AGT Food is focused on reducing leverage ratio to below 3.75x in 2017

By Devika Patel

Knoxville, Tenn., March 23 – AGT Food & Ingredients Inc. plans to focus its efforts in the coming year on optimizing the use of its free cash flow and reducing its leverage ratio to below 3.75x.

The company is going to keep a tight capital expenditure budget, in the range of C$20 million to C$25 million, as it promised investors it would when it concluded a C$200 million issue of 5 7/8% senior notes in December.

“Our target will remain in 2017 on optimizing free cash flow, lowering our leverage profile to targets of less than 3.75x debt to EBITDA and continuing to ramp up our bulk sales program and our margins in our food ingredients and packaged food segments,” president and chief executive officer Murad Al-Katib said on the company’s fourth quarter earnings conference call on Thursday.

The company’s ratio of net debt to adjusted EBITDA decreased to 4.5x in the fourth quarter of 2016 compared to 4.69x at the end of the fourth quarter of 2015.

“This is the first conference call since we raised the corporate bond of C$200 million,” Al-Katib said.

“When we went out and did the marketing on the bond issue, we were very clear with the market [that] capex budgets are going to stay in that C$20 million to C$25 million range in 2017.

“We do not expect working capital to be a consumer of cash, [instead] we expect it to be a contributor to free cash flow over the course of this coming year,” Al-Katib said.

“So this will be a year of optimization of the working capital, reduction of leverage and growth of free cash flow and we’re excited about keeping that focus on free cash flow and net earnings, not on necessarily EBITDA.

“For us, it’s all about free cash flow and earnings per share,” he said.

Adjusted EBITDA was C$118.8 million for the year ended Dec. 31, 2016, an increase of 17.6% over C$101 million for the year ended Dec. 31, 2015 and compared to C$117 million for the trailing 12 months ended Sept. 30, 2016.

Adjusted EBITDA was C$34.7 million for the three months ended Dec. 31, 2016, an increase of 26.6% over the C$27.4 million for the unaudited three months ended Sept. 30, 2016 and an increase of 5.5% over the C$32.9 million for the unaudited three months ended Dec. 31, 2015.

Notes sale

On Dec. 15, AGT Food priced a C$200 million issue of 5 7/8% senior notes at par.

Underwriters Scotia Capital Inc., CIBC World Markets Inc. and National Bank Financial Inc. led the deal and the syndicate included Cormark Securities Inc., GMP Securities LP, AltaCorp Capital Inc., BMO Nesbitt Burns Inc., Raymond James Ltd., RBC Dominion Securities Inc. and TD Securities Inc.

Proceeds were to be used for the early redemption in full of AGT Food’s 9% senior secured second-lien notes due 2018 and repayment of debt under certain credit facilities, including revolver debt, which will be available for future re-borrowings that may be used for general corporate purposes.

The food processor and splitter of pulse crops is based in Regina, Sask.

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