Growth International
Annual Report 2018

Plain-text annual report

2018 Annual Report 2 018 A N N U A L R E P O R T CEO’s Message 4 AGI 2018 ANNUAL REPORT Tim Close President & CEO, AGI We formally outlined our 5-6-7 strategy in early 2018 and, in doing so, entered a new era for AGI. Our 5-6-7 vision broadened our perspective from farm equipment to food infrastructure. Pursuit of this expanded strategy resulted in strong performance in 2018, with a robust 24% increase in trade sales to $934 million and 22% growth in adjusted EBITDA to $148 million. Solid execution by our teams resulted in organic sales growth of 13% for the year and, in a year light on acquisitions, we made significant progress on the transformation of AGI. The transformation of AGI is driven by an urgency to gain the scale and diversification that will deliver market leading solutions to our customers and in doing so create a business that is resilient to economic cyclicality and regional seasonality. In 2018 we made significant progress in building our engineering resources, redesigning our business structure and mapping out the digital tools required to facilitate the next stage of our growth. Our 5-6-7 strategy redefined our business in terms of growth opportunities, demand drivers and risks, and it is a high priority of mine to effectively communicate the impact of this transformation. AGI began its journey as a manufacturer of portable grain handling equipment, and questions from many stakeholders still remain focused on the profile of AGI in its earlier years. While portable augers and conveyors remain a core component of AGI, it is important for stakeholders to understand the expanded scope and scale of AGI, and that our business has evolved well beyond its origins. We now supply equipment to support the world’s food infrastructure. AGI is typically grouped with agriculture equipment manufacturers, but let’s be clear, the food infrastructure market is distinctly different than the agriculture equipment market. Agriculture equipment, as typically defined, consists of planters, tractors and combines; it’s the equipment that operates in the fields and is required to plant, protect, and harvest a crop. AGI does not operate in the field – we provide solutions for each stage of the food production cycle except the plant, protect, harvest stage. We provide the infrastructure that brings inputs to the field and then moves the grain post-harvest to consumption. The difference is important as it speaks to demand drivers, business model, opportunity profiles, and exposure to cyclicality and seasonality. AGI’s fundamental demand drivers are related to volume, trade and consumption patterns. Volume of inputs, volume of crops. Trade flows required to facilitate exports and imports, consumption and food security. The demand drivers for on-field agriculture equipment markets are tied to the efficiency and maturity of the ‘plant, protect and harvest’ fleet as well as farmer income. Crop prices change significantly, up and down, impacting more discretionary timing decisions on fleet replacement or fleet growth. E G A S S E M S ’ O E C 5 AGI 2018 ANNUAL REPORT If an entire business is focused on-field, this paradigm leads to high sensitivity to crop prices. Generally speaking, global crop prices move uniformly with high correlation, making it difficult to mitigate this exposure through the geographic expansion of the same model. Contrast this with AGI’s markets. Our focus is the infrastructure that leads to the field then from the field to trough or plate. Yes, crop prices can impact some of our markets, and especially decisions made on the farm, however our business model allows us to diversify across the value chain, geographically and by customer. We provide solutions for inputs, grain on the farm, grain as it travels from farm to market, exports, imports, and at the final stage of the value chain, we provide solutions for feed and food processing. And we operate in all grain production and consumption markets globally. Food infrastructure markets are tied to consumption and volume – consumption drives volume. Let’s take a minute to think about consumption. Roughly 8 billion people to feed each day. There are also over 25 billion animals being fed each day for protein production, multiplied by production cycles, the world requires hundreds of billions of pounds of animal-based protein production annually. On top of this, there are over 50 billion tonnes of farmed fish produced each year plus over 500 million pets around the world. Each pound of protein produced requires anywhere from 5 to 12 pounds of feed. Massive volumes, constant and urgent demand. In the context of assessing AGI’s markets, consumption is a powerful, hungry word that necessitates a robust global infrastructure. This infrastructure must be built, maintained and must operate efficiently and through economic cycles as stomachs must be filled regardless of GDP growth. ‘Plant, protect, harvest’ activity is periodic and only a part of the total food production value chain whereas input and grain storage, conditioning, trade and processing for consumption is constant. Hundreds of millions of tons of fertilizer, seed, chemical, grains, all moving daily, being processed daily. Constant and critical facilities and operations that require robust annual investment to maintain, grow and improve capacity to ensure global food security. This is AGI’s market. Growth, by Design. Over the past 22 years we have brought together leading products and services that form the foundation to build our 5-6-7 vision. Our challenge today is to design the products and processes to consistently deliver leading quality systems for our customers in every crop production and food consumption market. Design is also a powerful word that simply communicates the bringing together of experience and expertise to purposely create a solution to a problem. Designing our path forward captures the next stage of AGI’s evolution as we focus on designing our sales, engineering and production processes then partnering with our customers to design and optimize their facilities. E G A S S E M S ’ O E C 6 AGI 2018 ANNUAL REPORT Designing the right business model and processes during our transformation and growth is our focus today. To guide our design, we follow a few simple equations based on the priorities of our customers: consistency and high-quality produces reliability, reliability and scale produce confidence, and ultimately confidence delivers market share. To execute on these simple elements around the world we are building high functioning teams with the talent to execute. As we bring together the companies that form AGI we are focused on the business design and structure that will enable the core elements of our strategy; consistency, quality, and reliability. We have been working on our transformation for years, both in terms of geographic reach and our business model. We have been expanding into new platforms, new products, new services and new markets each year in pursuit of this global objective. In 2018 we grew our platform in North America, South America, Europe, and Africa. To kick off 2019 we grew into Asia. We have moved from selling in less than 10 countries in 2014 to over 100 countries today. Fundamental change in the markets we operate in and the growth opportunities in front of AGI. We made good progress on designing the next stage of AGI in 2018 however we have much work to do to achieve the base line goals that we have in each of our businesses. 2019 will see continued investment in developing the tools, structure and people that we require to improve our performance and execution. Our mantra today is: collaborate and communicate, internally and externally. With the recent platform additions of Milltec Machinery and IntelliFarms we now have the expanded foundation to build out our business in Asia, in processing equipment globally and in the advanced technologies that add the sensors and automation to deliver practical and important data to our customers. Together with the rest of AGI I have never been more excited about our business, our people and the opportunities we have before us. I would like to thank the entire AGI team and our partners for working together toward our 5-6-7 vision. Transformation is exciting; however, it is also difficult as we must create, and not just maintain, the products, processes, the means to communicate, educate, sell and execute, and each part of our business must be challenged on a daily basis to find ways to improve. I know that the people in AGI are more than ready for the challenge. On behalf of our board, our employees and your management team, thank you for your continued support. Tim Close President & CEO, AGI E G A S S E M S ’ O E C 7 AGI 2018 ANNUAL REPORT Management’s Discussion & Analysis 8 AGI 2018 ANNUAL REPORT 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, 2018. The financial information contained in this MD&A has been prepared in accordance with International Financial Reporting Standards [“IFRS”]. All dollar amounts are expressed in Canadian currency, unless otherwise noted. Throughout this MD&A references are made to “trade sales”, “EBITDA”, “adjusted EBITDA”, “gross margin”, “funds from operations”, “payout ratio”, “adjusted profit” and “diluted adjusted profit per share”. A description of these measures and their limitations are discussed below under “Non-IFRS Measures”. This MD&A contains forward-looking information. Please refer to the cautionary language under the heading “Risks and Uncertainties” and “Forward-Looking Information” 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.sedar.com]. Summary of Results [thousands of dollars except per share amounts] Trade sales [1][2][4] Adjusted EBITDA [1][3][4] Profit [4] Diluted profit per share [4] Adjusted profit [1][4] Diluted adjusted profit per share [1][4][5] Three-months Ended December 31 Year Ended December 31 2018 $ 214,195 28,014 (11,861) (0.66) 11,766 0.66 2017 $ 167,691 19,715 (1,800) (0.11) 3,319 0.20 2018 $ 934,063 148,195 26,618 1.56 58,148 3.38 2017 $ 750,287 121,797 33,664 2.08 37,917 2.35 [1] See “Non-IFRS Measures”. [2] See “Operating Results – Year Ended December 31, 2018 – Trade Sales” and “Operating Results – Three Months Ended December 31, 2018 – Trade Sales”. [3] See “Operating Results – Year Ended December 31, 2018 - EBITDA and Adjusted EBITDA” and “Operating Results – Three Months Ended December 31, 2018 – EBITDA and Adjusted EBITDA”. [4] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. [5] See “Detailed Operating Results – Year Ended December 31, 2018 – Diluted profit per share and diluted adjusted profit per share” and “Operating Results – Three Months Ended December 31,2018 - Diluted profit per share and diluted adjusted profit per share”. Trade sales and adjusted EBITDA increased significantly in the fourth quarter of 2018 due to strength in international markets, continued momentum in the Canadian Commercial market and contributions from acquisitions. Adjusted EBITDA as a percentage of sales in the quarter reflected seasonal patterns and was consistent with 2017. AGI Brazil posted a loss for the quarter, despite an increase in sales, largely due to a significant warranty provision related to damaged steel and expenses incurred in delivery and assembly as we improve our distribution model in Brazil. In the quarter, net profit was negatively impacted by a non-cash foreign exchange loss on U.S. dollar denominated debt and a non-cash loss on the Company’s equity compensation swap, however adjusted profit and profit per share increased significantly compared to the prior year. Trade sales and adjusted EBITDA for the year ended December 31, 2018 were at record levels, significantly exceeding 2017 results. Farm sales increased over 2017 as higher sales in the U.S. and contributions from acquisitions more than offset an expected decrease in Canada from record 2017 levels. Continued momentum in the Canadian grain and fertilizer platforms along with robust international demand resulted in a significant increase in Commercial sales over the prior year. Net profit was negatively impacted by the non-cash foreign exchange loss on U.S. dollar denominated debt and the non-cash loss on the Company’s equity compensation swap, however adjusted profit and profit per share increased significantly compared to the prior year. AGI entered 2019 with record backlogs and anticipates continued momentum in both its Farm and Commercial businesses (see “Outlook”). S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 9 AGI 2018 ANNUAL REPORT Basis of Presentation - Acquisitions When comparing 2018 results to 2017, we have in some cases noted the impact of acquisitions made in 2017 and 2018. When noted, both the 2017 and 2018 periods exclude results from the acquisitions of Global Industries, Inc. [“Global”] [April 4, 2017], CMC Industrial Electronics Ltd. and CMC Industrial Electronics USA, Inc. [collectively, “CMC”] [December 22, 2017], Junge Control, Inc. [“Junge”] [December 28, 2017], Danmare Group Inc. and its affiliate Danmare, Inc. [collectively, “Danmare”] [February 22, 2018] and Cobalt Investissement and its wholly owned subsidiaries [collectively “Sabe”] [July 26, 2018]. In the disclosure that follows, CMC, Junge, Danmare,Sabe and Sentinel Building Systems [steel buildings] of Global are categorized as Commercial divisions. MFS, York and Brownie [collectively, “MFS”] [storage bins, stationary grain handling equipment, and structural components], Hutchinson and Mayrath [“Hutch”] [portable and stationary grain handling equipment] and NECO [grain dryers and aeration equipment] operating divisions of Global are categorized as Farm divisions. Outlook Successive large crops in the United States and market expectations for another large planting in 2019, coupled with recent underinvestment in grain storage, has resulted in an on-farm storage deficit in the U.S. Accordingly, although farmer economics in the U.S. remain challenged, AGI anticipates strong demand for grain storage systems in 2019. In addition, sales of portable grain handling equipment are expected to benefit from high crop volumes and the replacement nature of the product. In Canada, Farm economics remain positive and management anticipates strong demand in 2019. As a result, AGI’s sales order backlog for grain storage systems and portable grain handling equipment is significantly higher than the prior year. However, in both the U.S. and Canada, a long and challenging winter has impacted deliveries and pushed sales from Q1 2019 into Q2 2019. Based on current conditions, management anticipates that total Farm sales and adjusted EBITDA in 2019 will exceed 2018 results. AGI’s Commercial backlog in Canada remain very strong due to continued investment in Canadian commercial grain handling and fertilizer infrastructure, and accordingly management anticipates robust sales in 2019. In the United States, Commercial activity is expected to remain stable compared to 2018. AGI’s international sales backlog is significantly higher than the prior year and momentum is expected to continue throughout 2019 due to strong levels of quoting activity in most regions, including EMEA and Latin America. Accordingly, Commercial backlogs in Canada and offshore remain significantly higher than the prior year. Commercial sales are expected to be weighted towards the second half of 2019 due to challenging winter conditions in North America and customer construction schedules. Overall, management anticipates sales and adjusted EBITDA related to Commercial equipment in 2019 will exceed strong 2018 results. AGI Brazil entered 2019 with a record sales order backlog that includes a strong Farm component as well as substantial South American commercial projects. New order intake has accelerated over recent quarters and momentum is expected to continue in 2019. Margins are expected to improve in 2019 and over the longer term as AGI continues to apply lean practices on all aspects of the organization, including manufacturing, logistics and customer service. Accordingly, management anticipates adjusted EBITDA in Brazil in 2019 will be higher than the prior year and further improvements are expected over the long-term, however quarterly results may vary as AGI Brazil navigates the complexities of being a start-up company with ambitions of rapid growth in Brazil. In summary, management anticipates 2019 sales and adjusted EBITDA will increase significantly compared to the prior year. The anticipated growth compared to 2018 is expected to be weighted towards the second half of 2019 due to difficult winter conditions in North America and customer construction schedules. Overall, positive Farm demand drivers in North America are expected to drive sales growth in grain storage systems and portable handling equipment and Commercial sales are anticipated to be very strong in Canada and internationally. Based on existing backlogs, quoting activity and positive demand drivers, management expects record results in 2019 and looks forward with excitement to the upcoming fiscal year. On March 11, 2019, AGI announced that it had entered into binding purchase agreements to acquire 100% of the outstanding shares of Milltec Machinery Limited (“Milltec”) for $109.5 million, plus the potential for up to an additional $38.4 million based on the achievement of financial targets. The transaction will be funded by AGI’s revolving credit facility. For the twelve months ended January 31, 2019, Milltec’s sales and EBITDA were $56.2 million and $10.1 million, respectively. Milltec’s sales reflect agricultural seasonality in India, and historically approximately 70% of their sales have occurred in the first and fourth calendar quarters. Trade sales and adjusted EBITDA in 2019 will be influenced by, among other factors, weather patterns, crop conditions, the timing of harvest and conditions during harvest and changes in input prices, including steel. The Company endeavors to mitigate its exposure to higher input costs through strategic procurement of steel, sales price increases and limiting the length of time commercial quotes remain valid, however the pace and volatility of input price increases may negatively impact financial results. Other factors that may impact results in 2019 include the impact of existing and potential future trade actions, the ability of our customers to access capital, the rate of exchange between the Canadian and U.S. dollars, changes in global macroeconomic factors as well as sociopolitical factors in certain local or regional markets, and the timing of Commercial customer commitments and deliveries. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 10 AGI 2018 ANNUAL REPORT Operating Results Year Ended December 31, 2018 Trade Sales[1] [see “Non-IFRS Measures” and “Basis of Presentation - Acquisitions”] Trade Sales[1] by Category [thousands of dollars] Farm Farm – acquisitions Total Farm Year Ended December 31 2018 $ 2017 $ Change $ 934,063 750,287 183,776 (2,399) (890) (1,509) Commercial 931,664 749,397 182,267 Commercial - acquisitions [thousands of dollars] Trade sales [1] Foreign exchange loss [2] Total sales [1] Trade Sales[1] by Geography Year Ended December 31 2018 $ 2017 $ 301,658 308,763 147,609 88,578 449,267 397,341 428,985 339,257 55,811 13,689 Change $ (7,105) 59,031 51,926 89,728 42,122 Year Ended December 31 [thousands of dollars] 2018 $ 2017 $ Canada, excluding acquisitions 318,730 278,405 Acquisitions Total Canada 11,048 1,699 329,778 280,104 U.S., excluding acquisitions 236,061 242,800 Acquisitions Total U.S. 147,307 80,244 383,368 323,044 International, excluding acquisitions 175,853 126,815 Acquisitions Total International 45,064 220,917 20,324 147,139 Change $ 40,325 9,349 49,674 (6,739) 67,063 60,324 49,038 24,740 73,778 Total excluding acquisitions Total acquisitions Total Trade Sales [1] 730,644 648,020 203,419 102,267 934,063 750,287 82,624 101,152 183,776 Total Commercial 484,796 352,946 131,850 Total Trade Sales [1] 934,063 750,287 183,776 [1] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. [2] A portion of foreign exchange gains and losses are allocated to sales. Canada • Trade sales in Canada, excluding acquisitions, increased 14% over 2017, respectively, due to strong Commercial sales in both the grain and fertilizer markets. Farm sales decreased against a strong 2017 comparative in part because poor weather conditions late in 2018 resulted in lower sales of storage equipment. AGI’s Commercial backlog in Canada remains at heightened levels. • Sales from acquisitions relate primarily to sales of NECO grain dryers, a key element of AGI’s acquisition of Global in 2017. AGI will continue to focus on market share growth in what we anticipate will be a growing Canadian grain drying market. United States • Excluding acquisitions, trade sales in the United States decreased 3% over 2017 as strong sales of portable grain handling equipment was offset by lower Commercial sales. • Trade sales from acquisitions in the United States remained strong as demand for MFS and Hutch equipment increased compared to pre-acquisition levels due to improving market dynamics for grain storage systems and other handling equipment. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 11 AGI 2018 ANNUAL REPORT EBITDA and Adjusted EBITDA [6] [see “Non-IFRS Measures” and “Basis of Presentation – Acquisitions”] The following table reconciles profit from continuing operations before income taxes to EBITDA and Adjusted EBITDA. International • International sales, excluding acquisitions, increased 39% over 2017 primarily due to increased activity in EMEA and AGI’s increasing share of wallet in international projects. In addition, sales at AGI Brazil increased significantly over 2017. AGI’s international backlog entering 2019 was well above the record backlog reported a year ago entering 2018. The backlog is geographically diverse, with particular strength in EMEA and South America. • International sales from acquisitions relate primarily to Sabe and to offshore sales from MFS and Sentinel, which were concentrated in EMEA and Southeast Asia. Gross Margin [see “Non-IFRS Measures” and “Basis of Presentation - Acquisitions”] [thousands of dollars] Profit from continuing operations before income taxes IFRS 15 adjustment [6] Year Ended December 31 Profit from continuing operations before income taxes - adjusted [thousands of dollars] Trade sales [1][2] Cost of inventories [2] Gross margin [1][2] 2018 $ 934,063 643,467 290,596 2017 $ 750,287 513,140 237,147 Gross margin as a % of trade sales 31.1% 31.6% [1] See “Non-IFRS measures”. [2] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. Finance costs Depreciation and amortization EBITDA Loss (gain) on foreign exchange Share based compensation Loss (gain) on financial instruments [2] M&A expenses Other transaction and transitional costs [3] Loss on sale of PP&E Loss (gain) on disposal of assets held for sale Fair value of inventory from acquisitions [4] Impairment [5] Adjusted EBITDA [1][6] Year Ended December 31 2018 $ 38,564 — 2017 $ 47,200 1,532 38,564 45,668 37,067 33,031 108,662 19,004 8,003 2,061 2,283 6,582 193 (8) 1,183 232 35,708 29,474 110,850 (11,578) 8,057 (357) 1,259 7,506 46 (955) 5,037 1,932 148,195 121,797 [1] See “Non-IFRS Measures”. [2] See “Equity Compensation Hedge”. [3] Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors. [4] Non-cash expenses related to the sale of inventory that acquisition accounting required be recorded at a value higher than manufacturing cost. [5] To record assets held for sale at estimated fair value. [6] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M T R O P E R L A U N N A 8 1 0 2 I G A 12 AGI 2018 ANNUAL REPORT Detailed Operating Results [3] [thousands of dollars] Sales Trade sales IFRS 15 adjustment [3] Trade sales - adjusted Foreign exchange loss Cost of goods sold Cost of inventories IFRS 15 adjustment [3] Cost of inventories - adjusted Depreciation /amortization Selling, general and administrative expenses SG&A expenses M&A expenses Other transaction and transitional costs [2] Depreciation/amortization Other operating expenses Loss on disposal of PP&E Gain on disposal of assets held for sale Loss (gain) on financial instruments Other Year Ended December 31 Impairment charge 2018 $ 2017 $ Finance costs Finance expense (income) 934,063 755,605 Profit from continuing operations before income taxes — (5,318) Income tax expense 934,063 (2,399) 931,664 750,287 Profit for the period from continuing operations (890) Profit from discontinued operations 749,397 Profit for the period 643,467 516,926 Profit per share Basic Diluted 232 37,067 16,403 1,932 35,708 (12,587) 38,564 45,668 11,946 26,618 — 12,045 33,623 41 26,618 33,664 1.58 1.56 2.11 2.08 — 643,467 20,038 663,505 (3,786) 513,140 19,075 532,215 154,056 131,942 2,283 6,582 12,993 175,914 193 (8) 2,061 (2,267) (21) 1,259 7,506 10,399 151,106 46 (955) (357) (3,379) (4,645) [1] See “Non-IFRS Measures”. [2] Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors. [3] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. Impact of Foreign Exchange Gains and Losses on Foreign Exchange The 2018 loss on foreign exchange was a non-cash loss and related primarily to the translation of the Company’s U.S. dollar denominated long-term debt at the rate of exchange in effect at the end of the year. The loss on foreign exchange in 2017 also related to the impact of non-cash translation, but also included a realized loss on foreign exchange forward contracts of $0.7 million. As at December 31, 2018, AGI has no outstanding foreign exchange contracts. See also “Financial Instruments – Foreign exchange contracts”. Sales and Adjusted EBITDA AGI’s average rate of exchange in fiscal 2018 was $1.29 [2017 - $1.31]. A stronger Canadian dollar relative to the U.S. dollar results in lower reported sales for AGI, as U.S. dollar denominated sales are translated into Canadian dollars at a lower rate. Similarly, a stronger Canadian dollar results in lower costs for U.S. dollar denominated inputs and SG&A expenses. In addition, a stronger Canadian dollar may result in lower input costs of certain Canadian dollar denominated inputs, S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 13 AGI 2018 ANNUAL REPORT including steel. On balance, adjusted EBITDA decreases when the Canadian dollar strengthens relative to the U.S. dollar. Selling, General and Administrative Expenses [“SG&A”] SG&A expenses in 2018 excluding M&A expenses, other transaction expenses and depreciation/amortization, were $154.1 million [16.5% of trade sales], versus $131.9 million [17.5%] in 2017. Excluding acquisitions, SG&A expenses in 2018 were $121.8 million [16.7% of trade sales] versus $113.5 million [17.5%] in 2017. Variances to the prior year include the following: • Sales & marketing expenses increased $2.9 million as AGI strategically invested in market growth initiatives including enhancements to its sales force, branding and its digital platform. Management anticipates these expenses will be ongoing. • Bad debt expense decreased due primarily to recovery of an insured receivable expensed in previous years. • No other individual variance greater was than $1.0 million. Finance Costs Finance costs in 2018 were $37.1 million [2017 - $35.7 million]. The increase compared to 2017 is largely the result of a $1.6 million expense related to the accelerated amortization of deferred finance fees. AGI refinanced its credit facility in Q4 2018 and accordingly AGI expensed all remaining deferred fees related to its previous senior credit facility. Finance Expense (income) Finance expense in 2018 was $16.4 million [2017 - $(12.6) million]. The expense (income) in both periods relates primarily to non-cash translation of the Company’s U.S. dollar denominated long-term debt at the rate of exchange in effect at the end of the year. Other Operating Income Other operating income in 2018 was $0.02 million [2017 - $4.6 million]. Other operating income includes non-cash gains and losses on financial instruments [see “Equity Compensation Hedge”]. The decrease in 2018 is primarily the result of losses related to the equity swap and reduction in income related to the delivery of equipment in accordance with the share purchase agreement with NuVision, partially offset by a gain on the Company’s interest rate swap [see “Financial Instruments”]. Depreciation and amortization Depreciation of property, plant and equipment and amortization of intangible assets are categorized in the income statement in accordance with the function to which the underlying asset is related. The increase in 2018 primarily relates to the acquisitions of Global, CMC, Junge, Danmare and Sabe. Income tax expense Current income tax expense Tax expense in 2018 was $10.5 million [2017 - $6.7 million]. Current tax expense relates primarily to AGI’s U.S. and Italian subsidiaries. Deferred income tax expense Deferred tax expense in 2018 was $1.4 million [2017 - $5.3 million]. Deferred tax expense in 2018 relates to the decrease of deferred tax assets plus an increase in deferred tax liabilities that relate to recognition of temporary differences between the accounting and tax treatment of property, plant and equipment, Canadian exploration expenses and share based compensation. Upon conversion to a corporation from an income trust in June 2009 [the “Conversion”] the Company received certain tax attributes that may be used to offset tax otherwise payable in Canada. The Company’s Canadian taxable income is based on the results of its divisions domiciled in Canada, including the corporate office, and realized gains or losses on foreign exchange. As at December 31, 2018, the balance sheet asset related to these tax attributes is nil. Since the date of Conversion, a cumulative amount of $55.0 million has been utilized. Utilization of these tax attributes is recognized in deferred income tax expense on the Company’s income statement. Effective tax rate [thousands of dollars] Current tax expense Deferred tax expense Total tax Profit from continuing operations before income taxes [1] Total tax % Year Ended December 31 2018 $ 10,517 1,429 11,946 2017 $ 6,712 5,333 12,045 38,564 45,668 31.0% 26.4% [1] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. The effective tax rate in 2018 was impacted by items that were included in the calculation of earnings before tax for accounting purposes but were not included or deducted for tax purposes. Significant items are included in the tables under S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 14 AGI 2018 ANNUAL REPORT “Diluted profit per share and Diluted adjusted profit per share”. The effective tax rate in 2018 was also impacted by the United States corporate income tax rate decrease. Diluted profit per share and diluted adjusted profit per share [5] Diluted profit per share in 2018 was $1.56 [2017 - $2.08[5]]. Profit per share in 2018 and 2017 has been impacted by the items enumerated in the table below, which reconciles profit to adjusted profit: Sales [2] EBITDA [1][2] Year Ended December 31 Adjusted EBITDA [1][2] 2018 $ 931,664 108,662 Year Ended December 31 2017 $ 749,397 110,850 2016 $ 531,616 75,824 148,195 121,797 100,307 Selected Annual Information (thousands of dollars, other than per share amounts and payout ratio) [2] [thousands of dollars except per share amounts] Profit [5] Diluted profit per share [5] 2018 $ 26,618 1.56 2017 $ 33,664 2.08 Loss (gain) on foreign exchange 19,004 (11,578) Fair value of inventory from acquisition [2] M&A expenses Other transaction and transitional costs [3] Loss (gain) on financial instruments Loss on sale of PP&E Gain on disposal of assets held for sale Impairment charge [4] Non-cash accretion related to early redemption of the 2013 Convertible Debentures Adjusted profit [1] Diluted adjusted profit per share [1] 1,183 2,283 6,582 2,061 193 (8) 232 — 58,148 3.38 5,037 1,259 7,506 (357) (955) 1,932 1,363 37,917 2.35 [1] See “Non-IFRS Measures”. [2] Non-cash expenses related to the sale of inventory that acquisition accounting required be recorded at a value higher than manufacturing cost. [3] Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors. [4] To record assets held for sale at estimated fair value. [5] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. Profit from continuing operations [2] 26,618 33,623 18,953 Basic profit per share from continuing operations [2] Fully diluted profit per share from continuing operations [2] Profit [2] Basic profit per share [2] Fully diluted profit per share [2] 1.58 1.56 2.11 2.08 1.29 1.27 26,618 33,664 19,306 1.58 1.56 2.11 2.08 1.31 1.29 Funds from operations [1][2] 96,067 72,933 52,766 46 Payout ratio [1][2] Dividends declared per Common Share 42% 2.40 53% 2.40 67% 2.40 Total assets [2] 1,233,559 1,139,173 850,151 Total long-term liabilities [2] 569,642 568,373 480,821 [1] See “Non-IFRS Measures”. [2] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. The following factors impact comparability between years in the table above: • Acquisitions in 2017 and 2018 (see “Basis of Presentation – Acquisitions”) and the 2016 acquisitions of Entringer, NuVision, Mitchell and Yargus significantly impact information in the table above. • Sales, gain (loss) on foreign exchange, profit and profit per share are significantly impacted by the rate of exchange between the Canadian and U.S. dollars. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 15 AGI 2018 ANNUAL REPORT Quarterly Financial Information [thousands of dollars other than per share amounts and exchange rate]: Average USD/CAD Exchange Rate 1.26 1.29 1.31 1.31 1.29 2018 Sales $ Profit (Loss) $ 213,666 260,155 242,166 4,943 12,792 20,744 215,677 (11,861) 931,664 26,618 2017[1] Basic Profit (Loss) per Share $ Diluted Profit (Loss) per Share $ 0.30 0.78 1.26 (0.66) 1.58 0.30 0.75 1.14 (0.66) 1.56 Average USD/CAD Exchange Rate Sales $ Profit (Loss) $ Basic Profit (Loss) per Share $ Diluted Profit (Loss) per Share $ 1.32 1.35 1.26 1.27 1.31 154,536 221,065 206,614 167,182 749,397 5,127 14,749 15,588 (1,800) 33,664 0.33 0.92 0.97 (0.11) 2.11 0.33 0.88 0.92 (0.11) 2.08 Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4[1] YTD[1] [1] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. The following factors impact the comparison between periods in the table above: • AGI’s acquisitions of Global [Q2 2017], CMC [Q4 2017], Junge [Q4 2017], Danmare [Q1 2018] and Sabe [Q3 2018] significantly impacts comparisons between periods of assets, liabilities and operating results. See “Basis of Presentation - Acquisitions”. • Sales, gain (loss) on foreign exchange, profit (loss), and profit (loss) per share in all periods are impacted by the rate of exchange between the Canadian and U.S. dollars. Interim period sales and profit historically reflect seasonality. The second and third quarters are typically the strongest primarily due to the timing of construction of commercial grain and fertilizer projects and higher in-season demand at the farm level. The seasonality of AGI’s business may be impacted by several factors including weather and the timing and quality of harvest in North America. AGI’s continued expansion into the seed, fertilizer, feed and food verticals should lessen the seasonality related to annual grain volumes and harvest conditions. Operating Results Three Months Ended December 31, 2018 [thousands of dollars except per share amounts] Trade sales [1][2][4] Adjusted EBITDA [1][3][4] Profit (loss) [4] Diluted profit (loss) per share [4] Adjusted profit [1][4] Diluted adjusted profit per share [1][4][5] Three Months Ended December 31 2018 $ 214,195 28,014 (11,861) (0.66) 11,766 0.66 2017 $ 167,691 19,715 (1,800) (0.11) 3,319 0.20 [1] See “Non-IFRS Measures”. [2] See “Operating Results – Quarter Ended December 31, 2018 – Trade Sales”. [3] See “Operating Results – Quarter Ended December 31, 2018 – EBITDA and Adjusted EBITDA”. [4] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. [5] See “Detailed Operating Results - Diluted profit per share and diluted adjusted profit per share”. Trade sales and adjusted EBITDA increased significantly in the fourth quarter of 2018 due to strength in international markets, continued momentum in the Canadian Commercial market and contributions from acquisitions. Adjusted EBITDA as a percentage of sales in the quarter reflected seasonal patterns, and was consistent with 2017, as higher Farm margins including higher margins at Global were offset by the impact of sales mix within the Commercial group. AGI Brazil posted a loss for the quarter, despite an increase in sales, largely due to a significant warranty provision related to damaged steel and the deferral of a large commercial project into 2019. In the quarter, net profit (loss) was negatively impacted by a non-cash foreign exchange loss on U.S. dollar denominated debt and a non-cash loss on the Company’s equity comp swap, however adjusted profit and profit per share increased significantly compared to the prior year. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 16 AGI 2018 ANNUAL REPORT Trade Sales[1] [see “Non-IFRS Measures” and “Basis of Presentation - Acquisitions”] Trade Sales[1] by Category Three Months Ended December 31 [thousands of dollars] [thousands of dollars] Trade sales [1] 2018 $ 2017 $ 214,195 167,691 Foreign exchange (gain) loss [2] 1,482 (509) Total sales [1] 215,677 167,182 Change $ 46,504 1,991 48,495 Farm Farm - acquisitions Total Farm Commercial Commercial - acquisitions Total Commercial Three Months Ended December 31 Three Months Ended December 31 2018 $ 63,577 25,992 89,569 106,936 17,690 124,626 2017 $ 58,356 23,192 81,548 81,656 4,487 86,143 Change $ 5,221 2,800 8,021 25,280 13,203 38,483 Trade Sales[1] by Geography [thousands of dollars] Canada, excluding acquisitions Acquisitions Total Canada U.S., excluding acquisitions Acquisitions Total U.S. International, excluding acquisitions Acquisitions Total International 2018 $ 72,682 2,955 75,637 50,004 28,365 78,369 47,828 12,361 60,189 2017 $ 61,050 171 61,221 50,728 20,629 71,357 28,235 6,878 35,113 Total excluding acquisitions Total acquisitions Total Trade Sales [1] 170,514 43,681 214,195 140,013 27,678 167,691 Change $ 11,632 2,784 14,416 (724) 7,736 7,012 19,593 5,483 25,076 30,501 16,003 46,504 Total Trade Sales [1] 214,195 167,691 46,504 [1] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. [2] A portion of foreign exchange gains and losses are allocated to sales. Canada • Trade sales in Canada, excluding acquisitions, increased 19% compared to 2017 due to higher sales of portable handling and storage equipment and continued organic growth in the Canadian commercial market. • Sales from acquisitions in the quarter of $3.0 million benefited from higher sales of Neco dryers and the additions of CMC and Junge late in Q4 2017. United States • In the United States, trade sales excluding acquisitions approximated 2017 levels as Commercial sales remained stable while US Farm sales maintained pace with strong Q4 2017 sales • Trade sales from acquisitions in the United States of $28.4 million benefited from higher sales of Global product and the additions of CMC, Junge and Danmare. International • AGI’s international sales, excluding acquisitions, increased 69% over 2017, as AGI continued to deliver on a strong order backlog. The increase compared to the prior year is primarily due to higher sales in Brazil and EMEA. • International sales from acquisitions relate primarily to Global and the addition of Sabe in Q3 2018. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 17 AGI 2018 ANNUAL REPORT Gross Margin [see “Non-IFRS Measures” and “Basis of Presentation - Acquisitions”] [thousands of dollars] Trade sales [1][2] Cost of inventories [2] Gross margin [1] [2] Three Months Ended December 31 2018 $ 214,195 149,518 64,677 2017 $ 167,691 116,325 51,366 [thousands of dollars] Profit from continuing operations before income taxes Three Months Ended December 31 2018 $ 2017 $ (14,397) (2,272) IFRS 15 adjustment [6] — 1,532 Profit from continuing operations before income taxes – adjusted (14,397) (3,804) Gross margin as a % of trade sales 30.2% 30.6% [1] See “Non-IFRS measures”. [2] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. Historically, gross margin percentages are lower in the fourth quarter of a fiscal year due to lower sales volumes and preseason sales discounts. Margins in Q4 2018 remained consistent with the prior year as strong Farm margins were offset by lower margins in the Commercial group that were largely the result of sales mix. Selling, General and Administrative Expenses For the three months ended December 31, 2018, SG&A expenses, excluding acquisitions, were $30.1 million or 17.6% of trade sales (2017 - $28.4 million and 20.3%). As a percentage of sales, SG&A expenses in the fourth quarter of a fiscal year are generally higher than the annual percentage due to seasonally lower sales volumes. The increase, net of acquisitions, in Q4 2018 compared to Q4 2017 is primarily the result of the following: • Sales & marketing expenses increased $1.1 million as AGI strategically invested in market growth initiatives including enhancements to its sales force, branding and its digital platform. Management anticipates these expenses will be ongoing. • The remaining variance resulted from several offsetting factors with no individual variance larger than $1.0 million. EBITDA and Adjusted EBITDA [6] [see “Non-IFRS Measures” and “Basis of Presentation – Acquisitions”] The following table reconciles profit from continuing operations before income taxes to EBITDA and Adjusted EBITDA. Finance costs Depreciation and amortization EBITDA Loss on foreign exchange Share based compensation Loss (gain) on financial instruments [2] M&A expenses Other transaction and transitional costs [3] Loss on sale of PP&E Gain on disposal of assets held for sale Fair value of inventory from acquisitions [4] Impairment [5] Adjusted EBITDA [1][6] 8,968 8,798 3,369 9,084 1,018 10,562 833 3,108 48 (8) — — 28,014 10,972 7,168 14,336 1,491 1,623 (11) 289 644 1,012 (955) (1) 1,287 19,715 [1] See “Non-IFRS Measures”. [2] See “Equity Compensation Hedge”. [3] Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors. [4] Non-cash expenses related to the sale of inventory that acquisition accounting required be recorded at a value higher than manufacturing cost. [5] To record assets held for sale at estimated fair value. [6] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. Adjusted EBITDA for the three months ended December 31, 2018 was $28.0 million (2017 - $19.7 million). The increase from 2017 was primarily the result of higher Commercial sales in Canada and offshore and EBITDA related to acquisitions made in 2017 and 2018. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 18 AGI 2018 ANNUAL REPORT Diluted profit per share and diluted adjusted profit per share Diluted profit (loss) per share in 2018 was $(0.66) [2017 - $(0.11)]. Profit (loss) per share in 2018 and 2017 has been impacted by the items enumerated in the table below, which reconciles profit to adjusted profit: Three Months Ended December 31 funds are supplemented when necessary from external sources, primarily the Credit Facility [as defined below], to fund the Company’s working capital requirements, capital expenditures, acquisitions and dividends. The Company believes that the debt facilities and convertible debentures described under “Capital Resources”, together with available cash and internally generated funds, are sufficient to support its working capital, capital expenditure, dividend and debt service requirements. [thousands of dollars except per share amounts] Profit (loss) [5] Diluted profit (loss) per share [5] Loss on foreign exchange Fair value of inventory from acquisition [2] M&A expenses Other transaction and transitional costs [3] Loss on financial instruments Loss on sale of PP&E Gain on disposal of assets held for sale Impairment charge [4] Non-cash accretion related to early redemption of the 2013 Convertible Debentures Adjusted profit [1] Diluted adjusted profit per share [1] 2018 $ (11,861) (0.66) 9,084 — 833 3,108 10,562 48 (8) — — 11,766 0.66 2017 $ (1,800) (0.11) 1,491 (1) 289 644 (11) 1,012 (955) 1,287 1,363 3,319 0.20 [1] See “Non-IFRS Measures”. [2] Non-cash expenses related to the sale of inventory that acquisition accounting required be recorded at a value higher than manufacturing cost. [3] Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors. [4] To record assets held for sale at estimated fair value. [5] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. Liquidity and Capital Resources AGI’s financing requirements are subject to variations due to the seasonal and cyclical nature of its business. Our sales historically have been higher in the second and third calendar quarters compared with the first and fourth quarters and our cash flow has been lower in the first half of each calendar year. Internally generated Cash Flow and Liquidity [thousands of dollars] Profit before tax from continuing operations IFRS 15 adjustment [1] Profit before tax from continuing operations - adjusted Items not involving current cash flows Cash provided by operations Costs related to put option Net change in non-cash working capital [1] Non-current accounts receivable and other Long-term payables Settlement of EIAP obligation Income tax paid Cash flows provided by operating activities Cash used in investing activities Cash provided by financing activities Net increase (decrease) in cash from continuing operations during the period Net increase in cash from discontinued operations Cash, beginning of period Cash, end of period Year Ended December 31 2018 $ 38,564 — 38,564 81,794 120,358 — (63,017) (3,942) (280) (1,953) (9,975) 41,191 2017 $ 47,200 (1,532) 45,668 25,419 71,087 (48) (7,934) (4,180) — — (8,467) 50,458 (88,635) (213,519) 17,073 224,227 (30,371) 61,166 — 63,981 33,610 41 2,774 63,981 [1] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 19 AGI 2018 ANNUAL REPORT Management generally anticipates maintenance capital expenditures in a fiscal year to approximate 1.0% - 1.5% of sales. Non-maintenance capital expenditures are expected to approximate $30 million in fiscal 2019. Maintenance and non- maintenance capital expenditures in 2019 are anticipated to be financed through bank indebtedness, cash on hand or through the Company’s Credit Facility [see “Capital Resources”]. STORAGE Cash provided by operating activities in fiscal 2018 decreased compared to 2017 largely due to a significant increase in non-cash working capital that related primarily to increases in inventory and accounts receivable. Higher cash usage related to inventory was primarily the result of the strategic procurement of higher quantities of steel and the higher cost of steel in AGI’s inventory. Accounts receivable increased compared to the prior year due to higher sales in the fourth quarter of 2018 and the rate of foreign exchange at year-end compared to the prior year. Cash used in investing activities relates to the acquisitions of Junge, Danmare and Sabe. Cash provided by financing activities relates primarily to a draw on the Company’s revolver facility and the redemption of the 2013 Convertible Debentures net of the issuance of the 2018 Convertible Debentures, less dividends paid. Working Capital Requirements Interim period working capital requirements typically reflect the seasonality of the business. AGI’s collections of accounts receivable are weighted towards the third and fourth quarters. This collection pattern, combined with historically high sales in the second and third quarters that result from seasonality, typically lead to accounts receivable levels increasing throughout the year and peaking in the third quarter. Inventory levels typically increase in the first and second quarters and then begin to decline in the third or fourth quarter as sales levels exceed production. Requirements for 2018 have been generally consistent with historical patterns however recent acquisitions have had the effect of increasing working capital requirements in Q4 and Q1, and higher prices for steel and other inputs resulted in an increase in cash deployed to procure raw material. Growth in international business has resulted in an increase in the number of days accounts receivable remain outstanding and result in increased usage of working capital in certain quarters. Working capital has also been deployed to secure steel supply and pricing and is further impacted by higher prices for steel and other material inputs. Recent acquisitions have not significantly impacted AGI’s working capital requirements. Capital Expenditures Maintenance capital expenditures in 2018 were $11.3 million [1.2% of trade sales] versus 11.2 million [1.5% of trade sales] in 2017. Maintenance capital expenditures in 2018 relate primarily to purchases of manufacturing equipment and building repairs. AGI defines maintenance capital expenditures as cash outlays required to maintain plant and equipment at current operating capacity and efficiency levels. Non- maintenance capital expenditures encompass other investments, including cash outlays required to increase operating capacity or improve operating efficiency. AGI had non-maintenance capital expenditures in 2018 of $25.3 million [2017 – 40.5 million]. In 2018, non-maintenance capital expenditures relate primarily to the purchase of manufacturing equipment and facility expansions. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 20 AGI 2018 ANNUAL REPORT Contractual obligations The following table shows, as at December 31, 2018 the Company’s contractual obligations for the periods indicated: [thousands of dollars] 2014 Debentures 2015 Debentures 2017 Debentures 2018 Debentures Long-term debt Finance lease [1] Operating leases Due to vendor Contingent consideration Purchase obligations [2] Total obligations [1] Includes interest. [2] Net of deposit. Total $ 51,750 75,000 86,250 86,250 274,283 230 11,059 9,345 6,596 9,308 2019 $ 51,750 — — — 288 65 3,317 7,973 4,576 9,308 2020 $ — 75,000 — — 245 67 2,611 823 1,010 — 610,071 77,277 79,756 2021 $ — — — — 242 62 1,893 549 1,010 — 3,756 2022 $ — — 86,250 86,250 137 36 1,423 — — — 2023 $ — — — — 2024+ $ — — — — 214,168 59,203 — 841 — — — — 974 — — — 174,096 215,009 60,177 The Debentures relate to the aggregate principal amount of the convertible debentures [see “Capital Resources - Convertible Debentures”] and long-term debt is comprised of the Credit Facility and non-amortizing notes [see “Capital Resources – Debt Facilities”]. Capital Resources Assets and Liabilities [thousands of dollars] Total assets Total liabilities 2018 $ 2017 $ 1,233,559 1,139,173 799,360 848,493 [1] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. In addition, total assets and total liabilities were also increased by $1.9 million and $3.4 million respectively. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M T R O P E R L A U N N A 8 1 0 2 I G A 21 AGI 2018 ANNUAL REPORT Cash Convertible Debentures The Company’s cash balance at December 31, 2018 was $33.6 million [2017 - $64.0 million]. Debt Facilities [thousands of dollars] Operating Facility Operating Facility Canadian Revolver [1] USD Revolver [1] Series B Notes [2] Series C Notes [2] Equipment Financing [2] various Total Currency Maturity CAD USD CAD USD CAD USD 2023 2023 2023 2023 2025 2026 2025 Total Facility [CAD] $ 40,000 27,284 350,000 Amount Drawn $ — — Effective Interest Rate 4.73% 6.15% 69,203 4.84% 144,877 5.40% 25,000 25,000 4.44% 34,105 34,105 3.70% 1,098 1,098 various 477,487 274,283 [1] Interest rate fixed via interest rate swaps. See “Interest Rate Swaps”. [2] Fixed interest rate. During the year ended December 31, 2018, AGI entered into a credit agreement, [the “Credit Agreement”] with a syndicate of banks under which the existing term and revolving loans were replaced by the Canadian and U.S. revolving facilities. AGI’s revolver facilities of $350 million can be drawn in Canadian or U.S. funds. The facilities bear interest at BA or LIBOR plus 1.45% to BA or LIBOR plus 2.5% and prime plus 0.45% to prime plus 1.5% per annum based on performance calculations. The Company has also issued US $25.0 million and CAD $25.0 million aggregate principal amount of secured notes through a note purchase and private shelf agreement [the “Series B and Series C Notes”]. The Series B and C Notes are non- amortizing. AGI is subject to certain financial covenants, including a maximum leverage ratio and a minimum debt service ratio, and is in compliance with all financial covenants. In the year ended December 31, 2018, the Company expensed all remaining deferred fees associated with its previous senior credit facility due to replacement of the facility in Q4 2018. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 22 The following table summarizes the key terms of the convertible unsecured subordinated debentures of the Company that were outstanding as at December 31, 2018: Year Issued / TSX Symbol 2014 [AFN.DB.B] 2015 [AFN.DB.C] 2017 [AFN.DB.D] 2018 [AFN.DB.E] Aggregate Principal Amount $ Coupon Conversion Price $ Maturity Date Redeemable at Par (1)(2) 51,750,000 5.25% 65.57 Dec 31, 2019 Jan 1, 2019 75,000,000 5.00% 60.00 Dec 31, 2020 Jan 1, 2020 86,250,000 4.85% 83.45 Jun 30, 2022 Jun 30, 2021 86,250,000 4.50% 88.15 Dec 31, 2022 Jan 1, 2022 [1] At the option of the Company, at par plus accrued and unpaid interest. [2] In the twelve-month period prior to the date on which the Company may, at its option, redeem any series of convertible debentures at par plus accrued and unpaid interest, such convertible debentures may be redeemed, in whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the common shares (“Common Shares”) of the Company during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the conversion price. On redemption or at maturity, the Company may, at its option, elect to satisfy its obligation to pay the principal amount of the Debentures by issuing and delivering common shares. The Company may also elect to satisfy its obligation to pay interest on the Debentures by delivering sufficient common shares. The Company does not expect to exercise the option to satisfy its obligations to pay the principal amount or interest by delivering common shares. The number of shares issued will be determined based on market prices at the time of issuance. Debenture Offering and Pending Redemption of 2014 Debentures On February 25, 2019 the Company entered into an agreement with a syndicate of underwriters pursuant to which it agreed to issue on a “bought deal” basis $75,000,000 aggregate principal amount of senior subordinated unsecured debentures (the “Debentures”) at a price of $1,000 per Debenture (the “Offering”). AGI 2018 ANNUAL REPORT • 4,051,230 Common Shares are issuable on conversion of the outstanding convertible debentures, of which there are an aggregate principal amount of $299.3 million outstanding. AGI’s Common Shares trade on the TSX under the symbol AFN. Dividends AGI declared dividends to shareholders in 2018 of $40.7 million [2017 - $38.4 million]. AGI’s policy is to pay monthly dividends. The Company’s Board of Directors reviews financial performance and other factors when assessing dividend levels. An adjustment to dividend levels may be made at such time as the Board determines an adjustment to be appropriate. Dividends in a fiscal year are typically funded entirely through cash from operations, although due to seasonality dividends may be funded on a short-term basis by the Company’s operating lines, and through the DRIP. In 2018, dividends paid to shareholders of $39.3 million [2017 – $33.5 million] were financed from cash on hand and $1.4 million [2017 – $4.9 million] by the DRIP. AGI suspended its DRIP in Q2 2018. AGI also granted to the Underwriters an over-allotment option, exercisable in whole or in part for a period expiring 30 days following closing, to purchase up to an additional $11,250,000 aggregate principal amount of Debentures at the same price. If the over-allotment option is fully exercised, the total gross proceeds from the Offering to AGI will be $86,250,000. The net proceeds of the Offering will be used to fund the redemption of the Company’s 2014 Debentures, to repay existing indebtedness and for general corporate purposes. Common shares The following number of Common Shares were issued and outstanding at the dates indicated: December 31, 2017 Conversion of 2013 Debentures Shares issued under EIAP Shares issued under DRIP Common Share offering December 31, 2018 Shares issued under EIAP March 13, 2018 # Common Shares 16,160,916 157,781 144,451 26,132 1,874,500 18,363,780 249,244 18,613,024 On October 25, 2018, the Company closed a public offering of 1,874,500 Common Shares at a price of $61.50 per Common Share for gross proceeds of approximately $115 million, which includes the exercise in full of the underwriters’ over-allotment option. The net proceeds of the offering were used to partially repay outstanding indebtedness under AGI’s credit facilities, to pursue potential acquisition opportunities and for working capital and general corporate purposes. At March 13, 2019: • 18,613,024 Common Shares are outstanding; • 1,215,000 Common Shares are available for issuance under the Company’s Equity Award Incentive Plan [the “EIAP”], of which 846,678 have been granted and 368,322 remain unallocated; • 78,153 deferred grants of Common Shares have been granted under the Company’s Directors’ Deferred Compensation Plan and 18,436 Common Shares have been issued; and S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M T R O P E R L A U N N A 8 1 0 2 I G A 23 AGI 2018 ANNUAL REPORT Funds from Operations and Payout Ratio [see “Non-IFRS Measures”] Financial Instruments Foreign exchange contracts Funds from operations [“FFO”], defined under “Non-IFRS Measures”, is adjusted EBITDA less cash taxes, cash interest expense, realized losses on foreign exchange and maintenance capital expenditures. The objective of presenting this measure is to provide a measure of free cash flow. The definition excludes changes in working capital as they are necessary to drive organic growth and have historically been financed by the Company’s operating facility [See “Capital Resources”]. Funds from operations should not be construed as an alternative to cash flows from operating, investing, and financing activities as a measure of the Company’s liquidity and cash flows. Risk from foreign exchange arises as a result of variations in exchange rates between the Canadian and the U.S. dollars and to a lesser extent to variations in exchange rates between the Euro and the Canadian dollar. AGI may enter into foreign exchange contracts to partially mitigate its foreign exchange risk. AGI has no foreign exchange contracts outstanding as at December 31, 2018. Interest Rate Swaps The Company has entered into interest rate swap contracts to manage its exposure to fluctuations in interest rates. Year Ended December 31 [thousands of dollars] Currency Maturity Amount of Swap [000’s] $ Fixed Rate [1] Canadian dollar contracts CAD 2019-2022 90,000 3.6-4.3% U.S. dollar contracts USD 2020 38,000 3.8% [1] With performance adjustments. During the year ended December 31, 2018, the existing hedges were discontinued as the forecasted cash flows were no longer probable as a result of the debt replacement. Consequently, the derivatives were marked to market and a gain of $2.8 million was recorded in gain on financial instrument in other operating income. The interest rate swap was reclassified from fair value through other comprehensive income (“OCI”) to fair value through profit and loss. In the year ended December 31, 2018, the Company has recorded a gain on financial instruments of $1.7 million in other operating income. The amount of gain recorded in OCI during the year ended December 31, 2017 was $1.8 million. Equity Compensation hedge The Company is party to an equity swap agreement with a financial institution to manage the Company’s cash flow exposure due to fluctuations in its share price related to the EIAP. As at December 31, 2018, the equity swap agreement covered 650,000 Common Shares at a weighted average price of $37.77 and the maturity date of the agreement is April 6, 2021. [thousands of dollars] Adjusted EBITDA [1] IFRS 15 adjustment [1] Interest expense Non-cash interest Cash taxes Maintenance CAPEX Realized loss on FX contracts Funds from operations Dividends Payout Ratio 2018 $ 148,195 — (37,067) 6,206 (9,975) (11,292) — 96,067 40,650 2017 $ 123,329 (1,532) (35,708) 7,238 (8,467) (11,217) (710) 72,933 38,365 42% 53% [1] The Company adopted IFRS 15 in 2018 without retrospective application and as a result reversed sales and adjusted EBITDA of $5.3 million and $1.5 million, respectively, that under IAS 18 had previously been recognized in 2017. For purposes of comparability, where applicable, these amounts have been adjusted for in the 2017 figures in the above table and elsewhere in this MD&A. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 24 AGI 2018 ANNUAL REPORT 2017 Acquisitions Global Industries, Inc. On April 4, 2017, AGI acquired Global for U.S. $100 million, subject to customary closing adjustments. Global is a diversified manufacturer of grain storage bins, portable and stationary grain handling equipment, grain drying and aeration equipment, structural components, and steel buildings. Global’s normalized EBITDA averaged approximately U.S. $11.5 million over the three years ended November 30, 2016, with fiscal 2016 being below the three-year average. In the four years prior to 2015, being the years before the current downturn in the U.S. farm market, Global’s normalized EBITDA averaged approximately U.S. $17 million. Three of Global’s four operating divisions, representing approximately 85% of sales, are categorized as Farm divisions in this MD&A. Global’s sales have historically been weighted approximately 75% in the U.S. with the majority of the balance overseas, and for its year-ended November 30, 2016, total sales were U.S. $112 million. CMC Industrial Electronics Ltd. and Junge Control, Inc. In December 2017, AGI acquired CMC and Junge. CMC is a leading supplier of hazard monitoring sensors and systems used in agricultural material handling applications. CMC also manufactures commercial bin monitoring sensors and systems. Junge is a leading manufacturer of automation, measurement and blending systems for the agriculture and fuel industries. Combined sales and adjusted EBITDA for the two entities in their fiscal years-ended May 2017 and December 2016 were approximately $15 million and $4 million, respectively. 2018 Acquisitions Danmare In February 2018, AGI acquired 100% of the shares of Danmare. Danmare provides engineering solutions and project management services to the food industry, with a specialization in automated systems for pet food, rice and pasta, confectionery, ready-to-eat foods, sauces and meat processing. Sales and adjusted EBITDA for Danmare in its fiscal year-ended August 2017 were $6.4 million and $1.7 million, respectively. Sabe In July 2018, AGI acquired 100% of the outstanding shares of Cobalt Investissement and its wholly owned subsidiaries [collectively “Sabe”]. Based in France, Sabe offers design, manufacturing, installation and commissioning of turnkey solutions to the food industry. The acquisition further evolves AGI’s ability to provide complete solutions to a broad customer base. Sales and adjusted EBITDA for Sabe in its fiscal year-ended May 2018 were €16.4 million and €2.2 million, respectively. Subsequent event The Company acquired 100% of the shares of Improtech Ltd. [“Improtech”] on January 18, 2019 and 100% of the shares of IntelliFarms LLC on March 5, 2019 for a combined maximum purchase price of $22.4 million. Upon closing $13 million was payable to the vendors and $9.4 million is payable over a three-year period. In addition, a contingent consideration of $6 million is payable based on meeting certain earnings targets. Improtech is a provider of engineering solutions to the food and beverage industry. Improtech enhances AGI’s ability to provide complete engineering solutions to an increasingly diverse customer base. IntelliFarms LLC is a provider of hardware and software solutions that benefit grain growers, processors, and other participants in the agriculture market. IntelliFarms enhances AGI’s ability to provide innovative technology solutions, including grain monitoring, field management and bin management, to its customer base. On March 11, 2019, the Company entered into a binding purchase agreement to acquire 100% of the shares of Milltec Machinery Limited [“Milltec”], for a combined maximum purchase price of $109.5 million, plus the potential for up to an additional $38.4 million based on the achievement of financial targets. The transaction will be funded by AGI’s revolving credit facility. Completion of the agreement is subject to a number of customary conditions in favour of the Company, including accounting and tax registrations and other corporate matters. Subject to satisfaction of these conditions precedent, closing is expected to occur by March 31, 2019. Milltec is a provider of machinery and equipment for the grains milling and seeds processing industry. Milltec’s products complement AGI’s existing product offerings. For the twelve months ended January 31, 2019, Milltec’s sales and EBITDA were $56.2 million and $10.1 million, respectively. Related Parties Burnet, Duckworth & Palmer LLP provides legal services to the Company and a Director of AGI is a partner of Burnet, Duckworth & Palmer LLP. The total cost of these legal services related to general matters was $1,435 during the year ended December 31, 2018 [2017 – $261], and $803 is included in accounts payable and accrued liabilities as at December 31, 2018. These transactions are measured at the exchange amount and were incurred during the normal course of business. Salthammer Inc. provides consulting services to the Company, and a Director of AGI is the ownera minority shareholder of Salthammer Inc. The total cost of these consulting services related to international plant expansion project was $80 [2017 – $159] during the year ended December 31, 2018, and nil is included in accounts payable and accrued liabilities as at December 31, 2018. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 25 AGI 2018 ANNUAL REPORT Critical Accounting Estimates Described in the notes to the Company’s 2018 audited annual consolidated financial statements are the accounting policies and estimates that AGI believes are critical to its business. Please refer to note 4 to the audited consolidated financial statements for the year ended December 31, 2018 for a discussion of the significant accounting judgments, estimates and assumptions. The classification changes for each class of the Company’s financial assets and financial liabilities upon adoption at January 1, 2018 had no impact on the measurement of financial instruments, with the exception of long term debt. In 2017, the Company amended its credit facilities to extend the maturity from May 2019 to April 2021, and as result of the change in maturity and adoption of IFRS 9 an adjustment to increase opening retained earnings by $175 was recorded. For additional information, please refer to Note 3 of the accompanying notes of the audited consolidated financial statements for the year ended December 31, 2018. Risks and Uncertainties IFRS 15, Revenue from Contracts with Customers The Company and its business are subject to numerous risks and uncertainties which are described in this MD&A and the Company’s most recent Annual Information Form, which are available under the Company’s profile on SEDAR [www.sedar.com]. These risks and uncertainties are not the only risks and uncertainties we face. Additional risks and uncertainties not currently known to us or that we currently consider immaterial also may impair operations. If any of these risks actually occur, our business, results of operations and financial condition, and the amount of cash available for dividends could be materially adversely affected. Changes in Accounting Standards and Future Accounting Changes Adoption of new accounting standards IFRS 9, Financial instruments The Company adopted IFRS 9 with a date of application of January 1, 2018. The Company adopted IFRS 9 retrospectively without restatement of prior periods, other than the hedge accounting provisions of IFRS 9 that have been applied prospectively effective January 1, 2018, and accordingly elected to not restate the comparative figures. IFRS 9 introduces new requirements for the classification and measurement of financial assets, introduces a forward-looking expected loss impairment model, and amends the requirements related to hedge accounting. The standard contains three classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income [“FVOCI”] and fair value through profit or loss [“FVTPL”]. The classification of financial assets under IFRS 9 is based on its contractual cash flow characteristics and the business model in which the financial asset is managed. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9 and the adoption of IFRS 9 did not change the Company’s accounting policies for financial liabilities. The Company adopted IFRS 15 with an application date of January 1, 2018. The Company applied the modified retrospective method for adopting IFRS 15 and therefore, the comparative information has not been restated and continues to be reported under IAS 18, Revenue and IAS 11, Construction Contracts. Under the modified approach, the cumulative effect of initially applying IFRS 15 is an adjustment to decrease opening retained earnings by $1,532. The adjustment results from the change in the basis of revenue recognition from the transfer of risk and rewards of ownership to the transfer of control. Consequently, revenue recognition was delayed until completion of the performance obligations. As at December 31, 2018, revenue adjusted upon adoption has all been recorded into income upon the Company’s completion of its performance obligations in accordance with IFRS 15. For additional information, please refer to Note 3 of the accompanying notes of the audited consolidated financial statements for the year ended December 31, 2018. IFRS 2, Share-based payment In June 2016, the IASB issued amendments to IFRS 2, Share-based Payment [“IFRS 2”], clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash- settled share-based payments, share-based payment transactions with a net settlement feature for withholding tax obligations and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The Company’s assessment has not identified significant classification, recognition or measurement differences. The Company adopted IFRS 2 as at January 1, 2018. Standards issued but not yet effective IFRS 16, Leases In January 2016, the IASB released IFRS 16 to set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The standard is effective for the Company from January 1, 2019. Under the new standard, the Company will recognize new right-of-use assets and lease liabilities for its operating leases. In addition, the nature and timing of leasing S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 26 AGI 2018 ANNUAL REPORT expenses will change as operating lease expenses are replaced by a depreciation charge for right-of-use assets and interest expense on lease liabilities. [thousands of dollars] On transition the Company can either apply the standard using a retrospective approach or a modified retrospective approach with optional practical expedients. The Company plans to apply the modified retrospective approach and certain practical expedients, where applicable. The Company has identified its qualifying leases under IFRS 16 and those short-term leases and low value leases to which will be recognized on a straight-line basis as expense in profit or loss. The Company is finalizing the incremental borrowing rate applicable to each qualifying lease and continues to assess the potential impact of IFRS 16 on its consolidated statement of financial position, along with a change to the recognition, measurement and presentation of lease expense in the consolidated statement of income. Revenue [1] Profit (loss) [1] Current assets [1][2] Non-current assets [1][2] Current liabilities [1][2] Non-current liabilities [1][2] [1] Net of intercompany [2] Balance sheet as at December 31, 2018 Danmare/Sabe $ 14,863 (2,711) 13,001 35,749 10,960 6,076 There have been no material changes in AGI’s internal controls over financial reporting that occurred in the three-month period ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Disclosure Controls and Procedures and Internal Controls Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including AGI’s Chief Executive Officer and Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure. Management of AGI is responsible for designing internal controls over financial reporting for the Company as defined under National Instrument 52-109 issued by the Canadian Securities Administrators. Management has designed such internal controls over financial reporting, or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS. Subsequent to December 31, 2017 AGI acquired Danmare and Sabe. See “Basis of Presentation - Acquisitions”. Management has not completed its review of internal controls over financial reporting or disclosure controls and procedures for these acquired businesses. Since the acquisitions occurred within 365 days of the end of the reporting period, management has limited the scope of design, and subsequent evaluation, of disclosure controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures of these acquisitions, as permitted under Section 3.3 of National Instrument 52-109 - Certification of Disclosure in Issuer’s Annual and Interim Filings. For the period covered by this MD&A, management has undertaken specific procedures to satisfy itself with respect to the accuracy and completeness of the financial information of Danmare and Sabe. The following is the summary financial information pertaining to Danmare and Sabe that was included in AGI’s consolidated financial statements for the year ended December 31, 2018: S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 27 AGI 2018 ANNUAL REPORT Non-IFRS Measures In analyzing our results, we supplement our use of financial measures that are calculated and presented in accordance with IFRS with a number of non-IFRS financial measures including “trade sales”, “EBITDA”, “Adjusted EBITDA”, “gross margin”, “funds from operations”, “payout ratio”, “adjusted profit”, and “diluted adjusted profit per share”. A non-IFRS financial measure is a numerical measure of a company’s historical performance, financial position or cash flow that excludes [includes] amounts, or is subject to adjustments that have the effect of excluding [including] amounts, that are included [excluded] in the most directly comparable measures calculated and presented in accordance with IFRS. Non-IFRS financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies’ non-IFRS financial measures having the same or similar businesses. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. We use these non-IFRS financial measures in addition to, and in conjunction with, results presented in accordance with IFRS. These non-IFRS financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our IFRS results and the accompanying reconciliations to corresponding IFRS financial measures, may provide a more complete understanding of factors and trends affecting our business. In this MD&A, we discuss the non-IFRS financial measures, including the reasons that we believe that these measures provide useful information regarding our financial condition, results of operations, cash flows and financial position, as applicable, and, to the extent material, the additional purposes, if any, for which these measures are used. Reconciliations of non-IFRS financial measures to the most directly comparable IFRS financial measures are contained in this MD&A. Management believes that the Company’s financial results may provide a more complete understanding of factors and trends affecting our business and be more meaningful to management, investors, analysts and other interested parties when certain aspects of our financial results are adjusted for the gain (loss) on foreign exchange and other operating expenses and income. These measurements are non-IFRS measurements. Management uses the non-IFRS adjusted financial results and non-IFRS financial measures to measure and evaluate the performance of the business and when discussing results with the Board of Directors, analysts, investors, banks and other interested parties. References to “EBITDA” are to profit from continuing operations before income taxes, finance costs, depreciation and amortization. References to “adjusted EBITDA” are to EBITDA before the Company’s gain or loss on foreign exchange, gains or losses on the sale of property, plant & equipment, non-cash share-based compensation expenses, gains or losses on financial instruments, non-cash contingent consideration expenses, expenses related to corporate acquisition activity, fair value of inventory from acquisitions and impairment. Management believes that, in addition to profit or loss, EBITDA and adjusted EBITDA are useful supplemental measures in evaluating the Company’s performance. Management cautions investors that EBITDA and adjusted EBITDA should not replace profit or loss as indicators of performance, or cash flows from operating, investing, and financing activities as a measure of the Company’s liquidity and cash flows. See “Operating Results - EBITDA and Adjusted EBITDA” for the reconciliation of EBITDA and Adjusted EBITDA to profit from continuing operations before income taxes. References to “trade sales” are to sales net of the gain or loss on foreign exchange. Management cautions investors that trade sales should not replace sales as an indicator of performance. See “Operating Results - Trade Sales” for the reconciliation of trade sales to sales. References to “gross margin” are to trade sales less cost of inventories, and thereby exclude depreciation and amortization from cost of sales. Management believes that gross margin provides a useful supplemental measure in evaluating its performance. See “Operating Results – Gross Margin” for the calculation of gross margin. References to “funds from operations” are to adjusted EBITDA less cash taxes, cash interest expense, realized losses on foreign exchange and maintenance capital expenditures. Management believes that, in addition to cash provided by (used in) operating activities, funds from operations provide a useful supplemental measure in evaluating its performance. References to “payout ratio” are to dividends declared as a percentage of funds from operations. See “Funds from Operations and Payout Ratio” for the calculation of funds from operations and payout ratio. References to “adjusted profit” and “diluted adjusted profit per share” are to profit for the period and diluted profit per share for the period adjusted for (gain) loss on foreign exchange, fair value of inventory from acquisitions, transaction costs, non-cash loss (profit) on discontinued operations, contingent consideration expense and gain (loss) on sale of property, plant and equipment. See “Detailed Operating Results – Diluted profit per share and Diluted adjusted profit per share” for the reconciliation of diluted profit per share and diluted adjusted profit per share to profit as reported. In addition, the financial information in this MD&A relating to Milltec’s sales and EBITDA is derived from Milltec’s financial statements, which are prepared in accordance with generally accepted accounting principles in India, which differ in some material respects from IFRS, and accordingly may not be comparable to the financial statements of AGI or other Canadian public companies. This MD&A also refers to: “normalized EBITDA” of Global for certain financial periods, which is earnings of Global before income taxes, finance costs, depreciation and amortization, and one-time events, and after certain normalization S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 28 AGI 2018 ANNUAL REPORT adjustments including owner/manager compensation structure, related party transactions, and rationalizations. The financial information in this MD&A relating to Global including normalized EBITDA is derived from Global’s financial statements, which are prepared in accordance with United States generally accepted accounting principles, which differ in some material respects from IFRS, and accordingly may not be comparable to the financial statements of AGI or other Canadian public companies. Forward-looking Information This MD&A contains forward-looking statements and information [collectively, “forward-looking information”] within the meaning of applicable securities laws that reflect our expectations regarding the future growth, results of operations, performance, business prospects, and opportunities of the Company. All information and statements contained herein that are not clearly historical in nature constitute forward-looking information, and the words “anticipate”, “believe”, “continue”, “could”, “expects”, “intend”, “plans”, “postulates”, “predict”, “will” or similar expressions suggesting future conditions or events or the negative of these terms are generally intended to identify forward-looking information. Forward- looking information involves known or unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. In addition, this MD&A may contain forward-looking information attributed to third party industry sources. Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which it is based will occur. In particular, the forward-looking information in this MD&A includes information relating to our business and strategy, including our outlook for our financial and operating performance including our expectations for our future financial results including sales, EBITDA and adjusted EBITDA, industry demand and market conditions, and with respect to our ability to achieve the expected benefits of recent acquisitions and the contribution therefrom including from purchasing and personnel synergies and margin improvement initiatives. Such forward-looking information reflects our current beliefs and is based on information currently available to us, including certain key expectations and assumptions concerning: anticipated grain production in our market areas; financial performance; the financial and operating attributes of recently acquired businesses and the anticipated future performance thereof and contributions therefrom; business prospects; strategies; product and input pricing; regulatory developments; tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; political events; currency exchange and interest rates; the cost of materials; labour and services; the value of businesses and assets and liabilities assumed pursuant to recent acquisitions; the impact of competition; the general stability of the economic and regulatory environment in which the Company operates; the timely receipt of any required regulatory and third party approvals; the ability of the Company to obtain and retain qualified staff and services in a timely and cost efficient manner; the timing and payment of dividends; the ability of the Company to obtain financing on acceptable terms; the regulatory framework in the jurisdictions in which the Company operates; and the ability of the Company to successfully market its products and services. Forward-looking information involves significant risks and uncertainties. A number of factors could cause actual results to differ materially from results discussed in the forward-looking information, including changes in international, national and local macroeconomic and business conditions, weather patterns, crop planting, crop yields, crop conditions, the timing of harvest and conditions during harvest, the ability of management to execute the Company’s business plan, seasonality, industry cyclicality, volatility of production costs, agricultural commodity prices, the cost and availability of capital, currency exchange and interest rates, the availability of credit for customers, competition, AGI’s failure to achieve the expected benefits of recent acquisitions including to realize anticipated synergies and margin improvements; and changes in trade relations between the countries in which the Company does business including between Canada and the United States. These risks and uncertainties are described under “Risks and Uncertainties” 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.sedar.com]. These factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking information. We cannot assure readers that actual results will be consistent with this forward-looking information. Readers are further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. These estimates may change, having either a negative or positive effect on profit, as further information becomes available and as the economic environment changes. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information included in this MD&A is made as of the date of this MD&A and AGI undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless so required by applicable securities laws. Additional Information Additional information relating to AGI, including AGI’s most recent Annual Information Form, is available under the Company’s profile on SEDAR [www.sedar.com]. S I S Y L A N A & N O I S S U C S I D S ’ T N E M E G A N A M 29 AGI 2018 ANNUAL REPORT Consolidated Financial Statements 30 AGI 2018 ANNUAL REPORT Independent Auditor’s Report To the Shareholders of Ag Growth International Inc. Opinion We have audited the consolidated financial statements of Ag Growth International Inc. and its subsidiaries [the “Company”], which comprise the consolidated statements of financial position as at December 31, 2018 and 2017, the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects the consolidated financial position of the Company as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards [“IFRS”]. Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion Other information Management is responsible for the other information. The other information comprises: • Management’s Discussion and Analysis • The information other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard. The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this other information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with governance. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting T R O P E R ’ S R O T I D U A T N E D N E P E D N I 31 AGI 2018 ANNUAL REPORT STRUCTUREs from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Company audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is Tanis Petreny. Winnipeg, Canada March 13, 2019 Chartered Professional Accountants T R O P E R ’ S R O T I D U A T N E D N E P E D N I 32 AGI 2018 ANNUAL REPORT Consolidated statement of financial position As at Decemeber 31 Assets [note 20] Liabilities and shareholders’ equity [in thousands of Canadian dollars] 2018 $ 2017 $ [in thousands of Canadian dollars] 2018 $ 2017 $ Current assets Current liabilities Cash and cash equivalents [note 28] 33,610 63,981 Accounts payable and accrued liabilities [note 16] Cash held in trust and restricted cash [notes 6 and 7] 2,955 15,182 Customer deposits Accounts receivable [note 8] Inventory [note 9] 134,239 99,017 Dividends payable 190,887 158,635 Current portion of contingent consideration [note 6] Prepaid expenses and other assets 26,031 17,616 Current portion of due to vendor [notes 6 and 17] Property, plant and equipment, net [note 10] 332,645 304,543 Current portion of note receivable Current portion of derivative instruments Income taxes recoverable Non-current assets Goodwill [note 11] Intangible assets, net [note 12] Available-for-sale investment [notes 3 and 14] Equity investment [note 3 and 14] Non-current accounts receivable [note 8] Note receivable Income taxes recoverable Derivative instruments [note 29] Deferred tax asset [note 26] Assets held for sale [note 15] Total assets 85 185 4,344 89 — 885 392,336 355,405 Income taxes payable Current portion of long-term debt [note 20] Current portion of obligations under finance lease [note 19] Current portion of convertible unsecured subordinated debentures [note 21] Provisions [note 18] Non-current liabilities Long-term debt [note 20] Due to vendor [note 6] Contingent consideration [note 6] Other liabilities [note 25] Convertible unsecured subordinated debentures [note 21] 256,619 234,669 233,199 218,156 — 900 8,122 650 — 7,464 455 900 — 4,180 700 4,230 11,466 183 Obligations under finance lease [note 19] 165 19 840,054 779,027 1,169 2,842 Deferred tax liability [note 26] 1,233,559 1,137,274 Total liabilities 61,952 57,758 569,642 568,373 799,360 845,062 101,504 47,941 3,673 4,552 7,973 4,286 289 65 96,071 40,662 3,232 5,306 33,309 4,945 117 983 51,750 86,155 7,685 5,909 229,718 276,689 271,132 302,859 1,376 1,834 85 725 3,731 3,378 233,098 199,903 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 33 AGI 2018 ANNUAL REPORT Shareholders’ equity [note 22] Consolidated statements of income [in thousands of Canadian dollars] 2018 $ 2017 $ [in thousands of Canadian dollars, except per share amounts] Common shares 450,645 323,199 Accumulated other comprehensive income Equity component of convertible debentures Contributed surplus Deficit 57,324 8,203 26,045 29,638 Sales 9,903 Cost of goods sold [note 24[d]] 20,956 Gross profit (108,018) (91,484) Expenses (income) Years ended December 31 2018 $ 2017 $ 931,664 754,715 663,505 536,001 268,159 218,714 Total shareholders’ equity 434,199 292,212 Selling, general and administrative [note 24[e]] 175,914 151,106 Total liabilities and shareholders’ equity 1,233,559 1,137,274 Other operating income [note 24[a]] See accompanying notes On behalf of the Board of Directors: Impairment charge [notes 13 and 15] Finance costs [note 24[c]] Finance (income) cost [note 24[b]] (21) 232 (4,645) 1,932 37,067 35,708 16,403 (12,587) 229,595 171,514 Bill Lambert Director David A. White CA, ICD.D Director S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 34 Profit from continuing operations before income taxes 38,564 47,200 Income tax expense [note 26] Current Deferred Profit from continuing operations Profit from discontinued operations, net of tax 10,517 1,429 11,946 26,618 — 6,712 5,333 12,045 35,155 41 Profit for the year 26,618 35,196 Profit per share from continuing operations [note 27] Basic Diluted Profit per share from discontinued operations [note 27] Basic Diluted Profit per share [note 27] Basic Diluted See accompanying notes 1.58 1.56 0.00 0.00 1.58 1.56 2.20 2.17 0.01 0.01 2.21 2.18 AGI 2018 ANNUAL REPORT Consolidated statements of comprehensive income [in thousands of Canadian dollars] Profit for the year Other comprehensive income (loss) Items that may be reclassified subsequently to profit or loss Change in fair value of derivatives designated as cash flow hedges Years ended December 31 2018 $ 2017 $ 26,618 35,196 1,025 2,435 (Gains) losses on derivatives designated as cash flow hedges recognized in net earnings in the year (2,785) 910 Exchange differences on translation of foreign operations Income tax effect on cash flow hedges Other comprehensive loss from discontinued operations Items that will not be reclassified to profit or loss Actuarial gains (losses) on defined benefit plan Income tax effect on defined benefit plan 28,799 (27,953) 477 — (902) (198) 27,516 (25,708) 233 (63) 170 (933) 252 (681) Other comprehensive income (loss) for the year 27,686 (26,389) Total comprehensive income for the year 54,304 8,807 See accompanying notes S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 35 AGI 2018 ANNUAL REPORT Consolidated statements of changes in shareholders’ equity [in thousands of Canadian dollars] As at January 1, 2018 Profit for the year Other comprehensive income (loss) Share-based payment transactions [notes 22[a]] and 22[b]] Dividend reinvestment plan [note 22[d]] Dividends to shareholders [note 22[d]] Dividends on share-based compensation awards [note 22[d]] Common shares $ 323,199 — — 5,820 1,384 — — Common share issuance [note 22[a]] 111,564 Equity component of convertible debentures $ Contributed surplus $ Deficit $ Cash flow hedge reserve $ Foreign currency reserve $ Defined benefit plan reserve $ Total shareholders’ equity $ 9,903 20,956 (92,842)1 1,283 28,618 (263) 290,854 26,618 — — (1,283) 28,799 — — — — — — — — — 1,956 — — — — — — — — — (40,650) (1,144) — — — — — 170 — — — — — — — — 26,618 27,686 7,776 1,384 (40,650) (1,144) 111,564 1,433 8,678 — — — — — — — — — — — — — — — — — — 57,417 (93) 434,199 Issuance of convertible unsecured subordinated debentures [note 21] Conversion of convertible unsecured subordinated debentures [note 21] Redemption of convertible unsecured subordinated debentures [note 21] — 1,433 8,678 — — (3,133) 3,133 As at December 31, 2018 450,645 8,203 26,045 (108,018) See accompanying notes 1 Adjusted to reflect adoption of IFRS 15 and 9 [note 3]. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 36 AGI 2018 ANNUAL REPORT Consolidated statements of changes in shareholders’ equity [in thousands of Canadian dollars] As at January 1, 2017 Profit for the year Other comprehensive income (loss) Share-based payment transactions [notes 22[a]] and 22[b]] Dividend reinvestment plan [note 22[d]] Dividends to shareholders [note 22[d]] Dividends on share-based compensation awards [note 22[d]] Dividend reinvestment plan costs [note 22[e]] Common share issuance [note 22[a]] Issuance of convertible unsecured subordinated debentures [note 21] Conversion of convertible unsecured subordinated debentures [note 21] Common shares $ 251,698 — — 5,300 4,909 — — (27) 61,224 — 95 Equity component of convertible debentures $ Contributed surplus $ Deficit $ Cash flow hedge reserve $ Foreign currency reserve $ Defined benefit plan reserve $ Total shareholders’ equity $ 6,912 16,940 (87,013) (1,160) 56,769 35,196 — — 418 — 244,564 35,196 — — — — — — — — 2,991 — — — 4,016 — — — — — — — — — — (38,365) (1,302) — — — — 2,443 (28,151) (681) (26,389) — — — — — — — — — — — — — — — — — — — — — — — — 9,316 4,909 (38,365) (1,302) (27) 61,224 2,991 95 As at December 31, 2017 323,199 9,903 20,956 (91,484) 1,283 28,618 (263) 292,212 See accompanying notes S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 37 AGI 2018 ANNUAL REPORT Consolidated statement of cash flow Operating activities Investing activities [in thousands of Canadian dollars] Years ended December 31 [in thousands of Canadian dollars] Years ended December 31 Profit from continuing operations before income taxes for the year Add (deduct) items not affecting cash 2018 $ 2017 $ 38,564 47,200 Acquisition of property, plant and equipment (36,549) (51,299) Acquisitions, net of cash acquired [note 6] (50,266) (136,470) Transfer to cash held in trust and restricted cash (784) (10,804) 2018 $ 2017 $ Depreciation of property, plant and equipment 19,200 16,471 Proceeds from sale of property, plant and equipment 952 658 Proceeds from disposal of assets held for sale [note 15] 2,427 4,069 Development and purchase of intangible assets (7,397) (4,910) Transaction costs paid and payable 2,982 (14,763) Cash used in investing activities from continuing operations (88,635) (213,519) Amortization of intangible assets 13,831 13,003 Loss on sale of property, plant and equipment Gain on disposal of asset held for sale [note 15] Impairment charge [note 15] Non-cash component of interest expense Non-cash movement in derivative instruments Share-based compensation expense Employer contribution to defined benefit plan Defined benefit plan expense Contingent consideration Equipment provided to vendor Non-cash transaction costs 193 (8) 232 6,206 2,061 8,004 — 135 1,159 (115) 3,125 46 (955) 1,932 7,238 (357) 8,057 (647) 277 861 (2,150) 2,731 Translation (gain) loss on foreign exchange 27,771 (21,088) Net change in non-cash working capital balances related to continuing operations [note 28] 120,358 72,619 (63,017) (9,466) Non-current accounts receivable (3,942) (4,180) Long-term payables Settlement of EIAP obligation Put option costs Income taxes paid Cash provided by operating activities from continuing operations (280) (1,953) — — — (48) (9,975) (8,467) 41,191 50,458 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 38 AGI 2018 ANNUAL REPORT Financing activities [in thousands of Canadian dollars] Issuance of long-term debt, net of issuance costs [note 20[b]] Repayment of long-term debt Repayment of obligation under finance lease Change in obligation under finance lease Change in interest accrued Issuance of convertible unsecured subordinated debentures Redemption of convertible unsecured subordinated debentures [note 21] Years ended December 31 2018 $ 2017 $ 165,098 107,545 (215,851) (1,064) 192 (32) (231) — (7,522) 7,578 82,293 82,387 (77,477) — Common share issuance, net of issuance costs 110,670 60,436 Dividends paid in cash [note 22[d]] (39,266) (33,456) Cash provided by financing activities from continuing operations Net increase (decrease) in cash and cash equivalents from continuing operations Net increase (decrease) in cash and cash equivalents from discontinued operations Net increase (decrease) in cash and cash equivalents during the year 17,073 224,227 (30,371) 61,166 — 41 (30,371) 61,207 Cash and cash equivalents, beginning of year 63,981 2,774 Cash and cash equivalents, end of year 33,610 63,981 Supplemental cash flow information Interest paid 36,393 18,877 See accompanying notes S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 39 AGI 2018 ANNUAL REPORT Notes to consolidated financial statements [in thousands of Canadian dollars, except where otherwise noted and per share data] 1. Organization The consolidated financial statements of Ag Growth International Inc. [“AGI” or the “Company”] for the year ended December 31, 2018 were authorized for issuance in accordance with a resolution of the directors on March 13, 2019. AGI is a listed company incorporated and domiciled in Canada, whose shares are publicly traded on the Toronto Stock Exchange. The registered office is located at 198 Commerce Drive, Winnipeg, Manitoba, Canada. 2. Operations AGI is a provider of solutions for the global food infrastructure, including seed, fertilizer, grain, feed, and food processing systems. AGI has manufacturing facilities in Canada, the United States, the United Kingdom, Brazil, Italy, and France and distributes its product globally. Included in these consolidated financial statements are the accounts of AGI and all its subsidiary partnerships and incorporated companies [together, Ag Growth International Inc. and its subsidiaries are referred to as “AGI” or the “Company”]. 3. Summary of significant accounting policies Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards [“IFRS”] as issued by the International Accounting Standards Board [“IASB”]. Basis of preparation The consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the parent company, Ag Growth International Inc. All values are rounded to the nearest thousand. They are prepared on the historical cost basis, except for derivative financial instruments, assets held for sale and equity investments, which are measured at fair value. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. Principles of consolidation The consolidated financial statements include the accounts of Ag Growth International Inc. and its wholly owned subsidiaries, Ag Growth Industries Partnership, AGX Holdings Inc., Ag Growth Holdings Corp., AGI Alpha Holdings Corp., AGI Bravo Holdings Corp., Westfield Distributing (North Dakota) Inc., Hansen Manufacturing Corp. [“Hi Roller”], Union Iron Inc. [“Union Iron”], Airlanco Inc. [“Airlanco”], Westeel USA LLC, Tramco, Inc. [“Tramco”], Tramco Europe Limited, Euro-Tramco B.V., Ag Growth Suomi Oy, Ag Growth Scandinavia, AGI Comercio de Equipamentos E Montagens Ltda, AGI Latvia Inc., Westeel Canada Inc. [“Westeel”], G.J. Vis Holdings Inc. [“Vis”], G.J. Vis Properties Inc., G.J. Vis Enterprises Inc., Westeel EMEA S.L., Frame S.R.L., PTM S.R.L. Entringer Industrial S.A., NuVision Industries Inc., Mitchell Mill Systems Canada Ltd., Mitchell Mill Systems USA Inc., Yargus Manufacturing, Inc., Yargus International Inc., Global Industries, Inc., CMC Industrial Electronics Ltd., Junge Control Inc., Danmare Group Inc. and its affiliate Danmare, Inc. [collectively, “Danmare”], and Cobalt Investissement and its wholly owned subsidiaries Sabe, Sabe Distribution, Agro Maintenance Système (AMS), Sabis and Société D’Études Techniques D’Installation (Setir) [collectively, “Sabe”] as at December 31, 2018. Subsidiaries are fully consolidated from the date of acquisition, it being the date on which AGI obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. All intercompany balances, income and expenses and unrealized gains and losses resulting from intercompany transactions are eliminated in full. Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments and liabilities incurred or assumed at the date of exchange. Acquisition costs for business combinations are expensed and included in selling, general and administrative expenses. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair values at the date of acquisition. Goodwill is initially measured at cost, being the excess of the cost of the business combination over AGI’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Any negative difference is recognized directly in the consolidated statements of income. If the fair values of the assets, liabilities and contingent liabilities can only be calculated on a provisional basis, the business combination is recognized using provisional values. Any adjustments resulting from the completion of the measurement process are recognized within 12 months of the date of acquisition [“measurement period”]. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of AGI’s cash- generating units or groups of cash-generating units [“CGUs”] that are expected to benefit from the synergies of the combination, irrespective of whether other assets and liabilities of the acquiree are assigned to those CGUs. Where goodwill S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 40 AGI 2018 ANNUAL REPORT forms part of a CGU or group of CGUs and part of the operating unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of operation. If the Company reorganizes its reporting structure in a way that changes the composition of one or more CGUs or group of CGUs to which goodwill has been allocated, the goodwill is reallocated to the units affected. Goodwill disposed of or reallocated in these cases is measured based on the relative values of the operation disposed of and the portion of the CGU retained, or the relative fair value of the part of a CGU allocated to a new CGU compared to the part remaining in the old organizational structure. Foreign currency translation Each entity in AGI determines its own functional currency, and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded by AGI entities at their respective functional currency rates prevailing at the date of the transaction. Monetary items are translated at the functional currency spot rate as of the reporting date. Exchange differences from monetary items are recognized in the consolidated statements of income. Non-monetary items that are not carried at fair value are translated using the exchange rates as at the dates of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The assets and liabilities of foreign operations are translated into Canadian dollars at the rate of exchange prevailing at the reporting date and their consolidated statements of income are translated at the monthly rates of exchange. The exchange differences arising on the translation are recognized in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is reclassified to consolidated statements of income when the gain or loss on disposal is recognized. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the reporting date. Cash and cash equivalents All highly liquid temporary cash investments with an original maturity of three months or less when purchased are considered to be cash equivalents. For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash and money market funds, net of outstanding bank overdrafts. Inventory Inventory is comprised of raw materials and finished goods. Inventory is valued at the lower of cost and net realizable value, at average cost. For finished goods, costs include all direct costs incurred in production, including direct labour and materials, freight, directly attributable manufacturing overhead costs based on normal operating capacity and property, plant and equipment depreciation. Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage or declining selling prices. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. When the circumstances that previously caused inventories to be written down below cost no longer exist, or when there is clear evidence of an increase in selling prices, the amount of the write-down previously recorded is reversed. Property, plant and equipment Property, plant and equipment are stated at cost, net of any accumulated depreciation and any impairment losses determined. Cost includes the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary and, where relevant, the present value of all dismantling and removal costs. Where major components of property, plant and equipment have different useful lives, the components are recognized and depreciated separately. AGI recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when the cost is incurred, and if it is probable that the future economic benefits embodied with the item can be reliably measured. All other repair and maintenance costs are recognized in the consolidated statements of income as an expense when incurred. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows: Buildings and building components Manufacturing equipment Computer hardware Leasehold improvements Equipment under finance leases Furniture and fixtures Vehicles 20 – 60 years 10 – 20 years 5 years Over the lease period 10 years 5 – 10 years 4 – 16 years An item of property, plant and equipment and any significant part initially recognized, is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the consolidated statements of income when the asset is derecognized. The assets’ useful lives and methods of depreciation of assets are reviewed at each financial year-end, and adjusted prospectively, if appropriate. No depreciation is taken on construction in progress until the asset is placed in use. Amounts representing direct costs incurred for major overhauls are capitalized and depreciated over the estimated useful lives of the different components replaced. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 41 AGI 2018 ANNUAL REPORT Leases The determination of whether an arrangement is, or contains, a lease is based on whether fulfilment of the arrangement is dependent on the use of a specific asset or assets, or the arrangement conveys a right to use the asset. Finance leases, which transfer to AGI substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the consolidated statements of income. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that AGI will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognized as an expense in the consolidated statements of income on a straight-line basis over the lease term. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time, which AGI considers to be 12 months or more, to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite useful lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization method and amortization period of an intangible asset with a finite useful life are reviewed at least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated statements of income in the expense category consistent with the function of the intangible assets. Intangible assets with indefinite useful lives, which include brand names, are not amortized, but are tested for impairment annually, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Internally generated intangible assets are capitalized when the product or process is technically and commercially feasible and AGI has sufficient resources to complete development. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Expenditures incurred to develop new demos and prototypes are recorded at cost as internally generated intangible assets. Amortization of the internally generated intangible assets begins when the development is complete and the asset is available for use and it is amortized over the period of expected future benefit. Amortization is recorded in cost of goods sold. During the period of development, the asset is tested for impairment at least annually. Finite-life intangible assets are amortized on a straight-line basis over the estimated useful lives of the related assets as follows: Patents Distribution networks Development projects Order backlog Non-compete agreement Software 4 – 10 years 8 – 25 years 3 – 15 years 3 – 6 months 7 years 5 – 8 years Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in the consolidated statements of income when the asset is derecognized. Impairment of non-financial assets AGI assesses at each reporting date whether there is an indication that an asset may be impaired. If such an indication exists, or when annual testing for an asset is required, AGI estimates the asset’s recoverable amount. The recoverable amount of goodwill as well as intangible assets not yet available for use is estimated at least annually on December 31. The recoverable amount is the higher of an asset’s or CGU group’s fair value less costs to sell and its value in use. Value in use is determined by discounting estimated future cash flows using a pre-tax discount rate that reflects the current market assessment of the time value of money and the specific risks of the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. The recoverable amount of assets that do not generate independent cash flows is determined based on the CGU group to which the asset belongs. AGI bases its impairment calculation on detailed budgets and forecast calculations S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 42 AGI 2018 ANNUAL REPORT that are prepared separately for each of AGI’s CGU groups to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For periods after five years, a terminal value approach is used. An impairment loss is recognized in the consolidated statements of income if an asset’s carrying amount or that of the CGU group to which it is allocated is higher than its recoverable amount. Impairment losses of a CGU group are first charged against the carrying value of the goodwill balance included in the CGU group and then against the value of the other assets, in proportion to their carrying amount. In the consolidated statements of income, the impairment losses are recognized in those expense categories consistent with the function of the impaired asset. For assets other than goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, AGI estimates the asset’s or CGU group’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset or CGU group in prior years. Such a reversal is recognized in the consolidated statements of income. Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU group to which the goodwill relates. Where the recoverable amount of the CGU group is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. Intangible assets with indefinite useful lives are tested for impairment annually as at December 31, either individually or at the CGU group level, as appropriate, and when circumstances indicate that the carrying value may be impaired. Financial instruments Effective January 1, 2018, the Company adopted IFRS 9 and the following are the policies for financial instruments. Financial assets AGI classifies its financial assets as [i] amortized cost, [ii] financial assets at fair value through profit or loss [“FVTPL”] or [iii] fair value through other comprehensive income [“FVTOCI”]. Appropriate classification of financial assets is based on the Company’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Certain derivatives are designated as hedging instruments and hedge accounting is applied, as appropriate. All financial instruments are recognized initially at fair value plus, in the case of instruments not at FVTPL, directly attributable transaction costs. Financial instruments are recognized on the trade date, which is the date on which AGI commits to purchase or sell the asset. Accounts receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under IFRS 15. Amortized cost Financial assets are measured at amortized cost if [i] the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and [ii] the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal of amount outstanding. Assets in this category include cash and cash equivalents, cash held in trust and restricted cash, accounts receivable and note receivable and are measured at amortized cost using the effective interest method less any impairment. The effective interest amortization is included in finance (income) costs in the consolidated statements of income. The losses arising from impairment are recognized in the consolidated statements of income in finance costs. Fair value through other comprehensive income (debt securities) Debt securities are measured at FVTOCI if [i] the financial asset is held within a business model whose object is achieved by both collecting contractual cash flows and selling financial assets and [ii] the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principle and interest on the principal amount outstanding. The Company does not hold any debt securities measured at FVTOCI. Fair value through other comprehensive income (equity investments) Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at FVTOCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis. Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in the consolidated statements of income when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at FVTOCI are not subject to impairment assessment. The Company elected to classify irrevocably its equity investment under this category. Financial assets at fair value through profit or loss Financial assets are measured at FVTPL unless they are measured at amortized cost or at FVTOCI. Assets in this category include financial assets designated upon initial recognition at FVTPL and derivative instruments entered into that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 43 AGI 2018 ANNUAL REPORT Financial assets at FVTPL are carried in the consolidated statements of financial position at fair value, with changes in the fair value recognized in finance income or finance costs in the consolidated statements of income. An embedded derivative is a component of a hybrid contract that also includes a non-derivative host, with the effect that some of the cash of the combined instrument vary in a way similar to a stand-alone derivative. Derivatives embedded in a financial asset within the scope of IFRS 9 are assessed in their entirety, and the asset as whole is measured at FVTPL. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if the host asset is not within the scope of IFRS 9 [e.g. lease contracts]. These embedded derivatives are measured at fair value with changes in fair value recognized in the consolidated statements of income. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Impairment The Company recognizes an allowance for expected credit losses [“ECLs”] for debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. Under the general approach, ECLs are recognized in two stages: [i] For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months. [ii] For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default [a lifetime ECL]. For accounts receivable, AGI applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The Company considers a financial asset in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. Financial liabilities and those required to be FVTPL. Liabilities measured at amortized cost include accounts payable and accrued liabilities, dividends payable, due to vendor, long- term debt, and convertible unsecured subordinated debentures. Long-term debt and convertible unsecured subordinated debentures are initially measured at fair value, which is the consideration received, net of transaction costs incurred, net of the equity component, if any. Transaction costs related to those instruments are included in the value of the instruments and amortized using the effective interest rate method. The effective interest expense is included in finance costs in the consolidated statements of income. Financial liabilities measured at FVTPL include contingent consideration resulting from business combinations and derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. AGI has not designated any financial liabilities upon initial recognition as FVTPL. Derecognition A financial asset is derecognized when the contractual rights to receive cash flows from the asset have expired or when AGI has transferred its rights to receive cash flows from the asset. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statements of income. Prior to January 1, 2018, the Company’s policies under IAS 39 were as follows: AGI classifies its financial assets as [i] financial assets at fair value through profit or loss [“FVTPL”], [ii] loans and receivables or [iii] available-for-sale, and its financial liabilities as either [i] financial liabilities at FVTPL or [ii] other financial liabilities. Certain derivatives are designated as hedging instruments in an effective hedge, as appropriate. Appropriate classification of financial assets and liabilities is determined at the time of initial recognition or when reclassified in the consolidated statements of financial position. All financial instruments are recognized initially at fair value plus, in the case of investments and liabilities not at FVTPL, directly attributable transaction costs. Financial instruments are recognized on the trade date, which is the date on which AGI commits to purchase or sell the asset. Financial assets at fair value through profit or loss Financial liabilities are measured at amortized cost, using the effective interest rate method, except for financial liabilities designated at initial recognition at FVTPL Financial assets at FVTPL include financial assets classified as held-for-trading and financial assets designated upon initial recognition at FVTPL. Financial assets S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 44 AGI 2018 ANNUAL REPORT are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes cash and cash equivalents and derivative financial instruments entered into that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the effective interest method. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the consolidated statements of income. Financial assets at FVTPL are carried in the consolidated statements of financial position at fair value, with changes in the fair value recognized in finance income or finance costs in the consolidated statements of income. AGI has currently not designated any financial assets upon initial recognition as FVTPL. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held-for- trading. These embedded derivatives are measured at fair value with changes in fair value recognized in the consolidated statements of income. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Assets in this category include receivables. Loans and receivables are initially recognized at fair value plus transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment. The effective interest amortization is included in finance income in the consolidated statements of income. The losses arising from impairment are recognized in the consolidated statements of income in finance costs. Available-for-sale financial investments Available-for-sale financial investments include equity and debt securities. Equity investments classified as available-for-sale are those which are neither classified as held-for-trading nor designated at FVTPL. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, available-for-sale financial investments are subsequently measured at fair value, with unrealized gains or losses recognized as other comprehensive income in the available-for-sale reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the consolidated statements of income and removed from the available-for-sale reserve. For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the effective interest method. Impairment of financial assets AGI assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset [an incurred “loss event”] and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Trade receivables and other assets that are not assessed for impairment individually are assessed for impairment on a collective basis. Objective evidence of impairment includes the Company’s past experience of collecting payments as well as observable changes in national or local economic conditions. For financial assets carried at amortized cost, AGI first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If AGI determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the consolidated statements of income. Loans and receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the consolidated statement of income. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 45 AGI 2018 ANNUAL REPORT S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 46 AGI 2018 ANNUAL REPORT HANDLING S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C T R O P E R L A U N N A 8 1 0 2 I G A 47 AGI 2018 ANNUAL REPORT For available-for-sale financial investments, AGI assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statements of income – is removed from other comprehensive income and recognized in the consolidated statements of income. Impairment losses on equity investments are not reversed through the consolidated statements of income; increases in their fair value after impairment are recognized directly in other comprehensive income. In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statements of income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statements of income, the impairment loss is reversed through the consolidated statements of income. Financial liabilities at FVTPL Financial liabilities at FVTPL include financial liabilities held-for-trading and financial liabilities designated upon initial recognition at FVTPL. Financial liabilities are classified as held-for-trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Gains or losses on liabilities held-for-trading are recognized in the consolidated statements of income. AGI has not designated any financial liabilities upon initial recognition as FVTPL. Other financial liabilities Financial liabilities are measured at amortized cost using the effective interest rate method. Financial liabilities include long-term debt issued, which is initially measured at fair value, which is the consideration received, net of transaction costs incurred, net of equity component. Transaction costs related to the long-term debt instruments are included in the value of the instruments and amortized using the effective interest rate method. The effective interest expense is included in finance costs in the consolidated statements of income. Derecognition A financial asset is derecognized when the right to receive cash flows from the asset have expired or when AGI has transferred its rights to receive cash flows from the asset. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statements of income. Derivative instruments and hedge accounting AGI uses derivative financial instruments such as forward currency contracts, interest rate swaps and equity swaps to hedge its foreign currency risk, interest rate risk and market risk. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. AGI analyses all its contracts, of both a financial and non-financial nature, to identify the existence of any “embedded” derivatives. Any gains or losses arising from changes in the fair value of derivatives are recorded directly in the consolidated statements of income, except for the effective portion of cash flow hedges, which is recognized in other comprehensive income. For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment. At the inception of a hedge relationship, AGI formally designates and documents the hedge relationship to which AGI wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. Before January 1, 2018, the documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine whether they have been highly effective throughout the financial reporting periods for which they were designated. Beginning 1 January 2018, the documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Company will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 48 AGI 2018 ANNUAL REPORT ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements: • There is ‘an economic relationship’ between the hedged item and the hedging instrument. • The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship. • The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Company actually hedges and the quantity of the hedging instrument that Company actually uses to hedge that quantity of hedged item. Hedges that meet the strict criteria for hedge accounting are accounted for as follows: Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognized directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the consolidated statements of income in other operating income or expenses. Amounts recognized as other comprehensive income are transferred to the consolidated statements of income when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognized as other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in equity is transferred to the consolidated statements of income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss. that are traded in active markets at each reporting date is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques that are recognized by market participants. Such techniques may include using recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models. Provisions Provisions are recognized when AGI has a present obligation, legal or constructive, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where AGI expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statements of income, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost. Warranty provisions Provisions for warranty-related costs relate to assurance-type warranties and are recognized when the product is sold or service provided. Initial recognition is based on historical experience. The initial estimate of warranty-related costs is revised at each reporting period. Profit per share The computation of profit per share is based on the weighted average number of shares outstanding during the period. Diluted profit per share is computed in a similar way to basic profit per share except that the weighted average shares outstanding are increased to include additional shares assuming the exercise of share options, share appreciation rights and convertible debt options, if dilutive. Offsetting of financial instruments Revenue recognition Financial assets and financial liabilities are offset and the net amount reported in the consolidated statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. Fair value of financial instruments Fair value is the estimated amount that AGI would pay or receive to dispose of these contracts in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act. The fair value of financial instruments Effective January 1, 2018, the Company adopted IFRS 15 and the following are the policies for revenue recognition. Sale of goods Revenue from the sale of goods is primarily recognized at a point in time when the Company satisfies a performance obligation and control of the goods is transferred from seller to buyer. A performance obligation is a good or a series of goods that are distinct. A contract with various distinct goods is considered to have multiple performance obligations for which revenue is recognized as each performance obligation is satisfied. If a promised good is not distinct, the good is S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 49 AGI 2018 ANNUAL REPORT combined with other promised goods until a bundle of goods is distinct, resulting in accounting for all the goods promised in a contract as a single performance obligation. In determining satisfaction of the performance obligation and point of revenue recognition, the Company considers the terms of the underlying contracts including, but not limited to, shipping terms, transfer of title and risk of loss, and acceptance/performance testing. All costs incurred or to be incurred in connection with the sale, including assurance-type warranty costs and sales incentives, are charged to cost of sales or as a deduction from revenue at the time revenue is recognized. The Company does not provide service-type warranties. Revenue from contracts with customers is recognized at an amount that reflects the consideration to which the Company is entitled to in exchange for those goods. The Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved. AGI applies bill and hold sales accounting in specific situations provided all the following conditions are met as of the reporting date.: (i) there is a substantive reason for the arrangement; (ii) the goods are separately identified as belonging to the customer; (iii) AGI is no longer able to use the goods or direct the goods to another customer; and, (iv) the goods are currently ready for physical transfer to the customer. The sale of certain turn-key projects under the customer’s control can span over three to six months but collectively represents an insignificant portion of AGI’s total revenues. Revenue on these projects is recognized over-time progressively based on the percentage completion method by reference to costs incurred as a percentage of the total estimated costs. Payment terms are usually based on set milestones as outlined in the contract. Typically amounts are received in advance of work performed and are recorded as customer deposits. Contract assets representing revenue recognized prior to being invoiced is not material. Any foreseeable losses on such projects are recognized immediately in profit or loss as identified. Contract liabilities include customer deposits which represent cash received from the customer in advance of the delivery of goods or work being performed. Contract liabilities are subsequently recognized in revenue when AGI performs under contracts, which typically occurs within 12 months or less. AGI has elected to use the practical expedient to not disclose the Company’s remaining performance obligations as those obligations are part of contracts that have an original expected duration of less than one year. The Company has also elected to apply the practical expedient of expensing the incremental costs of obtaining a contract when incurred as the amortization period of the asset that would be recognized is one year or less. Prior to January 1, 2018, the Company’s revenue recognition policies under IAS 18 were as follows: Revenue is recognized to the extent that it is probable that the economic benefits will flow to AGI and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. AGI assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. With the exception of third-party services, AGI has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized: Sale of goods Revenue from the sale of goods is in general recognized when significant risks and rewards of ownership are transferred to the customer. AGI generally recognizes revenue when products are shipped, free on board shipping point; the customer takes ownership and assumes risk of loss; collection of the related receivable is probable; persuasive evidence of an arrangement exists; and the sales price is fixed or determinable. Customer deposits are recorded as a current liability when cash is received from the customer and recognized as revenue at the time product is shipped, as noted above. Income taxes AGI and its subsidiaries are generally taxable under the statutes of their country of incorporation. Current income tax assets and liabilities for the current and prior period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where AGI operates and generates taxable income. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. AGI follows the liability method of accounting for deferred taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to the temporary differences between the carrying value of the assets and liabilities on the consolidated statements of financial position and their respective tax bases. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 50 AGI 2018 ANNUAL REPORT Deferred tax liabilities are recognized for all taxable temporary differences, except: • Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss. • In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carryforward of unused tax losses can be utilized. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates [and tax laws] that have been enacted or substantively enacted at the reporting date. Deferred tax items are recognized in correlation to the underlying transaction either in the consolidated statements of income, other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognized subsequently if information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill if it occurred during the measurement period or in profit or loss, when it occurs subsequent to the measurement period. Sales tax Revenue, expenses and assets are recognized net of the amount of sales tax, except where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable and where receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statements of financial position. Share-based compensation plans Employees of AGI may receive remuneration in the form of share-based payment transactions, whereby employees render services and receive consideration in the form of equity instruments [equity-settled transactions, share award incentive plan and directors’ deferred compensation plan] or cash [cash-settled transactions]. In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, the unidentified goods or services received are measured as the difference between the fair value of the share-based payment transaction and the fair value of any identifiable goods or services received at the grant date and are capitalized or expensed as appropriate. Equity-settled transactions The cost of equity-settled transactions is determined using the grant date fair value and is recognized, together with a corresponding increase in other capital reserves, in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting period reflects the extent to which the vesting period has expired and AGI’s best estimate of the number of the shares that will ultimately vest. The expense or credit recognized for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in the consolidated statements of income in the respective function line. When options and other share-based compensation awards are exercised or exchanged, the amounts previously credited to contributed surplus are reversed and credited to shareholders’ equity. The amount of cash, if any, received from participants is also credited to shareholders’ equity. Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation and any expense not yet recognized for the award [being the total expense as calculated at the grant date] is recognized immediately. This includes any award where vesting conditions within the control of either the Company or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 51 AGI 2018 ANNUAL REPORT The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. charged to operations in the period of the expenditure unless they satisfy the condition for recognition as an internally generated intangible asset. Employee benefits Government grants Certain employees are covered by defined benefit pension plans, and certain former employees are also entitled to other post-employment benefits such as life insurance. The Company’s defined benefit plan asset (obligation) is actuarially calculated by a qualified actuary at the end of each annual reporting period using the projected unit credit method and management’s best estimates of the discount rate, the rate of compensation increase, retirement rates, termination rates and mortality rates. The discount rate used to value the defined benefit obligation for accounting purposes is based on the yield on a portfolio of high-quality corporate bonds denominated in the same currency with cash flows that match the terms of the defined benefit plan obligations. Past service costs (credits) arising from plan amendments are recognized in operating income in the year that they arise. The actuarially determined net interest costs on the net defined benefit plan obligation are recognized in interest cost for the defined benefit plan. Actual post-employment benefit costs incurred may differ materially from management estimates. The fair values of plan assets are deducted from the defined benefit plan obligations to arrive at the net defined benefit plan asset (obligation). When the plan has a net defined benefit asset, the recognized asset is limited to the present value of economic benefits available in the form of future refunds from the plan or reductions in future contributions to the plan [the “asset ceiling”]. If it is anticipated that the Company will not be able to recover the value of the net defined benefit asset, after considering minimum funding requirements for future service, the net defined benefit asset is reduced to the amount of the asset ceiling. When the payment in the future of minimum funding requirements related to past service would result in a net defined benefit surplus or an increase in a surplus, the minimum funding requirements are recognized as a liability to the extent that the surplus would not be fully available as a refund or a reduction in future contributions. Re-measurements including actuarial gains and losses and the impact of any minimum funding requirements are recognized through other comprehensive income. Current employee wages and benefits are expensed as incurred. Post-retirement benefit plans AGI contributes to retirement savings plans subject to maximum limits per employee. AGI accounts for such defined contributions as an expense in the period in which the contributions are required to be made. Research and development expenses Research expenses, net of related tax credits, are charged to the consolidated statements of income in the period they are incurred. Development costs are Government grants are recognized at fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Where the grants relate to an asset, the fair value is credited to the cost of the asset and is released to the consolidated statements of income over the expected useful life in a consistent manner with the depreciation method for the relevant assets. Investment tax credits Federal and provincial investment tax credits are accounted for as a reduction of the cost of the related assets or expenditures in the year in which the credits are earned and when there is reasonable assurance that the credits can be used to recover taxes. Adoption of new accounting policies IFRS 9, Financial Instruments [“IFRS 9”] The Company adopted IFRS 9 with a date of application of January 1, 2018. The Company adopted IFRS 9 retrospectively without restatement of prior periods, other than the hedge accounting provisions of IFRS 9 that have been applied prospectively effective January 1, 2018, and accordingly elected to not restate the comparative figures. IFRS 9 introduces new requirements for the classification and measurement of financial assets, introduces a forward-looking expected loss impairment model, and amends the requirements related to hedge accounting. The standard contains three classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income [“FVOCI”] and fair value through profit or loss [“FVTPL”]. The classification of financial assets under IFRS 9 is based on their contractual cash flow characteristics and the business model in which the financial asset is managed. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9 and the adoption of IFRS 9 did not change the Company’s accounting policies for financial liabilities. The classification changes for each class of the Company’s financial assets and financial liabilities upon adoption as at January 1, 2018 had no impact on the measurement of financial instruments, with the exception of long-term debt. In 2017, the Company amended its credit facilities to extend the maturity from May 2019 to April 2021, and as result of the change in maturity and adoption of IFRS 9, an adjustment to increase opening retained earnings by $175 was recorded. The classification changes are summarized in the following table: S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 52 AGI 2018 ANNUAL REPORT Financial assets Cash and cash equivalents Cash held in trust Accounts receivable IAS 39 IFRS 9 Loans and receivables Loans and receivables Loans and receivables Amortized cost Amortized cost Amortized cost Derivative instruments – equity swap Fair value through profit or loss Fair value through profit or loss Derivative instruments – interest rate swap contracts 1 Fair value through OCI Fair value through OCI Equity investment Note receivable Available-for-sale Fair value through OCI Loans and receivables Amortized cost Financial liabilities Interest-bearing loans and borrowings Accounts payable and accrued liabilities Dividends payable Due to vendor Convertible unsecured subordinated debentures 1Hedge accounting applied. Loans and receivables Loans and receivables Loans and receivables Loans and receivables Loans and receivables Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost IFRS 9 Carrying value as at January 1, 2018 $ 63,981 15,182 99,017 9,698 1,768 900 789 303,803 96,071 3,232 34,034 286,058 The Company adopted the expected loss impairment model under which the lifetime expected credit losses are recognized on initial recognition. The Company’s impairment assessment considers historical and current conditions, and reasonable supportable forecasts. There was no additional impairment charge recorded as a result of the Company’s adoption of the expected loss impairment model. The Company adopted the new general hedge accounting model in IFRS 9. The adoption of IFRS 9 did not result in any changes in the eligibility of existing hedge relationships, the accounting for derivative financial instruments designed as effective hedging instruments or the line items in which they are included in the consolidated statements of financial position or consolidated statements of income. IFRS 15, Revenue from Contracts with Customers [“IFRS 15”] The Company adopted IFRS 15 with an application date of January 1, 2018. The Company applied the modified retrospective method for adopting IFRS 15 and, therefore, the comparative information has not been restated and continues to be reported under IAS 18, Revenue and IAS 11, Construction Contracts. Under the modified approach, the cumulative effect of initially applying IFRS 15 is an adjustment to decrease opening retained earnings by $1,532. The adjustment results from the change in the basis of revenue recognition from the transfer of risk and rewards of ownership to the transfer of control. Consequently, revenue recognition was delayed until completion of the performance obligations. As at December 31, 2018, revenue adjusted upon adoption has all been recorded into income upon the Company’s completion of its performance obligations in accordance with IFRS 15. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 53 AGI 2018 ANNUAL REPORT IFRS 2, Share-based Payment [“IFRS 2”] In June 2016, the IASB issued amendments to IFRS 2 clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, share- based payment transactions with a net settlement feature for withholding tax obligations and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The Company’s assessment did not identify significant classification, recognition or measurement differences. The Company adopted IFRS 2 as at January 1, 2018. 4. Significant accounting judgments, estimates and assumptions The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and the disclosure of contingent liabilities. The estimates and related assumptions are based on previous experience and other factors considered reasonable under the circumstances, the results of which form the basis of making the assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. Impairment of financial assets Assessments about the recoverability of financial assets, including accounts receivable, require significant judgment in determining whether there is objective evidence that a loss event has occurred and estimates of the amount and timing of future cash flows. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability to collect on its trade receivables. A portion of the Company’s sales are generated in overseas markets, including in emerging markets such as countries in Eastern Europe and South America. Emerging markets are subject to various additional risks, including currency exchange rate fluctuations, economic conditions and foreign business practices. One or more of these factors could have a material effect on the future collectability of such receivables. Prior to January 1, 2019, in assessing whether objective evidence of impairment exists at each reporting period, the Company considered its past experience of collecting payments, historical loss experience, customer credit ratings and financial data as available, collateral on amounts owing including insurance coverage from export credit agencies, as well as observable changes in national or local economic conditions. Effective January 1, 2019, in assessing whether objective evidence of impairment exists at each reporting date, the Company uses a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns [i.e., by geographical region, product type, customer type and rating, and coverage by letters of credit or other forms of credit insurance]. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 29[b]. The letters of credit and other forms of credit insurance are considered integral part of trade receivables and considered in the calculation of impairment. The Company evaluates the concentration of risk with respect to trade receivables and contract assets as low, as its customers are located in several jurisdictions and operate in largely independent markets. Future collections of accounts receivable that differ from the Company’s current estimates would affect the results of the Company’s operations in future periods as well as the Company’s trade receivables and general and administrative expenses, and amounts may be material. Impairment of non-financial assets AGI’s impairment test is based on value-in-use calculations that use a discounted cash flow model. The cash flows are derived from the forecast for the next five years and do not include restructuring activities to which AGI has not yet committed or significant future investments that will enhance the asset’s performance of the CGU being tested. These calculations require the use of estimates and forecasts of future cash flows. Qualitative factors, including market presence and trends, strength of customer relationships, strength of local management, strength of debt and capital markets, and degree of variability in cash flows, as well as other factors, are considered when making assumptions with regard to future cash flows and the appropriate discount rate. The recoverable amount is most sensitive to the discount rate, as well as the forecasted margins and growth rate used for extrapolation purposes. A change in any of the significant assumptions or estimates used to evaluate goodwill and other non-financial assets could result in a material change to the results of operations. The key assumptions used to determine the recoverable amount for the different CGUs are further explained in note 13. CGUs are defined as the lowest grouping of integrated assets that generate identifiable cash inflows that are largely independent of the cash inflows of S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 54 AGI 2018 ANNUAL REPORT other assets or groups of assets. The classification of assets into CGUs requires significant judgment and interpretations with respect to the integration between assets, the nature of products, the way in which management allocates resources and other relevant factors. Development costs Development costs are capitalized in accordance with the accounting policy described in note 3. Initial capitalization of costs is based on management’s judgment that technical and economic feasibility is confirmed, usually when a project has reached a defined milestone according to an established project management model. Useful lives of key property, plant and equipment and intangible assets The depreciation method and useful lives reflect the pattern in which management expects the asset’s future economic benefits to be consumed by AGI. Refer to note 3 for the estimated useful lives. Fair value of financial instruments Where the fair value of financial assets and financial liabilities recorded in the consolidated statements of financial position, including the determination of the fair value of the Company’s equity investment cannot be derived from active markets, it is determined using valuation techniques including the discounted cash flow models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Contingent considerations resulting from business combinations are valued at fair value at the acquisition date as part of the business combination and subsequently fair valued as described in business combinations below. Share-based payments AGI measures the cost of equity-settled share-based payment transactions with employees by reference to the fair value of equity instruments at the grant date, whereas the fair value of cash-settled share-based payments is remeasured at every reporting date. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of these instruments, which is dependent on the terms and conditions of the grant. Income taxes Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to taxable income and expenses already recorded. AGI establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues, depending on the conditions prevailing in the respective company’s domicile. As AGI assesses the probability for litigation and subsequent cash outflow with respect to taxes as remote, no contingent liability has been recognized. Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. Business combinations For acquisition accounting purposes, all identifiable assets, liabilities and contingent liabilities acquired in a business combination are recognized at fair value at the date of acquisition. Estimates are used to calculate the fair value of these assets and liabilities as at the date of acquisition. Contingent consideration resulting from business combinations is valued at fair value at the acquisition date as part of the business combination. Where the contingent consideration is recognized, it is subsequently remeasured to fair value at each reporting date. The determination of the fair value is based on discounted cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount factor. 5. Standards issued but not yet effective Standards issued, but not yet effective up to the date of issuance of the Company’s consolidated financial statements are listed below. This listing is of standards and interpretations issued that the Company reasonably expects to be applicable at a future date. The Company intends to adopt those standards when they become effective. IFRS 16, Leases [“IFRS 16”] In January 2016, the IASB released IFRS 16 to set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The standard will be effective for the Company on January 1, 2019. Under the new standard, the Company will recognize new right-of-use assets and lease liabilities for its operating leases. In addition, the nature and timing of leasing expenses will change as operating lease expenses are replaced by a depreciation charge for right-of-use assets and interest expense on lease liabilities. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 55 AGI 2018 ANNUAL REPORT On transition, the Company can either apply the standard using a retrospective approach or a modified retrospective approach with optional practical expedients. The Company plans to apply the modified retrospective approach and certain practical expedients, where applicable. The Company is finalizing the incremental borrowing rate applicable to each lease in scope and continues to assess the potential impact of IFRS 16 on its consolidated statements of financial position, along with a change to the recognition, measurement and presentation of lease expense in the consolidated statements of income. Lease expense on certain short-term leases and/or low value leases will be expensed on a straight-line basis and recorded to profit or loss. IFRS 3, Business Combinations [“IFRS 3”] The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation. An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. These amendments will apply to future business combinations of the Company. IAS 19, Employee Benefits [“IAS 19”] The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after 1 January 2019, with early application permitted. These amendments will be applied prospectively to any future plan amendments, curtailments, or settlements of the Company. IFRIC 23 – Uncertainty Over Income Tax Treatments IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The Interpretation requires an entity to: • determine whether uncertain tax positions are assessed separately or as a group; and • assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings: • If yes, the entity should determine its accounting tax position consistently with the tax treatment used or planned to be used in its income tax filings. • If no, the entity should reflect the effect of uncertainty in determining its accounting tax position. The Interpretation is effective for the Company’s fiscal year beginning on January 1, 2019. The Company is currently assessing the impact, however does not expect a material adjustment upon adoption. The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to: 6. Business combinations [a] Global Industries, Inc. • Determine current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event. • Determine net interest for the remainder of the period after the plan amendment, curtailment or settlement using: the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; and the discount rate used to remeasure that net defined benefit liability (asset). The amendments also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling. This amount is recognized in profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect, excluding amounts included in the net interest, is recognized in other comprehensive income. Effective April 4, 2017, the Company acquired 100% of the outstanding shares of Global Industries, Inc. [“Global”]. Based in the U.S., Global manufactures grain storage bins, portable and stationary grain handling equipment, grain drying and aeration equipment, structural components and steel buildings. Global has four divisions located in Nebraska and Kansas and warehouses in the U.S., Europe, Australia and Africa. The acquisition expands AGI’s North American and international grain handling, drying and storage platforms. Purchase price [$100,000 US] Cash acquired Working capital adjustment Tax gross up to vendor Purchase consideration $ 133,220 1,935 2,462 5,291 142,908 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 56 AGI 2018 ANNUAL REPORT PROCESS S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 57 AGI 2018 ANNUAL REPORT The purchase has been accounted for by the acquisition method, with the results of Global included in the net earnings from the date of acquisition. The assets and liabilities of Global on the date of acquisition have been recorded in the consolidated financial statements at their fair values: Cash and cash equivalents Accounts receivable Inventory Prepaid expenses and other assets Property, plant and equipment Intangible assets Brand name Distribution network Order backlog Goodwill Deferred tax asset Accounts payable and accrued liabilities Customer deposits Purchase consideration $ 1,935 15,118 45,776 4,773 74,535 9,296 11,563 1,406 2,135 1,973 (20,362) (5,240) 142,908 [b] CMC Industrial Electronics Ltd. Effective December 22, 2017, the Company acquired 100% of the outstanding shares of CMC Industrial Electronics Ltd. [“CMC”]. Based in Canada and the U.S., CMC manufactures industry-leading hazard monitoring systems for industrial applications. The acquisition expands AGI’s product catalogue and strengthens AGI’s applied technology platform. Purchase price Cash acquired Working capital adjustment Purchase consideration $ 6,500 974 (354) 7,120 The purchase has been accounted for by the acquisition method, with the results of CMC included in the Company’s net earnings from the date of acquisition. The following table summarizes the fair values of the identifiable assets and liabilities as at the date of acquisition: Cash Accounts receivable Inventory During the measurement period, further payroll liabilities existing at acquisition were identified, resulting in a $586 increase in accounts payable and accrued liabilities and an offsetting increase in goodwill in the year ended December 31, 2018. Prepaid expenses and other assets Income taxes recoverable Property, plant and equipment The components of the purchase consideration are as follows: Cash paid Cash held in trust Due to vendor Purchase consideration $ 135,641 6,661 606 142,908 During the year ended December 31, 2018, the allocation of the purchase price to acquired assets and liabilities was finalized. Intangible assets Brand name Distribution network Goodwill Deferred tax liability Accounts payable and accrued liabilities Customer deposits Capital leases Purchase consideration $ 974 947 1,741 201 127 142 452 1,706 2,664 (604) (1,080) (56) (94) 7,120 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 58 AGI 2018 ANNUAL REPORT During the measurement period, the fair value of acquired inventory was increased by $94, taxes refundable to the vendor were increased by $103, and changes in the measurement of the opening working capital calculation were identified, resulting in a net decrease of $623 to due to vendor and increase of $127 to accounts payable and accrued liabilities. These measurement period adjustments resulted in an offsetting decrease of $487 to goodwill during the year ended December 31, 2018. The components of the purchase consideration are as follows: Cash paid Cash held in trust Due to vendor Purchase consideration $ 5,850 650 620 7,120 Transaction costs related to the CMC acquisition in the year ended December 31, 2018 were an expense of $5 [2017 – $55] and are included in selling, general and administrative expenses. During the year ended December 31, 2018, the allocation of the purchase price to acquired assets and liabilities was finalized. As at December 31, 2018, $82 of cash held in trust remains and subsequent to the year ended December 31, 2018, the amounts due to vendor were paid in full. [c] Junge Control Inc. Effective December 28, 2017, the Company acquired 100% of the outstanding shares of Junge Control Inc. [“Junge”]. Based in the U.S., Junge manufactures automation, measurement and blending equipment for agriculture, fuel and aerial applications. The acquisition expands AGI’s product catalogue and strengthens AGI’s applied technology platform. The purchase has been accounted for by the acquisition method, with the results of Junge included in the Company’s net earnings from the date of acquisition. The following table summarizes the fair values of the identifiable assets and liabilities as at the date of acquisition: Cash Accounts receivable Inventory Prepaid expenses and other assets Property, plant and equipment Intangible assets Brand name Distribution network Customer backlog Software Goodwill Deferred tax asset Accounts payable and accrued liabilities Customer deposits Purchase consideration $ 3,994 892 2,689 47 1,901 1,170 6,252 516 650 8,075 85 (458) (473) 25,340 During the measurement period, the fair value of acquired inventory was increased by $121 with an offsetting decrease to goodwill in the year ended December 31, 2018. The components of the purchase consideration are as follows: Purchase price [$15,000 US] Cash acquired Working capital adjustment Contingent consideration Purchase consideration $ 18,818 3,994 210 2,318 Cash paid Cash held in trust Due to vendor 25,340 Contingent consideration Purchase consideration $ 1,882 1,882 19,258 2,318 25,340 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 59 AGI 2018 ANNUAL REPORT Transaction costs related to the Junge acquisition in the year ended December 31, 2018 were $122 [2017 – $131] and are included in selling, general and administrative expenses. was guaranteed. During the year ended December 31, 2018, $1,797 related to certain terms of the purchase agreement was expensed of which $1,050 was paid subsequent to the year ended December 31, 2018. The contingent consideration was based on Junge meeting predetermined earnings targets in 2018. Upon acquisition, the Company assessed the likelihood of the maximum payment as high and the present value of the contingent consideration was determined using a 5% discount rate, resulting in a current liability of $2,318 being recorded as at the date of acquisition. As at December 31, 2018, the Company determined Junge qualified for full payment of the contingent consideration and the amount of $2,648 was moved from contingent consideration to the current portion of due vendor on the consolidated statements of financial position. During the year ended December 31, 2018, the amount due to vendor of $19,258 was paid in full and the allocation of the purchase price to acquired assets and liabilities was finalized. Subsequent to the year ended December 31, 2018, cash held in trust was released to the vendors. [d] Danmare Group Inc. and Danmare, Inc. Effective February 22, 2018, the Company acquired 100% of the outstanding shares of Danmare Group Inc. and its affiliate Danmare, Inc. [collectively, “Danmare”]. Based in Canada and the U.S., Danmare provides engineering solutions and project management services to the food industry. The acquisition further evolves AGI’s ability to provide complete solutions to a broad customer base. Purchase price Cash acquired Working capital adjustment Contingent consideration Total purchase price Post-combination expense Purchase consideration $ 9,000 126 85 1,000 10,211 (3,000) 7,211 Terms of the purchase agreement included $6.0 million payable upon closing and $3.0 million payable in annual instalments, contingent on certain conditions. The $3.0 million is expected to be expensed over the three-year period. In addition, contingent consideration of $1.0 million was payable based on an earnings target. In April 2018, the purchase agreement was amended such that payment of the first annual instalment of $1.0 million and contingent consideration of $1.0 million The purchase has been accounted for by the acquisition method, with the results of Danmare included in the Company’s net earnings from the date of acquisition. The following table summarizes the fair values of the identifiable assets and liabilities as at the date of acquisition: Cash Accounts receivable Prepaid expenses and other assets Income taxes recoverable Property, plant and equipment Intangible assets Brand name Distribution network Customer backlog Goodwill Deferred tax liability Accounts payable and accrued liabilities Customer deposits Purchase consideration $ 126 1,112 40 56 237 490 2,690 250 3,651 (918) (278) (245) 7,211 The goodwill of $3,651 comprises the value of the assembled workforce and other expected synergies arising from the acquisition. The fair value of the accounts receivable acquired is $1,112. This consists of the gross contractual value of $1,162 less the estimated amount not expected to be collected of $50. From the date of acquisition, Danmare contributed to the results $7,313 of revenue and $1,099 of net loss. If the acquisition had taken place as at January 1, 2018, revenue from continuing operations in 2018 would have increased by an additional $1,057 and profit from continuing operations in 2018 would have increased by an additional $129. The components of the purchase consideration are as follows: S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 60 AGI 2018 ANNUAL REPORT Cash paid Cash held in trust Due to vendor Purchase consideration $ 6,000 525 686 7,211 During the year ended December 31, 2018, the cash held in trust and the amounts due to vendor were paid. Transaction costs related to the Danmare acquisition in the year ended December 31, 2018 were $154 [2017 – nil] and are included in selling, general and administrative expenses. During the year ended December 31, 2018, the allocation of the purchase price to acquired assets and liabilities was finalized. [e] Sabe Group Companies Company recorded $1,375 of post-combination expenses. In addition, contingent consideration of $2.7 million is payable based on an earnings target. The purchase has been accounted for by the acquisition method, with the results of Sabe included in the net earnings from the date of acquisition. The fair value of the assets acquired and the liabilities assumed has been determined on a provisional basis utilizing information available at the time the consolidated financial statements were prepared. Additional information is being gathered to finalize these provisional measurements, particularly with respect to the valuation of intangible assets, valuation of property, plant and equipment by third party appraisers, valuation of retirement accruals and other social charges, working capital, deferred taxes, and the finalization of tax filings. Accordingly, the measurement of assets acquired and liabilities assumed may change upon finalization of the Company’s valuation and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date. The following table summarizes the provisional fair values of the identifiable assets and liabilities as at the date of acquisition: Effective July 26, 2018, the Company acquired 100% of the outstanding shares of Cobalt Investissement and its wholly owned subsidiaries Sabe, Sabe Distribution, Agro Maintenance Système (AMS), Sabis and Société D’Études Techniques D’Installation (Setir) [collectively, “Sabe”]. Based in France, Sabe offers design, manufacturing, installation and commissioning of turnkey solutions to the food industry. The acquisition further evolves AGI’s ability to provide complete solutions to a broad customer base. Cash Accounts receivable Inventory Prepaid expenses and other assets Property, plant and equipment Purchase price Cash acquired Working capital adjustment Contingent consideration Employee loans Long-term debt Total purchase price Post-combination expense Purchase consideration The $4.4 million of post-combination expense is expected to be expensed over a three-year period and, during the year ended December 31, 2018, the $ 24,464 3,708 820 2,709 18 (738) 30,981 (4,436) Intangible assets Trade name Distribution networks Customer backlog Goodwill Accounts payable and accrued liabilities Customer deposits Income taxes payable Deferred tax liability Long-term payables 26,545 Long-term debt Purchase consideration $ 3,708 2,090 749 135 4,233 5,234 6,493 837 12,794 (4,920) (585) (123) (3,358) (4) (738) 26,545 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 61 AGI 2018 ANNUAL REPORT The goodwill of $12,794 comprises the value of the assembled workforce and other expected synergies arising from the acquisition. 8. Accounts receivable The fair value of the accounts receivable acquired is $2,090. This consists of the gross contractual value of $2,332 less the estimated amount not expected to be collected of $242. From the date of acquisition, Sabe contributed to the results $7,550 of revenue and $1,612 of net loss. Revenue and net loss that occurred as though the acquisition date for the business had been as of the beginning of the annual reporting period is impracticable to disclose due to Sabe historically reporting under differing reporting standards and year-end. The components of the purchase consideration are as follows: Cash paid Due to vendor Contingent consideration Purchase consideration $ 23,432 404 2,709 26,545 As is typical in the agriculture sector, AGI may offer extended terms on its accounts receivable to match the cash flow cycle of its customer. The following table sets forth details of the age of trade accounts receivable that are not overdue, as well as an analysis of overdue amounts and the related allowance for doubtful accounts: Total current accounts receivable Less allowance for doubtful accounts Non-current accounts receivable Total accounts receivable, net 2018 $ 135,770 (1,531) 134,239 8,122 2017 $ 100,863 (1,846) 99,017 4,180 142,361 103,197 Of which Neither impaired nor past due 110,469 74,382 Not impaired and past the due date as follows Transaction costs related to the Sabe acquisition in the year ended December 31, 2018 were $523 [2017 – nil] and are included in selling, general and administrative expenses. 7. Restricted cash Restricted cash of $827 [2017 – $1,611] consists of cash on hand related to advance payment guarantees included in a sales contract with a customer. Within 30 days 31 to 60 days 61 to 90 days Over 90 days Allowance for doubtful accounts Total accounts receivable, net 14,858 4,167 3,922 10,476 (1,531) 142,361 15,419 4,538 2,229 8,475 (1,846) 103,197 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 62 AGI 2018 ANNUAL REPORT Non-current accounts receivable is the present value of asset-backed receivables. These receivables are backed by customers’ crop pledge and/or property, plant, and equipment. Trade receivables assessed to be impaired are included as an allowance in selling, general and administrative expenses in the period of the assessment. The movement in the Company’s allowance for doubtful accounts for the years ended December 31, 2018 and December 31, 2017 was as follows: Balance, beginning of year Additional provision recognized Amounts written off during the year as uncollectible Exchange differences Balance, end of year 9. Inventory Raw materials Finished goods 2018 $ 1,846 143 (457) (1) 1,531 2017 $ 1,819 919 (859) (33) 1,846 2018 $ 102,244 88,643 190,887 2017 $ 83,121 75,514 158,635 controls S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 63 AGI 2018 ANNUAL REPORT 10. Property, plant and equipment Land $ Grounds $ Buildings $ Leasehold Improvements $ Furniture and fixtures $ Vehicles $ Computer Hardware $ Manufacturing Equipment $ Construction in progress $ Total $ Cost Balance, January 1, 2018 21,722 4,717 150,742 Additions Acquisitions Classification as held for sale [note 15] Disposals Impairment [note 15] Exchange differences — 81 — — — 608 1,552 — — (47) — 128 9,239 2,254 (805) — (226) 6,282 Balance, December 31, 2018 22,411 6,350 167,486 3,778 1,857 100 — (154) — 107 5,688 1,128 354 — (8) 4 3,230 14,000 298 3,965 66 — 121 — (32) (1,063) — 70 — 304 3,632 17,327 1,326 313 — (30) 40 5,882 1,618 — (506) 89 7,083 5,948 1,351 130 — (119) — 133 7,443 3,515 1,004 — (116) 119 4,522 139,520 21,193 364,850 26,065 1,718 — (1,005) — 3,191 (7,778) 36,549 — — (32) — 4,470 (805) (2,452) (226) (233) 10,590 169,489 13,150 412,976 36,465 11,190 — (646) 1,320 48,329 — — — — — — 60,307 19,200 (19) (1,307) 2,150 80,331 932 325 — (1) 47 11,059 4,396 (19) — 531 — — — — — — 1,303 15,967 1,478 1,649 Depreciation Balance, January 1, 2018 Depreciation Classification as held for sale [note 15] Disposals Exchange differences Balance, December 31, 2018 Net book value, January 1, 2018 Net book value, December 31, 2018 21,722 3,785 139,683 2,650 1,904 8,118 2,433 103,055 21,193 304,543 22,411 5,047 151,519 4,210 1,983 10,244 2,921 121,160 13,150 332,645 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 64 AGI 2018 ANNUAL REPORT Land $ Grounds $ Buildings $ Leasehold Improvements $ Furniture and fixtures $ Vehicles $ Computer Hardware $ Manufacturing Equipment $ Construction in progress $ Total $ Cost Balance, January 1, 2017 Additions Acquisitions Classification as held for sale Disposals Impairment Exchange differences 16,078 4,017 3,648 (1,243) — (276) (502) 4,013 1,002 92,536 25,895 — 40,861 (59) — (64) (2,763) (3) (480) (175) (5,304) Balance, December 31, 2017 21,722 4,717 150,742 Depreciation Balance, January 1, 2017 Depreciation Classification as held for sale Disposals Exchange differences Balance, December 31, 2017 Net book value, January 1, 2017 Net book value, December 31, 2017 — — — — — — 688 276 — — (32) 932 8,086 3,742 (543) (3) (223) 11,059 2,724 432 665 — — — (43) 3,778 853 275 — — — 2,432 10,329 389 487 — (43) — (35) 2,118 2,720 — (935) — (232) 3,230 14,000 1,095 280 — (37) (12) 4,749 1,632 — (441) (58) 5,882 4,781 1,110 451 — (303) — (91) 5,948 3,023 822 — (267) (63) 3,515 92,298 25,749 26,809 — (1,149) — (4,187) 139,520 28,848 9,444 — (1,014) (813) 36,465 31,608 256,799 (9,413) 937 — (33) — 51,299 76,578 (4,065) (2,466) (820) (1,906) 21,193 (12,475) 364,850 — — — — — — 47,342 16,471 (543) (1,762) (1,201) 60,307 1,128 1,326 16,078 3,325 84,450 21,722 3,785 139,683 1,871 2,650 1,337 5,580 1,758 63,450 31,608 209,457 1,904 8,118 2,433 103,055 21,193 304,543 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 65 AGI 2018 ANNUAL REPORT AGI regularly assesses its long-lived assets for impairment. As at December 31, 2018 and 2017, the recoverable amount of each CGU exceeded the carrying amounts of the assets allocated to the respective units. Capitalized borrowing costs No borrowing costs were capitalized in 2018 or 2017. 11. Goodwill Balance, beginning of year Acquisition [note 6] Exchange differences Balance, end of year 12. Intangible assets 2018 $ 2017 $ 234,669 227,450 16,423 5,527 11,770 (4,551) 256,619 234,669 Distribution networks $ Brand names $ Patents $ Software $ Order Backlog $ Non-compete agreement $ Development project $ Cost Balance, January 1, 2018 Internal development Acquired Exchange differences 140,767 115,852 2,828 — 9,183 3,913 — 5,724 3,003 94 — 101 Balance, December 31, 2018 153,863 124,579 3,023 Amortization Balance, January 1, 2018 Amortization Exchange differences Balance, December 31, 2018 Net book value, December 31, 2018 50,878 10,428 1,998 63,304 — — — — 1,915 141 101 2,157 90,559 124,579 866 3,203 145 4,791 1,689 — 245 6,725 2,451 890 181 3,522 8,270 — 1,087 411 9,768 7,751 1,455 417 9,623 Total $ 282,485 7,397 15,994 7,698 9,863 5,614 — 25 15,502 313,574 1,271 901 (482) 1,690 64,329 13,831 2,215 80,375 13,812 233,199 114 — — — 114 63 16 — 79 35 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 66 AGI 2018 ANNUAL REPORT Cost Balance, January 1, 2017 Internal development Acquired Impairment Exchange differences Balance, December 31, 2017 Amortization Balance, January 1, 2017 Amortization Exchange differences Balance, December 31, 2017 Net book value, December 31, 2017 Patents $ Software $ Order Backlog $ Non-compete agreement $ Development project $ Distribution networks $ 123,700 — 19,521 — (2,454) 140,767 43,685 8,517 (1,324) 50,878 Brand names $ 107,109 — 10,919 — (2,176) 115,852 — — — — 2,806 3,337 71 32 — (81) 2,828 1,767 172 (24) 1,915 925 650 — (121) 4,791 1,931 615 (95) 2,451 6,583 — 1,889 — (202) 8,270 4,676 3,232 (157) 7,751 Total $ 250,146 4,910 33,011 (395) (5,187) 282,485 52,931 13,003 (1,605) 64,329 6,497 3,914 — (395) (153) 9,863 825 451 (5) 1,271 114 — — — — 114 47 16 — 63 51 89,889 115,852 913 2,340 519 8,592 218,156 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 67 AGI 2018 ANNUAL REPORT The Company is continuously working on research and development projects. Development costs capitalized include the development of new products and the development of new applications of existing products and prototypes. Research costs and development costs that are not eligible for capitalization have been expensed and are recognized in selling, general and administrative expenses. Intangible assets include patents acquired through business combinations, which have a remaining life between 2 and 8 years. All brand names with a carrying amount of $124,579 [2017 – $115,852] have been classified as indefinite-life intangible assets, as the Company expects to maintain these brand names and currently no end point of the useful lives of these brand names can be determined. The Company assesses the assumption of an indefinite useful life at least annually. For definite-life intangible assets, the Company assesses whether there are indicators of impairment at subsequent reporting dates as a triggering event for performing an impairment test. Intangible assets and research and development expenses for the year ended December 31, 2018, are net of combined federal and provincial scientific research and experimental development [“SR&ED”] tax credits in the amounts of $55 and $93, respectively. A number of specific criteria must be met in order to qualify for federal and provincial SR&ED investment tax credits. As at December 31, 2018, the Company had federal investment tax credit carryforwards in the amount of nil [2017 – $2,324], federal SR&ED investment tax credit carryforwards in the amount of $947 [2017 – $1,051], provincial SR&ED investment tax credit carryforwards in the amount of $696 [2017 – $345] and provincial manufacturing or processing tax credits in the amount of $658 [2017 – $466]; these began expiring in 2015. Other significant intangible assets are goodwill [note 12] and the distribution network of the Company. The distribution network was acquired in past business combinations and reflects the Company’s dealer network in North America. The remaining amortization period for the distribution network ranges from 2 to 20 years. The Company’s group of CGUs and goodwill and indefinite-life intangible assets allocated thereto are as follows, which represents how goodwill and indefinite-life intangible assets are monitored by management: Farm Goodwill Intangible assets with indefinite lives Commercial Goodwill Intangible assets with indefinite lives Total Goodwill Intangible assets with indefinite lives 2018 $ 2017 $ 132,469 78,206 131,733 77,490 124,150 46,373 102,936 38,362 256,619 124,579 234,669 115,852 Key assumptions used in valuation calculations The calculation of value in use or fair value less cost to sell for all the CGUs or group of CGUs is most sensitive to the following assumptions: • Gross margins; • Discount rates; The Company had no contractual commitments for the acquisition of intangible assets as of the reporting date. • Market share during the budget period; and • Growth rate used to extrapolate cash flows beyond the budget period. 13. Impairment testing Gross margins The Company performs its annual goodwill impairment test as at December 31. The recoverable amount of the Company’s group of CGUs has been determined based on value in use for the year ended December 31, 2018, using cash flow projections covering a five-year period. The pre-tax discount rates applied to the cash flow projections are 11.3% and 11.1% [2017 – 12.7% and 12.2%] and cash flows beyond the five-year period are extrapolated using a 3% growth rate [2017 – 3%], which is management’s estimate of long-term inflation and productivity growth in the industry and geographies in which it operates. Forecasted gross margins are based on actual gross margins achieved in the years preceding the forecast period. Margins are kept constant over the forecast period and the terminal period, unless management has started an efficiency improvement process. Discount rates Discount rates reflect the current market assessment of the risks specific to each CGU or group of CGUs. The discount rate was estimated based on the weighted average cost of capital for the industry. This rate was further adjusted to reflect the market assessment of any risk specific to the CGU or group of CGUs for which S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 68 AGI 2018 ANNUAL REPORT future estimates of cash flows have not been adjusted. Market share assumptions These assumptions are important because, as well as using industry data for growth rates [as noted below], management assesses how the CGU’s or group of CGUs’ position, relative to its competitors, might change over the forecast period. Growth rate estimates Rates are based on published research and are primarily derived from the long- term Consumer Price Index expectations for the markets in which AGI operates. Management considers the Consumer Price Index to be a conservative indicator of the long-term growth expectations for the agricultural industry. 16. Accounts payable and accrued liabilities Trade payables Other payables Personnel-related accrued liabilities Accrued outstanding service invoices 2018 $ 48,558 19,860 30,586 2,500 101,504 2017 $ 43,924 26,043 23,507 2,597 96,071 14. Equity investment In fiscal 2009, AGI made an equity investment in a privately held Canadian farming company [“Investco”]. Trade payables and other payables are non-interest bearing and are normally settled on 30- or 60 day terms. Personnel-related accrued liabilities include primarily vacation accruals, bonus accruals and overtime benefits. For explanations on the Company’s credit risk management processes, refer to note 29. 15. Assets held for sale 17. Due to vendor In 2015, AGI acquired Westeel, which included land and building in Saskatchewan that met the definition of assets held for sale. During the year ended December 31, 2018, the assets were sold for $2,031, resulting in a further impairment of $6 being recorded. In 2017, AGI built a new facility in Brazil, and transferred all production activities from the existing facility to its new facility. AGI concluded that the land, grounds, and building at the existing facility met the definition of assets held for sale and it was recorded at the lower of cost and fair value less cost to sell. As at December 31, 2018, the carrying amount of the assets held for sale is $746. During the year ended December 31, 2018, buildings in Illinois and Iowa met the definition of assets held for sale. An impairment charge of $226 was recorded and the carrying amount of $786 was recorded as assets held for sale. During the year ended December 31, 2018, the building in Iowa was sold for proceeds of $396 and a gain of $8. As at December 31, 2018, the carrying amount of the assets held for sale is $423. In the year ended December 31, 2013, the Company recorded a tax deduction in regards to the write-off of a receivable outstanding as at the date of the Tramco, Inc. [“Tramco”] acquisition. Per the terms of the purchase agreement, the tax benefit related to this deduction, net of 15% which is to the benefit of the Company, is required to be paid to the vendor of Tramco once the deduction has become statute barred. The amount payable to the vendor upon the deduction becoming statute barred of $789 has been recorded as a current liability on the consolidated statements of financial position. Also included in due to vendor are amounts arising from business combinations [note 6]. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 69 AGI 2018 ANNUAL REPORT 18. Provisions Provisions consist of the Company’s warranty provision. A provision is recognized for expected claims on products sold based on past experience of the level of repairs and returns. It is expected that most of these costs will be incurred in the next financial year. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns. 2018 $ 5,909 7,907 (6,244) 113 7,685 2017 $ 6,654 5,539 (6,762) 478 5,909 Balance, beginning of year Additional provisions recognized Amounts written off Acquisitions Balance, end of year 19. Obligations under finance lease Current portion of obligations under finance lease Real estate lease Equipment leases Total current obligations under finance lease Non-current portion of obligations under finance lease Equipment leases Total non-current obligations under finance lease Obligations under finance lease S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 70 Interest rate % Maturity Euribor +2 2018 4.3 – 4.8 2020-2022 4.3 – 4.8 2020-2022 2018 $ — 65 65 165 165 230 2017 $ 960 23 983 19 19 1,002 AGI 2018 ANNUAL REPORT 20. Long-term debt Current portion of long-term debt Equipment financing Non-current portion of long-term debt Equipment financing Series B secured notes Series C secured notes [U.S. dollar denominated] Term A secured loan Term B secured loan Canadian Revolver U.S. Revolver Less deferred financing costs Total non-current long-term debt Long-term debt [a] Bank indebtedness Interest rate % Maturity 2018 $ 2017 $ nil 2025 289 117 nil 4.4 3.7 3.6 3.9 3.8 – 6.8 3.7 – 6.3 2025 2025 2026 2021 2022 2023 2023 809 25,000 34,105 — — 69,203 144,877 273,994 2,862 271,132 271,421 443 25,000 31,363 50,000 40,000 158,067 — 304,873 2,014 302,859 302,976 AGI has a swing line of $40.0 million and U.S. $20.0 million. The facilities bear interest at prime plus 0.45% to prime plus 1.5% per annum based on performance calculations. As at December 31, 2018, there was nil [2017 – nil] outstanding under the swing line. Collateral for the swing line ranks pari passu with the Series B and C secured notes and includes a general security agreement over all assets, first position collateral mortgages on land and buildings, assignments of rents and leases and security agreements for patents and trademarks. [b] Long-term debt During the year ended December 31, 2018, AGI entered into a refinancing agreement, under which the previous term loans and revolvers were replaced by the Canadian and U.S. Revolver. Included in deferred financing costs is $2,549 of fees related to the refinancing agreement. AGI’s revolver facilities of $175 million and U.S. $215 million are inclusive of amounts that may be allocated to the Company’s swing line and can be drawn in Canadian or U.S. funds. The facilities bear interest at BA or LIBOR plus 1.45% to BA or LIBOR plus 2.5% and prime plus 0.45% to prime plus 1.5% per annum based on performance calculations. The combined effective interest rate for the year ended December 31, 2018 on AGI’s revolver facilities was 5.3%. As at December 31, 2018, there was $214 million [2017 – $158 million] outstanding under these facilities. Interest on a portion of the revolver line has been fixed at 3.8% through an interest rate swap contract [note 30]. Collateral for the revolving line ranks pari passu and includes a general security agreement over all assets, first position collateral mortgages on land and buildings, assignments of rents and leases and security agreements for patents and trademarks. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 71 AGI 2018 ANNUAL REPORT The Series B secured notes were issued on May 22, 2015. The non-amortizing notes bear interest at 4.4% payable quarterly and mature on May 22, 2025. Collateral for the Series B secured notes and term loans ranks pari passu and include a general security agreement over all assets, first position collateral mortgages on land and buildings, assignments of rents and leases and security agreements for patents and trademarks. The Series C secured notes were issued on October 29, 2016. The non-amortizing notes bear interest at 3.7% payable quarterly and mature on October 29, 2026. The Series C secured notes are denominated in U.S. dollars. Collateral for the Series C secured notes and term loans ranks pari passu and include a general security agreement over all assets, first position collateral mortgages on land and buildings, assignments of rents and leases and security agreements for patents and trademarks. [c] Covenants AGI is subject to certain financial covenants in its credit facility agreements that must be maintained to avoid acceleration of the termination of the agreement. The financial covenants require AGI to maintain a debt to earnings before interest, taxes, depreciation and amortization [“EBITDA”] ratio of less than 3.25, the calculation of which excludes the convertible unsecured subordinated debentures from debt, and to provide debt service coverage of a minimum of 1.0. In the event of an acquisition in respect of which the aggregate consideration is $75,000 or greater, the minimum debt to EBITDA ratio increases to 3.75 in the financial quarter in which the acquisition occurs and the three succeeding financial quarters, to 3.50 for the immediately succeeding quarter and subsequently will revert to 3.25. As at December 31, 2018 and December 31, 2017, AGI was in compliance with all financial covenants. 21. Convertible unsecured subordinated debentures Current portion of convertible unsecured subordinated debentures Non-current portion of convertible unsecured subordinated debentures Principal amount Equity component Accretion Financing fees, net of amortization Total non-current convertible unsecured subordinated debentures Convertible unsecured subordinated debentures 2018 $ 2017 $ 51,750 86,155 247,500 (11,794) 5,222 (7,830) 233,098 284,848 213,000 (14,212) 7,498 (6,383) 199,903 286,058 Year issued 2014 2015 2017 2018 Aggregate principal amount $ 51,750 75,000 86,250 86,250 Coupon 5.25% 5.00% 4.85% 4.50% Conversion price $ 65.57 60.00 83.45 88.15 Conversion rate(1) 15.2509 16.6667 11.9832 11.3443 Number of common shares reserved for issuance upon conversion 789,233 1,250,000 1,033,551 978,446 Maturity date 31-Dec-19 31-Dec-20 30-Jun-22 31-Dec-22 Redeemable at par(2)(3) 01-Jan-19 01-Jan-20 30-Jun-21 01-Jan-22 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 72 AGI 2018 ANNUAL REPORT 1 No conversion options were exercised during the years ended December 31, 2018 and December 31, 2017. 2 At the option of the Company, at par plus accrued and unpaid interest. The liability component is accreted using the effective interest rate method. The equity component of $8,203 on the consolidated statements of financial position is net of income taxes of $3,028 and its pro rata share of financing costs of $563. 3 In the twelve-month period prior to the date on which the Company may, at its option, redeem any series of convertible debentures at par plus accrued and unpaid interest, such convertible debentures may be redeemed, in whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the common shares (“Common Shares”) of the Company during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the conversion price. On redemption or at maturity, the Company may, at its option, elect to satisfy its obligation to pay the principal amount of the Debentures by issuing and delivering common shares. The Company may also elect to satisfy its obligation to pay interest on the Debentures by delivering sufficient common shares. The Company does not expect to exercise the option to satisfy its obligations to pay the principal amount or interest by delivering common shares. The number of shares issued will be determined based on market prices at the time of issuance. On January 3, 2018 [and January 9, 2018, with respect to the over-allotment portion], the Company issued a new series of convertible unsecured subordinated debentures [the “2018 Debentures”] with an aggregate principal amount of $86.25 million, a coupon of 4.50% and a maturity date of December 31, 2022. On January 8, 2018, holders of $8,678 2013 Debentures exercised the conversion option and were issued 157,781 common shares. On January 9, 2018, the Company redeemed its 2013 Debentures in accordance with the terms of the supplemental trust indenture dated December 17, 2013. Upon redemption, AGI paid to the holders of the 2013 Debentures the redemption price of $77,477 equal to the outstanding principal amount of the 2013 Debentures redeemed including accrued and unpaid interest up to but excluding the Redemption date, less taxes deducted or withheld. The Company presents and discloses its financial instruments in accordance with the substance of its contractual arrangement. Accordingly, upon issuance of the Debentures, the Company recorded the liability, less related offering costs, and the estimated fair value of the holder’s conversion option as follows: Liability recorded upon issuance $ 51,750 75,000 86,250 86,250 Year Issued 2014 2015 2017 2018 Offering costs $ 2,663 3,509 3,673 3,957 Equity component 2,164 3,277 4,290 2,063 During the year ended December 31, 2018, the Company recorded accretion, non-cash interest expense relating to financing costs, and interest expense on the coupon of: Year Issued 2014 2015 2017 2018 Accretion $ 452 626 761 366 2018 Non-cash interest expense $ 527 641 650 692 Interest expense 2,717 3,750 4,183 3,881 During the year ended December 31, 2017, the Company recorded accretion, non-cash interest expense relating to financing costs, and interest expense on the coupon of: Year Issued 2013 2014 2015 2017 Accretion $ 1,946 426 591 496 2017 Non-cash interest expense $ 1,674 495 604 424 Interest expense $ 4,526 2,717 3,750 2,791 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 73 AGI 2018 ANNUAL REPORT 22. Equity [a] Common shares Authorized Unlimited number of voting common shares without par value. Issued 18,363,780 common shares. Balance, January 1, 2017 Dividend reinvestment shares issued from treasury [note 22[d]] Settlement of 2012 EIAP obligation Shares # 14,781,643 93,976 133,570 Amount $ 251,698 4,909 5,300 [b] Contributed surplus Balance, beginning of year Equity-settled director compensation [note 23[b]] Dividends on EIAP Obligation under EIAP [note 23[a]] Settlement of EIAP obligation Convertible unsecured subordinated debentures [note 21] Balance, end of year 2018 $ 2017 $ 20,956 16,940 419 1,144 8,135 361 1,302 7,698 (7,742) (5,345) 3,133 — 26,045 20,956 [c] Accumulated other comprehensive income Issuance of common shares 1,150,000 61,224 Accumulated other comprehensive income is comprised of the following: Convertible unsecured subordinated debentures Dividend reinvestment plan costs 1,727 — 95 (27) Balance, December 31, 2017 16,160,916 323,199 Dividend reinvestment shares issued from treasury [note 22[d]] Settlement of 2012 EIAP obligation 26,132 144,451 1,384 5,820 Issuance of common shares 1,874,500 111,564 Cash flow hedge reserve The cash flow hedge reserve contains the effective portion of the cash flow hedge relationships incurred as at the reporting date. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations. Convertible unsecured subordinated debentures [note 21] 157,781 8,678 Defined benefit plan reserve Balance, December 31, 2018 18,363,780 450,645 On October 25, 2018, the Company closed its public offering for 1,874,500 common shares at a price of $61.50 per share for gross proceeds of approximately $115 million, which includes the exercise in full of the over-allotment option granted to the underwriters for additional gross proceeds of approximately $15 million. Net proceeds after fees and taxes were approximately $111 million. AGI used the net proceeds of the offering to partially repay outstanding indebtedness under its credit facilities, to pursue potential acquisition opportunities and for working capital and general corporate purposes. The defined benefit plan reserve is used to record changes in the pension liability including actuarial gains and losses and the impact of any minimum funding requirements. [d] Dividends paid and proposed In the year ended December 31, 2018, the Company declared dividends of $40,650 or $2.40 per common share [2017 – $38,365 or $2.40 per common share] and dividends on share compensation awards of $1,144 [2017 – $1,302]. In the year ended December 31, 2018, 26,132 common shares were issued to shareholders from treasury under the dividend reinvestment plan [the “DRIP”]. In the year ended December 31, 2018, dividends paid to shareholders were financed $39,266 [2017 – $33,456] from cash on hand and $1,384 [2017 – $4,909] by the DRIP. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 74 AGI 2018 ANNUAL REPORT AGI’s dividend policy is to pay cash dividends on or about the 15th of each month to shareholders of record on the last business day of the previous month. The Company’s current monthly dividend rate is $0.20 per common share. Subsequent to December 31, 2018, the Company declared dividends of $0.20 per common share with record dates of January 31 and February 28. [e] Dividend reinvestment plan On March 5, 2013, the Company announced the adoption of the DRIP. Eligible shareholders who elect to reinvest dividends under the DRIP will initially receive common shares issued from treasury at a discount of 4% from the market price of the common shares, with the market price being equal to the volume-weighted average trading price of the common shares on the Toronto Stock Exchange for the five trading days preceding the applicable dividend payment date. The Company incurred costs of nil [2017 – $27] with respect to administration of the DRIP. In March 2018, the Company suspended the active operation of its DRIP. Accordingly, dividends starting with the April 2018 dividend, payable on May 15, 2018 to shareholders of record on April 30, 2018, will not be reinvested through the DRIP, and shareholders who were enrolled in the program will automatically receive dividend payments in the form of cash. [f] Shareholder protection rights plan On December 20, 2010, the Company’s Board of Directors adopted a Shareholders’ Protection Rights Plan [the “Rights Plan”]. Specifically, the Board of Directors has implemented the Rights Plan by authorizing the issuance of one right [a “Right”] in respect of each common share [the “Common Shares”] of the Company. If a person or a Company, acting jointly or in concert, acquires [other than pursuant to an exemption available under the Rights Plan] beneficial ownership of 20% or more of the Common Shares, Rights [other than those held by such acquiring person, which will become void] will separate from the Common Shares and permit the holder thereof to purchase that number of Common Shares having an aggregate market price [as determined in accordance with the Rights Plan] on the date of consummation or occurrence of such acquisition of Common Shares equal to four times the exercise price of the Rights for an amount in cash equal to the exercise price. The exercise price of the Rights pursuant to the Rights Plan is $150 per Right. [g] Preferred shares On May 14, 2014, the shareholders of AGI approved the creation of two new classes of preferred shares, each issuable in one or more series without par value and each with such rights, restrictions, designations and provisions as the Company’s Board of Directors may, at any time from time to time determine, subject to an aggregate maximum number of authorized preferred shares. In particular, no preferred shares of either class may be issued if: [i] The aggregate number of preferred shares that would then be outstanding would exceed 50% of the aggregate number of common shares then outstanding; or [ii] The maximum aggregate number of common shares into which all of the preferred shares then outstanding could be converted in accordance with their terms, would exceed 20% of the aggregate number of common shares then outstanding; or [iii] The aggregate number of votes, which the holders of all preferred shares then outstanding would be entitled to cast at any meeting of the shareholders of the Company [other than meetings at which only holders of preferred shares are entitled to vote], would exceed 20% of the aggregate number of votes, which the holders of all common shares then outstanding would be entitled to cast at any such meeting. As at December 31, 2018 and December 31, 2017, no preferred shares were issued or outstanding. 23. Share-based compensation plans [a] Equity incentive award plan [“EIAP”] On May 11, 2012, the shareholders of AGI approved an Equity Incentive Award Plan [the “EIAP”], which authorizes the Board to grant Restricted Awards [“Restricted Awards”] and Performance Awards [“Performance Awards”] [collectively, the “Awards”] to persons who are officers, employees or consultants of the Company and its affiliates. Awards may not be granted to non-management Directors. On May 5, 2016, the shareholders of AGI approved an amendment to the EIAP to increase the number of common shares available for issuance to 1,215,000. At the discretion of the Board, the EIAP provides for cumulative adjustments to the number of common shares to be issued pursuant to, or the value of, Awards on each date that dividends are paid on the common shares. The EIAP provides for accelerated vesting in the event of a change in control, retirement, death or termination without cause. Each Restricted Award will entitle the holder to be issued the number of common shares designated in the Restricted Award. The Company has an obligation to settle any amount payable in respect of a Restricted Award by common shares issued from treasury of the Company. Each Performance Award requires the Company to deliver to the holder at the Company’s discretion either the number of common shares designated in the Performance Award multiplied by a Payout Multiplier or the equivalent amount in cash. The Payout Multiplier is determined based on an assessment of the achievement of pre-defined measures in respect of the applicable period. The Payout Multiplier may not exceed 200%. As at December 31, 2018, 406,006 [2017 – 336,421] Restricted Awards and 440,672 [2017 – 406,789] Performance Awards have been granted. The Company has accounted for the EIAP as an equity-settled plan. The fair values of the Restricted Awards and the Performance Awards were based on the share price as at the grant date and the assumption that there will be no forfeitures. During the year ended December 31, 2018, AGI expensed $7,585 for the EIAP [2017 – $7,698]. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 75 AGI 2018 ANNUAL REPORT common shares had been granted under the DDCP and 18,436 [2017 – 18,436] common shares had been issued. [c] Summary of expenses recognized under share-based payment plans For the year ended December 31, 2018, an expense of $8,004 [2017 – $8,057] was recognized for employee and Director services rendered. A summary of the status of the options under the EIAP is presented below: Outstanding, January 1, 2017 Granted Vested Forfeited Balance, December 31, 2017 Granted Vested Forfeited [note 31] Balance, December 31, 2018 EIAP Restricted Awards # Performance Awards # 223,030 9,921 247,500 39,658 (72,942) (73,983) (3,530) 156,479 68,585 (70,918) (15,166) 138,980 — 213,175 33,883 (73,281) (17,000) 156,777 There is no exercise price on the EIAP awards. [b] Directors’ deferred compensation plan [“DDCP”] Under the DDCP, every Director receives a fixed base retainer fee, an attendance fee for meetings and a committee chair fee, if applicable, and a predetermined minimum of the total compensation must be taken in common shares. A Director will not be entitled to receive the common shares he or she has been granted until a period of three years has passed since the date of grant or until the Director ceases to be a Director, whichever is earlier. The Directors’ common shares are fixed based on the fees eligible to him or her for the respective period and his or her decision to elect for cash payments for dividends related to the common shares; therefore, the Director’s remuneration under the DDCP vests directly in the respective service period. The three-year period [or any shorter period until a Director ceases to be a Director] qualifies only as a waiting period to receive the vested common shares. For the year ended December 31, 2018, an expense of $419 [2017 – $361] was recorded for the share grants, and a corresponding amount has been recorded to contributed surplus. The share grants were measured with the contractual agreed amount of service fees for the respective period. The total number of common shares issuable pursuant to the DDCP shall not exceed 120,000, subject to adjustment in lieu of dividends, if applicable. For the year ended December 31, 2018, 7,820 [2017 – 6,690] common shares were granted under the DDCP, and as at December 31, 2018, a total of 78,153 [2017 – 70,332] S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 76 AGI 2018 ANNUAL REPORT 24. Other expenses (income) [a] Other operating expense (income) Net loss on sale of property, plant and equipment Net gain on disposal of assets held for sale Loss (gain) on financial instruments [note 29] Other [b] Finance (income) expense Interest income from banks Loss (gain) on foreign exchange 2018 $ 193 (8) 2,061 (2,267) (21) (202) 16,605 16,403 2017 $ [e] Selling, general and administrative expenses 46 Depreciation (955) (357) (3,379) (4,645) (120) (12,467) (12,587) Amortization of intangible assets Minimum lease payments recognized as an operating lease expense Transaction and transitional costs Selling, general and administrative [f] Employee benefits expense Wages and salaries Share-based payment transaction expense [note 23] Pension costs [c] Finance costs Interest on overdrafts and other finance costs 617 762 Interest, including non-cash interest, on debts and borrowings Interest, including non-cash interest, on convertible debentures [note 21] [d] Cost of goods sold Depreciation Amortization of intangible assets Warranty provision (recovery) Cost of inventory recognized as an expense 17,097 14,449 19,353 20,497 37,067 35,708 Included in cost of goods sold Included in selling general and administrative expense 17,535 2,503 1,776 641,691 663,505 14,929 4,146 (745) 517,671 536,001 2018 $ 1,665 11,328 3,347 8,865 150,709 175,914 2017 $ 1,542 8,857 2,890 8,765 129,052 151,106 216,911 182,551 8,004 5,336 8,057 4,426 230,251 195,034 148,342 122,557 81,909 72,477 230,251 195,034 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 77 AGI 2018 ANNUAL REPORT 25. Retirement benefit plans AGI contributes to group retirement savings plans subject to maximum limits per employee. The expense recorded during the year ended December 31, 2018 was $5,336 [2017 – $4,426]. AGI expects to contribute $5,554 for the year ending December 31, 2019. On May 20, 2015, AGI acquired Westeel. Included in the acquisition was a defined benefit plan. For the purposes of the following discussion, beginning of period is defined as May 20, 2015. The Company has a defined benefit plan providing pension benefits to certain of its union employees and former employees. The Company operates the defined benefit pension plan in Canada. The plan is a flat-dollar defined benefit pension plan, which provides clearly defined benefits to members based on negotiated benefit rates and years of credited service. Responsibility for the governance of the plan and overseeing the plan including investment policy and performance lies with the Pension and Investment Committee. Effective May 16, 2017, new enrolments in the defined benefit pension plan were closed. All benefits earned by employees up to that date remain in place. As such, the Company continues to manage any residual obligation for past service consistent with the plan text and applicable legislation and will continue to account for the residual obligations based on IAS 19. In addition, effective May 17, 2017, the group of affected employees will receive retirement contributions from the Company on a defined contribution basis when they qualify as enrollees in the new plan. The Company’s pension committee and appointed and experienced, independent professional experts such as investment managers and actuaries assists in the management of the plan. The Company’s defined benefit pension plan will measure the respective accrued benefit obligation and the fair value of plan assets at December 31 of each year. Actuarial valuations are performed annually or triennially as required. The Company’s registered defined benefit plan was last valued on December 31, 2018. The present value of the defined obligation, and the related current service cost and past service cost, was measured using the Unit Credit Method. The liabilities were revalued at December 31, 2018. We have used the same methods and assumptions used at December 31, 2017 for the purpose of estimating the liabilities at December 31, 2018. The following assumptions were used to determine the periodic pension expense and the net present value of the accrued pension obligations: Expected long-term rate of return on plan assets Discount rate on benefit costs Discount rate on accrued pension and post-employment obligations Rate of compensation increases 2018 % 3.90 3.90 3.90 n/a 2017 % 3.40 3.40 3.40 n/a The weighted average duration of the defined benefit obligation as of December 31, 2018 is 14.8 years [December 31, 2017 – 16 years]. Compensation increases were not included in the valuation of the accrued pension obligation because the accrued benefit is not a function of salary. All members receive a fixed benefit rate monthly for each year of credited service. This same benefit rate is received by all plan members regardless of salary level. The following table outlines the key assumptions for 2018 and the sensitivity of changes in each of these assumptions on the defined benefit plan obligation. The sensitivity analysis is hypothetical and should be used with caution. The sensitivities of each key assumption have been calculated independently of any changes in other key assumptions. Actual experience may result in changes in a number of key assumptions simultaneously. Changes in one factor may result in changes in another, which could amplify or reduce the impact of such assumptions. Impact of 0.5% increase/decrease in discount rate assumption Impact of 1-year increase/decrease in life expectancy assumption Increase in assumption $ Decrease in assumption $ (853,997) 955,544 318,703 (326,870) The net expense of $135 [2017 – $277] for the year is included in cost of goods sold. Information about the Company’s defined benefit pension plan, in aggregate, is as follows: S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 78 AGI 2018 ANNUAL REPORT Plan assets 2018 $ 2017 $ Management’s assessment of the expected returns is based on historical return trends and analysts’ predictions of the market for the asset over the life of the related obligation. The actual return on plan assets was a (loss) gain of $(836) [2017 – $439]. Fair value of plan assets, beginning of year 13,794 13,015 Interest income on plan assets Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets, end of year Accrued benefit obligation 459 (836) — (776) 12,641 510 439 647 (817) 13,794 Accrued benefit obligation, beginning of year 13,976 12,633 Current service cost Interest cost Actuarial (gains) losses from changes in financial assumptions Actuarial (gains) losses from experience adjustments Benefits paid 124 470 (956) (112) (776) Accrued benefit obligation, end of year 12,726 286 502 1,150 222 (817) 13,976 Net accrued benefit asset (liability) (85) (182) The net accrued benefit liability of $85 [2017 – $182] is included in non-current other liabilities. The major categories of plan assets for each category are as follows: Canadian equity securities U.S. equity securities International equity securities Fixed-income securities 2018 $ 3,843 2,301 2,187 4,310 % 30.4 18.2 17.3 34.1 2017 $ 4,179 2,373 2,400 4,842 % 30.3 17.2 17.4 35.1 12,641 100.0 13,794 100.0 All equity and debt securities are valued based on quoted prices in active markets for identical assets or liabilities or based on inputs other than quoted prices in active markets that are observable for the asset or liability, either directly [i.e., as prices] or indirectly [i.e., derived from prices]. The Company’s asset allocation reflects a balance of fixed-income investments, which are sensitive to interest rates, and equities, which are expected to provide higher returns and inflation-sensitive returns over the long term. The Company’s targeted asset allocations are actively monitored and adjusted to align the asset mix with the liability profile of the plan. The Company expects to make contributions of nil [2018 – nil] to the defined benefit plan in 2019. The actual amount paid may vary from the estimate based on actuarial valuations being completed, investment performance, volatility in discount rates, regulatory requirements and other factors. Through its defined benefit plan, the Company is exposed to a number of risks, the most significant of which are detailed below: Asset volatility The plan liability is calculated using a discount rate set with reference to corporate bond yields; if plan assets under-perform this yield, this will create a deficit. The plan holds a significant proportion of equities, which are expected to outperform corporate bonds in the long term while contributing volatility and risk in the short term. However, the Company believes that due to the long-term nature of the plan liabilities and the strength of the supporting group, a level of continuing equity investment is an appropriate element of the Company’s long-term strategy to manage the plan efficiently. Change in fixed-income security yields A decrease in corporate fixed-income security yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plan’s fixed- income security holdings. Life expectancy The plan’s obligation is to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plan’s liability. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 79 AGI 2018 ANNUAL REPORT 26. Income taxes The major components of income tax expense for the years ended December 31, 2018 and 2017 are as follows: Profit from continuing operations before income taxes Consolidated statements of income Current income tax expense Current income tax expense Deferred tax expense 2018 $ 2017 $ At the Company’s statutory income tax rate of 27% [2017 – 27%] Tax rate changes 10,517 6,712 Non-taxable portion of capital gains Additional deductions allowed in a foreign jurisdiction Tax losses not recognized as a deferred tax asset Origination and reversal of temporary differences 1,429 5,333 Foreign rate differential Income tax expense reported in the consolidated statements of income 11,946 12,045 Non-deductible EIAP expense Consolidated statements of income Deferred tax related to items charged or credited directly to other comprehensive income during the year Unrealized gain on derivatives Defined benefit plan reserve Exchange differences on translation of foreign operations Income tax charged (credited) directly to other comprehensive income State income tax, net of federal tax benefit Unrealized foreign exchange loss (gain) IFRS 15 transition adjustment [note3] 2018 $ 2017 $ Change in uncertain tax position Permanent differences and others At the effective income tax rate 30.98% [2017 – 25.52%] 11,946 12,045 (477) 63 736 322 902 (252) (732) (82) 2018 $ 2017 $ 38,564 47,200 10,412 12,744 587 — (398) 2,887 (3,011) 152 996 2,159 (412) (2,305) 879 (3,350) (132) (456) 3,643 416 492 422 (3,164) — — 1,430 The reconciliation between tax expense and the product of accounting profit multiplied by the Company’s domestic tax rate for the years ended December 31, 2018 and 2017 is as follows: S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 80 AGI 2018 ANNUAL REPORT The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: Inventory Property, plant and equipment Intangible assets Deferred financing costs Accruals and long-term provisions Tax loss carryforwards Investment tax credits Canadian exploration expenses Capitalized development expenditures Convertible debentures Derivative instruments EIAP liability Equity swap Other comprehensive income Exchange difference on translation of foreign operations Deferred tax expense Consolidated statements of financial position Consolidated statements of income 2018 $ (90) (30,701) (35,091) 722 7,207 — (627) — (2,727) (1,775) (456) 3,626 (1,585) — — 2017 $ (90) (21,428) (38,377) (213) 5,236 96 (627) 1,641 (1,736) (1,812) — 2,809 (2,597) (477) — 2018 $ — 8,305 (6,860) 440 (1,768) 96 — 1,641 991 (568) 456 444 (1,012) — (736) 1,429 2017 $ — (157) (7,838) 254 1,171 1,268 — 11,502 690 (882) — (1,586) 179 — 732 5,333 Deferred tax liabilities, net (61,497) (57,575) Reflected in the consolidated statements of financial position as follows Deferred tax asset Deferred tax liability Deferred tax liabilities, net 455 (61,952) (61,497) 183 (57,758) (57,575) S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 81 AGI 2018 ANNUAL REPORT interpretation and application to AGI’s specific situation. The amount and timing of reversals of temporary differences will also depend on AGI’s future operating results, acquisitions and dispositions of assets and liabilities. The business and operations of AGI are complex, and AGI has executed a number of significant financings, acquisitions, reorganizations and business combinations over the course of its history. The computation of income taxes payable as a result of these transactions involves many complex factors, as well as AGI’s interpretation of and compliance with relevant tax legislation and regulations. While AGI believes that its tax filing positions are probable to be sustained, there are a number of tax filing positions that may be the subject of review by taxation authorities. Therefore, it is possible that additional taxes could be payable by AGI, and the ultimate value of AGI’s income tax assets and liabilities could change in the future, and that changes to these amounts could have a material effect on these consolidated financial statements. There are no income tax consequences to the Company attached to the payment of dividends in either 2018 or 2017 by the Company to its shareholders. engineering Reconciliation of deferred tax liabilities, net Balance, beginning of year Deferred tax recovery (expense) during the year recognized in profit or loss Deferred tax asset (liability) set-up on business acquisition Deferred tax recovery during the year recognized in common shares Deferred tax expense during the year recognized in equity component of convertible debentures Deferred tax recovery during the year recognized in contributed surplus Deferred tax recovery (expense) during the year recognized in other comprehensive income 2018 $ 2017 $ (57,575) (53,460) (1,429) (5,333) (4,276) 1,454 1,375 788 (531) (1,106) 1,261 (322) — 82 Balance, end of year (61,497) (57,575) The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences and loss carryforwards become deductible. Based on the analysis of taxable temporary differences and future taxable income, management of the Company is of the opinion that there is convincing evidence available for the probable realization of all deductible temporary differences of the Company’s tax entities incurred, other than temporary differences in its Finnish operations of 5,870 euros [2017 – 5,886 euros] and its Brazilian operations of 63,919 BRL [2017 – 40,479 BRL]. Accordingly, the Company has recorded a deferred tax asset for all other deductible temporary differences as at December 31, 2018 and as at December 31, 2017. Included in the current year’s income tax expense was nil [2017 – nil] withholding tax paid on the repatriation of surplus from a subsidiary. As at December 31, 2018, there was no recognized deferred tax liability [2017 – nil] for taxes that would be payable on the unremitted earnings of certain of the Company’s subsidiaries. The Company has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future. The temporary differences associated with investments in subsidiaries, for which a deferred tax asset has not been recognized, aggregate to $622 [2017 – $622]. Income tax provisions, including current and deferred income tax assets and liabilities, and income tax filing positions require estimates and interpretations of federal and provincial income tax rules and regulations, and judgments as to their S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 82 AGI 2018 ANNUAL REPORT 27. Profit per share Profit per share is based on the consolidated profit for the year divided by the weighted average number of shares outstanding during the year. Diluted profit per share is computed in accordance with the treasury stock method and based on the weighted average number of shares and dilutive share equivalents. The following reflects the income and share data used in the basic and diluted profit per share computations: 28. Statements of cash flows [a] Net change in non-cash working capital Cash and cash equivalents as at the date of the consolidated statements of financial position and for the purpose of the consolidated statements of cash flows relate to cash at banks and cash on hand. Cash at banks earns interest at floating rates based on daily bank deposit rates. The net change in the non-cash working capital balances related to continuing operations is calculated as follows: Profit from continuing operations Profit from discontinued operations Profit attributable to shareholders for basic and diluted profit per share 2018 $ 26,618 — 2017 $ 35,155 41 26,618 35,196 Inventory Accounts receivable Prepaid expenses and other assets Accounts payable and accrued liabilities Customer deposits Provisions Basic weighted average number of shares 16,811,440 15,932,808 Dilutive effect of DDCP Dilutive effect of RSU 54,658 165,015 47,685 170,856 Diluted weighted average number of shares 17,031,113 16,151,349 Profit per share from continuing operations Basic Diluted Profit per share from discontinued operations Basic Diluted Profit per share Basic Diluted 1.58 1.56 0.00 0.00 1.58 1.56 2.20 2.17 0.01 0.01 2.21 2.18 The 2014, 2015, 2017, and 2018 Debentures were excluded from the calculation of diluted profit per share for the years ended December 31, 2018 and 2017 because their effect is anti-dilutive. 2018 $ (33,683) (28,761) (8,241) 3,097 2,795 1,776 (63,017) 2017 $ (939) (20,206) (4,860) 5,710 11,574 (745) (9,466) S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 83 AGI 2018 ANNUAL REPORT [b] Reconciliation of liabilities arising from financing activities Long-term debt 302,802 (50,753) 738 — December 31, 2017 $ Cash flows $ Acquisitions $ Conversion $ 286,058 1,002 (1,768) 4,816 (872) 1,690 — — — (8,678) — — Non-cash changes Foreign exchange $ 16,605 — 100 — Accretion $ Amortization $ Fair value $ December 31, 2018 $ — 2,205 — — 2,029 2,510 — — — 271,421 (2,063) 284,848 — 230 1,768 (1,690) 588,094 (48,499) 738 (8,678) 16,705 2,205 4,539 (295) 554,809 Non-cash changes December 31, 2016 $ 207,348 Cash flows $ 107,513 201,210 82,387 1,233 715 (231) — Conversion $ — (95) — — Foreign exchange $ (12,467) — — — Accretion $ Amortization $ — 3,459 — — 582 3,197 — — Fair value $ — December 31, 2017 $ 302,976 (4,100) 286,058 — 1,002 (2,483) (1,768) 410,506 189,669 (95) (12,467) 3,459 3,779 (6,583) 588,268 Convertible unsecured subordinated debentures Finance leases Derivatives held to hedge long-term borrowings Total liabilities from financing activities Long-term debt Convertible unsecured subordinated debentures Finance leases Derivatives held to hedge long-term borrowings Total liabilities from financing activities S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 84 AGI 2018 ANNUAL REPORT 29. Financial instruments and financial risk management [a] Management of risks arising from financial instruments AGI’s principal financial liabilities, other than derivatives, comprise loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Company’s operations and to provide guarantees to support its operations. The Company has deposits, trade and other receivables and cash and short-term deposits that are derived directly from its operations. The Company also holds an investment and enters into derivative transactions. The Company’s activities expose it to a variety of financial risks: market risk [including foreign exchange risk and interest rate risk], credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. The Company uses derivative financial instruments to mitigate certain risk exposures. The Company does not purchase any derivative financial instruments for speculative purposes. Risk management is the responsibility of the corporate finance function, which has the appropriate skills, experience and supervision. The Company’s domestic and foreign operations, along with the corporate finance function identify, evaluate and, where appropriate, mitigate financial risks. Material risks are monitored and are regularly discussed with the Audit Committee of the Board of Directors. The Audit Committee reviews and monitors the Company’s financial risk-taking activities and the policies and procedures that were implemented to ensure that financial risks are identified, measured and managed in accordance with Company policies. The risks associated with the Company’s financial instruments are as follows: Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Components of market risk to which AGI is exposed are discussed below. Financial instruments affected by market risk include trade accounts receivable and payable, investments and derivative financial instruments. Foreign currency risk The objective of the Company’s foreign exchange risk management activities is to minimize transaction exposures and the resulting volatility of the Company’s earnings. Foreign currency risk is created by fluctuations in the fair value or cash flows of financial instruments due to changes in foreign exchange rates and exposure. A significant part of the Company’s sales is transacted in U.S. dollars and euros and, as a result, fluctuations in the rate of exchange between the U.S. dollar, the euro and Canadian dollar can have a significant effect on the Company’s cash flows and reported results. To mitigate exposure to the fluctuating rate of exchange, AGI denominates a portion of its debt in U.S. dollars. As at December 31, 2018, AGI’s U.S. dollar denominated debt totalled $152 million [2017 – $151 million]. AGI’s sales denominated in U.S. dollars for the year ended December 31, 2018 were U.S. $426 million, and the total of its cost of goods sold and its selling, general and administrative expenses denominated in that currency was U.S. $318 million. Accordingly, a 10% increase or decrease in the value of the U.S. dollar relative to its Canadian counterpart would result in a $55 million increase or decrease in sales and a total increase or decrease of $41 million in its cost of goods sold and its selling, general and administrative expenses. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Furthermore, as AGI regularly reviews the denomination of its borrowings, the Company is subject to changes in interest rates that are linked to the currency of denomination of the debt. AGI’s Series B secured notes, Series C secured notes and convertible unsecured subordinated debentures outstanding at December 31, 2018 and December 31, 2017 are at a fixed rate of interest. Interest rate swap contracts The Company enters into interest rate swap contracts to manage its exposure to fluctuations in interest rates on its core borrowings. The interest rate swap contracts are derivative financial instruments and were designated as cash flow hedges, and changes in the fair value were recognized as a component of other comprehensive income to the extent that it has been assessed to be effective. Through these contracts, the Company agreed to receive interest based on the variable rates from the counterparty and pay interest based on fixed rates between 3.6% and 4.3%. The underlying risk of the interest rate swaps is identical to the hedged risk component of the Company’s borrowings. Therefore, the Company established a hedge ratio of 1:1 for its hedging relationships. The notional amounts are $141,840 in aggregate, resetting the last business day of each month. The contracts expire between May 2019 and May 2022. During the year, the hedge was discontinued as the forecasted cash flows were no longer probable as a result of the debt replacement [note 20]. Consequently, the derivatives were marked to market and a gain of $2,785 was recorded gain on financial instruments in other operating income. The interest rate swap was reclassified from fair value through OCI to fair value through profit or loss. In the year ended December 31, 2018, the Company has recorded a gain on financial instruments of $1,690 in other operating income [note 24[a]]. The amount of gain recorded in other comprehensive income during the year ended December 31, 2017 was $1,768. The open interest rate swap contracts as at December 31, 2018 are as follows: S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 85 AGI 2018 ANNUAL REPORT project management S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 86 AGI 2018 ANNUAL REPORT Canadian dollar contracts U.S. dollar contracts Notional amount $ 90,000 38,000 Contract rate % 3.6 – 4.3 3.8 Realized gain $ 681 1,009 The open interest rate swap contracts as at December 31, 2017 are as follows: Notional amount $ 90,000 38,000 Contract rate % 3.6 – 4.3 3.8 Unrealized gain $ 974 794 Canadian dollar contracts U.S. dollar contracts Equity swap On March 18, 2016, the Company entered into an equity swap agreement with a financial institution to manage the cash flow exposure due to fluctuations in its share price related to the EIAP. Pursuant to this agreement, the counterparty has agreed to pay the Company the total return of the defined underlying common shares, which includes both the dividend income they may generate and any capital appreciation. In return, the Company has agreed to pay the counterparty a funding cost calculated daily based on floating rate option [CAD-BA-CDOR] plus a spread of 2.0% and any administrative fees or expenses that are incurred by the counterparty directly. As at December 31, 2018, the equity swap agreement covered 650,000 common shares of the Company at a price of $37.77, and the agreement matures on April 6, 2021. As at December 31, 2018, the unrealized gain on the equity swap was $5,959 [2017 – $9,698] and in the year ended December 31, 2018, the Company has recorded a loss on financial instruments of $3,739 [2017 – gain of $409] in other operating expense [note 24[a]]. Credit risk Credit risk is the risk that a customer will fail to perform an obligation or fail to pay amounts due, causing a financial loss. A substantial portion of AGI’s accounts receivable is with customers in the agriculture industry and are subject to normal industry credit risks. A portion of the Company’s sales and related accounts receivable are also generated from transactions with customers in overseas markets, several of which are in emerging markets such as countries in Eastern Europe. It is often common business practice for international customers to pay invoices over an extended period of time. Accounts receivable are subject to credit risk exposure and the carrying values reflect management’s assessment of the associated maximum exposure to such credit risk. The Company regularly monitors customers for changes in credit risk. The Company’s credit exposure is mitigated through the use of credit practices that limit transactions according to the customer’s credit quality and due to the accounts receivable being spread over a large number of customers. Trade receivables from international customers are often insured for events of non-payment through third-party export insurance. In cases where the credit quality of a customer does not meet the Company’s requirements, a cash deposit or letter of credit is received before goods are shipped. Assessments about the recoverability of financial assets, including accounts receivable, require significant judgment in determining whether there is objective evidence that a loss event has occurred and estimates of the amount and timing of future cash flows. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability to collect on its trade receivables, which is netted against the accounts receivable on the consolidated statements of financial position. Emerging markets are subject to various additional risks including currency exchange rate fluctuations, foreign economic conditions and foreign business practices. One or more of these factors could have a material effect on the future collectability of such receivables. In assessing whether objective evidence of impairment exists at each reporting period, the Company considers its past experience of collecting payments, historical loss experience, customer credit ratings and financial data as available, collateral on amounts owing including insurance coverage from export credit agencies, as well as observable changes in national or local economic conditions. The requirement for an impairment provision is analyzed at each reporting date based on the expected credit loss model. The calculation reflects the probability- weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. The Company does not believe that any single customer group represents a significant concentration of credit risk. Liquidity risk Liquidity risk is the risk that AGI will encounter difficulties in meeting its financial liability obligations. AGI manages its liquidity risk through cash and debt management. In managing liquidity risk, AGI has access to committed short- and long-term debt facilities as well as to equity markets, the availability of which is dependent on market conditions. AGI believes it has sufficient funding through the use of these facilities to meet foreseeable borrowing requirements. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 87 AGI 2018 ANNUAL REPORT The tables below summarize the undiscounted contractual payments of theCompany’s financial liabilities as at December 31, 2018 and 2017: December 31, 2018 Accounts payable and accrued liabilities Dividends payable Due to vendor Contingent consideration Term debt Convertible unsecured subordinated debentures [includes interest] Total financial liability payments December 31, 2017 Accounts payable and accrued liabilities Dividends payable Due to vendor Contingent consideration Term debt Convertible unsecured subordinated debentures [includes interest] Total financial liability payments Total $ 0 - 6 months $ 101,504 101,504 3,673 9,345 6,596 349,460 253,383 723,961 Total $ 96,071 3,232 34,034 9,342 356,296 338,413 837,388 3,673 7,223 — 7,251 7,266 126,917 0 - 6 months $ 96,071 3,232 34,034 — 6,807 91,480 231,624 6 - 12 months $ — — 750 4,576 7,251 59,016 71,593 6 - 12 months $ — — — 5,494 6,807 5,325 17,626 12 - 24 months $ — — 823 1,010 14,453 86,814 103,100 12 - 24 months $ — — — 3,848 13,613 62,400 79,861 2 - 4 years $ — — 549 1,010 28,777 100,287 130,623 2 - 4 years $ — — — — After 4 years $ — — — — 291,728 — 291,728 After 4 years $ — — — — 222,656 90,866 313,522 106,413 88,342 194,755 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 88 AGI 2018 ANNUAL REPORT [b] Fair value Set out below is a comparison, by class, of the carrying amounts and fair value of the Company’s financial instruments that are carried in the consolidated financial statements, as well as their level on the fair value hierarchy: Financial assets Amortized cost: Cash and cash equivalents Cash held in trust and restricted cash Accounts receivable Note receivable Assets held for sale Fair value through profit or loss: Derivative instruments [Note 29[a]] Fair value through OCI: Available-for-sale investment Equity investment Financial liabilities Amortized cost: Interest-bearing loans and borrowings Accounts payable and accrued liabilities Dividends payable Due to vendor Contingent consideration Convertible unsecured subordinated debentures December 31, 2018 December 31, 2017 Level Carrying amount $ Fair value $ Carrying amount $ Fair value $ 1 1 2 2 2 2 3 3 2 2 2 2 3 2 33,610 2,955 134,239 735 1,169 33,610 2,955 134,239 735 1,169 63,981 15,182 99,017 789 2,842 63,981 15,182 99,017 789 2,842 7,649 7,649 11,466 11,466 — 900 — 900 900 — 900 — 271,651 101,504 3,673 9,349 6,386 269,685 101,504 3,673 9,349 6,386 303,978 304,306 96,071 3,232 34,034 9,037 96,071 3,232 34,034 9,037 284,848 305,935 286,058 314,129 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 89 AGI 2018 ANNUAL REPORT During the reporting years ended December 31, 2018 and December 31, 2017, there were no transfers between Level 1 and Level 2 fair value measurements. The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: • Cash and cash equivalents, cash held in trust, restricted cash, accounts receivable, dividends payable, accounts payable and accrued liabilities, due to vendor, and other liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. • The fair value of unquoted instruments and loans from banks is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. • The Company enters into derivative financial instruments with financial institutions with investment grade credit ratings. Derivatives include interest rate swaps and equity swaps which are marked-to-market at each reporting period. • The fair value of contingent considerations arising from business combinations is estimated by discounting future cash flows based on the probability of meeting set performance targets. • AGI includes its equity investment, which is in a private company, in Level 3 of the fair value hierarchy as it trades infrequently and has little price transparency. AGI reviews the fair value of this investment at each reporting period and when recent arm’s length market transactions are not available, management’s estimate of fair value is determined using a market approach based on external information and observable conditions where possible, supplemented by internal analysis as required. Fair value [“FV”] hierarchy AGI uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1 Level 3 Fair value measurements that require unobservable market data or use statistical techniques to derive forward curves from observable market data and unobservable inputs are classified as Level 3 in the FV hierarchy. Interest from financial instruments is recognized in finance costs and finance income. Foreign currency impacts for loans and receivables are reflected in finance expense. 30. Capital disclosure and management The Company’s capital structure is comprised of shareholders’ equity and long- term debt. AGI’s objectives when managing its capital structure are to maintain and preserve its access to capital markets, continue its ability to meet its financial obligations, including the payment of dividends, and finance future organic growth and acquisitions. AGI manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company is not subject to any externally imposed capital requirements other than financial covenants in its credit facilities and as at December 31, 2018 and December 31, 2017, all of these covenants were complied with [note 20[c]]. The Board of Directors does not establish quantitative capital structure targets for management, but rather promotes sustainable and profitable growth. Management monitors capital using non-GAAP financial metrics, primarily total debt to the trailing twelve months EBITDA and net debt to total shareholders’ equity. There may be instances where it would be acceptable for total debt to trailing EBITDA to temporarily fall outside of the normal targets set by management such as in financing an acquisition to take advantage of growth opportunities or industry cyclicality. This would be a strategic decision recommended by management and approved by the Board of Directors with steps taken in the subsequent period to restore the Company’s capital structure based on its capital management objectives. The fair value measurements are classified as Level 1 in the FV hierarchy if the fair value is determined using quoted, unadjusted market prices for identical assets or liabilities. 31. Related party disclosures Relationship between parent and subsidiaries Level 2 Fair value measurements that require inputs other than quoted prices in Level 1, and for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly, are classified as Level 2 in the FV hierarchy. The main transactions between the corporate entity of the Company and its subsidiaries is providing cash funding based on the equity and convertible debt funds of AGI. Furthermore, the corporate entity of the Company is responsible for the billing and management of international contracts with external customers and the allocation of sub-projects to the different subsidiaries of the Company. Finally, the parent company provides management services to the Company entities. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 90 AGI 2018 ANNUAL REPORT Between the subsidiaries, there are limited intercompany sales of inventories and services. Because all subsidiaries are currently 100% owned by AGI, these intercompany transactions are 100% eliminated on consolidation. Other relationships Burnet, Duckworth & Palmer LLP provides legal services to the Company and a Director of AGI is a partner of Burnet, Duckworth & Palmer LLP. The total cost of these legal services related to general matters was $1,435 during the year ended December 31, 2018 [2017 – $261], and $803 is included in accounts payable and accrued liabilities as at December 31, 2018. These transactions are measured at the exchange amount and were incurred during the normal course of business. Salthammer Inc. provides consulting services to the Company, and a Director of AGI is a minority shareholder of Salthammer Inc. The total cost of these consulting services related to international plant expansion project was $80 [2017 – $159] during the year ended December 31, 2018, and nil is included in accounts payable and accrued liabilities as at December 31, 2018. Canada United States International Compensation of key management personnel of AGI AGI’s key management consists of 25 individuals including its CEO, CFO, its Officers and other senior management, divisional general managers and its Directors. commodities, and the similarity in the production processes of the segments. The Company operates primarily within three geographical areas: Canada, United States and International. The following details the sales, property, plant and equipment, goodwill, intangible assets and investment by geographical area, reconciled to the Company’s consolidated financial statements: Sales 2018 $ 329,778 380,969 220,917 931,664 2017 $ 280,887 322,242 151,586 754,715 Property, plant and equipment, goodwill, intangible assets and equity investment 2018 $ 407,987 282,586 132,790 823,363 2017 $ 398,416 267,667 92,185 758,268 The sales information above is based on the location of the customer. The Company has no single customer that represents 10% or more of the Company’s sales. Short-term employee benefits Termination benefits Contributions to defined contribution plans Salaries Share-based payments Total compensation paid to key management personnel 2018 $ 138 1,770 221 7,410 8,004 2017 $ 120 — 197 7,044 8,057 33. Commitments and contingencies [a] Contractual commitment for the purchase of property, plant and equipment As of the reporting date, the Company has commitments to purchase property, plant and equipment of $9,308 [2017 – $12,909]. [b] Letters of credit 17,543 15,418 As at December 31, 2018, the Company has outstanding letters of credit in the amount of $11,020 [2017 – $9,340]. 32. Reportable business segment The Company manufactures agricultural equipment with a focus on grain handling, storage and conditioning products. As at December 31, 2018, aggregation of operating segments was applied to determine that the Company had only one reportable segment. The primary factors considered in the application of the aggregation criteria included the similar long-term average gross margins and growth rates across the segments, the nature of the products manufactured by the segments all being related to the handling, storage and conditioning of agricultural [c] Operating leases The Company leases office and manufacturing equipment, warehouse facilities and vehicles under operating leases with minimum aggregate rent payable in the future as follows: Within one year After one year, but no more than five years More than five years $ 3,317 7,361 381 11,059 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 91 AGI 2018 ANNUAL REPORT These leases have a life of between one and six years. [b] Senior subordinated unsecured debentures During the year ended December 31, 2018, the Company recognized an expense of $3,347 [2017 – $2,890] for leasing contracts. This amount relates only to minimum lease payments. [d] Legal actions The Company is involved in various legal matters arising in the ordinary course of business. The resolution of these matters is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows. 34. Subsequent events [a] Acquisitions The Company acquired 100% of the shares of Improtech Ltd. [“Improtech”] on January 18, 2019 and 100% of the shares of IntelliFarms LLC on March 5, 2019 for a combined maximum purchase price of $22.4 million. Upon closing $13 million was payable to the vendors and $9.4 million is payable over a three-year period. In addition, a contingent consideration of $6 million is payable based on meeting certain earnings targets. Improtech is a provider of engineering solutions to the food and beverage industry. Improtech enhances AGI’s ability to provide complete engineering solutions to an increasingly diverse customer base. IntelliFarms LLC is a provider of hardware and software solutions that benefit grain growers, processors, and other participants in the agriculture market. IntelliFarms enhances AGI’s ability to provide innovative technology solutions, including grain monitoring, field management and bin management, to its customer base. On March 11, 2019, the Company entered into a binding purchase agreement to acquire 100% of the shares of Milltec Machinery Limited [“Milltec”], for a combined maximum purchase price of $109.5 million, plus the potential for up to an additional $38.4 million based on the achievement of financial targets. The transaction will be funded by AGI’s revolving credit facility. Completion of the agreement is subject to a number of customary conditions in favour of the Company, including accounting and tax registrations and other corporate matters. Subject to satisfaction of these conditions precedent, closing is expected to occur by March 31, 2019. Milltec is a provider of machinery and equipment for the grains milling and seeds processing industry. Milltec’s products complement AGI’s existing product offerings. On February 25, 2019, the Company entered an agreement with a syndicate of underwriters led by CIBC Capital Markets, National Bank Financial Inc. and RBC Capital Markets [the “Underwriters”], pursuant to which AGI will issue on a “bought deal” basis, subject to regulatory approval, $75 million aggregate principal amount of senior subordinated unsecured debentures [the “2019 Debentures”] at a price of $1,000 per Debenture [the “Offering”]. AGI has also granted to the Underwriters an over-allotment option, exercisable in whole or in part for a period expiring 30 days following closing, to purchase up to an additional $11.25 million aggregate principal amount of Debentures at the same price. If the over-allotment option is fully exercised, the total gross proceeds from the Offering to AGI will be $86.25 million. Closing of the Offering is expected to occur on or about March 19, 2019. The net proceeds of the Offering will be used to fund the redemption of the Company’s 5.25% Convertible Unsecured Subordinated Debentures due December 31, 2019 [“2014 Debentures”], to repay existing indebtedness and for general corporate purposes. The Debentures will bear interest from the date of issue at 5.40% per annum, payable semi-annually in arrears on June 30 and December 31 each year commencing June 30, 2019. The Debentures will have a maturity date of June 30, 2024. The Debentures will not be redeemable by the Company before June 30, 2022, except upon the occurrence of a change of control of the Company in accordance with the terms of the indenture [the “Indenture”] governing the Debentures. On and after June 30, 2022 and prior to June 30, 2023, the Debentures may be redeemed at the Company’s option at a price equal to 102.70% of their principal amount plus accrued and unpaid interest. On or after June 30, 2023, the Debentures will be redeemable at the Company’s option at a price equal to their principal amount plus accrued and unpaid interest. The Company will have the option to satisfy its obligation to repay the principal amount of the Debentures due at redemption or maturity by issuing and delivering that number of freely tradeable common shares in accordance with the terms of the Indenture. The Debentures will not be convertible into common shares of the Company at the option of the holders at any time. Concurrent with the Offering, AGI intends to redeem its 2014 Debentures in accordance with the terms of the supplemental trust indenture dated December 1, 2014. The redemption of the 2014 Debentures will be effective on April 2, 2019. Upon redemption, AGI will pay to the holders of 2014 Debentures the redemption price equal to the outstanding principal amount of the 2014 Debentures to be redeemed, together with all accrued and unpaid interest thereon up to but excluding the Redemption Date, less any taxes required to be deducted or withheld. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C 92 AGI 2018 ANNUAL REPORT STORAGE STRUCTUREs HANDLING PROCESS controls engineering project management 93 AGI 2018 ANNUAL REPORT 94 AGI 2018 ANNUAL REPORT 2 018 A N N U A L R E P O R T 95 AGI 2018 ANNUAL REPORT 96 AGGROWTH.COM AGI 2018 ANNUAL REPORT 

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