Ag Growth Income Fund, a manufacturer of augers and other grain handling equipment, recorded $56 million in sales in the second quarter of 2008, up from $35 million in the same period last year.
The Winnipeg-based fund attributed the 60 percent gain in revenue primarily to increased production in its Westfield division, which employs 275 people at its manufacturing plant in Rosenort, Man., 40 kilometres south of Winnipeg.
Production of augers, measured in truckloads shipped, jumped 47 percent from April 1 to June 30, compared to the same three month period in 2007, Ag Growth announced Aug. 13.
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“The completion of the Westfield capacity improvement initiative counts as one of the fund’s most important achievements,” said Rob Stenson, chief executive officer of Ag Growth.
He said Westfield is now producing 21 loads per week, versus 12 1/2 truckloads per week in 2007.
Even with the production gains, Westfield is not saturating the market with augers, Stenson said.
“I’m pleased to say that despite the capacity coming out of the plant, we’re not wiping out the backlog (of orders),” he said. “We have exceptional demand with this type of run rate…. And we’re pretty optimistic at what’s coming ahead.”
The gains in auger sales helped Ag Growth post net earnings of $7.4 million in the three months ending June 30. The profit represents an increase of $12.3 million from last year, when the fund lost $4.9 million in the second quarter.
Over the first six months of 2008, Ag Growth reported net earnings of $9.35 million, up significantly from a $715,000 profit in the first half of 2007.
The substantial gains in profitability stem from an $11.1 million income tax expense in 2007, related to the impending change in tax status for income trusts.
In a release, Ag Growth pointed to a “robust agricultural sector” for the fund’s strong performance in 2008.
“I’m pretty impressed with the numbers coming out of Westfield, (it’s) a better quarter than I expected,” said Jason Zandberg, an analyst with PI Financial in Vancouver.
Ag Growth said financial returns may have been even stronger, but were held back by “labour productivity” issues at its Edwards-Twister division in Lethbridge. Ag Growth recently combined Edwards, which manufactures grain drying equipment, and grain bin maker Twister.
Nonetheless, the fund remains optimistic about the Edwards-Twister division, especially the potential for grain bin sales overseas.
“Kazakhstan, Russia, we’re seeing more activity and inquiries out of western Europe and we’re seeing a potential resurgence in demand in the Australian market,” said Stenson, who added the company is still working to establish infrastructure overseas.
Ag Growth is also coping with steel costs, which have jumped 20 to 60 percent from early in 2008, depending on the type of steel.
“There’s some rumours that there’s a chance this fall for a price pullback (for steel) … but it’s hard to predict these steel markets,” Stenson said.
The rising input costs have forced Westfield to increase auger prices.
According to a dealer in eastern Manitoba, the price of a Westfield MK100 has increased 15 percent since August 2007, going from $8,000 to $9,000.
During a conference call with Stenson, investment analyst Peter Brieger of Globeinvest Capital Management in Toronto asked if there is a limit to increases before farmers begin to balk at the higher prices.
Stenson answered that’s a consideration for Ag Growth, but in view of the big picture, augers are something producers need and represent a fraction of a farmer’s costs.
