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.
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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
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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
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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
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Canada
10
USA
14
Europe
06
04
India
01
Brasil
MANUFACTURING FACILITIES
35 MANUFACTURING FACILITIES
AROUND THE WORLD
SALES INTO
95 COUNTRIES
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MANAGEMENT’S DISCUSSION
AND ANALYSIS
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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.
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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:
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• 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.
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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.
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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
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S
Y
L
A
N
A
N
O
I
S
S
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’
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E
M
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G
A
N
A
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|
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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.
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Y
L
A
N
A
N
O
I
S
S
U
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S
I
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S
’
T
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E
M
E
G
A
N
A
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|
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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.
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I
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Y
L
A
N
A
N
O
I
S
S
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E
M
E
G
A
N
A
M
|
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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
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|
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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.
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A
N
A
N
O
I
S
S
U
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S
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E
M
E
G
A
N
A
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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
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L
A
N
A
N
O
I
S
S
U
C
S
I
D
S
’
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E
M
E
G
A
N
A
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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
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S
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S
’
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E
M
E
G
A
N
A
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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
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S
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S
’
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E
M
E
G
A
N
A
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|
T
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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.
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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
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GROW WITHOUT
GUESSWORK
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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
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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:
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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.
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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
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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
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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].
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NURTURE THE SOIL WITH SCIENCE
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CONSOLIDATED FINANCIAL
STATEMENTS
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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
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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
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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
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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
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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
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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
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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)
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9
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4949
AUTOMATE FOR EFFICIENCY
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A
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A
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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
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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
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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
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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.
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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.
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MANAGE WITH
CERTAINTY
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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.
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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.
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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.
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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.
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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
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KEEP YOUR DRYER IN CHECK
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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
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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
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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:
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• 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
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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
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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.
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1
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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.
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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.
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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.
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74
SELL WITH CONFIDENCE
MARKET WITH CONFIDENCE
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9
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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.
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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
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9
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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
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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
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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.
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M
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A
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A
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A
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I
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S
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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
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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
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A
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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.
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D
I
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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.
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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
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A
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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.
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N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
D
E
T
A
D
I
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O
S
N
O
C
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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
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T
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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,
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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.
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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
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[b] Fair value
Set out below is a comparison, by class, of the carrying amounts and fair value of the Company’s financial instruments that are carried in the consolidated financial
statements, as well as their level on the fair value hierarchy:
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
—
—
—
—
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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.
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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
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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.
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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.
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AG G ROW T H. COM