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Nov. 13, 2014 Agrimoney.com reports: AgGrowth International heralded the creation of a "Canadian-based agricultural champion" as the maker of silos unveiled the purchase of rival Westeel, and flagged its resilience to the low crop prices affecting other ag equipment groups. The manufacturer of grain storage and handling equipment revealed it had paid Can$221.5m in cash for Westeel, part of the Vicwest group, which is selling its building products division to Kingspan, the Irish-based insulation maker which has, separately, teamed up with local farmers for a biogas plant to feed its Shobdon plant in the UK. The Westeel purchase will give Ag Growth a presence in European countries such as Spain and Italy, besides India and North Africa. It will also give Winnipeg-based Ag Growth an even bigger position in the Canada, which will now be responsible for creating 38% of group revenues, compared with 21% currently. "Combined we create a Canadian-based agricultural champion," said Gary Anderson, the Ag Growth chief executive. 'Iconic brand' Ag Growth said that it was paying the equivalent of 10.2 times estimated 2014 earnings before interest, tax, depreciation and amortisation (ebitda) for Westeel, a business it termed "iconic" and "Canada's leading brand in grain storage". However, the deal will release about Can$5m in benefits a year from measures such as squeezing out duplicated costs. And the transaction "generates significant and immediate accretion on the basis of funds from operations per common share and earnings per common share for AGI shareholders, before synergies", Ag Growth said. Crop volumes, vs prices The announcement came as Ag Growth unveiled underlying ebitda for the July-to-September quarter of Can$26.72m, up 6.7%, on revenues up 2.0% at Can$118.8m. Underlying earnings per share increased to Can$1.09, from Can$0.77 a year before. The group attributed the improvements largely to expansion in Canada, where sales rose 52%, while those in the US gained 17% to Can$67.61m, boosted by the prospect of record corn and soybean harvests. "Double digit growth in our portable grain handling space substantiates our assertion that the primary demand driver for our business is crop volume rather than commodity prices," Mr Anderson said. Many other agricultural equipment groups, such as tractor makers Agco, CNH and Deere & Co, have warned of a hit from lower crop prices, as weaker arable farm profitability curtails orders. 'High levels of demand' Indeed, the weak crop markets could even provide some support to makers of grain storage, in encouraging farmers to invest in the ability to keep crops, and choose better their moment of sale. "The industry environment currently is suggestive of very high levels of demand as US farmers are expected to harvest a record crop and moderating and volatile commodity prices may incentivise producers in Canada and the US to store more grain on the farm," Ag Growth said. "As well, a late harvest in the US has led to a prolonged in-season sales period." Ukraine setback However, the group also flagged threat to its international division, of which Ukraine is a major contributor, thanks to the unrest in the country. "Current political and economic volatility in Ukraine has delayed completion of a large port project and may defer new business. "Management anticipates a favourable outcome with regards to the delayed Ukrainian order. However, at the time of writing, it is difficult to predict whether shipping will resume in 2014." Sales at the international division slumped 42% to Can$23.2m. Nonetheless, Ag Growth shares soared to a three-year high of Can$49.88 in early deals in Toronto, before easing back in late trading to stand at Can$49.67, up 3.5% on the day. Tweet |
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