Growth International
Annual Report 2019

Plain-text annual report

Annual Report | 2019 CEO MESSAGE Technology products have made us all accustomed to having progress symbolized by a version number, whether it’s our phones or the software we use each day. An increasing version number denotes thoughtful, customer-based improvements to enhance functionality, capabilities, service and ease of use while also addressing prior deficiencies. A higher number succinctly communicates that a lot of work has gone into producing a better product. We are deploying this concept in the launch of version 2.0 of our AGI SureTrack platform and then extending this concept to apply to all of AGI as we advance on a continuous path to improve our business with an eye to growth, sustainability and increasing value for our customers, employees, shareholders and related stakeholders. AGI 2.0 signals the beginning of the next phase of our progress. Whereas 1.0 was defined by product and geographic growth, 2.0 will be defined by deep integration of our products, services, engineering, systems, product management, data management, capacity expansions and internal projects to deliver an enhanced customer experience. In 2018 we introduced our 5-6-7 strategy to communicate our path and vision to our team members and stakeholders to identify the markets and geographies we are in and are targeting. 5-6-7 broadened our objectives to leverage the core capabilities we developed in grain markets to deliver full solutions across the full food production complex. E G A S S E M O E C | T R O P E R L A U N N A 9 1 0 2 1 1 CEO MESSAGE We closed out our AGI 1.0 phase in 2019 by delivering on several significant pillars of our strategy. We gained critical market expansion with our entry into India and we built a technology platform to surface and deliver the data our customers need from their infrastructure and by doing so we also distinctly differentiate our platform and product offering. We completed a substantial expansion of our manufacturing facilities in Italy and key locations in the US and built out our financing business in Brazil. We built our Corporate Technology team and approach to development to bring focused execution on internal and customer facing initiatives to improve processes and productivity for us and our dealers. This team delivered enhanced dealer portals, automated product configuration for quoting and production, automated our warranty process, and controls integration. We also completely rebuilt our corporate website which has gone on to accumulate several awards for design and functionality. Through our purchase of Milltec Machinery in India we added a robust platform in a high priority geography while adding turnkey capabilities in rice processing equipment. This has been a cornerstone platform objective for many years. We now have an outstanding team in India leading our platform, focused on growing our market share in India and the broader region. We have visibility on the products and the markets for continued organic growth as we expand the AGI platform into South East Asia. Our acquisitions of Intellifarms and Affinity, along with our investment in Farmobile, have been brought together in our AGI SureTrack platform. AGI SureTrack is a big idea built on the simple premise that the basic application of technology beside and into our products will enable more productive use of the equipment and make it easier for our customers to access the data and turn that data into the information needed to run their businesses. Agriculture is an interesting mix in terms of technology. Auto steering tractors have been in use for over a decade, satellite and drones have been streaming data to farms for years, but at the same time growers struggle to collect, access, store, and organize the data and information from their operations. The need for ready and sophisticated collection and application of information is greater than ever as crop prices remain low, weather and moisture issues seem to get more extreme, input prices pressure earnings and changes in trade directly impact growers more than anyone else. The lack of technology tools on the farm has led to the proliferation of AgTech start-ups looking to harness farm data to automate insights and allow more informed decisions in the very complicated business of farming. There are many fantastic companies that are developing and implementing tools to save time and take out some of the complexity a farmer faces in growing and marketing a crop. Our simple goal is to provide the operating system that facilitates integration of all these sources into one, independent platform built for farmers and grain buyers. Our contribution to the AgTech space is grounded in our unique lens coming from a food infrastructure perspective. We supply the core equipment solutions across the complete food complex providing the infrastructure needed to bring inputs to the field, for grain production, grain marketing, and grain processing equipment to facilitate the production of feed and food. We look at a farm and see a complex business with inputs that have volatile prices, a production facility (the fields) that require constant investment but have volatile production capacity despite E G A S S E M O E C | T R O P E R L A U N N A 9 1 0 2 2 2 your investment, and end markets with volatile product prices. In a business with more complexity and volatility than most, there is virtually a complete lack of tools to manage the business. In our own business we use MRP, ERP, CRM, HRIS systems, CAD and quoting tools to deal with complexity, while on farms there are often just basic spreadsheets and most data is simply not collected or not well used. In the absence of information decisions are less informed and productivity declines. From this lens and given that our equipment handles the inputs and the final product, we developed a complete operating system for the business of farming. This operating system also connects the farm to grain buyers in robust and new ways including bid and price discovery, depth of markets and grain content-based bids which results in live visibility of economics and the means to enhance profitability. For commercial buyers of grain our system is built to enable deep supply chain discovery and visibility that extends to true and verifiable traceability of grain characteristics, live grain monitoring and farming practices. Ultimately our AGI SureTrack system brings together all of our equipment solutions to produce an enhanced customer experience. AGI SureTrack 2.0 is the customer facing representation of the deep integration that defines AGI 2.0 as we launch internal initiatives to bring together our engineering, systems, products, services, technologies and project execution to support and deliver a next level customer experience. You can see that I am excited about our future. I am writing this note in the midst of the unprecedented COVID 19 pandemic and coming off a tough year in 2019 and yet my notes thus far jumped right to the opportunities I see in our business. As we entered 2020 our substantial investments in Brazil, India, fertilizer, US farm and technology have been coming together and creating substantial optimism as we move on to build AGI 2.0. Looking back to the prior year it is important to frame and inform our strategy going forward even before we come to the COVID impacts. We faced substantial headwind in 2019 including severe weather in North America and trade tension that resulted in the largest buyer of US soya beans withdrawing from the market. The China / US trade dispute resulted in the US cutting soya exports by half in 2019, significantly changing world grain trade. Real and potential tariffs escalated steadily from 2017, peaked in early 2019 and created an environment of uncertainty that lasted throughout much of the year. The environment in 2019 impacted many industries and North American farms were stuck in the middle of the political sparring. Global grain flows were interrupted with more grain remaining on the farm in North America and more grain flowing from Brazil and Russia to fill the gap. Understandably, mid to large capital projects were largely put on hold in this environment as our customers paused to assess what facilities they needed by geography to account for the changes in trade flows. This pause in spending started to impact our sales intake in the first quarter of 2019 and persisted until the fourth quarter, substantially impacting our commercial business globally in 2019. The late pickup in project activity also impacted the timing of our backlog once it did pick up, pushing project deliveries out to the back half of 2020. On the farm, our customers largely continued their core operations resulting in a relatively stable year. Despite the trade and weather issues our overall results in 2019 were essentially flat to the prior year with revenue increasing 7%, coming very close to the $1 billion threshold, and we delivered adjusted EBITDA of $144 million ending the year at 97% of 2018. From a revenue perspective, our results represented resilient performance aided by our acquisitions in the year. Our adjusted EBITDA margin was impacted by increased spending in our strategic areas, mentioned earlier, to build our brands through increased marketing, by our investment in building our technology platform and our internal projects focused on taking time out of our processes to reduce cost and improve our customer experience. We are confident E G A S S E M O E C | T R O P E R L A U N N A 9 1 0 2 3 that these investments will make us more competitive and more productive, resulting in improved and more sustainable margins going forward. The 2019 EBITDA number is also adjusted for issues in our commercial division that resulted in the material rework of important projects. We are adjusting for these numbers given the one-time nature of the issues as we are confident that we moved quickly to uncover the root cause of the issue and mitigated and built redundancies and improvements in our engineering processes. By no means am I minimizing this issue, as a customer focused business any issue that impacts our execution becomes our top priority. We moved quickly to ensure that AGI is defined by how we support our customers in all circumstances. The COVID crisis interrupted our plans for 2020 in many ways. However, in the early days of COVID we implemented our Preparation with Progress initiative to account for the massive uncertainties the crisis created while still keeping an eye to the future with continued focus on our strategic projects. Our businesses in Northern Italy were in the middle of an intensely hit region and we moved immediately to learn how to operate through the crisis. Our team in Italy deserves special recognition for helping set the policies and procedures that became so important to our execution during the crisis. Distancing, cleaning, taking temperatures, PPE, and staggered workplace activity were implemented in Italy before these were widely used. It is easy to forget that these were all completely new concepts only weeks ago. We moved quickly to implement these procedures across AGI with the health and safety of our team members as our top priority. Along with these measures, our Preparation with Progress strategy included reducing our capex, limiting hiring, and prioritizing all expenditures. We made substantial amendments to our credit facility to increase liquidity and flexibility and we also implemented a substantial reduction in our dividend. Each of these actions were to account for a crisis with an unknown duration and unknown near, mid and long-term impacts on our customers and markets. That said, we are confident that AGI is well positioned to resume our growth post crisis. The COVID 19 experience has confirmed that our products, services and technologies provide the critical infrastructure the world requires. This infrastructure is easily taken for granted in good times but is recognized as essential in times like these. Writing these comments in Mid-April 2020 I am incredibly proud of how the AGI team has responded to this crisis. I certainly hope to never be tested to this extent again however there is no team I would rather be with to face the next test. I would like to thank the entire AGI team and our partners for persevering and excelling in the challenging times we faced through 2019 and now in 2020. These times have brought AGI together and in many ways accelerated our strategic plans around integration, collaboration and customer focus. I am confident it will result in a likewise acceleration of the value we provide our customers and be recognized in market share gains and accelerated growth across our business as we move on to AGI 2.0. On behalf of our board, our employees and your management team, thank you for your continued support. TIM C LOSE President & CEO E G A S S E M O E C | T R O P E R L A U N N A 9 1 0 2 4 Canada 10 USA 14 Europe 06 04 India 01 Brasil MANUFACTURING FACILITIES 35 MANUFACTURING FACILITIES AROUND THE WORLD SALES INTO 95 COUNTRIES E G A S S E M O E C | T R O P E R L A U N N A 9 1 0 2 5 E G A S S E M O E C | T R O P E R L A U N N A 9 1 0 2 6 S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 77 MANAGEMENT’S DISCUSSION AND ANALYSIS S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 8 8 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, 2019. 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 (THOUSA ND S OF DOLLARS EXCE PT PER SHA RE AM OUNTS) Trade Sales [1][2] Adjusted EBITDA [1][3] (Loss) Profit THREE MONTHS ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 2 019 $ 2018 $ 2019 $ 2018 $ 229,591 214,195 999,935 934,063 23,196 28,014 144,279 148,195 (8,286) (11,861) 14,633 26,618 Diluted (loss) profit per share (0.44) (0.66) 0.77 1.56 Adjusted (loss) profit [1] (1,180) 11,766 41,559 58,148 Diluted adjusted (loss) profit per share [1][4] (0.06) 0.66 2.20 3.38 (1) See “Non-IFRS Measures”. (2) See “OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2019 – Trade Sales” and “OPERATING RESULTS – THREE MONTHS ENDED DECEMBER 31, 2019 – Trade Sales”. (3) See “OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2019 – EBITDA and Adjusted EBITDA” and “OPERATING RESULTS – THREE MONTHS ENDED DECEMBER 31, 2019 – EBITDA and Adjusted EBITDA”. (4) See “OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2019 - Diluted profit per share and diluted adjusted profit per share” and “OPERATING RESULTS – THREE MONTHS ENDED DECEMBER 31, 2019 - Diluted loss per share and diluted adjusted profit (loss) per share”. AGI results in Q4 2019 were mixed as strong demand for portable grain handling and drying equipment, a solid performance in India and significantly improved results in Brazil were offset by a combination of factors that resulted in a decrease in Q4 2019 adjusted EBITDA compared to the prior year. In 2019, AGI demonstrated the success of its AGI SureTrack subscription model as demand exceeded our capacity and retail equivalent sales increased by 70%. In the fourth quarter of 2019, AGI increased its investment in sales, marketing and technical resources at AGI SureTrack to address capacity and accelerate the future pace of new user additions, resulting in negative Q4 2019 adjusted EBITDA at AGI SureTrack of $2.7 million. Secondly, a very wet and late harvest in the United States and a continuation of the weak macro environment negatively impacted AGI’s grain storage systems business, resulting in lower adjusted EBITDA compared to Q4 2018. Lastly, at the request of our customers, several Commercial projects in Canada and offshore were postponed into 2020, resulting in a deferral of sales and earnings. Adjusted EBITDA as a percentage of sales in AGI’s seasonally weak Q4 decreased to 10% in 2019 from 13% in the prior year due to the investment in AGI SureTrack, the impact of poor growing conditions in the United States in 2019 and the negative effect of trade disruption. In Q4 2019, adjusted loss and adjusted loss per share decreased from the prior year, largely due to lower adjusted EBITDA and higher finance costs, while loss and loss per share improved as the Company recorded non-cash losses on foreign exchange and the equity compensation swap in Q4 2018, compared against non-cash gains in Q4 2019. BASIS OF PRESENTATION - ACQUISITIONS When comparing 2019 results to 2018, we have in some cases noted the impact of acquisitions made in 2019 and 2018. When noted, both the 2019 and 2018 periods exclude results from acquisitions made in those years, namely Danmare Group Inc. and its affiliate Danmare, Inc. [collectively, “Danmare”] [February 22, 2018], Cobalt Investissement and its wholly owned subsidiaries [collectively “Sabe”] [July 26, 2018], Improtech Ltd. [“Improtech”] [January 18, 2019], IntelliFarms, LLC [“IntelliFarms”] [March 5, 2019], and Milltec Machinery Limited [“Milltec”] [March 28, 2019]. In the disclosure that follows, Danmare, Sabe, Improtech and Milltec are categorized as Commercial divisions. IntelliFarms is categorized as a Farm division. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 9 9 OUTLOOK COVID-19 The emergence of COVID-19 will have a significant adverse impact on AGI’s business, including the disruption of production, its supply chain and product delivery. The extent, duration and ultimate impact of COVID-19 and governmental and societal responses thereto is unknown, and accordingly management is unable to provide specific guidance on its impact on AGI. We can comment on the business fundamentals as they stand today to provide context to the very uncertain period going forward. Multiple state and provincial governments have declared manufacturers of agriculture equipment and infrastructure as essential services highlighting the continuing need for AGI’s products and services through this period. As it stands, AGI has suspended manufacturing at its plants in Italy, India, France and Brazil due to government mandated shutdowns and/or regional requirements. These shutdowns are scheduled to last 2-3 weeks. Interruptions are possible in North America over the coming weeks as the crisis evolves. Engineering, design and quoting activity is continuing in each of these businesses which will support resumption of operations. We are utilizing vacation time, leave, and government programs to mitigate the impact of these short suspensions. The impact on AGI would be more pronounced should the duration extend. We do not currently have enough information to gauge the likelihood of longer suspensions. As a relevant data point, Brazil, France and Italy currently have record level backlogs, and India has robust backlogs. Although AGI’s business will be substantially impacted by these disruptions in production, management believes that post crisis demand will be positively impacted as the world builds additional redundancy into the global food infrastructure to account for similar events in the future. Q4 2019 Despite strength across many of AGI’s businesses, sales and adjusted EBITDA in the fourth quarter of 2019 were negatively impacted by historically poor growing and harvesting conditions in the U.S. and by the impact of trade disputes and tariffs. Consistent with recent commentary, management expects those factors were poised to negatively impact the first and second quarters of 2020 but that AGI’s Farm business was anticipated to gain momentum along with the planting season in Q2 2020. On the Commercial side of AGI’s business trade uncertainty in 2019 resulted in late customer commitments and a backlog that is more weighted towards the second half of 2020. Accordingly, management expected sales and adjusted EBITDA in 2020 to be weighted toward the second half of 2020 as compared to prior years. Q1 2020 Much of the first quarter was completed prior to broad impacts of COVID-19, which were restricted mostly to our European operations. Consistent with management expectations pre-COVID-19, adjusted EBITDA in the first quarter of 2020 will be below the strong results of Q1 2019. We do not expect overall organic growth in the first quarter of 2020 due largely to the timing considerations noted above, but also because the first quarter of 2019 included a large contribution from Canadian Commercial projects and a strong contribution from Brazil. Although management anticipates results in Brazil in 2020 will exceed those of the prior year, AGI Brazil reported positive EBITDA in the first quarter of 2019 and accordingly there is not a significant year-over-year delta in Q1 2020. Results at Milltec in Q1 2020 have been directionally consistent with expectations, however there was a small negative impact related to timing of the monsoon and banking liquidity. The first quarter of Q1 2020 includes an investment in our growing AGI SureTrack platform of approximately $2 million and other technology and marketing initiatives of approximately $1 million. Finally, results in Q1 2020 were negatively impacted by the outbreak of COVID-19 as our operations in EMEA were impacted by supply chain, delivery and production disruptions. In summary, management expects adjusted EBITDA in Q1 of 2020 to approximate Q4 2019 results. Going Forward While COVID-19 is raising substantial uncertainties, we will outline current fundamentals across the business to add context to operating during this crisis. Prior to the outbreak of COVID-19, our internal metrics and traditional external reference points exiting Q1 2020 appeared favourable: Farm • Farmers are currently preparing for planting season leading to input and required equipment purchases. Current order intake trends are at normal levels. • The underlying demand drivers for AGI Farm equipment were expected to remain strong, and management expected demand for Farm products to increase with the new planting season in the second quarter of 2020 due to: S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 10 • An anticipated increase in U.S. planted acres, including a significant increase in • AGI Brazil has made progress both in manufacturing efficiencies and market corn acres. • Improved weather conditions compared to historically poor conditions in 2019. • Better farmer economics and sentiment should the U.S. and China fully implement Phase 1 of a trade agreement. • Backlog (February 29, 2020) - Despite a tough 2019, our Farm backlog in the U.S. is 14% higher than the prior year, with increases in most product categories including portable grain handling and grain storage systems. Overall, our Farm backlog is consistent with the strong backlog at the same time in 2019 as gains in the U.S. are offset by lower backlogs in Canada that have resulted partially from strong deal pull-through and the timing off preseason order programs. • The extent and duration of the COVID-19 crisis will determine the impact on our Farm business. Commercial North America • In the United States, Commercial Grain handling activity has been stable but for the last number of years has been restrained by depressed agricultural markets and international trade disputes. The potential of an improved trade environment, increased crop production and an improved ag sector may benefit Commercial sales in 2020. AGI’s sales order backlog in the United States is higher than the prior year due to progress in the Fertilizer and Food categories. • In Canada, the Commercial market has been very active due to continued investment in grain infrastructure, however the Canadian Commercial backlog has decreased compared against the very high levels of a year ago. • Backlog (February 29, 2020) - Overall, our North American Commercial backlog is 7% lower than a year ago. Commercial International • The pace of customer commitments accelerated in the second half of 2019. As many contracts were finalized later in 2019, sales related to many of these orders are expected to be recognized in the second half of 2020. development. The backlog in Brazil is at a record high and is currently 28% higher than at the same time in 2019. • Performance at Milltec, our platform acquisition in India, has met expectations and is well positioned for long-term growth. • Backlog (February 29, 2020) - Overall, excluding Milltec because their backlog is not included in the 2019 comparative (acquisition date of March 29, 2019), our international backlog is 30% higher than at the same time in 2019. • Capital decisions related to Commercial projects, particularly in international markets, appear to be slowing due to the uncertainty surrounding COVID-19. The extent and duration of the crisis will impact the ongoing pace of development of our project pipeline. Technology • In 2019, AGI demonstrated the success of its AGI SureTrack subscription model as demand exceeded our capacity and we increased retail equivalent sales by 70%. In the first quarter of 2020, we expect the increase in retail equivalent sales to approximate 200% year over year growth. • Continued growth in the SureTrack platform is expected to deepen AGI’s relationships with processors, merchandisers, grain buyers and producers throughout North America and provide a significant opportunity for equipment cross-sales. Summary Activity in the first quarter of 2020, absent COVID-19, has been consistent with management expectations, and results in the second quarter, to a lesser degree, are expected to be impacted by similar factors, namely the carryover impact of very poor conditions in the U.S. in 2019 and the timing of international orders. AGI entered 2020 with expectations that adjusted EBITDA would grow significantly over 2019, and we expected that growth over the prior year would occur primarily in the second half fiscal 2020. Positive Farm sentiment and an improving trade environment, evidenced by strong Farm and Commercial backlogs, supported our expectations. The emergence of COVID-19, discussed above, has created substantial uncertainly and is expected to have negative impacts in the short-term and management is focused on mitigating its impact. Management remains optimistic with respect to the business of AGI and its longer-term growth prospects. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 1111 Trade sales and adjusted EBITDA will be influenced by, among other factors, the extent, duration and impact of the COVID-19 outbreak, 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 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. Amendment and extension of credit facility On March 20, 2020, AGI announced it had amended and extended its credit facility with a syndicate of five Canadian banks, led by the Canadian Imperial Bank of Commerce and including TD Bank, National Bank of Canada, HSBC Bank Canada and the Bank of Nova Scotia. The facility was extended to March 20, 2025 and the amendments include an increase in the maximum senior debt leverage ratio to 3.75x for the balance of 2020 and an improved pricing grid. As at December 31, 2019, AGI’s senior debt leverage ratio, as defined in the Company’s credit agreement, was 2.65x. IFRS 16, Leases [“IFRS 16”] In 2019, the Company adopted IFRS 16 and recorded a right-of-use asset and a lease liability of $9.1 million as at January 1, 2019. The Company applied IFRS 16 using the modified retrospective approach and accordingly comparative information has not been restated. In the comparative three- and twelve-month periods ended December 31, 2018, adjusted EBITDA included expenses related to operating leases of $1.0 million and $3.7 million of which $0.7 million and $2.7 million would have related to right-of-use assets under IFRS 16. In the three- and twelve- month periods ended December 31, 2019 under IFRS 16, these payments are not categorized as an operating expense and instead AGI has recorded depreciation expense of $0.8 million and $3.0 million related to its right-of-use assets. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 12 OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2019 Trade Sales [see “Non-IFRS Measures” and “Basis of Presentation - Acquisitions”] Trade Sales by Category [T HOUSANDS OF DOL LARS] YEAR ENDED DECEMBER 31 2019 $ 2018 $ CH AN GE $ Farm [THOUSA ND S OF DOLLARS] Trade Sales Foreign exchange loss [1] Total Trade Sales (1) A portion of foreign exchange gains and losses are allocated to sales. Trade Sales by Geography [THOUSA ND S OF DOLLARS] Canada, excluding acquisitions Acquisitions Total Canada U.S., excluding acquisitions Acquisitions Total U.S. 999,935 934,063 (4,148) (2,399) 995,787 931,664 65,872 (1,749) 64,123 YEAR ENDED DECEMBER 31 2019 $ 2018 $ CH AN GE $ 318,371 326,680 6,710 3,098 325,081 329,778 399,679 378,886 26,129 4,482 425,808 383,368 (8,309) 3,612 (4,697) 20,793 21,647 42,440 International, excluding acquisitions 184,631 213,634 (29,003) Acquisitions Total International 64,415 7,283 249,046 220,917 57,132 28,129 Total excluding acquisitions 902,681 919,200 (16,519) Total acquisitions Total Trade Sales [1] (1) See “Non-IFRS Measures”. 97,254 14,863 999,935 934,063 82,391 65,872 YEAR ENDED DECEMBER 31 2019 $ 2018 $ CHA NGE $ 465,994 449,267 12,522 — 478,516 449,267 16,727 12,522 29,249 436,687 469,933 (33,246) 84,732 14,863 521,419 484,796 999,935 934,063 68,869 36,623 65,872 Farm – acquisitions Total Farm Commercial Commercial – acquisitions Total Commercial Total Trade Sales [1] (1) See “Non-IFRS Measures”. The movement in trade sales for the year ended December 31, 2019 compared to the prior year is summarized below: Canada • Trade sales in Canada, excluding acquisitions, decreased 3% from 2018: • Farm sales increased as gains in dryer market share and wet harvest conditions in western Canada resulted in higher sales of aeration and drying equipment. These gains were partially offset by lower storage sales that resulted from a challenging growing and harvest season in western Canada. • Commercial sales decreased as strong sales of Commercial grain handling and storage equipment were offset by lower sales of fertilizer equipment, as 2018 included several large, lower margin, fertilizer projects and there were no similar projects in the current year. • Sales from acquisitions relate primarily to Danmare and Improtech. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 1313 United States • Trade sales in the U.S., excluding acquisitions, increased 5% over 2018: • Farm sales increased compared to 2018 as demand for portable grain handling equipment remained strong despite poor growing and harvest conditions and wet harvest conditions stimulated demand for drying and aeration equipment. • Sales of Commercial equipment in 2019 were level with the prior year as higher sales of fertilizer equipment were offset by lower Commercial grain handling sales, which were negatively impacted by a poor growing season and challenging macro conditions, including trade uncertainties. • Trade sales from acquisitions in the United States increased as a result of Danmare, Sabe and IntelliFarms. Gross Margin [see “Non-IFRS Measures”] [T HOUSANDS OF DOL LARS] Trade sales [1] Cost of inventories [1] Gross margin [1] Gross margin as a % of trade sales (1) See “Non-IFRS Measures”. YEAR ENDED DECEMBER 31 2019 $ 2018 $ 999,935 934,063 688,764 642,284 311,171 291,779 31.1% 31.2% Gross margin percentages remained consistent with the prior year as a strong operational performance in India and improving results in Brazil were offset by the impact of poor conditions in the U.S. International • International trade sales, excluding acquisitions, decreased 14% over 2018: • Sales in Brazil increased over the prior year due to increasing brand and product awareness and improving economic conditions in the country. • International Farm sales decreased from 2018 due to poor growing conditions in Europe and Australia. • International sales in 2019 were negatively impacted by global economic uncertainties, including trade disputes. Consistent with recent commentary, our international sales order backlog is currently higher than at the same time in 2019. • International sales from acquisitions relate primarily to Milltec sales in India and France based Sabe. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 14 EBITDA and Adjusted EBITDA [see “Non-IFRS Measures”] The following table reconciles profit before income taxes to EBITDA and Adjusted EBITDA. [THOUSA ND S OF DOLLARS] Profit before income taxes Finance costs Depreciation and amortization Share of associate’s net loss EBITDA Loss (gain) on foreign exchange Share based compensation Loss on financial instruments [2] M&A expenses Other transaction and transitional costs [3] Loss on sale of PP&E Fair value of inventory from acquisitions [4] Equipment rework [5] Impairment [6] Adjusted EBITDA [1] (1) See “Non-IFRS Measures”. (2) See “Equity compensation hedge”. YEAR ENDED DECEMBER 31 2019 $ 18,404 44,793 48,188 2,352 2018 $ 38,564 37,067 33,031 — 113,737 108,662 (2,534) 19,004 5,968 1,503 1,588 11,562 260 1,962 10,000 233 8,003 2,061 2,283 6,582 185 1,183 — 232 144,279 148,195 (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 the pre-tax charge for the estimated cost of rework for equipment supplied to two distinct projects. The charge relates to additional, time, material and services. (6) To record assets held for sale at estimated fair value. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 1515 S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 1616 DETAILED OPERATING RESULTS [THOUSA ND S OF DOLLARS] Sales Trade sales Foreign exchange loss Cost of goods sold Cost of inventories Fair value of inventory from acquisitions Equipment rework Depreciation / amortization Selling, general and administrative expenses SG&A expenses M&A expenses Other transaction and transitional costs [1] Depreciation / amortization Other operating expense (income) Net loss on disposal of PP&E Net loss on financial instruments Other Impairment charge Finance costs Finance (income) expense Share of associate’s net loss Profit before income taxes Income tax expense Profit for the period Profit per share Basic Diluted YEAR ENDED DECEMBER 31 Impact of Foreign Exchange 2019 $ 2018 $ 999,935 934,063 (4,148) (2,399) 995,787 931,664 688,764 642,284 1,962 10,000 27,321 1,183 — 20,038 728,047 663,505 177,096 154,056 1,588 11,562 20,867 2,283 6,582 12,993 211,113 175,914 260 1,503 (4,001) (2,238) 233 44,793 (6,917) 2,352 18,404 3,771 14,633 0.79 0.77 185 2,061 (2,267) (21) 232 37,067 16,403 — 38,564 11,946 26,618 1.58 1.56 Gains and Losses on Foreign Exchange The 2019 loss (gain) on foreign exchange in finance expense (income) was a non- cash loss (gain) 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 ended December 31, 2019. As at December 31, 2019, AGI has no outstanding foreign exchange contracts. See also “Financial Instruments – Foreign exchange contracts”. Sales and Adjusted EBITDA AGI’s average rate of exchange for the year ended December 31, 2019 was $1.33 [2018 - $1.29]. A weaker Canadian dollar relative to the U.S. dollar results in higher reported sales for AGI, as U.S. dollar denominated sales are translated into Canadian dollars at a higher rate. Similarly, a weaker Canadian dollar results in higher costs for U.S. dollar denominated inputs and SG&A expenses. In addition, a weaker Canadian dollar may result in higher input costs of certain Canadian dollar denominated inputs, including steel. On balance, adjusted EBITDA increases when the Canadian dollar weakens relative to the U.S. dollar. Selling, General and Administrative Expenses [“SG&A”] SG&A expenses for the year ended December 31, 2019 excluding M&A expenses, other transaction and transitional expenses and depreciation/amortization, were $156.2 million [17.3% of trade sales] versus $154.1 million [16.5% of trade sales] in 2018. Excluding acquisitions, SG&A expenses for the year ended December 31, 2019 were $156.3 million [15.6% of trade sales] versus $152.0 million [16.5% of trade sales] in 2018. Variances to the prior year include the following: • Sales & marketing expenses increased $4.3 million as AGI continued to invest in market growth initiatives including further investment in branding initiatives and its digital platform. • Share based compensation expense decreased $2.0 million due to a change in anticipated achievement levels. • No other individual variance greater was than $1.0 million. (1) Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 1717 Finance costs Finance costs for the year ended December 31, 2019 were $44.8 million versus $37.1 million in 2018. In 2019, finance costs have increased due to new debt drawn in conjunction with new investments, most significantly the March 2019 acquisition of Milltec. Income tax expense Current income tax expense Current tax expense in 2019 was $5.5 million [2018 - $10.5 million]. Current tax expense relates primarily to AGI’s U.S., India and France subsidiaries. Finance (income) expense Deferred income tax (recovery) expense Finance (income) expenses for the year ended December 31, 2019 were $(6.9) million versus $16.4 million in 2018. The (income) expense 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. Deferred tax recovery in 2019 was $1.8 million [2018 – expense of $1.4 million). Deferred tax recovery in 2019 relates to the increase of deferred tax assets plus a decrease in deferred tax liabilities that relate to recognition of temporary differences between the accounting and tax treatment of Intangible Assets, Accruals and long-term provisions, and tax loss carryforwards. Share of associate’s net loss Share of associate’s net loss for the year ended December 31, 2019 was $2.4 million versus nil in 2018. The net loss relates to AGI’s proportionate share of the net loss of the associate, since the date of AGI’s investment. Effective tax rate [T HOUSANDS OF DOL LARS] Other operating income Other operating income for the year ended December 31, 2019 was $2.2 million versus $0.1 million in 2018. Other operating income includes non-cash gains and losses on financial instruments, including AGI’s equity compensation hedge [see “Equity compensation hedge”], and interest income. Current tax expense Deferred tax (recovery) expense Total tax Profit before income taxes Total tax % YEAR ENDED DECEMBER 31 2019 $ 5,521 (1,750) 3,771 18,404 20.5% 2018 $ 10,517 1,429 11,946 38,564 31.0% Depreciation and amortization Depreciation of property, plant and equipment; depreciation of right-of-use assets 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 the year ended December 31, 2019 primarily relates to the acquisitions of Milltec, Danmare, Sabe, Improtech and IntelliFarms as well as depreciation of right-of-use assets totaling $3.0 million in the year ended December 31, 2019, that resulted from the adoption of IFRS 16. Included in amortization in the year ended December 31, 2019 is an expense of approximately $1.8 million related to the amortization of the backlog intangible recorded upon the acquisition of Milltec, which was fully amortized in Q3 2019. The effective tax rate in 2019 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 “Diluted profit per share and diluted adjusted profit per share”. The effective tax rate in 2019 was also impacted by the India corporate income tax rate decrease. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 18 Diluted profit per share and diluted adjusted profit per share Diluted profit per share for the year ended December 31, 2019 was $0.77 versus $1.56 in 2018. Profit per share in 2019 and 2018 has been impacted by the items enumerated in the table below, which reconciles profit to adjusted profit. Selected Annual Information (thousands of dollars, other than per share amounts and payout ratio) [2] YEAR ENDED DECEMBER 31 Sales [2] EBITDA [1][2] Adjusted EBITDA [1][2] Profit from continuing operations [2] 14,633 26,618 33,623 (2,534) 19,004 Fully diluted profit per share from continuing operations [2] Basic profit per share from continuing operations [2] 2019 $ 14,633 0.77 2018 $ 26,618 1.56 1,962 1,588 11,562 1,503 260 233 10,000 2,352 41,559 2.20 1,183 2,283 6,582 2,061 185 232 — — 58,148 3.38 Profit [2] Basic profit per share [2] Fully diluted profit per share [2] Funds from operations [1][2] Payout ratio [1][2] Dividends declared per Common Share Total assets [2] Total long-term liabilities [2] (1) See “Non-IFRS Measures”. YEAR ENDED DECEMBER 31 2019 $ 2018 $ 2017 $ 995,787 931,664 749,397 113,737 108,662 110,850 144,279 148,195 121,797 0.79 0.77 1.58 1.56 2.11 2.08 14,633 26,618 33,664 0.79 0.77 1.58 1.56 2.11 2.08 81,267 96,067 72,933 55% 2.40 42% 2.40 53% 2.40 1,462,980 1,233,559 1,139,173 833,979 570,684 568,373 (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. The following factors impact comparability between years in the table above: • Acquisitions in 2018 and 2019 (see “Basis of Presentation – Acquisitions”) and the 2017 acquisitions of Global Industries, Inc., CMC Industrial Electronics Ltd. And CMC Industrial Electronics USA, Inc. and Junge Control, Inc. 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. [THOUSA ND S OF DOLLARS EXC EPT PER SHA RE AMOUNT S] Profit Diluted profit per share Loss (gain) 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 Impairment charge [4] Equipment rework [5] Share of associate’s net loss Adjusted profit [1] Diluted adjusted profit per share [1] (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) To record pre-tax charge for the estimated cost of rework for equipment supplied to two distinct projects. The charge relates to additional time, material and services. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 1919 QUARTERLY FINANCIAL INFORMATION [thousands of dollars other than per share amounts and exchange rate]: 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. Average USD/CAD Exchange Rate 1.33 1.34 1.32 1.32 1.33 Average USD/CAD Exchange Rate 1.26 1.29 1.31 1.31 1.29 2 019 Sales $ 215,035 291,938 260,198 228,616 995,787 Profit (Loss) $ 13,222 12,516 (2,819) (8,286) 14,633 2 018 Sales $ 213,666 260,155 242,166 215,677 931,664 Profit (Loss) $ 4,943 12,792 20,744 (11,861) 26,618 Basic Profit (Loss) per Share $ Diluted Profit (Loss) per Share $ 0.71 0.68 (0.15) (0.44) 0.79 0.70 0.67 (0.15) (0.44) 0.77 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 Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD The following factors impact the comparison between periods in the table above: • AGI’s acquisitions of Danmare [Q1 2018], Sabe [Q3 2018], Improtech [Q1 2019], IntelliFarms [Q1 2019] and Milltec [Q1 2019] 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. OPERATING RESULTS – THREE MONTHS ENDED DECEMBER 31, 2019 Trade Sales [see “Non-IFRS Measures” and “Basis of Presentation - Acquisitions”] [T HOUSANDS OF DOL LARS] Trade Sales Foreign exchange loss [1] Total Trade Sales (1) A portion of foreign exchange gains and losses are allocated to sales. Trade Sales by Geography [T HOUSANDS OF DOL LARS] Canada, excluding acquisitions Acquisitions Total Canada U.S., excluding acquisitions Acquisitions Total U.S. International, excluding acquisitions Acquisitions Total International THREE MONTHS ENDED DECEMBER 31 2019 $ 2018 $ CHA NGE $ 229,591 214,195 (975) 1,482 228,616 215,677 15,396 (2,457) 12,939 THREE MONTHS ENDED DECEMBER 31 2019 $ 58,055 2,396 60,451 89,588 7,236 96,824 45,212 27,104 72,316 2018 $ 74,717 919 75,636 76,848 1,521 78,369 55,471 4,719 60,190 CHA NGE $ (16,662) 1,477 (15,185) 12,740 5,715 18,455 (10,259) 22,385 12,126 Total excluding acquisitions 192,855 207,036 (14,181) 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 Total acquisitions Total Trade Sales [1] (1) See “Non-IFRS Measures”. 36,736 7,159 229,591 214,195 29,577 15,396 S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 20 Trade Sales by Category [THOUSA ND S OF DOLLARS] Farm Farm – acquisitions Total Farm Commercial Commercial – acquisitions Total Commercial Total Trade Sales [1] (1) See “Non-IFRS Measures”. THREE MONTHS ENDED DECEMBER 31 Danmare, Sabe and IntelliFarms. • Trade sales from acquisitions in the United States increased as a result of 2019 $ 94,057 2,846 96,903 98,798 33,890 2018 $ 89,569 — 89,569 117,467 7,159 132,688 124,626 229,591 214,195 CH AN GE $ International 4,488 2,846 7,334 (18,669) 26,731 8,062 15,396 • International trade sales, excluding acquisitions, decreased 18% over a strong Q4 2018 comparative: • Q4 2018 was a very strong quarter with sales increasing 69% over 2017. • Sales in Brazil in the fourth quarter were strong and slightly higher than a strong Q4 2018. • International sales in 2019 have been negatively impacted by global economic uncertainties, including trade disputes. Consistent with recent commentary, our sales order backlog in 2020 is higher than at the same time in the prior year. • International sales from acquisitions relate primarily to Milltec and Sabe. The movement in the three months ended December 31, 2019 trade sales compared to the prior year is summarized below: Canada • Trade sales in Canada, excluding acquisitions, decreased 22% over Q4 2018: Gross Margin [see “Non-IFRS Measures”] • Farm sales decreased as strong demand for drying and aeration equipment [T HOUSANDS OF DOL LARS] were more than offset by lower sales of storage equipment that were negatively impacted by a challenging growing and harvest season. • Commercial sales decreased as Q4 2018 included a large fertilizer project and there was no similar project in the current year, and sales related to large grain storage and handling projects were lower than the very strong sales that were recognized in Q4 2018. • Sales from acquisitions relate primarily to Danmare and Improtech. Trade sales [1] Cost of inventories [1] Gross margin [1] Gross margin as a % of trade sales (1) See “Non-IFRS measures”. THREE MONTHS ENDED DECEMBER 31 2019 $ 229,591 163,375 66,216 28.8% 2018 $ 214,195 149,518 64,677 30.2% United States • Trade sales in the U.S., excluding acquisitions, increased 17% over Q4 2018: Gross margin percentages declined compared to the prior year as a strong operational performance in India and improving results in Brazil were offset by the impact of poor conditions in the U.S. • Farm sales in Q4 2019 were higher than the prior year due to robust demand across most product lines, including drying, aeration and portable grain handling equipment. • Sales of Commercial equipment in Q4 2019 increased due to higher fertilizer and controls sales compared to the prior year. Selling, General and Administrative Expenses [“SG&A”] SG&A expenses for the three months ended December 31, 2019 excluding M&A expenses, other transaction and transitional expenses and depreciation/ amortization, were $45.9 million [20.0% of trade sales] versus $38.6 million [18.0% of trade sales] in 2018. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 2121 Excluding acquisitions, SG&A expenses for the three months ended December 31, 2019 were $38.7 million [20.0% of trade sales] versus $37.3 million [18.0% of trade sales] in 2018. Variances to the prior year include the following: • Salaries and wages decreased $1.0 million as the Company’s bonus accrual was adjusted downwards to reflect a change in anticipated achievement levels. • No other individual variance greater was than $0.5 million. EBITDA and Adjusted EBITDA [see “Non-IFRS Measures”] The following table reconciles profit before income taxes to EBITDA and Adjusted EBITDA. THREE MONTHS ENDED DECEMBER 31 [THOUSANDS OF DOLLARS] Loss before income taxes Finance costs Depreciation and amortization Share of associate’s net loss EBITDA Loss (gain) on foreign exchange Share based compensation Loss (gain) on financial instruments [2] M&A expenses (recovery) Other transaction and transitional costs [3] Loss on sale of PP&E Fair value of inventory from acquisitions [4] Equipment rework [5] Impairment [6] Adjusted EBITDA [1] (1) See “Non-IFRS Measures”. (2) See “Equity Compensation Hedge”. 2019 $ (8,487) 11,329 11,922 1,564 16,328 (121) 1,326 (1,557) (1,458) 5,135 136 220 3,000 187 23,196 2018 $ (14,397) 8,968 8,798 — 3,369 9,084 1,018 10,562 833 3,108 40 — — — 28,014 (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 the pre-tax charge for the estimated cost of rework for equipment supplied to two distinct projects. The charge relates to additional, time, material and services. (6) To record assets held for sale at estimated fair value. KNOW YOUR SEED S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 22 GROW WITHOUT GUESSWORK S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 23 2323 Diluted loss per share and diluted adjusted profit (loss) per share Diluted loss per share for the three months ended December 31, 2019 was $(0.23) versus $(0.66) in 2018. Loss per share in 2019 and 2018 has been impacted by the items enumerated in the table below, which reconciles loss to adjusted profit. 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 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 EXC EPT PER SHA RE AMOUNT S] Loss Diluted loss per share Loss (gain) on foreign exchange Fair value of inventory from acquisition [2] M&A expenses (recovery) Other transaction and transitional costs [3] Loss (gain) on financial instruments Loss on sale of PP&E Impairment charge [4] Equipment rework [5] Share of associate’s net loss Adjusted profit (loss) [1] Diluted adjusted profit (loss) per share [1] (1) See “Non-IFRS Measures”. THREE MONTHS ENDED DECEMBER 31 2019 $ (8,286) (0.44) (121) 220 (1,458) 5,135 (1,557) 136 187 3,000 1,564 (1,180) (0.06) 2018 $ (11,861) (0.66) 9,084 — 833 3,108 10,562 40 — — — 11,766 0.66 (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) To record pre-tax charge for the estimated cost of rework for equipment supplied to two distinct projects. The charge relates to additional time, material and services. LIQUIDITY AND CAPITAL RESOURCES AGI’s financing requirements are subject to variations due to the seasonal and cyclical nature of its business. Sales historically have been higher in the second and third calendar quarters compared with the first and fourth quarters and cash flow has been lower in the first half of each calendar year. Internally generated funds are supplemented when necessary from external sources, primarily the Credit CASH FLOW AND LIQUIDITY [T HOUSANDS OF DOL LARS] Profit before tax Items not involving current cash flows Cash provided by operations Net change in non-cash working capital 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 during the period Cash, beginning of period Cash, end of period YEAR ENDED DECEMBER 31 2019 $ 18,404 56,107 74,511 (13,585) (8,060) — (2,553) (9,894) 40,419 2018 $ 38,564 81,794 120,358 (63,017) (3,942) (280) (1,953) (9,975) 41,191 (223,134) (88,635) 197,526 17,073 14,811 33,610 48,421 (30,371) 63,981 33,610 Cash provided by operating activities in 2019 approximated 2018 levels as an improvement in cash used by working capital was offset by lower net income, adjusted for non-cash items. Cash used in investing activities relates primarily to the acquisitions of Improtech, IntelliFarms and Milltec. Cash provided by financing activities relates to bond issuances offset by the redemption of debentures, debt repayments and dividends paid. Working Capital Requirements Interim period working capital requirements typically reflect the seasonality of the business. AGI’s collections of accounts receivable in North America are weighted S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 24 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 in North America increasing throughout the year and peaking in the third quarter. Inventory levels in North America typically increase in the first and second quarters and then begin to decline in the third or fourth quarter as sales levels exceed production. The recent expansion of AGI’s fertilizer business has had the effect of increasing working capital requirements in Q4 and Q1, and Milltec’s seasonality is opposite of that described above. In addition, AGI’s growing business in Brazil is less seasonal due to the existence of two growing seasons in the country and the increasing importance of Commercial business in the region. Growth in overall international business has resulted in an increase in the number of days accounts receivable remain outstanding and may result in increased usage of working capital in certain quarters. Overall, requirements for AGI in 2019 are expected to be generally consistent with historical patterns. Capital Expenditures Maintenance capital expenditures in 2019 were $14.8 million [1.5% of trade sales] versus $11.3 million [1.2% of trade sales] in 2018. Maintenance capital expenditures in 2019 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 2019 of $33.7 million versus $25.3 million in 2018. In 2019, non-maintenance capital expenditures relate primarily to the purchase of manufacturing equipment and facility expansions. 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 decrease in 2020 compared to 2019. Maintenance and non-maintenance capital expenditures in 2020 are anticipated to be financed through bank indebtedness, cash on hand or through the Company’s Credit Facility [see “Capital Resources”]. CONTRACTUAL OBLIGATIONS The following table shows, as at December 31, 2019 the Company’s contractual obligations for the periods indicated: [THOUSA ND S OF DOLLARS] 2015 Debentures [1] 2017 Debentures 2018 Debentures 2019 March Debentures 2019 November Debentures Long-term debt [2] Lease liability Short term and low value leases Due to vendor Contingent consideration Preferred shares liability Purchase obligations [3] Leases committed not yet commenced Total obligations (1) The 2015 Debentures were redeemed in January 2020. (2) Updated to reflect amended Credit Facilities, see SUBSEQUENT EVENTS (3) Net of deposit. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 2525 TOTA L $ 75,000 86,225 86,250 86,250 86,250 395,862 9,932 49 8,370 5,270 30,258 8,488 8,342 886,546 20 20 $ 75,000 — — — — 722 2,798 34 4,541 5,270 — 8,488 485 97,338 20 21 $ — — — — — 348 2,102 9 3,066 — 18,155 — 869 24,549 20 22 $ — 86,225 86,250 — — 208 1,652 5 763 — 12,103 — 884 188,090 2023 $ — — — — — 115 1,028 1 — — — — 776 1,920 2024 $ — — — 86,250 86,250 106 759 — — — — — 2025+ $ — — — — — 394,363 1,593 — — — — — 787 174,152 4,541 400,497 The Debentures relate to the aggregate principal amount of the debentures [see “Capital Resources - 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 Cash The Company’s cash balance at December 31, 2019 was $48.4 million [2018 - $33.6 million]. December 31 2019 $ 1,462,980 1,089,585 December 31 2018 $ 1,233,559 799,360 Debt Facilities [THOUSANDS OF DOLLARS] Canadian Swing Line Canadian Revolver Tranche A [4] Canadian Revolver Tranche B U.S. Revolver [3][5] Series B Notes [6] Series C Notes [6] Equipment Financing [6] Total Currency Maturity Total Facility [CAD][1][2] $ Amount Drawn[1] $ Effective Interest Rate CAD CAD USD USD CAD USD various 2025 2025 2025 2025 2025 2026 2025 40,000 135,000 51,952 227,209 25,000 32,470 1,121 512,752 345 90,511 50,000 196,379 25,000 32,470 1,121 395,826 4.91% 4.91% 4.98% 5.20% 4.44% 3.70% Various (1) USD denominated amounts translated to CAD at the rate of exchange in effect on December 31, 2019 of $1.2988. (2) Excludes the $200 million accordion available under AGI’s credit facility. (3) Inclusive of USD $10 million swing-line facility. (4) Interest rate fixed for $40 Million via interest rate swaps. See “Interest Rate Swaps”. (5) Interest rate fixed for USD $38 Million via interest rate swaps. See “Interest Rate Swaps”. (6) Fixed interest rate. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 26 The Company has a credit facility [the “Credit Facility”] with a syndicate of Canadian chartered and other banks that includes committed revolver facilities of CAD $175 million and USD $215 million. AGI amended and extended its facility in March 2020 and amounts drawn under the Credit Facility now bear interest at BA or LIBOR plus 1.20% to BA or LIBOR plus 2.5% and prime plus 0.20% to prime plus 1.5% per annum based on performance calculations. The Company has issued USD $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 of 3.75 as at December 31, 2019 and in 2020 (3.25 in 2021 and forward), and a minimum debt service ratio of 1.0, and is in compliance with all financial covenants. (See “SUBSEQUENT EVENTS”). 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. The Company redeemed its 2014 Debentures on April 2, 2019. Upon redemption, AGI paid to the holders of the 2014 Debentures $52,435,000 equal to the outstanding principal amount of the 2014 Debentures redeemed including all accrued and unpaid interest up to but excluding the redemption date, less taxes deducted or withheld. Consequently, the Company expensed the remaining unamortized balance of $425,000 of deferred fees related to the 2014 Debentures. The expense was recorded to finance costs in the consolidated statements of income. Debentures Convertible Debentures The following table summarizes the key terms of the convertible unsecured subordinated debentures of the Company that were outstanding as at December 31, 2019: Year Issued / TSX Symbol Aggregate Principal Amount $ Coupon Conversion Price $ Maturity Date Redeemable at Par (1)(2) Debentures On March 19, 2019, the Company closed the offering of $75 million aggregate principal amount of senior subordinated unsecured debentures and on March 26, 2019, closed the over-allotment option of $11.25 million. On November 19, 2019, the Company closed the offering of $75 million aggregate principal amount of senior subordinated unsecured debentures and on November 22, 2019, closed the over- allotment option of $11.25 million. The following table summarizes the key terms of the Debentures that were outstanding as at December 31, 2019: 2015 [AFN.DB.C] 75,000,000 5.00% 2017 [AFN.DB.D] 86,225,000 4.85% 2018 [AFN.DB.E] 86,250,000 4.50% 60.00 83.45 88.15 Dec 31, 2020 Jan 1, 2020 Jun 30, 2022 Jun 30, 2021 Dec 31, 2022 Jan 1, 2022 Year Issued / TSX Symbol Aggregate Principal Amount $ Coupon Maturity Date (1) At the option of the Company, at par plus accrued and unpaid interest. AGI redeemed its 2015 Debentures, AFN.DB.C above, in January 2020. (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. 2019 March [AFN.DB.F] 2019 November [AFN.DB.G] 86,250,000 86,250,000 5.40% 5.25% June 30 2024 December 31, 2024 On redemption or at maturity, the Company may, at its option, elect to satisfy its obligation to pay the principal amount of the 5.40% Debentures by issuing and delivering common shares. The Company may also elect to satisfy its obligation to pay interest on the 5.40% Debentures by delivering sufficient common shares. The number of shares issued would be determined based on market prices at the time of issuance. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 2727 COMMON SHARES The following number of Common Shares were issued and outstanding at the dates indicated: 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. In the year ended December 31, 2019 dividends paid to shareholders of $44.7 million [2018 – $39.3 million] were financed from cash on hand and nil [2018 – $1.4 million] by the DRIP. AGI suspended its DRIP in Q2 2018. December 31, 2018 Settlement of EIAP obligation Conversion of convertible unsecured subordinated debentures December 31, 2019 Settlement of EIAP obligations March 25, 2020 At March 25, 2020 # Common Shares 18,363,780 294,400 299 18,658,479 39,381 18,697,860 • 18,697,860 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 1,156,560 have been granted and 58,440 remain unallocated; • 87,946 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 • 3,261,698 Common Shares are issuable on conversion of the outstanding convertible debentures, of which there are an aggregate principal amount of $248 million outstanding. AGI’s Common Shares trade on the TSX under the symbol AFN. DIVIDENDS AGI declared dividends to shareholders in the year ended December 31, 2019 of $44.7 million versus $40.1 million in 2018. 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. FUNDS FROM OPERATIONS AND PAYOUT RATIO [see “Non-IFRS Measures”] 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. [T HOUSANDS OF DOL LARS] Adjusted EBITDA Interest expense Non-cash interest Cash taxes Maintenance CAPEX Funds from operations [1] Dividends Payout Ratio (1) See “Non-IFRS Measures”. YEAR ENDED DECEMBER 31 2019 $ 144,279 (44,793) 6,485 (9,894) 2018 $ 148,195 (37,067) 6,206 (9,975) (14,810) (11,292) 81,267 44,705 55% 96,067 40,650 42% The increase in payout ratio is partially related to the acquisition of Milltec. Milltec’s sales and adjusted EBITDA reflect agricultural seasonality in India, and historically approximately 70% of their sales have occurred in the first and fourth calendar quarters. Milltec was acquired on March 29, 2019 and accordingly the table above does not include Milltec’s seasonally high Q1. In addition, AGI added 1.9 million common shares in Q4 2018, the proceeds of which contributed to funding the acquisition of Milltec on March 28, 2019. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 28 FINANCIAL INSTRUMENTS Foreign exchange contracts 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, 2019. Interest Rate Swaps The Company has entered into interest rate swap contracts to manage its exposure to fluctuations in interest rates. Currency Maturity CAD USD 2022 2020 Amount of Swap [000’s] $ 40,000 38,000 Fixed Rate [1] 3.6 – 4.1% 3.8% Canadian dollar contracts U.S. dollar contracts (1) With performance adjustments. The interest rate swap contracts are derivative financial instruments and changes in the fair value were recognized as a gain (loss) on financial instruments in other operating income. 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 4.1%. The notional amounts are $89.4 million in aggregate, resetting the last business day of each month. The contracts expire between November 2020 and May 2022. During the year ended December 31, 2019, a loss of $1.5 million [2018 - loss of $78,000] was recorded in gain (loss) on financial instruments. 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, 2019, the equity swap agreement covered 722,000 Common Shares at a weighted average price of $38.76 and the maturity date of the agreement is April 6, 2021. As at December 31, 2019, the unrealized gain on the equity swap was $5.6 million, and in the three-months and fiscal year-ended December 31, 2019, the Company recorded a gain (loss) in the consolidated statements of income of $1.4 million and $(9.8) million [2018 – gain of $4.5 million and $5.7 million]. 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 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. 2019 ACQUISITIONS Improtech In January 2019, AGI acquired 100% of the outstanding shares of Improtech. Improtech is a professional engineering services firm specializing in providing engineering design, project management and integration of new machinery and processes within the food and beverage industry. The acquisition further evolves AGI’s ability to provide complete solutions to a broad customer base. IntelliFarms In March 2019, AGI acquired IntelliFarms, a provider of hardware and software solutions that benefit grain growers, processors, and other participants in the S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 2929 agriculture market. IntelliFarms was founded in 2001 and is headquartered in Archie, Missouri. Sales at IntelliFarms for the year ended December 31, 2018 were approximately $11.0 million USD. The net proceeds of the Offering will be used to repay indebtedness and for general corporate purposes. Milltec In March 2019, AGI acquired 100% of the outstanding shares of Milltec. The purchase price for Milltec was $113.1 million, plus the potential for up to an additional $30.8 million based on the achievement of EBITDA targets. Milltec is headquartered in Bangalore, India, and is a market leading manufacturer of rice milling and processing equipment in India. For the twelve months ended January 31, 2019, Milltec’s sales and EBITDA were $56.2 million and $10.1 million, respectively. SUBSEQUENT EVENTS On January 2, 2020, the Company redeemed its 5.00% convertible unsecured subordinated debentures due December 31, 2020 [“2015 Debentures”] in accordance with the terms of the supplemental trust indenture dated September 29, 2015 [note 21]. On January 16, 2020, the Company acquired 100% of the shares outstanding of Affinity Management Ltd. [“Affinity”]. The transaction was funded from the Company’s operating facilities. Affinity, headquartered in Oakville, Ontario, is a provider of software solutions to the agriculture industry under the brand name Compass® and includes a comprehensive Enterprise Resource Planning [“ERP”] system for growers and ag retailers, as well as an agronomy tool. The Compass® product suite is highly complementary to AGI’s current offering and will be a key component of the full AGI SureTrack platform. On February 13, 2020, the Company entered an agreement with a syndicate of underwriters, pursuant to which AGI will issue on a “bought deal” basis, subject to regulatory approval, $85 million aggregate principal amount of senior subordinated unsecured debentures [the “2020 Debentures”] at a price of $1,000 per Debenture (the “Offering”). On March 5, 2020, the Company closed the offering of the 2020 Debentures. 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 $12,750,000 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 $97.75 million. The Debentures bear interest at 5.25% per annum, payable semi-annually in arrears on June 30 and December 31 each year commencing June 30, 2020. The Debentures have a maturity date of December 31, 2026. The Debentures are not be redeemable by the Company before December 31, 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 December 31, 2022 and prior to December 31, 2023, the Debentures may be redeemed at the Company’s option at a price equal to 103.9375% of their principal amount plus accrued and unpaid interest. On and after December 31, 2023 and prior to December 31, 2024, the Debentures may be redeemed at the Company’s option at a price equal to 102.625% of their principal amount plus accrued and unpaid interest. On and after December 31, 2024 and prior to December 31, 2025, the Debentures may be redeemed at the Company’s option at a price equal to 101.3125% of their principal amount plus accrued and unpaid interest. On and after December 31, 2025 and prior to maturity, 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 has 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 are not convertible into common shares of the Company at the option of the holders at any time. On March 20, 2020, the Company amended and extended the Credit Facility. Under the amended and extended Credit Facility, the revolving facilities bear interest at bankers’ acceptance (BA) or London Interbank Offered Rate (LIBOR) plus 1.20% to BA or LIBOR plus 2.50%, and the swing lines bear interest at prime plus 0.20% to prime plus 1.5% per annum, in each case based on certain performance calculations. The Credit Facility matures on March 20, 2025. Collateral for the Credit Facility ranks pari passu with the collateral for the Series B and Series 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. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 30 Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods. 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. During the year ended December 31, 2019, the total cost of these legal services related to general matters was $0.4 million [2018 – $1.4 million], and $0.5 million is included in accounts payable and accrued liabilities as at December 31, 2019. These transactions are measured at the exchange amount and were incurred during the normal course of business. CRITICAL ACCOUNTING ESTIMATES Described in the notes to the Company’s 2019 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, 2019 for a discussion of the significant accounting judgments, estimates and assumptions. RISKS AND UNCERTAINTIES 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 include but are not limited to the following: general economic and business conditions and changes in such conditions locally, in North America, South America, South Asia and globally; the effects of global outbreaks of pandemics or contagious diseases or the fear of such outbreaks, such as the recent coronavirus (COVID-19) pandemic, including on our operations, our personnel, our supply chain, the demand for our products, our ability to expand and produce in new geographic markets or the timing of such expansion efforts, and on overall economic conditions and customer confidence and spending levels; the ability of management to execute the Company’s business plan; fluctuations in agricultural and other commodity prices and interest and currency exchange rates; crop planting, crop conditions and crop yields; weather patterns, the timing of harvest and conditions during harvest; volatility of production costs; governmental regulation of the agriculture and manufacturing industries, including environmental regulation; actions taken by governmental authorities, including increases in taxes and changes in government regulations and incentive programs; risks inherent in marketing operations; credit risk; the availability of credit for customers; seasonality and industry cyclicality; potential delays or changes in plans with respect to capital expenditures; the cost and availability of sufficient financial resources to fund the Company’s capital expenditures; the availability of credit for customers, incorrect assessments of the value of acquisitions and failure of the Company to realize the anticipated benefits of acquisitions; volatility in the stock markets including the market price of the Common Shares and in market valuations; competition for, among other things, customers, supplies, acquisitions, capital and skilled personnel; the availability of capital on acceptable terms; dependence on suppliers; changes in labour costs and the labour market; and climate change risks. 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 New accounting policies Investments in associates An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 3131 S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 32 S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 3333 The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries. Adoption of new accounting standards AGI’s investment in its associate is accounted for using the equity method. Under the equity method, the investment in an associate is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Company’s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment separately. The consolidated statements of income reflect the Company’s share of the results of operations of the associate. Any change in OCI of the associate is presented as part of AGI’s OCI. In addition, when there has been a change recognized directly in the equity of the associate, the Company recognizes its share of any changes, when applicable, in the consolidated statements of changes in shareholders’ equity. Unrealized gains and losses resulting from transactions between AGI and the associate are eliminated to the extent of the interest in the associate. The aggregate of the Company’s share of profit or loss of an associate is shown on the face of the consolidated statements of income and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate. The financial statements of the associate are prepared for the same reporting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of AGI. After application of the equity method, the Company determines whether it is necessary to recognize an impairment loss on its investment in its associate. At each reporting date, the Company determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognizes the loss within share of associate’s net income (loss) in the consolidated statements of income. Upon loss of significant influence over the associate, the Company measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss. IFRS 16, Leases [“IFRS 16”] The Company has applied IFRS 16 using the modified retrospective approach, and therefore the comparative information has not been restated and continues to be reported under IAS 17, Leases, [“IAS 17”] and IFRIC 4, Determining whether an Arrangement contains a Lease [“IFRIC 4”]. For contracts entered into before January 1, 2019, the Company determined whether the arrangement was or contained a lease based on the assessment of whether: • Fulfilment of the arrangement was dependent on the use of a specific asset or assets; and • The arrangement had conveyed a right to use the asset. The Company elected to use the transition practical expedient to not reassess whether a contract is, or contains, a lease at January 1, 2019. Instead, the Company applied the standard only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Company has also elected not to recognize right-of-use assets and lease liabilities for short- term leases [12 months or less] and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. As a result of adoption of IFRS 16, the Company recorded a right-of-use asset and a lease liability of $9,071 as at January 1, 2019 on the consolidated statements of financial position. On adoption of IFRS 16, AGI used the incremental borrowing rate as required by the standard. The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as at December 31, 2018 as follows: S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 34 Operating lease commitments as at December 31, 2018 Weighted average incremental borrowing rate as at January 1, 2019 Discounted operating lease commitments at January 1, 2019 Less: Commitments relating to short-term and low-value leases Lease liabilities as at January 1, 2019 $ 11,059 5.02% 10,841 (1,770) 9,071 IAS 19, Employee Benefits [“IAS 19”] The Company adopted the amendments to IAS 19 with a date of application of January 1, 2019. 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: • 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. These amendments are applied prospectively to any future plan amendments, curtailments, or settlements of the Company; as at December 31, 2019, there were no such amendments. IFRIC 23 – Uncertainty Over Income Tax Treatments The Company adopted IFRIC 23 with a date of application of January 1, 2019. 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 Company’s adoption of IFRIC 23 did not have a significant impact on the Company’s consolidated financial statements. Standards issued but not yet effective Amendments to IFRS 3, Business Combinations [“IFRS 3”] The IASB issued amendments to the definition of a business in IFRS 3 to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. The amendments must be applied to transactions that are either business combinations or asset acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on January 1, 2020 with earlier application permitted. Consequently, transactions that occurred in prior periods do not need to be reassessed. The Company’s assessment did not identify significant classification, recognition or measurement differences. The Company will adopt the amendments to IFRS 3 as at January 1, 2020. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 3535 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, 2018, AGI acquired Improtech, IntelliFarms and Milltec. 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 Improtech, IntelliFarms and Milltec. The following is the summary financial information pertaining to Improtech, IntelliFarms and Milltec that was included in AGI’s consolidated financial statements for the year ended December 31, 2019: [THOUSANDS OF DOLLARS] Revenue [1] 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) Statement of financial position as at December 31 2019 Improtech/IntelliFarms/Milltec $ 60,046 (13,070) 44,793 149,229 34,379 31,070 There have been no material changes in AGI’s internal controls over financial reporting that occurred in the three-month period ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. 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 S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 36 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 before income taxes, finance costs, depreciation, amortization and share of associate’s net loss. References to “adjusted EBITDA” are to EBITDA before the gain or loss on foreign exchange, non- cash share based compensation expenses, gain or loss on financial instruments, M&A expenses, other transaction and transitional costs, gain or loss on the sale of property, plant & equipment, gain or loss on disposal of assets held for sale and fair value of inventory from acquisitions, equipment rework costs 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 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, amortization, fair value of inventory from acquisitions and equipment rework 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 IFRS 15 adjustment, interest expense, non-cash interest, cash taxes 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 the gain or loss on foreign exchange, fair value of inventory from acquisitions, M&A expenses or recoveries, other transaction and transitional costs, gain or loss on financial instruments, gain or loss on sale of property, plant and equipment impairment charges, cost of equipment rework and share of associate’s net loss. See “Detailed Operating Results – Diluted profit (loss) per share and diluted adjusted profit per share” for the reconciliation of diluted profit per share and diluted adjusted profit per share to profit. In addition, the financial information in this MD&A relating to Milltec’s sales and EBITDA for periods prior to its acquisition by AGI was 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. 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 S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 3737 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, the anticipated impacts of the coronavirus (COVID-19) outbreak on our business, operations and financial results; 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: the anticipated impacts of the coronavirus (COVID-19) outbreak on our business, operations and financial results; 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 the effects of global outbreaks of pandemics or contagious diseases or the fear of such outbreaks, such as the recent coronavirus (COVID-19) pandemic, including the effects on the Company’s operations, personnel, and supply chain, the demand for its products and services, its ability to expand and produce in new geographic markets or the timing of such expansion efforts, and on overall economic conditions and customer confidence and spending levels, changes in international, national and local macroeconomic and business conditions, as well as sociopolitical conditions in certain local or regional markets, 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, our annual MD&A and in our most recently filed Annual Information Form, all of which are available under the Company’s profile on SEDAR [www.sedar.com]. These factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking information. We cannot assure readers that actual results will be consistent with this forward-looking information. Readers are further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. These estimates may change, having either a negative or positive effect on profit, as further information becomes available and as the economic environment changes. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information included in this MD&A is made as of the date of this MD&A and AGI undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless so required by applicable securities laws. ADDITIONAL INFORMATION Additional information relating to AGI, including AGI’s most recent Annual Information Form, is available under the Company’s profile on SEDAR [www.sedar.com]. S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 38 S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 3939 NURTURE THE SOIL WITH SCIENCE S I S Y L A N A N O I S S U C S I D S ’ T N E M E G A N A M | T R O P E R L A U N N A 9 1 0 2 40 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 4141 CONSOLIDATED FINANCIAL STATEMENTS S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 42 42 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 ”Group”], which comprise the consolidated statements of financial position as at December 31, 2019 and 2018, and the consolidated statements of income, consolidated statements of comprehensive income (loss), consolidated statements of changes in shareholders’ 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 Group as at December 31, 2019 and 2018, 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 Group 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 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 and 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 Group’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 Group or to cease operations, or has no realistic alternative but to do so. Management is responsible for the other information. The other information comprises: Those charged with governance are responsible for overseeing the Group’s financial reporting process. • Management’s Discussion and Analysis • The information other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 4343 Auditor’s responsibilities for the audit of the consolidated financial statements auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. 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 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 Group’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 Group’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 • 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 Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group 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 24, 2020 Chartered Professional Accountants S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 44 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Income taxes payable [IN THOUSANDS O F CANADIAN DO LL ARS] Assets [note 20] Current assets Cash and cash equivalents [note 29] Cash held in trust and restricted cash [notes 6 and 7] Accounts receivable [note 8] Inventory [note 9] Prepaid expenses and other assets Current portion of note receivable Derivative instruments [note 30] Income taxes recoverable Non-current assets Property, plant and equipment, net [note 10] Right-of-use assets, net [note 11] Goodwill [note 12] Intangible assets, net [note 13] Investment in associate [note 15[b]] Equity investment [note 15[a]] Non-current accounts receivable [note 8] Note receivable Deferred tax asset [note 27] Assets held for sale [note 16] Total assets Liabilities and shareholders’ equity Current liabilities Current portion of convertible unsecured subordinated debentures [note 21] 74,298 50,708 AS AT DECEMBER 31 2019 $ 2018 $ 48,421 33,610 5,416 2,955 162,543 134,239 174,356 190,887 34,333 26,031 97 5,865 7,425 85 7,649 4,344 438,456 399,800 363,678 332,645 9,353 — 351,573 256,619 264,858 233,199 17,312 — — 900 16,182 8,122 525 — 650 455 1,023,481 832,590 1,043 1,169 Current portion of due to vendor [note 6] Current portion of contingent consideration [note 6] Current portion of obligations under finance lease Current portion of lease liability [note 19] Current portion of long-term debt [note 20] Provisions [note 18] Non-current liabilities Other financial liabilities [note 26] Due to vendor [note 6] Contingent consideration [note 6] Optionally convertible redeemable preferred shares [note 6] Obligations under finance lease Lease liability [note 19] Long-term debt [note 20] Convertible unsecured subordinated debentures [note 21] Senior unsecured subordinated debentures [note 22] Deferred tax liability [note 27] Total liabilities Shareholders’ equity [note 23] Common shares Accumulated other comprehensive income Equity component of convertible debentures Contributed surplus 1,462,980 1,233,559 Deficit Total shareholders’ equity Total liabilities and shareholders’ equity 2,010 4,541 5,270 — 2,562 693 4,286 7,973 4,552 65 — 289 17,539 7,685 255,606 228,676 484 3,829 — 26,320 — 6,787 85 1,376 1,834 — 165 — 392,435 271,132 164,535 234,140 165,474 — 74,115 61,952 833,979 570,684 1,089,585 799,360 455,857 450,645 22,375 57,324 6,707 8,203 27,113 26,045 (138,657) (108,018) 373,395 434,199 1,462,980 1,233,559 Accounts payable and accrued liabilities [note 17] 105,378 101,504 See accompanying notes Customer deposits Dividends payable 39,583 47,941 3,732 3,673 On behalf of the Board of Directors: B IL L LA MBERT Director DAVID A . WHITE, CA, ICD.D Director S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 4545 CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) [IN THOUSANDS O F CANADIAN DO LL ARS, EXCE PT PER SHARE AM OUNTS] YEARS ENDED DECEMBER 31 2019 $ 2018 $ [IN THOUSANDS OF CANADIAN DOLLARS ] Sales 995,787 931,664 Profit for the year Cost of goods sold [note 25[d]] 728,047 663,505 Other comprehensive (loss) income 267,740 268,159 Items that may be reclassified subsequently to profit or loss YEARS ENDED DECEMBER 31 2019 $ 14,633 — — — (34,080) (34,080) (900) 43 (12) (869) 2018 $ 26,618 1,025 (2,785) 477 28,799 27,516 — 233 (63) 170 Change in fair value of derivatives designated as cash flow hedges Gains on derivatives designated as cash flow hedges recognized in net earnings in the year Income tax effect on cash flow hedges Exchange differences on translation of foreign operations Items that will not be reclassified to profit or loss Change in the fair value of equity investment Actuarial gains on defined benefit plan Income tax effect on defined benefit plan Other comprehensive income (loss) for the year Total comprehensive income (loss) for the year (34,949) (20,316) 27,686 54,304 See accompanying notes Gross profit Expenses (income) Selling, general and administrative [note 25[e]] 211,113 175,914 Other operating income [note 25[a]] Impairment charge [notes 10 and 16] Finance costs [note 25[c]] Finance expense (income) [note 25[b]] Share of associate’s net loss [note 15[b]] Profit before income taxes Income tax expense (recovery) [note 27] Current Deferred Profit for the year Profit per share [note 28] Basic Diluted See accompanying notes (2,238) 233 44,793 (6,917) 2,352 (21) 232 37,067 16,403 — 249,336 229,595 18,404 38,564 5,521 (1,750) 3,771 14,633 0.79 0.77 10,517 1,429 11,946 26,618 1.58 1.56 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 46 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY [IN THOUSANDS O F CANADIAN DO LL ARS] As at January 1, 2019 Profit for the year Other comprehensive income (loss) Share-based payment transactions [notes 23[a]] and 23[b]] Dividends paid to shareholders [note 23[d]] Dividends on share-based compensation awards [note 23[d]] Conversion of convertible unsecured subordinated debentures [note 21] Redemption of convertible unsecured subordinated debentures [note 21] Common Shares $ 450,645 — — 5,187 — — 25 — Equity component of convertible debentures $ Contributed surplus $ Deficit $ Foreign currency reserve $ Equity investment $ Defined benefit plan reserve $ Total shareholders’ equity $ 8,203 26,045 (108,018) 57,417 — — — — — — — — (82) — — — (1,496) 1,150 — — 14,633 — — — (44,705) (567) — — (34,080) (900) — — — — — — — — — — (93) 434,199 — 31 — — — — — 14,633 (34,949) 5,105 (44,705) (567) 25 (346) As at December 31, 2019 455,857 6,707 27,113 (138,657) 23,337 (900) (62) 373,395 See accompanying notes S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 4747 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY [IN THOUSANDS O F CANADIAN DO LL ARS] As at January 1, 2018 Profit for the year Other comprehensive income (loss) Share-based payment transactions [notes 23[a]] and 23[b]] Dividend reinvestment plan [note 23[d]] Dividends to shareholders [note 23[d]] Dividends on share-based compensation awards [note 23[d]] Common Shares $ 323,199 — — 5,820 1,384 — — Common share issuance [note 23[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) 1,283 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 — — — — — — — — — — — — — — — — — — Issuance of convertible unsecured subordinated debentures [note 21] Conversion of convertible unsecured subordinated debentures [note 21] Redemption of convertible unsecured subordinated debentures [note 21] — 8,678 1,433 — — (3,133) 3,133 As at December 31, 2018 450,645 8,203 26,045 (108,018) See accompanying notes 57,417 (93) 434,199 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 48 CONSOLIDATED STATEMENTS OF CASH FLOWS [IN THOUSANDS O F CANADIAN DO LL ARS] Operating activities Profit before income taxes Add (deduct) items not affecting cash Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortization of intangible assets Loss on sale of property, plant and equipment Gain on disposal of assets held for sale [note 16] Impairment charge [notes 10 and 16] Share of associate’s net loss Gain on redemption of convertible debenture Non-cash component of interest expense Non-cash movement in derivative instruments Non-cash investment tax credits Share-based compensation expense Employer contribution to defined benefit plan Defined benefit plan expense Contingent consideration Equipment provided to vendor YEARS ENDED DECEMBER 31 Investing activities 2019 $ 2018 $ Acquisition of property, plant and equipment Acquisitions, net of cash acquired [note 6] 18,404 38,564 Investment in associate Transfer from restricted cash 22,431 3,027 22,730 260 — 233 2,352 (55) 6,485 1,793 (226) 5,968 (27) 131 7,267 — 19,200 — 13,831 193 (8) 232 — — 6,206 2,061 — 8,004 — 135 4,284 (115) 27,771 Proceeds from sale of property, plant and equipment Proceeds from sale of assets held for sale [note 16] Development and purchase of intangible assets Transaction costs paid and payable Cash used in investing activities Financing activities Repayment of obligation under lease liabilities Repayment of obligation under finance lease Change in obligation under finance lease Change in interest accrued Issuance of senior unsecured subordinated debentures, net of issuance costs Issuance of convertible unsecured subordinated debentures, net of issuance costs Redemption of convertible unsecured subordinated debentures [note 21] Common share issuance, net of issuance costs Translation loss (gain) on foreign exchange (16,262) Net change in non-cash working capital balances related to operations [note 29] Non-current accounts receivable Long-term payables Settlement of EIAP obligation Income taxes paid Cash provided by operating activities 74,511 120,358 Dividends paid in cash [note 23[d]] (13,585) (63,017) Cash provided by financing activities (8,060) — (2,553) (9,894) 40,419 Net increase (decrease) in cash and cash equivalents during the year Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year (3,942) (280) (1,953) (9,975) 41,191 Supplemental cash flow information Interest paid See accompanying notes (48,539) (36,549) (112,619) (50,266) (19,720) (3,274) 792 — (13,257) (26,517) — (784) 952 2,427 (7,397) 2,982 (223,134) (88,635) (2,674) — — 464 — (1,064) 192 (7,522) 165,402 — — 82,293 (51,786) (77,477) — 110,670 (44,646) (39,266) 197,526 17,073 14,811 (30,371) 33,610 48,421 63,981 33,610 37,442 36,393 Issuance of long-term debt, net of issuance costs [note 20[b]] 203,329 165,098 Repayment of long-term debt (72,563) (215,851) S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 4949 AUTOMATE FOR EFFICIENCY S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 50 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 515151 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [in thousands of Canadian dollars, except where otherwise noted and per share data] December 31, 2019 1. Organization The consolidated financial statements of Ag Growth International Inc. [“AGI” or the “Company”] for the year ended December 31, 2019 were authorized for issuance in accordance with a resolution of the directors on March 24, 2020. 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, rice, feed, and food processing systems. AGI has manufacturing facilities in Canada, the United States, the United Kingdom, Brazil, Italy, France, and India and distributes its product globally. Included in these consolidated financial statements are the accounts of AGI and all its subsidiaries 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, equity investments, and contingent consideration resulting from business combinations, 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 subsidiaries, Ag Growth Holdings Corp., AGI Alpha Holdings Corp., AGI Bravo Holdings Corp., AGI Charlie Holdings Corp., AGI Solutions Inc., AGI France Agricultural Equipment S.A.S., AGI Agricultural Equipment Proprietary Limited, Ag Growth International Australia PTY Ltd., Westfield Distributing (North Dakota) Inc., Hansen Manufacturing Corp. [“Hi Roller”], Improtech Ltd., Union Iron Inc. [“Union Iron”], Airlanco Inc. [“Airlanco”], Tramco, Inc. [“Tramco”], Tramco Europe Limited, Euro-Tramco B.V., AGI Netherlands B.V., Ag Growth Suomi Oy, Ag Growth Scandinavia, AGI Comercio de Equipamentos E Montagens Ltda, AGI EMEA S.R.L., AGI Brasil Industria e Comercio S.A., Mitchell Mill Systems USA Inc., Yargus Manufacturing, Inc., Global Industries, Inc., CMC Industrial Electronics Ltd., CMC Industrial Electronics USA, Inc. Junge Control Inc., Danmare Group Inc. and its affiliate Danmare, Inc. [collectively, “Danmare”], Sabe S.A.S., Z-AGI Agricultural Equipment (India) Private Limited, Milltec Machinery Limited, and AGI Suretrack LLC as at December 31, 2019. 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 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 52 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”]. statements of income are translated at the monthly rates of exchange. The exchange differences arising on the translation are recognized in other comprehensive income [“OCI”]. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to the consolidated statements of income when the gain or loss on disposal is recognized. 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 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 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, net of outstanding bank overdrafts. Inventory Inventory comprises 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 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 5353 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 Furniture and fixtures Vehicles 20 – 60 years 10 – 20 years 5 years Over the lease period 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. Leases Company assesses whether: • The contract involves the use of an identified asset, which may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; • The Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and • The Company has the right to direct the use of the asset. The Company has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. At inception or on reassessment of a contract that contains a lease component, the consideration in the contract is allocated to each lease component on the basis of their relative stand-alone prices. For leases of land and buildings, the lease and non-lease components are accounted for as a single lease component as permitted within IFRS 16. The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant, and equipment. Effective January 1, 2019, the Company adopted IFRS 16 and the following are the policies for leases: At inception of a contract, AGI assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. It is S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 54 remeasured when there is a change in future lease payments arising from a change in rates, the amount expected to be payable under a residual value guarantee, or the Company’s assessment of whether it will exercise a purchase, extension or termination option. Upon remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. 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. For short-term leases [12 months or less] and leases of low-value assets, the Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. This policy is applied to contracts entered into, or changed, on or after January 1, 2019. Prior to January 1, 2019, the Company’s policies under IAS 17 were as follows: 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 (loss). 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 selling, general and administrative expense in the consolidated statements of income on a straight-line basis over the lease term. 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. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 5555 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 and customer relationships 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. Investments in associates An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries. AGI’s investment in its associate is accounted for using the equity method. Under the equity method, the investment in an associate is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Company’s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment separately. The consolidated statements of income reflect the Company’s share of the results of operations of the associate. Any change in OCI of the associate is presented as part of AGI’s OCI. In addition, when there has been a change recognized directly in the equity of the associate, the Company recognizes its share of any changes, when applicable, in the consolidated statements of changes in shareholders’ equity. Unrealized gains and losses resulting from transactions between AGI and the associate are eliminated to the extent of the interest in the associate. The aggregate of the Company’s share of profit or loss of an associate is shown on the face of the consolidated statements of income and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate. The financial statements of the associate are prepared for the same reporting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of AGI. After application of the equity method, the Company determines whether it is necessary to recognize an impairment loss on its investment in its associate. At each reporting date, the Company determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognizes the loss within share of associate’s net income (loss) in the consolidated statements of income. Upon loss of significant influence over the associate, the Company measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss. 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. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 56 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 5757 MANAGE WITH CERTAINTY S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 5858 AGI bases its impairment calculation on detailed budgets and forecast calculations 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. 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 receivable 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 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. 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 costs in the consolidated statements of income. The losses arising from impairment are recognized in the consolidated statements of income in finance costs. 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 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 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 principal 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. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 5959 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. 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 varies 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 Financial liabilities are measured at amortized cost, using the effective interest rate method, except for financial liabilities designated at initial recognition at FVTPL 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, convertible unsecured subordinated debentures, and senior 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. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 60 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. Derivative financial 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 OCI. 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. The Company applies IFRS 9 for hedge accounting, whereby 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. 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 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. 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. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 6161 Offsetting of financial instruments Profit per share 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. 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. 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 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. 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 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. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 62 The Company applies the practical expedient for advances received from customers. That is, the promised amount of consideration is not adjusted for the effects of a significant financing component if the period between the transfer of the promised good or service and the payment is one year or less. 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 are 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. 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. 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 and associates, 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 and 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, except: • When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition 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 taxable profit or loss. • In respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognized only to the extent S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 6363 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 6464 KEEP YOUR DRYER IN CHECK S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 6565 that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences 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 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 or share award incentive plan and directors’ deferred compensation plan]. 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. 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. 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. 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. 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 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 66 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. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. Employee benefits 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 charged to operations in the period of the expenditure unless they satisfy the condition for recognition as an internally generated intangible asset. Government grants 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 16, Leases [“IFRS 16”] The Company has applied IFRS 16 using the modified retrospective approach, and therefore the comparative information has not been restated and continues to be S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 6767 reported under IAS 17, Leases, [“IAS 17”] and IFRIC 4, Determining whether an Arrangement contains a Lease [“IFRIC 4”]. IAS 19, Employee Benefits [“IAS 19”] For contracts entered into before January 1, 2019, the Company determined whether the arrangement was or contained a lease based on the assessment of whether: • Fulfilment of the arrangement was dependent on the use of a specific asset or assets; and • The arrangement had conveyed a right to use the asset. The Company elected to use the transition practical expedient to not reassess whether a contract is, or contains, a lease at January 1, 2019. Instead, the Company applied the standard only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Company has also elected not to recognize right-of-use assets and lease liabilities for short- term leases [12 months or less] and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. As a result of adoption of IFRS 16, the Company recorded a right-of-use asset and a lease liability of $9,071 as at January 1, 2019 on the consolidated statements of financial position. On adoption of IFRS 16, AGI used the incremental borrowing rate as required by the standard. The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as at December 31, 2018 as follows: Operating lease commitments as at December 31, 2018 Weighted average incremental borrowing rate as at January 1, 2019 Discounted operating lease commitments at January 1, 2019 Less: Commitments relating to short-term and low-value leases Lease liabilities as at January 1, 2019 $ 11,059 5.02% 10,841 (1,770) 9,071 The Company adopted the amendments to IAS 19 with a date of application of January 1, 2019. 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: • 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. These amendments are applied prospectively to any future plan amendments, curtailments, or settlements of the Company; as at December 31, 2019, there were no such amendments. IFRIC 23, Uncertainty Over Income Tax Treatments [“IFRIC 23”] The Company adopted IFRIC 23 with a date of application of January 1, 2019. 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: S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 68 • 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 Company’s adoption of IFRIC 23 did not have a significant impact on the Company’s consolidated financial statements. 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, South America, and Asia. 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. 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 30[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 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 6969 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 14. CGUs are defined as the lowest grouping of integrated assets that generate identifiable cash inflows that are largely independent of the cash inflows of 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 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 70 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 was guaranteed. Related to certain terms of the purchase agreement, $1,797 was expensed during the year ended December 31, 2018. During the year ended December 31, 2019, $875 was expensed, of which $1,050 was paid. 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. 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. Amendments to IFRS 3, Business Combinations [“IFRS 3”] The IASB issued amendments to the definition of a business in IFRS 3 to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. The amendments must be applied to transactions that are either business combinations or asset acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on January 1, 2020 with earlier application permitted. Consequently, transactions that occurred in prior periods do not need to be reassessed. The Company’s assessment did not identify significant classification, recognition or measurement differences. The Company will adopt the amendments to IFRS 3 as at January 1, 2020. 6. Business combinations [a] 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. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 7171 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. The components of the purchase consideration are as follows: During the year ended December 31, 2018, the cash held in trust and the amounts due to vendor were paid and the allocation of the purchase price to acquired assets and liabilities was finalized. During the year ended December 31, 2019, $1,050 of post-combination expense was paid to the vendor. Transaction costs related to the Danmare acquisition in the year ended December 31, 2019 were $40 [2018 – $154] and are included in selling, general and administrative expenses. [b] Sabe Group of Companies 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. Purchase price Cash acquired Working capital adjustment Contingent consideration Employee loans Long-term debt Total purchase price Post-combination expense Purchase consideration $ 24,464 3,708 820 2,709 18 (738) 30,981 (4,436) 26,545 Cash paid Cash held in trust Due to vendor Purchase consideration $ 6,000 525 686 7,211 The $4.4 million of post-combination expense is expected to be expensed over a three-year period. During the year ended December 31, 2019, $1,920 [2018 – $1,375] related to certain terms of the purchase agreement was expensed, of which $1,430 was paid during the year ended December 31, 2019. During the year, the earn-out period expired, and the earnings target was not met. As a result, the contingent consideration of $2.7 million was derecognized and a gain was recorded in transaction costs in the consolidated statements of income. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 72 The purchase has been accounted for by the acquisition method, with the results of Sabe included in the Company’s net earnings from the date of acquisition. The components of the purchase consideration are as follows: The following table summarizes the fair values of the identifiable assets and liabilities as at the date of acquisition: Cash paid Due to vendor Cash Accounts receivable Inventory Prepaid expenses and other assets Property, plant and equipment Intangible assets Trade name Customer relationships Customer backlog Goodwill Accounts payable and accrued liabilities Customer deposits Income taxes payable Deferred tax liability Long-term payables Long-term debt Purchase consideration $ 3,708 2,090 749 135 4,233 5,234 6,493 837 14,131 (4,920) (585) (123) (4,695) (4) (738) 26,545 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. The goodwill of $14,131 comprises the value of the assembled workforce and other expected synergies arising from the acquisition. During the measurement period, further deferred tax liabilities existing at acquisition were identified, resulting in a $1,337 increase in deferred tax liability and an offsetting increase in goodwill, in the year ended December 31, 2019. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 7373 $ 23,432 404 2,709 26,545 Contingent consideration derecognized in the year Purchase consideration Transaction costs related to the Sabe acquisition in the year ended December 31, 2019 were $209 [2018 – $523] and are included in selling, general and administrative expenses. During the year ended December 31, 2019, the allocation of the purchase price to acquired assets and liabilities was finalized. [c] Improtech Ltd. Effective January 18, 2019, the Company acquired 100% of the outstanding shares of Improtech Ltd [“Improtech”]. Improtech is a professional engineering services firm specializing in providing engineering design, project management and integration of new machinery and processes within the food and beverage industry. The acquisition further evolves AGI’s ability to provide complete solutions to a broad customer base. Purchase price Cash acquired Working capital adjustment Pre-paid tax instalments Total purchase price Post-combination expense Purchase consideration $ 3,000 438 479 124 4,041 (2,000) 2,041 The $2 million of post-combination expense is expected to be expensed over a three-year period, contingent on certain conditions. During the year ended December 31, 2019, $1,222 [2018 – nil] related to certain terms of the purchase agreement was expensed. The purchase has been accounted for by the acquisition method, with the results of Improtech included in the Company’s net earnings from the date of acquisition. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 0 2 0 2 74 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 74 74 SELL WITH CONFIDENCE MARKET WITH CONFIDENCE S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 75 75 The following table summarizes the provisional fair values of the identifiable assets and liabilities as at the date of acquisition: Cash Accounts receivable Prepaid expenses and other assets Property, plant and equipment Right-of-use assets Intangible assets Customer relationships Goodwill Accounts payable and accrued liabilities Customer deposits Lease liability Deferred tax liability Purchase consideration $ 438 1,422 149 17 131 748 316 (600) (249) (131) (200) 2,041 The goodwill of $316 comprises the value of the assembled workforce and other expected synergies arising from the acquisition. The fair value of the accounts receivable acquired is $1,422. This consists of the gross contractual value of $1,447 less the estimated amount not expected to be collected of $25. From the date of acquisition, Improtech contributed to the results $2,041 of revenue and $1,277 of net loss. If the acquisition had taken place as at January 1, 2019, revenue in 2019 would not have materially changed. The components of the purchase consideration are as follows: Cash paid Due to vendor Purchase consideration $ 1,000 1,041 2,041 During the year ended December 31, 2019, the amount due to vendor was paid in full and the allocation of the purchase price to acquired assets and liabilities was finalized. Transaction costs related to the Improtech acquisition in the year ended December 31, 2019 were $107 [2018 – $54] and are included in selling, general and administrative expenses. [d] IntelliFarms LLC Effective March 5, 2019, the Company acquired 100% of the LLC interests of IntelliFarms LLC [“IntelliFarms”]. IntelliFarms is a provider of hardware and software solutions that benefit grain growers, processors, and other participants in the agriculture market. IntelliFarms was founded in 2001 and is headquartered in Archie, Missouri. Purchase price Cash acquired Working capital adjustment Contingent consideration Customer deposits Total purchase price Post-combination expense Purchase consideration $ 19,350 53 87 5,105 (1,566) 23,029 (7,340) 15,689 The $7.3 million of post-combination expense is expected to be expensed over a three-year period, contingent on certain conditions. During the year ended December 31, 2019, $3,041 [2018 – nil] related to certain terms of the purchase agreement was expensed. In addition, contingent consideration of $5.1 million is payable based on an earnings target. The purchase has been accounted for by the acquisition method, with the results of IntelliFarms included in the Company’s net earnings from the date of acquisition. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 76 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 Right-of-use assets Intangible assets Trade name Customer relationships Customer backlog Software Goodwill Accounts payable and accrued liabilities Customer deposits Lease liability Long-term debt Purchase consideration $ 53 225 1,235 61 803 289 1,768 1,603 380 3,336 13,358 (4,153) (2,740) (65) (464) 15,689 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 7777 The goodwill of $13,358 comprises the value of the assembled workforce and other expected synergies arising from the acquisition. During the measurement period, further information regarding the working capital adjustment as part of the purchase consideration was identified, resulting in a $218 increase in working capital with an offsetting increase in goodwill. Further information regarding inventory, intangible assets and accounts payable and accrued liabilities was also identified, resulting in a $315 decrease in inventory, $1,469 increase in intangible assets, and $1,041 increase in accounts payable and accrued liabilities, with an offsetting increase in goodwill. The fair value of the accounts receivable acquired is $225. This consists of the gross contractual value of $359 less the estimated amount not expected to be collected of $134. From the date of acquisition, IntelliFarms contributed to the results $12,522 of revenue and $8,131 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 are impracticable to disclose due to IntelliFarms historically reporting under differing reporting standards and differing year-end. The components of the purchase consideration are as follows: Cash paid Due from vendor Contingent consideration Purchase consideration $ 12,010 (1,426) 5,105 15,689 Transaction costs related to the IntelliFarms acquisition in the year ended December 31, 2019 were $162 [2018 – nil] and are included in selling, general and administrative expenses. During the year ended December 31, 2019, the allocation of the purchase price to acquired assets and liabilities was finalized. [e] Milltec Machinery Limited Effective March 28, 2019, the Company acquired 100% of the outstanding shares of Milltec Machinery Limited [“Milltec”]. Based in India, Milltec is a market leading manufacturer of rice milling and processing equipment. The acquisition further evolves AGI’s ability to provide complete solutions to a broad customer base. Purchase price Cash acquired Working capital adjustment Due to vendor Optionally convertible redeemable preferred shares [“OCRPS”] Purchase consideration $ 113,079 6,746 32 4,917 26,494 151,268 The due to vendor and OCRPS redemption value of $31.4 million is payable based on earnings targets from 2019 through 2024. The purchase has been accounted for by the acquisition method, with the results of Milltec included in the Company’s 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 intangible assets, goodwill and deferred taxes. 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 goodwill of $92,297 comprises the value of the assembled workforce and other expected synergies arising from the acquisition. During the measurement period, further analysis of revenue recognition resulted in the reversal of certain sales and related costs. As a result, accounts receivable decreased by $946, inventory increased by $846, accounts payable and accrued liabilities decreased by $98 and intangible assets increased by $197. In addition, the fair value of property, plant, and equipment acquired increased by $129, income taxes decreased by $240 from a payable to a recoverable position, and deferred tax liability increased by $12,450. All other adjustments net to $54. These changes resulted in an overall increase of $10,720 to goodwill. The following table summarizes the provisional fair values of the identifiable assets and liabilities as at the date of acquisition: Cash Restricted cash Accounts receivable Inventory Prepaid expenses and other assets Income taxes recoverable Property, plant and equipment Right-of-use assets Intangible assets Trade name Customer relationships Customer backlog Goodwill Accounts payable and accrued liabilities Other liabilities Customer deposits Lease liability Deferred tax liability Long-term payables Purchase consideration $ 6,746 1,425 11,796 8,809 4,489 87 20,456 24 12,764 23,599 3,835 92,297 (16,347) (172) (2,533) (24) (15,693) (290) 151,268 The fair value of the accounts receivable acquired is $11,796. This consists of the gross contractual value of $12,281 less the estimated amount not expected to be collected of $485. From the date of acquisition, Milltec contributed to the results $45,484 of revenue and $3,091 of net loss. Revenue and net income that occurred as though the acquisition date for the business had been as of the beginning of the annual reporting period are impracticable to disclose due to Milltec historically reporting with a differing year-end. The components of the purchase consideration are as follows: Cash paid Due to vendor Optionally convertible redeemable preferred shares Purchase consideration $ 106,845 17,929 26,494 151,268 As part of the acquisition, a subsidiary of the Company issued 1,050 Series A1 and 700 Series A2 non-voting OCRPS at a price per share of INR 1,000. The Series A1 and A2 OCRPS have a cumulative preferential dividend rate of 0.00001% and must be redeemed by the nineteenth anniversary of their issuance. The OCRPS represent contingent consideration included within the acquisition agreement, and the future value of the OCRPS, to a maximum of INR 1,750 million [$34.4 million CAD], will be based on the achievement of certain earning targets over the period of April 1, 2020 to March 31, 2024, as set forth in the terms and conditions of the OCRPS agreement. The OCRPS can be redeemed by the Company for cash, or the S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 78 Company has the option to convert the OCRPS for shares and direct an affiliate of the Company to purchase the shares for cash. As such, the preferred shares are recorded as a financial liability at fair value through profit and loss. 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. Transaction costs related to the Milltec acquisition in the year ended December 31, 2019 were $2,148 [2018 – $735] and are included in selling, general and administrative expenses. 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, 2019 and December 31, 2018 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 2019 $ 1,531 298 (27) (44) 1,758 2018 $ 1,846 143 (457) (1) 1,531 2019 $ 85,017 89,339 2018 $ 102,244 88,643 174,356 190,887 7. Restricted cash As at December 31, 2019, restricted cash of $5,416 consists of cash on hand related to certain contractual obligations. As at December 31, 2018, restricted cash of $827 consists of cash on hand related to advance payment guarantees included in sales contracts with customers. 8. Accounts receivable 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 Of which Neither impaired nor past due Not impaired and past the due date as follows Within 30 days 31 to 60 days 61 to 90 days Over 90 days Allowance for doubtful accounts Total accounts receivable, net S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 7979 2019 $ 2018 $ 164,301 135,770 (1,758) (1,531) 162,543 134,239 16,182 8,122 178,725 142,361 132,022 110,469 18,200 14,858 5,877 8,051 16,333 (1,758) 4,167 3,922 10,476 (1,531) 178,725 142,361 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 80 10. Property, plant and equipment Cost Balance, January 1, 2019 Additions Acquisitions Transfer to right-of-use assets [note 11] Disposals Impairment Exchange differences Balance, December 31, 2019 Depreciation Balance, January 1, 2019 Depreciation Transfer to right-of-use assets [note 11] Disposals Exchange differences Balance, December 31, 2019 Land $ Grounds $ Buildings $ Leasehold improvements $ Furniture and fixtures $ Vehicles $ Computer hardware $ Manufacturing equipment $ Construction in progress $ Total $ 22,411 503 13,754 — — (187) (1,720) 34,761 — — — — — — 6,350 1,055 — — (31) — (188) 7,186 167,486 5,840 2,854 — (3) — (6,941) 169,236 5,688 4,067 45 — (96) — (602) 9,102 3,632 17,327 703 235 — 6,278 578 (70) (111) (1,197) — — (204) (2,605) 4,255 20,311 1,303 15,967 1,478 1,649 466 — (7) (63) 4,891 — — (439) 573 — (23) (8) 400 — (51) (80) 7,083 2,079 (21) (705) (1,501) 7,443 2,513 214 — (31) — (114) 10,025 4,522 1,163 — (30) (41) 169,489 27,496 3,596 (259) (956) — (3,991) 195,375 48,329 12,859 (28) (557) 70 1,699 20,419 2,020 1,918 6,935 5,614 60,673 13,150 412,976 84 — — — — 48,539 21,276 (329) (2,425) (187) (529) (16,894) 12,705 462,956 — — — — — — 80,331 22,431 (49) (1,373) (2,062) 99,278 Net book value, January 1, 2019 Net book value, December 31, 2019 22,411 34,761 5,047 5,487 151,519 148,817 4,210 7,082 1,983 2,337 10,244 13,376 2,921 4,411 121,160 134,702 13,150 332,645 12,705 363,678 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 8181 Land $ Grounds $ Buildings $ Leasehold improvements $ Furniture and fixtures $ Vehicles $ Computer hardware $ Manufacturing equipment $ Construction in progress $ Total $ Cost Balance, January 1, 2018 21,722 Additions Acquisitions Classification as held for sale Disposals Impairment Exchange differences — 81 — — — 608 4,717 1,552 — — (47) — 128 150,742 9,239 2,254 (805) — (226) 6,282 3,778 1,857 100 — (154) — 107 3,230 14,000 298 3,965 66 — 121 — (32) (1,063) — 70 — 304 Balance, December 31, 2018 22,411 6,350 167,486 5,688 3,632 17,327 Depreciation Balance, January 1, 2018 Depreciation Classification as held for sale Disposals Exchange differences Balance, December 31, 2018 — — — — — — 932 325 — (1) 47 11,059 4,396 (19) — 531 1,128 354 — (8) 4 1,326 313 — (30) 40 1,303 15,967 1,478 1,649 5,882 1,618 — (506) 89 7,083 Net book value, January 1, 2018 Net book value, December 31, 2018 21,722 22,411 3,785 5,047 139,683 151,519 2,650 4,210 1,904 1,983 8,118 10,244 5,948 1,351 130 — (119) — 133 7,443 3,515 1,004 — (116) 119 4,522 2,433 2,921 139,520 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 48,329 103,055 121,160 — — — — — — 60,307 19,200 (19) (1,307) 2,150 80,331 21,193 304,543 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 | T R O P E R L A U N N A 9 1 0 2 82 AGI regularly assesses its long-lived assets for impairment. As at December 31, 2019 and 2018, 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 2019 or 2018. 11. Right-of-use assets Balance, beginning of year Additions Acquisitions Depreciation Buildings $ Furniture and fixtures $ Vehicles $ Manufacturing equipment $ 6,745 2,601 420 387 175 — 5891 140 24 1,3501 52 — Total $ 9,071 2,968 444 (2,147) (128) (293) (459) (3,027) Exchange differences Balance, end of year (23) 7,596 (13) 421 (17) 443 (50) 893 (103) 9,353 1 Includes $280 transferred from property, plant and equipment for leases previously classified as finance leases under IAS 17 and IFRIC 4. 12. Goodwill Balance, beginning of year Acquisitions [note 6] Exchange differences Balance, end of year 2019 $ 2018 $ 256,619 234,669 107,308 (12,354) 16,423 5,527 351,573 256,619 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 8383 13. Intangible assets Cost Distribution networks and customer relationships $ Brand names $ Patents $ Software $ Order backlog $ Non-compete agreement $ Development projects $ Balance, January 1, 2019 153,863 124,579 3,023 Internal development Acquisitions Exchange differences Balance, December 31, 2019 Amortization Balance, January 1, 2019 Amortization Exchange differences Balance, December 31, 2019 Net book value, January 1, 2019 Net book value, December 31, 2019 — 25,950 (4,649) 175,164 63,304 13,436 (1,533) 75,207 90,559 99,957 Distribution networks and customer relationships $ — 14,533 (3,302) 135,810 — — — — 124,579 135,810 Brand names $ 106 — (61) 6,725 2,488 3,335 (345) 9,768 — 4,215 (564) 3,068 12,203 13,419 2,157 153 (92) 2,218 866 850 3,522 1,445 (191) 4,776 3,203 7,427 9,623 4,248 (454) 13,417 145 2 114 — — — 114 79 16 — 95 35 19 15,502 10,663 — 1,110 27,275 1,690 3,432 1,360 6,482 13,812 20,793 Patents $ Software $ Order backlog $ Non-compete agreement $ Development projects $ Cost Balance, January 1, 2018 140,767 115,852 2,828 Internal development Acquisitions Exchange differences — 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, January 1, 2018 Net book value, December 31, 2018 50,878 10,428 1,998 63,304 89,889 90,559 — — — — 115,852 124,579 1,915 141 101 2,157 913 866 4,791 1,689 — 245 6,725 2,451 890 181 3,522 2,340 3,203 8,270 — 1,087 411 9,768 7,751 1,455 417 9,623 519 145 114 — — — 114 63 16 — 79 51 35 9,863 5,614 — 25 15,502 313,574 1,271 901 (482) 1,690 8,592 13,812 64,329 13,831 2,215 80,375 218,156 233,199 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 84 Total $ 313,574 13,257 48,033 (7,811) 367,053 80,375 22,730 (910) 102,195 233,199 264,858 Total $ 282,485 7,397 15,994 7,698 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 $135,810 [2018 – $124,579] 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, 2019 are net of combined federal and provincial scientific research and experimental development [“SR&ED”] tax credits in the amounts of $68 and $133, 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, 2019, the Company had federal investment tax credit carryforwards in the amount of nil [2018 – nil], federal SR&ED investment tax credit carryforwards in the amount of $1,038 [2018 – $947], provincial SR&ED investment tax credit carryforwards in the amount of $786 [2018 – $696] and provincial manufacturing or processing tax credits in the amount of $658 [2018 – $658]; these began expiring in 2015. Other significant intangible assets are goodwill [note 12] and the distribution network and customer relationships of the Company. The distribution network and customer relationships were acquired in past business combinations and reflect the Company’s dealer network in North America and its international customer base. The remaining amortization period for the distribution network and customer relationships ranges from 2 to 20 years. The Company had no contractual commitments for the acquisition of intangible assets as of the reporting date. 14. Impairment testing 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, 2019, using cash flow projections covering a five-year period. The Company performs its indefinite-life intangible assets impairment test as at December 31, which are tested at the individual CGU level. The pre-tax discount rates applied to the cash flow projections for Farm and Commercial are 11.1% and 10.9% [2018 – 11.3% and 11.1%] and cash flows beyond the five-year period are extrapolated using a 3% growth rate [2018 – 3%], which is management’s estimate of long-term inflation and productivity growth in the industry and geographies in which it operates. The Company’s group of CGUs, goodwill and indefinite-life intangible assets allocated thereto are as follows, which represents how goodwill is monitored by management. Farm Goodwill Intangible assets with indefinite lives Commercial Goodwill Intangible assets with indefinite lives Total Goodwill Intangible assets with indefinite lives 2019 $ 2018 $ 145,378 132,469 79,501 78,206 206,195 124,150 56,309 46,373 351,573 135,810 256,619 124,579 The values of significant indefinite-life intangible assets are held by Westfield and Westeel; the values of which are $19,000 and $43,300, respectively. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 8585 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; • Market share during the budget period; and • Growth rate used to extrapolate cash flows beyond the budget period. deposit to AGI for future purchases of grain handling and storage equipment to support their farming operations, and AGI was to become a strategic supplier to Investco. AGI recorded a $1.1 million charge to reflect management’s estimate of the fair value of its investment in Investco in 2014. In 2019, AGI concluded that it is unlikely to recover its investment in Investco based on externally available information and observable conditions, and as a result, recorded a decrease of $0.9 million in the fair value of the equity investment in OCI, which represented the remaining value of Investco. Gross margins [b] Investment in associate 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. Carrying value, beginning of period Additions in the year Share of net loss for the period before adjustments 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 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. 15. Equity investment [a] Equity investment at fair value through OCI In fiscal 2009, AGI invested $2 million in a privately held Canadian farming company [“Investco”]. In conjunction with AGI’s investment, Investco made a $2 million Amortization of fair value adjustments Share of net loss for the period Share of other comprehensive income Carrying value, end of period On July 16, 2019, the Company acquired an equity interest in Farmobile Inc. [“Farmobile”], a privately owned agriculture technology company, headquartered in Leawood, Kansas. The consideration given for the equity interest in Farmobile amounted to $19,720. In addition, the Company incurred $140 of transaction costs which were capitalized with the investment. The equity interest acquired in Farmobile represents an investment subject to significant influence, which is accounted for using the equity method from the date of acquisition, July 16, 2019. The investment was initially recorded at cost and adjustments were made to include the Company’s share of Farmobile’s net loss. The Company’s share of net loss was adjusted to reflect the amortization of the fair value adjustments related to the Company’s share of the net identifiable assets of Farmobile acquired and the tax impact. The Company’s share of net loss since acquisition of $2,352 has been recorded in the consolidated statements of income. Farmobile is a start-up company and its revenue is nominal at present. The Company’s share of net loss since acquisition is $2,352. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 86 2019 $ — 19,720 (1,598) (754) (2,352) (56) 17,312 Farmobile’s balance sheet Current assets Non-current assets Current liabilities Non-current liabilities Equity The Company’s share of Farmobile Share of equity Goodwill Fair value adjustment and amortization of intangible assets 2019 $ 19,359 3,542 (1,706) (8) 21,187 8,051 12,696 (3,435) 17,312 16. Assets held for sale Assets held for sale include a building in Illinois and land, grounds, and building in Brazil. These land, grounds, and buildings met the definition of assets held for sale and were recorded at the lower of cost and fair value less cost to sell. During the year ended December 31, 2019, the Company recorded impairment losses totaling $46. As at December 31, 2019, the carrying amount of the assets held for sale is $1,043. 17. Accounts payable and accrued liabilities Trade payables Other payables Personnel-related accrued liabilities Accrued outstanding service invoices 2019 $ 51,753 25,280 26,523 1,822 2018 $ 49,415 19,770 30,224 2,095 105,378 101,504 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 30. 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. Balance, beginning of year Additional provisions recognized Amounts written off Acquisitions Balance, end of year 19. Lease liability Current Non-current Lease liability 2019 $ 7,685 18,007 2018 $ 5,909 7,907 (10,870) (6,244) 2,717 17,539 113 7,685 Incremental borrowing rate % Maturity 2.7 – 29.3 2020 2.7 – 29.3 2021 – 2029 2019 $ 2,562 6,787 9,349 The Company has various lease contracts that have not yet commenced as at December 31, 2019. The future lease payments for the non-cancellable lease contracts are $485 within one year, $4,601 within five years and $3,742 thereafter. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 8787 MAKE BETTER BUSINESS DECISIONS S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 88 8989 20. Long-term debt Interest rate % Maturity 3.7 – 6.8 nil nil 4.4 3.7 4.1 – 6.9 4.0 – 4.3 2023 2025 2025 2025 2026 2023 2023 Current portion of long-term debt Canadian swing line Equipment financing Non-current portion of long-term debt Equipment financing Series B secured notes Series C secured notes [U.S. dollar denominated] Canadian Revolver U.S. Revolver Less deferred financing costs Long-term debt [a] Bank indebtedness 2019 $ 345 348 693 2018 $ — 289 289 773 25,000 809 25,000 32,470 34,105 140,511 196,379 395,133 (2,698) 392,435 393,128 69,203 144,877 273,994 (2,862) 271,132 271,421 AGI has a swing line of $40.0 million and U.S. $10.0 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, 2019, there was $345 [2018 – 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 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, 2019 on AGI’s revolver facilities was 5.11%. As at December 31, 2019, there was $337 million [2018 – $214 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. 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 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. 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 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. [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, 2019 and December 31, 2018, AGI was in compliance with all financial covenants. On March 20, 2020, the Company amended and extended the Credit Facility [note 30]. As a result, the financial covenant that requires AGI to maintain a debt to EBITDA ratio of less than 3.25 has been raised to 3.75 as at December 31, 2019 and for fiscal 2020 and 3.25 thereafter. In addition, in the event of an acquisition by AGI for aggregate consideration of $75,000 or greater, in fiscal 2020 or in subsequent years, the debt to EBITDA ratio requirement increases to 3.75 or less for the financial quarter and the three following financial quarters in which the acquisition occurred. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 90 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 Convertible unsecured subordinated debentures 2019 $ 74,298 172,475 (6,351) 2,827 (4,416) 164,535 238,833 2018 $ 50,708 247,500 (9,629) 3,536 (7,267) 234,140 284,848 Year issued 2015 2017 2018 Aggregate principal amount $ 75,000 86,225 86,250 Coupon 5.00% 4.85% 4.50% Conversion price $ Conversion rate(1) 60.00 83.45 88.15 16.6667 11.9832 11.3443 Number of common shares reserved for issuance upon conversion Maturity date Redeemable at par (2)(3) 1,250,000 1,033,551 978,446 31-Dec-20 30-Jun-22 31-Dec-22 01-Jan-20 30-Jun-21 01-Jan-22 (1) During the year ended December 31, 2019, a holder of the 2017 Debentures converted $25,000 into common shares. No conversion options were exercised during the year ended December 31, 2018. (2) At the option of the Company, at par plus accrued and unpaid interest. (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 April 2, 2019, the Company redeemed its 5.25% convertible unsecured subordinated debentures due December 31, 2019 [“2014 Debentures”] in accordance with the terms of the supplemental trust indenture dated December 1, 2014. Upon redemption, AGI paid to the holders of the 2014 Debentures the redemption price of $52,435 equal to the outstanding principal amount of the 2014 Debentures redeemed including accrued and unpaid interest up to but excluding the redemption date, less taxes deducted or withheld. Consequently, during the year ended December 31, 2019, the Company expensed the remaining unamortized balance of $425 of deferred fees related to the 2014 Debentures. The expense was recorded to finance costs in the consolidated statements of income. Upon redemption, a gain of $55 was recorded to gain on financial instruments and the equity component of the 2014 Debentures was reclassified to contributed surplus. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 9191 On January 2, 2020, the Company redeemed its 5.00% convertible unsecured subordinated debentures due December 31, 2020 [“2015 Debentures”] in accordance with the terms of the supplemental trust indenture dated September 29, 2015. Upon redemption, AGI paid to the holders of the 2015 Debentures the redemption price of $75,031 equal to the outstanding principal amount of the 2015 Debentures redeemed including accrued and unpaid interest up to but excluding the redemption date, less taxes deducted or withheld. Consequently, during the year ended December 31, 2019, the Company expensed the remaining unamortized balance of $723 of deferred fees related to the 2015 Debentures. The expense was recorded to finance costs in the consolidated statements of income. 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, which is the aggregate principal amount less related offering costs, and the estimated fair value of the holder’s conversion option as follows: During the year ended December 31, 2019, 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 2019 Non-cash interest expense $ 137 681 689 759 Accretion $ 117 663 806 398 Interest expense $ 649 3,750 4,182 3,881 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 2015 2017 2018 Aggregate principal amount $ Offering costs $ Equity component $ Year issued 75,000 86,250 86,250 3,509 3,673 3,957 3,277 4,290 2,063 2014 2015 2017 2018 Accretion $ 452 626 761 366 The liability component is accreted using the effective interest rate method. The equity component of $6,707 [2018 – $8,203] on the consolidated statements of financial position is net of income taxes of $2,471 [2018 – $3,028] and its pro rata share of financing costs of $452 [2018 – $563]. 22. Senior unsecured subordinated debentures Principal amount Financing fees, net of amortization Senior unsecured subordinated debentures 2018 Non-cash interest expense $ Interest expense $ 527 641 650 692 2,717 3,750 4,183 3,881 2019 $ 172,500 (7,026) 165,474 On March 19, 2019, the Company closed the offering of $75 million aggregate principal amount of senior subordinated unsecured debentures [the “2019 March Debentures”] at a price of $1,000 per Debenture [the “Offering”]. On March 26, S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 92 2019, AGI closed the over-allotment option of $11.25 million aggregate principal amount of Debentures at the same price. The net proceeds of the Offering of $82,100, net of fees, were used to fund the redemption of the Company’s 2014 Debentures, to repay existing indebtedness and for general corporate purposes. 23. Equity [a] Common shares On November 19, 2019, the Company closed the offering of $75 million aggregate principal amount of senior subordinated unsecured debentures [the “2019 November Debentures”] at a price of $1,000 per Debenture [the “Offering”]. On November 22, 2019, AGI closed the over-allotment option of $11.25 million aggregate principal amount of Debentures at the same price. The net proceeds of the Offering initially were used to repay a portion of the Company’s revolving bank debt and then redrawn to fund the redemption of the outstanding 2015 Debentures. AGI redeemed in full the Company’s 5.00% Convertible Unsecured Debentures due December 31, 2020 [the “2015 Debentures”] on January 2, 2020. Aggregate principal amount $ Year issued 2019 March 2019 November 86,250 86,250 5.40% 5.25% 30-Jun-24 31-Dec-24 30-Jun-22(1) 31-Dec-22(2) Coupon Maturity date Redeemable(3) Convertible unsecured subordinated debentures Authorized Unlimited number of voting common shares without par value Issued 18,658,479 common shares Balance, January 1, 2018 Dividend reinvestment shares issued from treasury [note 23[d]] Settlement of EIAP obligation Issuance of common shares Balance, December 31, 2018 Settlement of EIAP obligation Convertible unsecured subordinated debentures [note 21] Balance, December 31, 2019 [b] Contributed surplus Balance, beginning of year Equity-settled director compensation [note 24[b]] Dividends on EIAP Obligation under EIAP [note 24[a]] Settlement of EIAP obligation Convertible unsecured subordinated debentures [note 21] Balance, end of year Shares # 16,160,916 26,132 144,451 Amount $ 323,199 1,384 5,820 1,874,500 111,564 157,781 8,678 18,363,780 450,645 294,400 299 5,187 25 18,658,479 455,857 2019 $ 26,045 497 567 5,471 (6,617) 1,150 27,113 2018 $ 20,956 419 1,144 8,135 (7,742) 3,133 26,045 (1) On and after June 30, 2022 and prior to June 30, 2023, the 2019 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 2019 Debentures will be redeemable at the Company’s option at a price equal to their principal amount plus accrued and unpaid interest. (2) On and after December 31, 2022 and prior to December 31, 2023, the Debentures may be redeemed at the Company’s option at a price equal to 102.625% of their principal amount plus accrued and unpaid interest. On or after December 31, 2023, the Debentures will be redeemable at the Company’s option at a price equal to their principal amount plus accrued and unpaid interest. (3) 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. During the year ended December 31, 2019, the Company recorded non-cash interest expense of $561 relating to financing costs, and interest expense on the coupon of $4,164. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 9393 [c] Accumulated other comprehensive income [e] Shareholder protection rights plan Accumulated other comprehensive income comprises of the following: 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. Defined benefit plan reserve 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, 2019, the Company declared dividends of $44,705 or $2.40 per common share [2018 – $40,650 or $2.40 per common share] and dividends on share compensation awards of $567 [2018 – $1,144]. In the year ended December 31, 2019, dividends paid to shareholders were financed $44,646 [2018 – $39,266] from cash on hand and nil [2018 – $1,384] by the dividend reinvestment plan [the “DRIP”]. In 2018, the Company suspended the active operation of its DRIP. Accordingly, dividends payable to shareholders 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. 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, 2019, the Company declared dividends of $0.20 per common share with record dates of January 31 and February 28. 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. [f] 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. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 94 As at December 31, 2019 and December 31, 2018, no preferred shares were issued or outstanding. A summary of the status of the options under the EIAP is presented below: 24. Share-based compensation plans [a] Equity incentive award plan [“EIAP”] Outstanding, January 1, 2018 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, 2019, 600,852 [2018 – 406,006] Restricted Awards and 663,408 [2018 – 440,672] 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, 2019, AGI expensed $5,471 for the EIAP [2018 – $7,585]. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 9595 Granted Vested Forfeited Balance, December 31, 2018 Granted Vested Forfeited Balance, December 31, 2019 EIAP Restricted Awards # Performance Awards # 156,479 68,585 (70,918) (15,166) 138,980 194,846 (80,918) (8,500) 244,408 213,175 33,883 (73,281) (17,000) 156,777 222,736 (249,762) (20,254) 109,497 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, 2019, an expense of $497 [2018 – $419] 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, 2019, 9,793 [2018 – 7,820] common shares were granted under the DDCP, and as at December 31, 2019, a total of 87,946 [2018 – 78,153] common shares had been granted under the DDCP and 18,436 [2018 – 18,436] common shares had been issued. [c] Summary of expenses recognized under share-based payment plans For the year ended December 31, 2019, an expense of $5,968 [2018 – $8,004] was recognized for employee and Director services rendered. 25. Other expenses (income) [a] Other operating expense (income) Loss on sale of property, plant and equipment Gain on disposal of assets held for sale Loss on financial instruments [note 30] Other [b] Finance expense (income) Interest income from banks Loss (gain) on foreign exchange [c] Finance costs Interest on overdrafts and other finance costs Interest on lease liabilities 2019 $ 260 — 1,503 (4,001) (2,238) (235) (6,682) (6,917) 1,626 357 2018 $ 193 (8) 2,061 (2,267) (21) (202) 16,605 16,403 617 — Interest, including non-cash interest, on debts and borrowings 20,272 17,097 Interest, including non-cash interest, on senior and convertible unsecured subordinated debentures [note 21] [d] Cost of goods sold Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortization of intangible assets Warranty provision Cost of inventory recognized as an expense 22,538 19,353 44,793 37,067 20,275 1,133 5,913 7,137 17,535 — 2,503 1,776 693,589 641,691 728,047 663,505 [e] Selling, general and administrative expenses Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortization of intangible assets Minimum lease payments recognized as an operating lease expense Transaction costs Selling, general and administrative [f] Employee benefits expense Wages and salaries Share-based compensation expense [note 24] Pension costs 2,156 1,894 1,665 — 16,817 11,328 449 13,150 3,347 8,865 176,647 150,709 211,113 175,914 246,103 216,911 5,968 6,430 8,004 5,336 258,501 230,251 Included in cost of goods sold 164,057 148,342 Included in selling, general and administrative expenses 94,444 81,909 258,501 230,251 26. 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, 2019 was $6,430 [2018 – $5,336]. AGI expects to contribute $6,715 for the year ending December 31, 2020. 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 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 96 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 9797 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 98 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 assist 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, 2019. 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, 2019. We have used the same methods and assumptions used at December 31, 2018 for the purpose of estimating the liabilities at December 31, 2019. 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 2019 % 3.10 3.10 3.10 n/a 2018 % 3.90 3.90 3.90 n/a The weighted average duration of the defined benefit obligation as of December 31, 2019 is 15.8 years [2018 – 14.8 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 2019 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 $ (990,776) 1,112,290 399,629 (407,618) The net expense of $131 [2018 – $135] for the year is included in cost of goods sold. Information about the Company’s defined benefit pension plan, in aggregate, is as follows: Plan assets Fair value of plan assets, beginning of year 12,641 13,794 2019 $ 2018 $ Interest income on plan assets Actual return on plan assets Employer contributions Benefits paid 483 1,572 27 (754) 459 (836) — (776) Fair value of plan assets, end of year 13,969 12,641 Accrued benefit obligation Accrued benefit obligation, beginning of year 12,727 13,976 Current service cost Interest cost Actuarial losses (gains) from changes in financial assumptions Actuarial gains from experience adjustments Benefits paid Accrued benefit obligation, end of year Net accrued benefit liability 125 489 1,533 (5) (754) 14,115 (146) 124 470 (956) (112) (776) 12,726 (85) The net accrued benefit liability of $146 [2018 – $85] is included in non-current other liabilities. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 9999 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 2019 2018 $ 4,204 2,431 2,445 4,889 % 30.1 17.4 17.5 35.0 $ 3,843 2,301 2,187 4,310 % 30.4 18.2 17.3 34.1 13,969 100.0 12,641 100.0 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 gain (loss) of $1,572 [2018 – $(836)]. 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. 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. 27. Income taxes The major components of income tax expense for the years ended December 31, 2019 and 2018 are as follows: Consolidated statements of income The Company expects to make contributions of nil [2019 – $27] to the defined benefit plan in 2020. 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. Current income tax expense Current income tax expense Deferred tax expense (recovery) Through its defined benefit plan, the Company is exposed to a number of risks, the most significant of which are detailed below: Income tax expense reported in the consolidated statements of income 3,771 11,946 Origination and reversal of temporary differences (1,750) 1,429 Asset volatility The plan liability is calculated using a discount rate set with reference to corporate 2019 $ 2018 $ 5,521 10,517 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 100 Consolidated statements of comprehensive 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 2019 $ 2018 $ — 12 (1,479) (1,467) (477) 63 736 322 India 04 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, 2019 and 2018 is as follows: Profit before income taxes At the Company’s statutory income tax rate of 27% [2018 – 27%] Tax rate changes Additional deductions allowed in a foreign jurisdiction Tax losses not recognized as a deferred tax asset Foreign rate differential Non-deductible EIAP expense State income tax, net of federal tax benefit Unrealized foreign exchange loss (gain) IFRS 15 transition adjustment Change in uncertain tax position Permanent differences and others At the effective income tax rate 20.49% [2018 – 30.98%] 2019 $ 18,404 4,969 (2,736) 5 2,087 (1,751) 132 388 (1,444) — — 2,121 3,771 2018 $ 38,564 10,412 587 (398) 2,887 (3,011) 152 996 2,159 (412) (2,305) 879 11,946 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 101101 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: Consolidated statements of financial position Consolidated statements of income 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 Exchange difference on translation of foreign operations Deferred tax expense (recovery) Deferred tax liabilities, net Reflected in the consolidated statements of financial position as follows Deferred tax asset Deferred tax liability Deferred tax liabilities, net 2019 $ (502) 2,181 (2,150) (110) (1,980) (4,381) (627) — 1,940 (627) (396) 3,512 (89) 1,479 (1,750) 2018 $ — 8,305 (6,860) 440 (1,768) 96 — 1,641 991 (568) 456 444 (1,012) (736) 1,429 2019 $ — (38,774) (44,388) 832 9,684 4,381 — — (4,667) (1,148) (60) 1,521 (1,496) — 2018 $ (90) (30,701) (35,091) 722 7,207 — (627) — (2,727) (1,775) (456) 3,626 (1,585) — (74,115) (61,497) — (74,115) (74,115) 455 (61,952) (61,497) S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 102 Reconciliation of deferred tax liabilities, net Balance, beginning of year Deferred tax recovery (expense) during the year recognized in profit or loss 2019 $ 2018 $ (61,497) (57,575) 1,750 (1,429) Deferred tax liability set-up on business acquisition (17,242) (4,276) 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 — — 1,375 (531) 1,407 1,261 1,467 (322) 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 2019 or 2018 by the Company to its shareholders. Balance, end of year (74,115) (61,497) 28. Profit per share 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 5,442 Euros [2018 – 5,870 euros] and its Brazilian operations of 81,685 BRL [2018 – 63,919 BRL]. Accordingly, the Company has recorded a deferred tax asset for all other deductible temporary differences as at December 31, 2019 and as at December 31, 2018. 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: Profit attributable to shareholders for basic and diluted profit per share 2019 $ 2018 $ 14,633 26,618 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 and associate, for which a deferred tax asset has not been recognized, aggregate to $2,408 [2018 – $622]. Basic weighted average number of shares 18,613,273 16,811,440 Dilutive effect of DDCP Dilutive effect of EIAP 63,007 236,250 54,658 165,015 Diluted weighted average number of shares 18,912,530 17,031,113 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 interpretation and application to AGI’s specific situation. The amount and timing Profit per share Basic Diluted 0.79 0.77 1.58 1.56 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 103103 The 2015, 2017 and 2018 Debentures were excluded from the calculation of diluted profit per share in the year ended December 31, 2019, because their effect is anti- dilutive. 29. 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: Accounts receivable Inventory Prepaid expenses and other assets Accounts payable and accrued liabilities Customer deposits Provisions 2019 $ 2018 $ (14,778) (33,683) 24,060 (28,761) (848) (8,241) (17,753) (13,879) 9,613 3,097 2,795 1,776 (13,585) (63,017) S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 104 104 [b] Reconciliation of liabilities arising from financing activities December 31, 2018 $ Cash flows $ Acquisitions $ Conversion $ Foreign exchange $ Accretion $ Amortization $ Fair value $ Other $ December 31, 2019 $ NON-CASH CHANGES Long-term debt 271,421 130,766 464 — (10,604) — 535 546 — 393,128 Convertible unsecured subordinated debentures 284,848 (51,786) Senior unsecured subordinated debentures — 165,402 Lease liability 8,791 (2,674) Total liabilities from financing activities 565,060 241,708 — — 220 684 (25) — — — — (183) 1,984 3,414 — — 561 — — — — 398 238,833 (489) 165,474 3,195 9,349 (25) (10,787) 1,984 4,510 546 3,104 806,784 December 31, 2017 $ Cash flows $ Acquisitions $ Conversion $ Foreign exchange $ Accretion $ Amortization $ Fair value $ December 31, 2018 $ NON-CASH CHANGES Long-term debt 302,802 (50,753) 738 — 16,605 — 2,029 — 271,421 Convertible unsecured subordinated debentures Finance leases Derivatives held to hedge long-term borrowings 286,058 1,002 4,816 (872) (1,768) (1,690) — — — (8,678) — — — 100 — 2,205 2,510 (2,063) 284,848 — — — — — 230 1,768 (1,690) Total liabilities from financing activities 588,094 (48,499) 738 (8,678) 16,705 2,205 4,539 (295) 554,809 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 105105 30. 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 investments 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. During the year ended December 31, 2019, the Company entered into a short-term forward contract that resulted in a gain of $235, which has been recorded in gain on financial instruments in the consolidated statements of income. The Company had no outstanding foreign exchange forward contracts at December 31, 2019. 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, 2019, AGI’s U.S. dollar denominated debt totalled $197 million [2018 – $152 million]. AGI’s sales denominated in U.S. dollars for the year ended December 31, 2019 were U.S. $424 million, and the total of its cost of goods sold and its selling, general and administrative expenses denominated in that currency was U.S. $323 million. Accordingly, a 10% increase or decrease in the value of the U.S. dollar relative to its Canadian counterpart would result in a $42.4 million increase or decrease in sales and a total increase or decrease of $32.3 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, convertible unsecured subordinated debentures and senior unsecured subordinated debentures outstanding at December 31, 2019 and December 31, 2018 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 changes in the fair value were recognized as a gain (loss) on financial instruments in other operating income. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 106 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 4.1%. The notional amounts are $89,354 in aggregate, resetting the last business day of each month. 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. The interest rate swap contracts were designated as cash flow hedges, and changes in the fair value were recognized as a component of OCI to the extent that they have been assessed to be effective. In 2018, the hedge was discontinued as the forecasted cash flows were no longer probable. Consequently, the interest rate swap was reclassified from fair value through OCI to fair value through profit or loss. During the year ended December 31, 2019, a loss of $1,466 [2018 – $78] was recorded in loss on financial instruments in other operating expense. As at December 31, 2019, the unrealized gain on the interest rate swap was $224 [2018 – $1,690]. The open interest rate swap contracts as at December 31, 2019 are as follows for which no hedge accounting is applied: Maturity date Contract rate % Notional amount $ Unrealized gain $ Canadian dollar contracts May 2022 3.6 – 4.1 U.S. dollar contracts November 2020 3.8 40,000 38,000 147 77 The open interest rate swap contracts as at December 31, 2018 are as follows: Maturity date Contract rate % Notional amount $ Unrealized gain $ Canadian dollar contracts May 2019 – 2022 3.6 – 4.3 U.S. dollar contracts May 2019 3.8 90,000 38,000 681 1,009 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 As at December 31, 2019, the equity swap agreement covered 722,000 common shares of the Company at a price of $38.76, and the agreement matures on April 6, 2021. As at December 31, 2019, the unrealized gain on the equity swap was $5,641 [2018 – $5,959] and in the year ended December 31, 2019, the Company has recorded a loss on financial instruments of $327 [2018 – $3,739] in other operating expense [note 25[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 is 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 and Asia. 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, S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 107107 01 Brasil 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 | T R O P E R L A U N N A 9 1 0 2 108 The tables below summarize the undiscounted contractual payments of the Company’s financial liabilities as at December 31, 2019 and 2018: DECEMBER 31, 2019 Accounts payable and accrued liabilities Dividends payable Due to vendor Contingent consideration Optionally convertible redeemable preferred shares Lease liability Term debt Convertible unsecured subordinated debentures [includes interest] Senior unsecured subordinated debentures [includes interest] TOTAL $ 105,378 3,732 8,370 5,270 30,258 9,932 395,862 273,323 218,429 20 20 $ 105,378 3,732 4,541 5,270 — 2,798 722 86,813 9,186 20 21 $ — — 3,066 — 18,155 2,102 348 8,063 9,186 Total financial liability payments 1,050,554 218,440 40,920 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 TOTAL $ 101,504 3,673 9,345 6,596 349,460 339,632 810,210 2019 $ 101,504 3,673 7,973 4,576 14,502 66,281 20 20 $ — — 823 1,010 14,453 86,814 198,509 103,100 2022 $ — — 763 — 12,103 1,652 208 178,447 9,186 202,359 2021 $ — — 549 1,010 14,443 8,064 24,066 2023 $ 2024 + $ — — — — — 1,028 115 — 9,186 10,329 2022 $ — — — — 14,334 178,473 192,807 — — — — — 2,352 394,469 — 181,685 578,506 2023 + $ — — — — 291,728 — 291,728 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 109109 [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: Level Carrying Amount $ Fair value $ Carrying Amount $ Fair value $ D EC EMBER 31, 2019 DECEMBER 31, 2018 Financial assets Amortized cost: Cash and cash equivalents Cash held in trust and restricted cash Accounts receivable Note receivable Fair value through profit or loss: Derivative instruments Fair value through OCI: 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 Senior unsecured subordinated debentures Fair value through profit or loss: Optionally convertible redeemable preferred shares 1 1 2 2 2 3 2 2 2 2 3 2 2 3 48,421 5,416 162,543 622 48,421 5,416 162,543 622 5,865 5,865 — — 402,477 105,378 3,732 8,370 5,270 238,833 165,474 402,931 105,378 3,732 8,370 5,270 246,128 166,456 26,320 26,320 33,610 2,955 134,239 735 7,649 900 271,651 101,504 3,673 9,349 6,386 33,610 2,955 134,239 735 7,649 900 269,685 101,504 3,673 9,349 6,386 284,848 305,935 — — — — S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 110 During the reporting years ended December 31, 2019 and December 31, 2018, there were no transfers between Level 1, Level 2 and Level 3 fair value measurements. Reconciliation of recurring fair value measurements categorized within Level 3 of the fair value hierarchy: The fair values 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. Contingent consideration and OCRPS: Balance, beginning of year The following methods and assumptions were used to estimate the fair values: Acquisitions Fair value change • Cash and cash equivalents, cash held in trust, restricted cash, accounts Reclassification to due to vendor receivable, dividends payable, accounts payable and accrued liabilities, due to vendor, and other financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. Exchange differences Balance, end of year 2019 $ 6,386 31,599 173 (4,000) (2,568) 31,590 2018 $ 9,037 2,708 1,187 (6,849) 303 6,386 • 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 that are marked-to-market at each reporting period. The fair values of derivatives are determined by the derivative counterparty using a discounted cash flow technique, which incorporates various inputs including the related interest rate swap curves and/or the Company’s stock price for the equity swaps. • The fair value of contingent consideration and the OCRPS arising from business combinations is estimated by discounting future cash flows based on the probability of meeting set performance targets. • AGI included its equity investment, which is in a private company, in Level 3 of the fair value hierarchy as it traded 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. Set out below are the significant unobservable inputs to valuation as at December 31, 2019: Valuation technique Significant unobservable inputs Range Sensitivity of the input to fair value Contingent consideration and OCRPS Discounted cash flow method Probability of achieving earnings target Weighted average cost of capital [“WACC”] 0%–100% achievement 5.0%–9.2% Increase (decrease) in the probability would increase (decrease) the fair value Increase (decrease) in the WACC would result in decrease (increase) in fair value Fair value [“FV”] hierarchy AGI uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1 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. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 111111 Level 2 32. Related party disclosures 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. 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. 31. Capital disclosure and management The Company’s capital structure comprises 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, 2019 and December 31, 2018, 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. Relationship between parent and subsidiaries The main transactions between the corporate entity of the Company and its subsidiaries are 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. 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. During the year ended December 31, 2019, the total cost of these legal services related to general matters was $435 [2018 – $1,435], and $450 is included in accounts payable and accrued liabilities as at December 31, 2019. These transactions are measured at the exchange amount and were incurred during the normal course of business. 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. Short-term employee benefits Termination benefits Contributions to defined contribution plans Salaries Share-based payments Total compensation paid to key management personnel 2019 $ 159 — 172 8,391 5,968 14,690 2018 $ 138 1,770 221 7,410 8,004 17,543 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 | T R O P E R L A U N N A 9 1 0 2 112 33. Reportable business segment [b] Letters of credit The Company manufactures agricultural equipment with a focus on grain and rice handling and milling, storage and conditioning products, and technology. As at December 31, 2019, 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 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 2 019 $ 325,080 421,661 249,046 995,787 2 018 $ 329,778 380,969 220,917 931,664 Property, plant and equipment, goodwill, intangible assets and equity investments 2019 $ 413,751 318,613 265,057 997,421 2018 $ 407,987 282,586 132,790 823,363 Canada United States International 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. 34. 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 $8,488 [2018 – $9,308]. As at December 31, 2019, the Company has outstanding letters of credit in the amount of $16,885 [2018 – $11,020]. [c] 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. 35. Subsequent events On January 2, 2020, the Company redeemed its 5.00% convertible unsecured subordinated debentures due December 31, 2020 [“2015 Debentures”] in accordance with the terms of the supplemental trust indenture dated September 29, 2015 [note 21]. On January 16, 2020, the Company acquired 100% of the shares outstanding of Affinity Management Ltd. [“Affinity”]. The transaction was funded from the Company’s operating facilities. Affinity, headquartered in Oakville, Ontario, is a provider of software solutions to the agriculture industry under the brand name Compass® and includes a comprehensive Enterprise Resource Planning [“ERP”] system for growers and ag retailers, as well as an agronomy tool. The Compass® product suite is highly complementary to AGI’s current offering and will be a key component of the full AGI SureTrack platform. On February 13, 2020, the Company entered an agreement with a syndicate of underwriters, pursuant to which AGI will issue on a “bought deal” basis, subject to regulatory approval, $85 million aggregate principal amount of senior subordinated unsecured debentures [the “2020 Debentures”] at a price of $1,000 per Debenture (the “Offering”). On March 5, 2020, the Company closed the offering of the 2020 Debentures. 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 $12,750,000 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 $97.75 million. The net proceeds of the Offering will be used to repay indebtedness and for general corporate purposes. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 113113 The Debentures will bear interest from the date of issue at 5.25% per annum, payable semi-annually in arrears on June 30 and December 31 each year commencing June 30, 2020. The Debentures will have a maturity date of December 31, 2026. The Debentures will not be redeemable by the Company before December 31, 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 December 31, 2022 and prior to December 31, 2023, the Debentures may be redeemed at the Company’s option at a price equal to 103.9375% of their principal amount plus accrued and unpaid interest. On and after December 31, 2023 and prior to December 31, 2024, the Debentures may be redeemed at the Company’s option at a price equal to 102.625% of their principal amount plus accrued and unpaid interest. On and after December 31, 2024 and prior to December 31, 2025, the Debentures may be redeemed at the Company’s option at a price equal to 101.3125% of their principal amount plus accrued and unpaid interest. On and after December 31, 2025 and prior to maturity, 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. On March 20, 2020, the Company amended and extended the Credit Facility. Under the amended and extended Credit Facility, the revolving facilities bear interest at bankers’ acceptance (BA) or London Interbank Offered Rate (LIBOR) plus 1.20% to BA or LIBOR plus 2.50%, and the swing lines bear interest at prime plus 0.20% to prime plus 1.5% per annum, in each case based on certain performance calculations. The Credit Facility matures on March 20, 2025. Collateral for the Credit Facility ranks pari passu with the collateral for the Series B and Series 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. Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Corporation and its operating subsidiaries in future periods. S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 9 1 0 2 114 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 0 2 0 2 115115 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 0 2 0 2 116 S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C | T R O P E R L A U N N A 0 2 0 2 117117 AG G ROW T H. COM 

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