results for the three and nine months ended September 30, 2019, have not yet been finalized or approved and as such, such estimates and guidance are subject to the same limitations and risks as discussed under Forward-Looking Information set out below. Accordingly, the amount of the pre-tax charge and AGI's guidance for the remainder of the year may change upon the completion of the financial statements for the three and nine months ended September 30, 2019 and the changes could be material.
This press release contains forward-looking statements and information (collectively, "forward-looking information") within the meaning of applicable securities laws that reflect our expectations regarding the future growth, results of operations, performance, business prospects, and opportunities of AGI. All information and statements contained herein that are not clearly historical in nature constitute forward-looking information, and the words “anticipate”, “believe”, “continue”, “could”, “estimate”, expects”, “intend”, “plans”, "postulates", "predict", “should”, “will” or similar expressions suggesting future conditions or events or the negative of these terms are generally intended to identify forward-looking information. Forward-looking information involves known or unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which it is based will occur. In particular, the forward-looking information in this press release includes information relating to our business and strategy, including our outlook for our financial and operating performance as set forth in our Q2 MD&A including our expectations for our future financial results including sales, EBITDA and adjusted EBITDA, industry demand and market conditions, and with respect to our ability to achieve the expected benefits of recent acquisitions and the contribution therefrom including from purchasing and personnel synergies and margin improvement initiatives. The forward-looking information in this press release also includes a preliminary estimate of the pre-tax charge related to the estimated cost of rework for equipment supplied to certain projects. Such forward-looking information reflects our current beliefs and is based on information currently available to us, including certain key expectations and assumptions concerning: anticipated grain production in our market areas; financial performance; the financial and operating attributes of recently acquired businesses and the anticipated future performance thereof and contributions therefrom; business prospects; strategies; product and input pricing; regulatory developments; tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; political events; currency exchange and interest rates; the cost of materials; labour and services; the value of businesses and assets and liabilities assumed pursuant to recent acquisitions; the impact of competition; the general stability of the economic and regulatory environment in which AGI operates; the timely receipt of any required regulatory and third party approvals; the ability of AGI to obtain and retain qualified staff and services in a timely and cost efficient manner; the timing and payment of dividends; the ability of AGI to obtain financing on acceptable terms; the regulatory framework in the jurisdictions in which AGI operates; the ability of AGI to successfully market its products and services; and the estimated costs associated with the equipment supplied including the total cost of the rework and any additional associated costs. Forward-looking information involves significant risks and uncertainties. A number of factors could cause actual results to differ materially from results discussed in the forward-looking information, including changes in international, national and local macroeconomic and business conditions, as well as sociopolitical conditions in certain local or regional markets, weather patterns, crop planting, crop yields, crop conditions, the timing of harvest and conditions during harvest, the ability of management to execute AGI’s business plan, seasonality, industry cyclicality, volatility of production costs, agricultural commodity prices, the cost and availability of capital, currency exchange and interest rates, the availability of credit for customers, competition, AGI’s failure to achieve the expected benefits of recent acquisitions including to realize anticipated synergies and margin improvements; changes in trade relations between the countries in which AGI does business including between Canada and the United States; changes in our estimate of the costs associated with the rework of equipment supplied including the potential for additional associated or incidental costs and liabilities. These risks and uncertainties are described under “Risks and Uncertainties” in our MD&A, our annual MD&A and in our most recently filed Annual Information Form, all of which are available under AGI's profile on SEDAR [www.sedar.com]. These factors should be considered carefully, and readers should not place undue reliance on AGI’s forward-looking information. We cannot assure readers that actual results will be consistent with this forward-looking information. Readers are further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. These estimates may change, having either a negative or positive effect on profit and other financial information, as further information becomes available and as the economic environment changes. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information included in this press release is made as of the date of this press release and AGI undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.
In analyzing our results, we supplement our use of financial measures that are calculated and presented in accordance with International Financial Reporting Standards ("IFRS") with a number of non-IFRS financial measures including “EBITDA” and “adjusted EBITDA”. A non-IFRS financial measure is a numerical measure of a company's historical performance, financial position or cash flow that excludes [includes] amounts, or is subject to adjustments that have the effect of excluding [including] amounts, that are included [excluded] in the most directly comparable measures calculated and presented in accordance with IFRS. Non-IFRS financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies' non-IFRS financial measures having the same or similar businesses. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
We use these non-IFRS financial measures in addition to, and in conjunction with, results presented in accordance with IFRS. These non-IFRS financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our IFRS results and the accompanying reconciliations to corresponding IFRS financial measures, may provide a more complete understanding of factors and trends affecting our business.
Management believes that the Company's financial results may provide a more complete understanding of factors and trends affecting our business and be more meaningful to management, investors, analysts and other interested parties when certain aspects of our financial results are adjusted for the gain (loss) on foreign exchange and other operating expenses and income. These measurements are non-IFRS measurements. Management uses the non-IFRS adjusted financial results and non-IFRS financial measures to measure and evaluate the performance of the business and when discussing results with the Board of Directors, analysts, investors, banks and other interested parties. Reconciliations of historical non-IFRS financial measures to the most directly comparable historical IFRS financial measures are contained in our previously filed management’s discussion and analysis.
References to “EBITDA” are to profit before income taxes, finance costs, depreciation and amortization. References to “adjusted EBITDA” are to EBITDA before the gain or loss on foreign exchange, non-cash share based compensation expenses, gain or loss on financial instruments, M&A expenses, other transaction and transitional costs, gain or loss on the sale of property, plant & equipment, gain or loss on disposal of assets held for sale and fair value of inventory from acquisitions and impairment. Management believes that, in addition to profit or loss, EBITDA and adjusted EBITDA are useful supplemental measures in evaluating the Company’s performance. Management cautions investors that EBITDA and adjusted EBITDA should not replace profit or loss as indicators of performance, or cash flows from operating, investing, and financing activities as a measure of the Company’s liquidity and cash flows.
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