2016 Annual Report For Web 7.3MB

crop events by having exposure to the total investment in the vast global
agriculture infrastructure. We believe that our urgency to change and
grow will allow us to sustain and improve our growth metrics.
We frequently use adjusted EBITDA in our reporting because, as
mentioned, we believe it provides a useful representation of the core
earning power of our business. I want to assure you that we are
focused on core cash generation and use the adjusted numbers for
perspective and to make comparisons between periods more relevant.
Each year tends to have many moving pieces but FX has been a sizeable
adjustment in many years as we account for hedging contracts and
the impact of translation. These hedging contracts have been both
positive and negative over the years however we had substantial FX
hedging losses in 2015 and 2016 as the USD jumped to current levels
from a band much closer to par when the hedges were put in place. We
have made changes to our hedging policies to reduce the use of long
dated forward positions and we expect to substantially reduce these FX
adjustments going forward.
There has been some talk of stock based compensation throughout
North American markets recently. Stock based compensation is a key
part of our culture as we encourage everyone in our business to have
a sense of ownership in our business. People fundamentally behave
differently as owners. We include stock based compensation in our
adjusted EBITDA to best reflect earnings power. While there are many
moving pieces, our goal is to minimize the adjustments going forward,
and, as always, we will include a table detailing our adjustments.
As of the end of 2016 we had twenty-five operating teams at the
businesses within AGI. Our culture is based on decentralized leadership
combined with a structure meant to encourage entrepreneurial
management of our businesses. This culture and structure is only
possible with great people and leaders across the twenty-five groups.
In 2016, our leaders and employees did a fantastic job while dealing with
a tough year in agriculture in many areas around the world. We had
fantastic results from businesses in both our Farm and Commercial
groups. Of course, there were some businesses that saw reductions
in results due to the softness in the US farm market, however these
businesses remained focused on customers, products and service and,
through disciplined management, dealt with season to season changes
while also maintaining our long-term commitment to our markets and
customers.
Toward the end of 2015, we formally reorganized our business to have
a Farm group and a Commercial group. This structure is meant to be
very simple, and is based on providing value to our customers. How and
what we sell to grain producers on the Farm side is different than how
we best serve our Commercial customers who are moving that grain
from the farm gate to end markets. Each AGI group must focus on
adding value for our customers. A very simple concept that is often so
difficult to put in place and execute on in any business. We like simple,
we like to add value, and we believe this structure had a material
impact on building the momentum we saw in 2016 and will contribute
significantly to our performance going forward.
All five of our 2016 acquisitions were on the Commercial side of our
business, providing balance to the sizeable investment we made in
Westeel in 2015, which resides in our Farm group. We made substantial
progress in building our fertilizer equipment platform. The additions
of NuVision, Mitchell Mill Systems (Mitchell), and Yargus transformed
our capabilities in fertilizer markets, positioning AGI as the leading
provider in North America with unique, turnkey, design, manufacture,
build capabilities for fertilizer facilities in Canada. We now have
industry leading technology and products for handling and blending
fertilizer. Fertilizer is a planting story and grain is a harvesting story,
the combination of the two intrinsically linked markets brings material
diversification to our demand drivers and cash flow profile. We have
enormous growth potential in the fertilizer space globally as grain
producers adopt precision agriculture technologies which facilitate
very sophisticated use of all inputs. We will continue to invest in this
platform and grow from a predominantly North American base to a
diversified global business. We were very lucky to have VIS, NuVision,
Mitchell, and Yargus join AGI to form our fertilizer platform and we
never forget the trust that the founders of these companies have placed
in AGI to carry on the goals, culture and legacy of these businesses.
The other two 2016 acquisitions were international businesses that
expanded our reach to new markets and customers globally. In early
2016, we purchased the remaining 49% of Frame to bring 100% of
this business and team into AGI. Frame is a grain bin manufacturer
based in Italy and through this business we are selling into over
fifteen incremental countries. Frame has performed very well and is
positioned to continue to grow as we combine our other product lines
and utilize Italy as a hub for managing our growth into Europe, the
Middle East, North Africa and Asia. We are also very excited about our
entry into Brazil in 2016. We purchased a relatively small company that
brought us new products and a team of people with expertise in this
complicated market. Immediately after closing our deal with Entringer
we started building a greenfield manufacturing facility as our base in
Brazil. This facility has been coming together throughout 2016 and 2017
and is on track for our scheduled commissioning in the second half of
2017. We assembled a team from across our businesses to bring best
practices and decades of experience to this ambitious project. This team
has done a fantastic job to plan and execute this engineering intensive
project and has positioned AGI for decades of growth and success in
South America. Brazil has a massive corn and soybean crop that is
growing every year and is placing enormous stress on the country’s
logistics infrastructure, resulting in significant problems that start with
crop losses in transport, cascade to long delays in delivering the crop
to domestic and international customers, and result in lost revenue and
profit for our customers. We believe that there is incredible opportunity
for Brazil to invest in, modernize and expand the nation’s seed,
fertilizer, grain, and feed infrastructure to eliminate losses and realize
the full potential of this agriculture based country.
As we move into 2017, we are working to maintain and build on the
positive momentum we have across AGI. We are making substantial
investments in our people and structure in every region and business
because we know that investing in our people always pays off. A major
component of our investment is focused on recognizing the importance
of engineering across everything we do as designers and manufacturers
of the equipment that forms the critical global infrastructures that
facilitate the daily, global flow of bulk agriculture products. Engineering
is at the heart of AGI and we are investing in the people and structure
to ensure that our experience and expertise is translated into the
confidence and value that our customers require.
Lastly, we are excited about the enormous potential for continued
growth in AGI. AGI has grown from a focus on portable grain handling
equipment 20 years ago to now being active in fertilizer, seed, grain,
feed and food processing equipment. We are building and executing
on strategies to grow in all five of these segments to continue to
diversify, stabilize and build on our momentum. We now define our
addressable markets as “Field to Consumer” as our growth has linked
and created opportunities from the nutrients plants require, the seed
being planted, to the feed and food being consumed by animals and
people. The equipment required to facilitate the handling, conveyance,
storage, treating and processing of the millions of tons of seed, fertilizer
and grain is truly enormous and forms the critical backbone of the
global infrastructure required to feed the world’s population. This is a
theme that we will speak to frequently going forward as we expand our
horizons and pursue our core growth and diversification strategy.
On behalf of the entire AGI team and Board of Directors we thank you,
our shareholders, for the continued support.
Tim Close, Director, President and Chief Executive Officer
07 CEO MESSAGE
FIELD TO CONSUMER
2016 ANNUAL REPORT
CEO MESSAGE 08