AGT Food and Ingredients Inc. - Strategic Overview (TSX: AGT) May 2016

Transcription

1 AGT Food and Ingredients Inc. - Strategic Overview (TSX: AGT) May 2016

2 Forward Looking Statements Certain statements in this presentation are forward-looking statements. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable by AGT at the time of preparation, may prove to be incorrect. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of AGT (including its operating subsidiaries) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, the actual results of harvests, fluctuations in the price of lentils and other crops, failure of plant, equipment or processes to operate as anticipated, accidents or labour disputes, risks relating to the integration of acquisitions or to international operations, as well as those factors referred to in the section entitled Risk Factors in the Annual Information Form of AGT dated March 24, 2016 which is available on SEDAR at and which should be reviewed in conjunction with this document. Although AGT has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. AGT expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws. Non-IFRS Financial Measures *AGT provides some non-ifrs measures as supplementary information that management believes may be useful to investors to explain AGT's financial results. These non-ifrs measures include Adjusted Gross Profit* (gross profit plus depreciation in cost of sales), Adjusted EBITDA* (earnings before finance expense, income taxes, depreciation and amortization, restructuring costs and any effects of non-cash, non-recurring and other costs and foreign exchange adjustment), Adjusted Net Earnings*, Adjusted Basic Net Earnings Per Share* and Adjusted Diluted Net Earnings Per Share *(earnings before any effects of non-cash, non-recurring and other costs, restructuring costs and foreign exchange adjustments), Net Debt* (bank indebtedness, short term financing and long term debt less cash) and Net Working Capital* (current assets less current liabilities). Adjusted Net Earnings*, Adjusted Basic Net Earnings Per Share* and Adjusted Diluted Net Earnings Per Share* do not include the tax effect of non-cash, non-recurring and other costs and foreign exchange. Management believes that Adjusted EBITDA*, Adjusted Net Earnings*, Adjusted Basic Net Earnings Per Share* and Adjusted Diluted Earnings Per Share, Net Debt* and Net Working Capital* are important indicators of AGT s ability to generate liquidity through operating cash flow to fund future working capital needs, service outstanding debt and fund future capital expenditures and uses the metric for this purpose. The exclusion of non-cash and foreign exchange adjustments eliminates the non-cash impact on Adjusted EBITDA*, Adjusted Net Earnings*, Adjusted Basic Net Earnings Per Share* and Adjusted Diluted Earnings Per Share*. Adjusted EBITDA* and Adjusted Net Earnings*, Adjusted Basic Net Earnings Per Share*, Adjusted Diluted Net Earnings Per Share*, Net Debt* and Net Working Capital* are also used by investors and analysts for the purpose of valuing AGT. The intent of these measures is to provide additional useful information to investors and analysts and the measure does not have any standardized meaning under IFRS. Adjusted Gross Profit*, Adjusted EBITDA* and Adjusted Net Earnings*, Adjusted Basic Net Earnings Per Share*, Adjusted Diluted Net Earnings Per Share*, Net Debt* and Net Working Capital* should therefore not be considered in isolation or used as a substitute for measures of performance prepared in accordance with IFRS. For a reconciliation of net earnings (loss) determined in accordance with IFRS to Adjusted EBITDA*, Adjusted Net Earnings* and Adjusted Basic Net Earnings Per Share* and Adjusted Diluted Earnings Per Share*, see the table on page 34 in the related management s discussion and analysis for the three months ended March 31,

3 AGT Food and Ingredients Highlights Company Overview Global leader in pulse, staple food and food ingredient processing and distribution Merchandising offices and valueadded processing facilities in Canada, the US, Turkey, India, China, Australia & South Africa European sales offices Russian origination office Global customer base HQ: Regina, SK, Canada Global Company & Brands Company Profile TSX Listed: AGT Shares Outstanding: 23.9 million (fully-diluted) Market Capitalization: ~ $785 million Annual Dividend: $0.60/share 3

4 AGT Food and Ingredients History 4

5 AGT Foods Global Operations Canada head office and 40+ facilities in 6 key agricultural production origins on 5 continents with sales, merchandising, origination and administration offices located around the globe. 5

6 Global Facilities & Offices 6

7 Business Segments & Products Core / Legacy Business Growing Business Segment Pulses & Grains Processing Trading & Distribution Food Ingredient & Packaged Foods Bulk in bag, containerized shipments, bulk vessel shipments of whole and value-added lentils, peas, chickpeas and beans Splitting, colour sorting, sizing, packaging and export Processing of rice, durum wheat and other grains and specialty crops Warehousing, distribution and trading of products not specifically processed in AGT owned and operated facilities with cross-selling opportunities for AGT Popcorn, canola, flax seed, coffee, sugar Aid program food parcels and supplies Food ingredient, pulse-based flours, proteins, starches and fibres for human food, industrial uses and animal feed / petfood applications Arbella pasta exported to over 90 countries and a leading domestic brand in Turkey Retail packaged and canned foods in North America, EU, MENA and Southern Africa 7

8 Overview of Pulses Pulse crops include lentils, peas, chickpeas and beans, which produce edible seeds, called pulses Represent a GMO free, gluten-free, low allergen, major source of protein and fibre, which developing nations particularly rely on (i.e. vegetable sources for their protein and energy requirements) Increasing consumption (both directly and as an input in other food products) in developed countries where pulses are increasingly viewed as healthy Crude Fibre 3-14% Protein 20-35% Composition of Pulses Sugars 3-8% Ash Fat 2-4% 2-4% Moisture 7-14% Starch 38 55% Nutritional Characteristics of Pulses High protein High lysine (higher than cereals and oilseeds) High dietary fibre Rich in insoluble fibre Low fat Pea, lentils and faba beans: <3% Chickpeas: <7% High micronutrients Folate, iron, zinc, selenium, potassium, magnesium, calcium and beta-carotene Types of Pulses 8

9 Pulses & Sustainable Agriculture Plant Fixing Nitrogen Lower Energy Requirement Increased Water Use Efficiency Pulses produce their own fertilizer by utilizing nitrogen fixing soil bacteria that live inside their root systems. Pulses improve fertility of soil for other crops grown in rotation. Pulses use less non-renewable energy relative to other crops. 70% of the non-renewable energy used in cropping systems in western Canada is attributable to fertilizers. 43 gallons of water required to produce one pound of pulses. 1,857 gallons of water required to produce one pound of beef. BEEF 1,857 gallons/lbs PORK 756 gallons/lbs CHICKEN 469 gallons/lbs PULSES 43 gallons/lbs Source: (Zentner et al. 2004) Source: Hoekstra and Chapagain, Globalization of Water, U. of Twente, Waterfootprint.org National Geographic, April

10 Carbon Footprint Source: 10

11 Factors Driving Global Demand Benefits of Pulses Emergence of the Middle Class Health and Wellness Trend Alternative Fuels & Sustainability Pulses are a sustainable source of protein GMO-free, gluten-free, low allergen, major source of protein and fibre, which developing nations particularly rely on for vegetable sources for their protein and energy requirements) Lower energy use, reduced greenhouse gas emissions, improved soil health through rotational cropping, increased water use efficiency Overall food output to increase due to population growth, urbanization and income growth Middle class may increase from 1.8 billion to 3.2 billion by 2020 and to 4.9 billion by with 85% of this growth coming from Asia. Global spending by the middle class may grow from $21 trillion today to $56 trillion by 2030 Consumer movement towards healthy lifestyles in non-traditional markets Pulses offer many benefits for nutrition, health and chronic disease prevention As a result, there has been increased interest from food companies in using pulses in product formulations, for cost, characteristic, allergen, GMO-free and other reasons Pulses are a rotational crop for wheat and canola which are used in biodiesel and ethanol production Global price for protein is rising as corn is increasingly used in the production of ethanol Pulses lower carbon footprint and support the sustainability efforts of processors, food companies and meet the demand of consumers for sustainably produced products Source: UN FAO; OECD 11

12 Markets for Pulses & Staple Foods Traditional Markets for Pulses Growth Driver: Population & Global Demand for Food Global population expected to rise 30% Global food output will have to grow by 70% to feed the world with growing middle class Pulses are a sustainable source of protein, a key nutrient for large numbers of the world s populations New Markets for Pulses Growth Driver: Health, Nutrition and Sustainability High Protein and Fibre, Nutrient Dense, Low Fat, Gluten Free, non-gmo, Low Allergenicity Lower Energy Use, Reduce Greenhouse Gas Emissions, Improve Soil Health through Rotational Cropping, Increase Water Use Efficiency North America Middle East and North Africa South Asia Europe China Latin & Central America Source: UN FAO 12

13 Factors Influencing Pulse Demand Health Change in Consumers Nutrition Sustainability FOOD MANUFACTURERS FOOD SERVICE CONSUMERS 13

14 Pulses & Grains Processing Segment Bagged/Containerized Pulses Traditional business in pulses and grains AGT has been involved in focused on bagged and containerized pulses including lentils, peas, chickpeas and beans Origination from producers, value-added processing in O&O facilities globally and ship bagged product in containers to 120 markets Higher target margin profile on products as they are received ready for consumption and distribution within traditional markets to consumers Use multi-modal (truck, intermodal, container, vessel) transportation to move from facility to destination customer Bulk Pulses and Grains Bulk loading business augmenting pulses capacity adding ability to create margin opportunities while solidify AGT lentil & durum wheat origination and supply chain for pulses business in Turkey, India and growing pasta and bulgur wheat business Supported by 2 key acquisitions - bulk loading facilities in West Central Saskatchewan (WCRR) and rail logistics assets including short line rail infrastructure and equipment (Mobil) to control logistics options and service handling assets Efficient logistics are essential elements to competitiveness AGT s legacy segment with smooth movement of products, matching origination and production to demand and supply requirements from farm to customer 14

15 North America Pulse Growing Regions Source: based on data from Pulse Canada, USDA, AAFC, USDPL, Company Estimates 15

16 Big Sky Rail/LMR Business Unit Rationale Deal structure favorable terms Constrained bulk rail capacity available with a short line Integration of supply chain allows point A to B shipping Major opportunity in lentils, peas and durum Ability for IP and Non-GMO Systems Leverage sourcing ability Logistical control and marketing will create margin Unique approach will provide first mover advantages to AGT Strong management allows AGT to operate efficiently from Day

17 Saskatchewan Elevators/Growing Regions LMR - Mobil railcar loading any of the 15+ track sites in 2 areas Big Sky + LMR greater area = 2 MMT DURUM Big Sky Rail - 256,000 acres within a short haul (20 miles) of each of the 5 dedicated bulk loading sites = approx 1.3MMT CWAD 628,000 mt Lentils 358,000 mt CWRS 168,000 mt Canola 77,000 mt Peas 20,000 mt Other 80,000 mt Source: based on data from CGC; Sask Ministry of Ag; AAFC; Company estimates 17

18 Expanded Network Mobil Rail Network Big Sky Rail Corp: 443 km: Delisle to Alsask Last Mountain Railway: 136 km: Regina to Davidson CN running rights: 145 km: Davidson and Delisle AGT - former WCRR loading sites MC - Mobil railcar loading sites 18 18

19 Food Ingredient Platform Goal Activities Results Develop a large-scale pulse ingredient business unit for flour, protein, starch and fibre derived from pulses for food uses, pet food, aquaculture and industrial applications Food companies reacting to customer demand for natural, non-gmo, gluten-free, high protein and fibre products and ingredients that are not soy or corn Segment expected to generate higher margin and earning potential and therefore assist in smoothing earnings Supply food, feed and industrial customers with pulse ingredients Leverage AGT strengths in origination and processing infrastructure Marketing / collaborative sales process combined with internal sales and merchandising staff Collaborative research to convert test quantities to commercial sales Marketing agreements provide baseline for capacity utilization through access to partner channels e.g. Ingredion for human food sector globally Margins and business developing as expected as sales programs focused on protein and fibre with high viscosity flour (starch) volumes grow Concentrated volume going into feed applications expected to be replaced by more applications for human food, petfood and aquaculture Expected to boost margins on the segment overall Balanced approach to sales and capacity 19

20 Investment in Ingredient Platform Minot ND Production Facility Saskatoon SK R&D Centre Commissioned for production in June Third production line commissioned in Q Expansions to add value-added production and modification processes including de-flavouring, pre-cooking lines, sterilization lines and blending facilities to produce pre-mixes as well as expand building infrastructure for added production nearing completion. Additional milling and line four announced in Q with Q planned completion Additional expansions for Canada/US/Turkey are possible to keep pace with sales programs Investment in research and development key component to capturing customer sales opportunities Work to develop new applications/uses for pulse ingredients through collaborative research, commercialization & innovation initiatives and technology development Important to assist customers convert test quantities to sales quantities 20

21 Increased Ingredient Use for Pulses Foods Petfood/Animal Feed Aquaculture Gluten free Good source of fibre (3 g fibre per serving) Low fat Approximately $22.6B spent on pet food in the U.S. in 2014, and approximately $23.0B estimated for 2015 Global Feed Markets estimated at over $370B Accounts for ~47% of the world s fish food production for human consumption INGREDIENTS: Bean Flour (Lentil, Garbanzo & Adzuki Beans), Potato and/or Pea Starch, Potato Fiber, Vegetable Oil (High Oleic Sunflower Oil and/or High Oleic Safflower Oil, and/or Non Gmo Expeller Pressed Canola Oil), Seasoning (Sea Salt, Cane Sugar, Black Pepper, Tapioca Maltodextrin, Onion Powder, Garlic Powder, Autolyzed Yeast Extract, Malic Acid, White Pepper, Expeller Pressed Canola Oil), Potassium Chloride Source: American Pet Products Association Report; Transparency Market Research; IFIF; UN SOFIA report 21

22 Food Ingredients Changing the Category General Mills, Kellogg s and Post have all recently announced intentions to replace GMO ingredients, including soy and corn, in some of their products Demand for alternative flours, including pulse flours, estimated to outpace more traditional wheat flours throughout the food and beverage industry Forecast to grow almost 4x faster than wheat flours and ahead of other cereals and potato flour between 2012 and 2017 in North America and Europe in the sweet and savory snacks applications category Gluten-free foods expected to have sales of > $6.6 billion by 2017 ~18 million Americans have non-celiac gluten sensitivity in addition to the 3 million Americans that suffer from celiac disease Health Canada estimates 300,000 in Canada The global ingredient protein market is expected to reach $28.9 billion by 2020, with plant protein expected to continue accounting for the majority of the protein ingredient market. Source: Canadian Institute of Food Science and Technology; Packaged Facts; Euromonitor; National Foundation for Celiac Awareness; Health Canada ; Grand View Research 22

23 Pulses Enhance Everyday Foods Traditional Formulation: 6% Wheat Crumbs Reformulated: 6% Lentil Flour Traditional Formulation: 100% Durum Semolina Pasta Reformulated: Pulse Inclusion 25% Lentil, 75% Durum 60% Increase in Protein 50% Increase in Fibre 50% Reduction in Fat Enhanced Texture 25% lower carbon footprint 100% increase in fibre 25% increase in protein Adapted from: Gan et al Unpublished results, Agriculture and Agri-Food Canada; U.S. Department of Agriculture, Agricultural Research Service USDA National Nutrient Database for Standard Reference. 23

24 Pulse Ingredient Product Launches Top Categories: bakery, meals, snacks, processed fish/meats/egg, soup, dogfood, meal replacements Source: Innova Market Insights January 2015 (US & Canada) 24

25 AGT Strategic Partnerships on Ingredients Agreement for the exclusive distribution of pulse flours, protein and bran ingredients for its consumer foods and ingredient segments Opportunity to ramp-up AGT production in Minot Ingredion invests approximately $37 million per year on R&D. Operate 6 ingredient development centers around the world with 140 scientists at Bridgewater, NJ R&D headquarters. Additional 110 scientists at ingredient development centers Focused on new products, new technologies and customer solutions Marketed under Ingredion's HOMECRAFT and VITESSENCE brands that encompasses a broad range of functional, gluten free and clean label flours, protein and semolina s to a growing market segment interested in vegetable and non-gmo ingredients from pulses Segments include products such as baked goods, snacks, pasta and texturing applications Geographies include the United States, Canada, China, Europe, the Middle East and North Africa Agreement on marketing of AGT pulse protein to the branded animal feed and petfood markets in North America Marketed as NuPulse Protein brand Important first agreement for AGT to build scale at the Minot ND production facility Market has been developing to require AGT to expand production to keep pace with customer demand Has created opportunities for AGT directly for marketing of products not covered under these agreement to the same segment 25

26 Packaged Foods Platform AGT has developed a significant global packaged foods business with market penetration to 90+ countries including Canada, the US, Turkey, Europe, Middle East & Africa Platform includes production, canning, small packaging and distribution operations. Development may include further production facilities/co-packing e.g. (snacks, noodles, specialty pasta, pulses blend) Leverage AGT scale and size to build retailer confidence, offer a diverse portfolio of products Ability to increase profitability through scale and supply chain management Synergistic trade between AGT global ops can create sales and margin opportunity Arbella: pasta platform with leading market position domestically in Turkey and for export to 90 + countries Arbel: packing for retail market for pulses, rice and bulgur products CLIC: canning, small pack and distribution to Canada/US retail and food service from key Montreal location Pouyoukas Foods: South Africa packing and distribution in ~400 supermarkets in Southern Africa 26

27 Financial Highlights Q ($ Million CDN) Q Q Q Revenue $441.4 $578.3 $385.2 Adjusted EBITDA* $31.4 $33.0 $22.6 Adjusted Net Earnings* $4.7 $15.2 $14.9 Highlights of the Quarter: Adjusted EBITDA* was $31.4 million for the three months ended March 31, 2016, an increase of 38.9% over $22.6 million for the three months ended March 31, Adjusted EBITDA* was $109.7 million for the trailing twelve months ended March 31, 2016, an increase of 18.6% over $92.5 million from the trailing twelve months ended March 31, Revenue was $441.4 million for the three months ended March 31, 2016 compared to $385.2 million for the three months ended March 31, Food ingredients and packaged foods segment was consistent and represented 12.2% of total tonnes invoiced and 29.2% of Adjusted EBITDA* for the three months ended March 31, 2016 compared to 14.0% of total tonnes invoiced and 30.71% of Adjusted EBITDA* for the three months ended March 31, Dividend of $0.15 per share for the quarter ($0.60 per share on an annualized basis). Source: Company reports 27

28 $50,000 $45,000 $40,000 AGT Financial Metrics $51,555 $51,458 $40,582 $40,661 $39,199 $38,399 $38,969 $34,403 $35,000 $30,000 $32,984 $31,390 $25,000 $24,430 $24,400 $22,617 $22,206 $23,208 $20,000 $21,100 $15,000 $10,000 ( 000 CDN) Q Q Q Q Q Q Q Q Revenue $ 359,811 $ 287,710 $ 398,010 $ 385,230 $ 378,225 $ 362,755 $ 548,270 $441,393 Adjusted gross proft Adjusted EBITDA Source: Company reports 28

29 AGT Metric Tonnes Invoiced , , , ,292 $ , ,485 $ $ ,011 $ ,000 $ ,465 $88.68 $ , ,335 $ , ,000 $55.61 $61.43 $53.22 $53.28 $67.92 $63.87 $52.91 $ ,000 - Q Q Q Q Q Q Q Q Source: Company reports 29

30 AGT Advantages and Strategies AGT is well positioned to capitalize with an integrated supply chain management approach to introducing and offering pulse ingredients as well as a strong legacy business Compelling global footprint Market reach and distribution Asset utilization Access to capital and working capital management Risk management program Processing and management expertise Focus on long-term strategy to normalize business and improve profitability Opportunities as agri-production moves up the value-chain focused on food, fibre, feed and fuel as well as packaged and retail products and ingredients The global protein race on, pulse ingredients offer characteristics that food companies are looking for and profiles that consumers are demanding. 30

31 AGT Food and Ingredients Inc. (TSX: AGT)