2018
Annual Report
2 018 A N N U A L R E P O R T
CEO’s Message
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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.
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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.
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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
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AGI 2018 ANNUAL REPORT
Management’s
Discussion & Analysis
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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”).
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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.
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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.
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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.
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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,
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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
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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:
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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
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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].
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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
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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
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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
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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
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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
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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].
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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
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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
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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
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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
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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.
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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
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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.
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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
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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.
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HANDLING
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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
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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
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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.
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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.
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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:
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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.
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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
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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.
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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
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PROCESS
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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
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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
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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.
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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
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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
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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.
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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].
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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]
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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
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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
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[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
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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.
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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
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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.
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STORAGE
STRUCTUREs
HANDLING
PROCESS
controls
engineering
project
management
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