AG GROWTH INTERNATIONAL INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Dated: August 10, 2023

This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the audited consolidated comparative financial statements and accompanying notes of Ag Growth International Inc. ("AGI", the "Company", "we", "our" or "us") for the year ended December 31, 2022, the MD&A of the Company for the year ended December 31, 2022 and the unaudited interim condensed consolidated financial statements of the Company and accompanying notes for the three- and six- month periods ended June 30, 2023. Results are reported in Canadian dollars unless otherwise stated.

This MD&A is based on the Company's unaudited interim condensed consolidated financial statements for the three- and six-month periods ended June 30, 2023 ("consolidated financial statements") based on International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), unless otherwise noted.

This MD&A makes reference to certain specified financial measures, including non-IFRS financial measures, non-IFRS ratios and supplementary financial measures. These specified financial measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement our financial information reported under IFRS by providing further understanding of our results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. Please refer to the "NON-IFRS AND OTHER FINANCIAL MEASURES" section of this MD&A for more information on each specified financial measure.

This MD&A contains forward-looking information. Please refer to the cautionary language under the heading "Risks and Uncertainties", "Forward-Looking Information" and "Financial Outlook" in this MD&A and in our most recently filed Annual Information Form, all of which are available under the Company's profile on SEDAR+ [www.sedarplus.ca].

SUMMARY OF RESULTS

Three-months ended June 30

2023

2022

Change

Change

[thousands of dollars except per share amounts,

percentages and basis points ("bps")]

$

$

$

%

Sales

390,269

389,943

326

0%

Adjusted EBITDA [1][2]

88,174

66,076

22,098

33%

Adjusted EBITDA Margin % [3]

22.6%

16.9%

565 bps

33%

Profit (loss) before income taxes

18,068

(2,262)

20,330

N/A

Profit (loss)

16,095

(4,915)

21,010

N/A

Diluted profit (loss) per share

0.81

(0.26)

1.07

N/A

Adjusted profit [1][4]

49,395

25,158

24,237

96%

Diluted adjusted profit per share [3][4]

2.24

1.20

1.04

87%

Six-months ended June 30

[thousands of dollars except per share amounts,

2023

2022

Change

Change

percentages and basis points ("bps")]

$

$

$

%

Sales

737,285

681,974

55,311

8%

Adjusted EBITDA [1][2]

136,286

107,399

28,887

27%

Adjusted EBITDA Margin % [3]

18.5%

15.7%

274 bps

17%

Profit before income taxes

39,694

18,328

21,366

117%

Profit

32,452

10,256

22,196

216%

Diluted profit per share

1.63

0.53

1.10

208%

Adjusted profit [1][4]

54,249

27,454

26,795

98%

Diluted adjusted profit per share [3][4]

2.59

1.38

1.21

88%

  1. This is a non-IFRS measure and is used throughout this MD&A. See "NON-IFRS AND OTHER FINANCIAL MEASURES" for more information on each non-IFRS measure.
  2. See "DETAILED OPERATING RESULTS - Profit (loss) before income taxes and Adjusted EBITDA".
  3. This is a non-IFRS ratio and is used throughout this MD&A. See "NON-IFRS AND OTHER FINANCIAL MEASURES" for more information on each non-IFRS ratio.
  4. See "DETAILED OPERATING RESULTS - Diluted (loss) profit per share and diluted adjusted profit per share".

Consolidated Operating Segment Results Summary

Three-months ended June 30

2023

2022

Change

Change

[thousands of dollars except

percentages]

$

$

$

%

Sales [1]

Farm

233,438

226,612

6,826

3%

Commercial

156,831

163,331

(6,500)

(4%)

Total

390,269

389,943

326

0%

  1. The sales information in this table are supplementary financial measures and are used throughout this MD&A. See "NON- IFRS AND OTHER FINANCIAL MEASURES" for more information on these supplementary financial measures.

Three-months ended June 30

2023

2022

Change

Change

[thousands of dollars except

percentages]

$

$

$

%

Adjusted EBITDA [1] [2] [3]

Farm

70,086

51,250

18,836

37%

Commercial

28,939

23,785

5,154

22%

Other [4]

(10,851)

(8,959)

(1,892)

21%

Total

88,174

66,076

22,098

33%

  1. See "BASIS OF PRESENTATION"
  2. This is a non-IFRS measure and is used throughout this MD&A. See "NON-IFRS AND OTHER FINANCIAL MEASURES" for more information on each non-IFRS measure.
  3. See "DETAILED OPERATING RESULTS - Profit (loss) before income taxes and Adjusted EBITDA" and "DETAILED OPERATING RESULTS - Profit (loss) before income taxes and Adjusted EBITDA by Segment".
  4. Included in Other is the corporate office, which is not a reportable segment, and which provides finance, treasury, legal, human resources and other administrative support to the segments.

2

Three-months ended June 30

2023

2022

Change

Change

%

%

basis points

%

Adjusted EBITDA Margin % [1] [2]

Farm

30.0%

22.6%

741 bps

33%

Commercial

18.5%

14.6%

389 bps

27%

Other [3]

(2.8%)

(2.3%)

(48) bps

21%

Consolidated

22.6%

16.9%

565 bps

33%

  1. See "BASIS OF PRESENTATION"
  2. This is a non-IFRS ratio and is used throughout this MD&A. See "NON-IFRS AND OTHER FINANCIAL MEASURES" for more information on each non-IFRS ratio.
  3. Included in Other is the corporate office, which is not a reportable segment, and which provides finance, treasury, legal, human resources and other administrative support to the segments. The Adjusted EBITDA Margin % for Other is calculated based on total sales since it does not generate sales without the segments.

Consistent sales and an exceptional adjusted gross margin performance led to an Adjusted EBITDA1 increase of 33% year-over-year ("YOY") in the second quarter ("Q2"), continuing our momentum from a strong first quarter ("Q1"), and capping off a strong overall first half for AGI with sales growth of 8%, Adjusted EBITDA growth of 27%, and an Adjusted EBITDA margin % of 18.5%.

AGI again set a new record for Q2 Adjusted EBITDA, driven primarily by sales in our Farm segment, paired with meaningful margin improvement, leading to an overall Adjusted EBITDA increase of $22.1 million YOY. The consolidated Adjusted EBITDA margin % increase of 565 basis points ("bps") YOY to 22.6% marks the highest margin-level set in any quarter over the last several years. The strength in EBITDA margin is largely attributable to the benefits of operational excellence initiatives including the effective management of input costs through centralized procurement strategies and manufacturing efficiencies. While selling, general, and administrative ("SG&A") narrowly increased as a percentage of sales and on a dollar basis, YOY, it notably improved quarter-over-quarter as a result of the Digital reorganization effort in addition to a separate workforce optimization initiative executed more broadly across the organization. As these efforts were generally executed mid-quarter, we expect their full benefit to be more supportive of margins throughout the second half of 2023.

Farm segment sales and Adjusted EBITDA grew by 3% and 37% YOY, respectively, continuing the momentum from Q1. Sales remain strong in Canada and stable in the U.S., driven by well-executed growth strategies and product innovation. Growth in North America was complemented by positive contributions from international regions, particularly in Asia Pacific. Farm segment Adjusted EBITDA margin % increased to 30.0% from 22.6% YOY, primarily on the benefits of operational excellence initiatives targeted at manufacturing efficiency, a favourable mix of portable equipment, and progress made in the Digital reorganization. Looking ahead, Farm segment demand continues to rise with the overall order book up 27%2. The Farm order book in Canada increased 77% as demand fully recovers from the 2021 drought impact which impacted demand throughout 2022. In the U.S., the Farm order book increased an additional 3% over a historically high backlog for Q2 set in 2022. This growth was achieved despite some customers who delayed order commitments late in the quarter as they await greater visibility to overall farming conditions across the U.S. Midwest.

  1. This is a non-IFRS measure and is used throughout this MD&A. See "NON-IFRS AND OTHER FINANCIAL MEASURES" for more information on each non-IFRS measure.
  2. This is a supplementary financial measure and is used throughout this MD&A. See "NON-IFRS AND OTHER FINANCIAL MEASURES" for more information on this supplementary financial measure.

3

Commercial segment Q2 sales decreased 4% and Adjusted EBITDA increased by 22% YOY. Sales were impacted due to the cyclical nature of large commercial projects in North America and continued softness in the food platform, offset by a pick-up in demand internationally. Internationally, Commercial sales increased 14% driven by strong demand for AGI products and systems across South America. Demand for rice milling solutions in India continues to be a strong growth contributor with sales increasing 17%. Similar to the Farm segment, the Company's operational excellence initiatives including effective management of manufacturing expenses contributed to the Adjusted EBITDA margin % increase to 18.5% from 14.6% YOY. Looking ahead, the overall Commercial segment order book decreased 10%, largely attributable to the ongoing reset within the food platform as well some softness in the fertilizer market, while the broader overall pipeline of grain handling and storage projects remains strong with many large and attractive projects coming to market.

Looking ahead to the second half of 2023, we expect the strong growth trajectory in the Farm segment to continue as the sizable order book is further supported by high levels of demand for our portable equipment. The outlook for the Commercial segment remains optimistic as we steadily implement enhanced approaches to more carefully manage costs on large projects in addition to refining our overall customer strategy, particularly for our fertilizer and food platforms. With continued attention on progressing key operational excellence initiatives and an increased focus on building our order book, we are optimistic in achieving further success in the second half of 2023. As a result, we are raising our full year 2023 Adjusted EBITDA guidance to be at least $290 million3 and with Adjusted EBITDA margin % of at least 18%.

BASIS OF PRESENTATION

On December 29, 2022, the Company announced that it would be reorganizing its Digital business to better reflect changes in its operations and management structure. As a result of this change, the Company has identified its reportable segments as Farm and Commercial, each of which are supported by the corporate office. The previously identified Digital segment is now included within the Farm segment, and the Food platform which was a sub-segment of the Commercial segment is now amalgamated into the Commercial segment. These segments are strategic business units that offer specific products and services to their respective markets. Certain corporate overheads are allocated to each segment based on revenue as well as applicable cost drivers. Taxes and certain other expenses are managed at a consolidated level and are not allocated to the reportable operating segments. Financial information for the comparative period has been restated to reflect the new presentation.

Description of Business Segments

Farm Segment

AGI's Farm segment focuses on the needs of on-farm customers, and its product offerings include: grain, seed, and fertilizer handling equipment; aeration products; grain and fuel storage solutions; and grain management technologies (see "BASIS OF PRESENTATION").

Commercial Segment

AGI's Commercial segment focuses on commercial entities such as port facility operators, food processors and elevators. Its product offerings include: larger diameter grain storage bins and high-

3 Adjusted EBITDA for the year ended December 31, 2022 was $234.7 Million. See "Reconciliation of Adjusted EBITDA to profit (loss) before income taxes for the years ended December 31, 2022 and 2021", "BASIS OF PRESENTATION", "RISKS AND UNCERTAINTIES", "FORWARD-LOOKING INFORMATION", "FINANCIAL OUTLOOK" and "NON-IFRS AND OTHER FINANCIAL MEASURES.

4

capacity grain handling equipment; high-capacity seed and fertilizer storage and handling systems; food and feed handling storage and processing equipment; aeration products; automated blending systems and control systems; and project management services and food engineering solutions (see

"BASIS OF PRESENTATION").

OPERATING RESULTS and OUTLOOK 4

Sales by Geography 5

Three-months ended June 30

[thousands of dollars except

2023

2022

Change

Change

percentages]

$

$

$

%

Canada

102,836

100,330

2,506

2%

U.S.

171,431

181,359

(9,928)

(5%)

International

EMEA

28,470

30,278

(1,808)

(6%)

Asia Pacific

34,013

31,958

2,055

6%

South America

53,519

46,018

7,501

16%

Total International

116,002

108,254

7,748

7%

Total Sales

390,269

389,943

326

0%

Six-months ended June 30

[thousands of dollars except

2023

2022

Change

Change

percentages]

$

$

$

%

Canada

189,979

157,043

32,936

21%

U.S.

321,776

320,414

1,362

0%

International

EMEA

58,909

59,095

(186)

(0%)

Asia Pacific

72,927

63,892

9,035

14%

South America

93,694

81,530

12,164

15%

Total International

225,530

204,517

21,013

10%

Total Sales

737,285

681,974

55,311

8%

Sales by Segment and Geography 5

Farm Segment

Three-months ended June 30

[thousands of dollars except

2023

2022

Change

Change

percentages]

$

$

$

%

Canada

82,788

74,860

7,928

11%

U.S.

120,162

118,740

1,422

1%

International

  1. See "BASIS OF PRESENTATION", "RISKS AND UNCERTAINTIES", "FORWARD-LOOKING INFORMATION" and "FINANCIAL OUTLOOK".
  2. The sales information in this section are supplementary financial measures and are used throughout this MD&A. See "NON- IFRS AND OTHER FINANCIAL MEASURES" for more information on these supplementary financial measures.

5

Attachments

  • Original Link
  • Original Document
  • Permalink

Disclaimer

Ag Growth International Inc. published this content on 10 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 August 2023 21:41:04 UTC.