RE:Dividend This press release explains it.
AGI Revises Dividend Policy; Provides Business Update
Apr 14, 2020
Winnipeg, MB, April 14, 2020 – Ag Growth International Inc. (TSX: AFN) (“AGI”, or the “Company”) today announced a reduction of its dividend to an annual level of $0.60 per common share. At the same time the dividend will move from monthly to quarterly payments, and accordingly the next dividend of $0.15 per share will relate to the months of April, May and June 2020, and is expected to be declared in June 2020 and payable on July 15, 2020.
AGI has sufficient liquidity and is well within its required financial covenants, however the dividend reduction is appropriate to facilitate cash conservation, leverage reduction, and a stronger balance sheet in these highly uncertain times as we better understand the impact COVID will have on our business in the near-term through to stabilization as we emerge to a post COVID world. New capital projects and new hires are also being restricted to strategic exceptions to further prioritize capital availability.
“This decision was made in the context of significant uncertainties created by the global COVID crisis, facilitates leverage reduction, and gives us greater flexibility to act on substantial strategic and accretive internal investment opportunities across AGI”, said Tim Close, President and CEO of AGI. “Over the past several years AGI has invested in expanding our business into new products and regions and in growth within existing markets. We are currently a week from launching V2.0 of our AGI SureTrack platform, a platform that is building rapidly and poised to significantly enhance the value we deliver to our customers and grow our market shares. Our Brazil business is at an inflection point as we build backlogs and the scale needed to operate in this strategic region, our Italian operations just completed a substantial expansion and automation project and we also have scheduled critical automation projects in our busy portable equipment business.
Within the context of that strategic growth, COVID has impacted our near-term results. COVID will have further impact on our business while we determine the depth and duration of the global disruptions. Recent days have confirmed our core infrastructure strategy as our operations have been captured as essential services, providing us with the relatively unique right to operate in this environment. Like much of the world we must use the levers we have to protect our business, to prepare for a deep and extended impact while finding the time and resources to advance our strategic projects. The dividend reduction is an important element of our Preparation with Progress initiative that we are now implementing to further address capital allocation.”
AGI’s status today remains stable. We had previously guided to adjusted EBITDA in Q1 2020 that would approximate Q4 of 2019 or a roughly 25% reduction compared to Q1 2019. This reduction was expected given a backlog weighted to H2 2020 and a relatively tentative market sentiment entering 2020 after significant flooding and poor growing conditions in the United States resulted in a disruptive and unpredictable 2019. A relatively solid finish in our North American Farm business and better than expected results in EMEA resulted in a Q1 2020 adjusted EBITDA that is slightly above our previous guidance but still below Q1 2019. The stronger finish in Q1 would have placed us closer to our strong Q1 in 2019 barring the material impact from COVID related delays and costs that impacted the end of the quarter.
Our North American facilities have maintained steady production as we move into Q2 2020. Manufacturing activity had been suspended for periods in India, Italy, Brazil and France over the past weeks however we have now restarted production in all of these locations albeit at less than full capacity. We are using strict safety protocols, staggered shifts and amended working plans to close the gap to 100% capacity in the near-term which should be achievable barring new or extended activity limitations by regional governments.
The planting season in North America is now underway and backlogs across all AGI Farm product categories remain consistent with the prior year. AGI’s Commercial backlogs in North America are flat to last year while international backlogs are currently significantly higher than the prior year, with overall sales weighted towards the second half of 2020. On a consolidated basis, AGI’s backlog as at March 31, 2020 is higher than at the same time in 2019. Maintaining backlog levels going forward will be impacted by our ongoing order intake. Global demand is being impacted at various levels by COVID related uncertainties. The degree of impact is currently minimal on Farm products while Commercial projects are generally active but moving ahead at a slower pace. It is too early to fully assess the extent of the full COVID impact.
Our operations have been declared essential services in each of the states and provinces where we operate in North America. The essential service declarations validate our continued strategy to become critical partners within the world’s food supply chain and provides AGI the opportunity to continue to operate in this environment. We are very focused on developing and implementing robust protocols to ensure we continue to safely and responsibly operate. Safety of our employees is our first priority and our teams are completely aligned on diligent and extensive implementation of all procedures.
The production delays in our international business will have a material impact on Q2 as revenue has been delayed due to the production suspensions. The status of each of our businesses could change as the impact of COVID may cause new or additional production suspensions as the extent of this crisis is better understood.
We fundamentally believe that the demand drivers in food infrastructure combined with our strong position in each of our markets must be matched with a cautious approach to cash preservation and leverage reduction in this environment. This combination will allow AGI to weather this global storm and emerge in a strong position to execute upon our strategic plan and return to our record of sequential annual growth.