Growth International
Annual Report 2020

Plain-text annual report

2020 ANNUAL REPORT 4 2020 ANNUAL REPORT5 1 2020 ANNUAL REPORTCEO MESSAGE Our lives changed in 2020 as the world was brought to a relative standstill and we all faced a level of uncertainty not seen for many decades. The safety of our families, the security of our jobs, and the sustainability of our businesses and our economies were all at risk as the world woke up to the reality of the pandemic. In the early days of COVID, the AGI team started building our crisis management strategy based on the simple truth that the safety of our team and their families will always come first. While the emphasis on safety was quickly embraced, the AGI team was equally determined to maintain operations and continue supporting our customers around the world. This practical and resilient response to COVID was reflected in our results for the year. AGI generated a strong, stable performance from our global platform despite significant disruption in many of our end markets. Our culture and our business are resilient by design. We have been investing heavily, over the past five years in particular, to build and strengthen our team while also diversifying our business in pursuit of sustainable growth. Our investments moved us into new business lines, expanded our geographic presence, and significantly increased our capacity, automation, productivity, and service offerings. Our recent investments represent a distinct chapter for AGI that closes as we move to our next stage. Over this last chapter, we moved from a North American based business to a global business in every sense of the word. We have strong sales, service, manufacturing, engineering, and service teams in Brazil, India, and Europe. We also have another dozen sales and service offices internationally that augment our customer focus and relationships. Along the way we also built a technology business that differentiates our products and enhances our customer relationships. C E O M E S S A G E 2 Taken together, our recent investments have built an AGI that is poised for sustainable and significant growth. We enter an exciting next chapter which will be focused on integrating and leveraging our global footprint. There is a new level of excitement across AGI as our teams recognize the strengths of our business and the potential in collaborating globally to leverage those strengths. The pandemic was not the only unique challenge AGI had to navigate throughout 2020. Issues at key customer projects surfaced that led to significant charges as we remediate our products. While unfortunate, these incidents drove substantial change across AGI as we launched an immediate investigation into the root cause and corrective action required. We have built new project sales processes, implemented new engineering tools, added talent to our teams, and restructured our business to provide the resources and expertise required to ensure that this type of event cannot be repeated going forward. Ultimately, we will put this challenge behind us and retain what we have learned to become a stronger AGI going forward. Amid what was a very busy 2020, we also transitioned the business to a new CFO. In September, we announced that Jim Rudyk would be joining the executive team as AGI’s new CFO. Jim brings a tremendous depth of experience across a range of industries, both public and private, as well as extensive financial and operational experience that will help the Company immensely as we continue to execute on our growth ambitions. However, in welcoming Jim aboard, the entire AGI family had to say farewell to long-time CFO Steve Sommerfeld. As a founding member of AGI, Steve spent 23 years of his career dedicated to growing and developing AGI from its roots in Swift Current to the global business it is today. Steve’s significant contributions were key to building the foundation of AGI and we wish Steve well in all his future endeavours. Despite the unique challenges 2020 presented AGI, we made significant progress on our strategic objectives and saw key contributions from our recent additions to the business. AGI crossed the one-billion-dollar mark in trade sales, a key milestone as we continue to scale up our operations. In addition, AGI was able to generate record adjusted EBITDA. Our steady growth while we simultaneously transform our business model is a significant accomplishment and speaks to the inherent resilience of our diversified business model as well as the benefits of our 5-6-7 strategy. We now look towards 2021 and beyond as we drive the key elements of our strategic plan including integrating and leveraging our global footprint, driving growth in North America and internationally, rapidly growing our technology business, and further development of our exciting Food platform. Following our chapter of investment and diversification, we are rebuilding our operating structure and processes to deliver an enhanced customer experience. Our day-to- day focus is to simplify and rebuild our business processes in support of this objective. Our guiding principle is that simplicity is the ultimate form of efficiency. We believe that by eliminating waste, streamlining process, saving time, and delivering perfect solutions in a timely manner, we can further deepen our customer relationships and extend our competitive advantages over industry peers. For example, we have implemented a new product management driven structure to deliver product consistency and quality across AGI, and to drive constant product innovation. In addition, we are building a new sales execution team to ensure on-time delivery, order coordination, seamless installations, and dedicated after-sales service. As progress continues, a customer-centric focus will continue to be embedded in the culture of AGI. 3 2020 ANNUAL REPORTWithin our technology business we bring together three key assets: our customer relationships across the agriculture value chain, significant sales and distribution channels, and a vertically integrated IoT hardware platform. The global food supply chain will rapidly digitize over the coming years and AGI is uniquely positioned to drive and accelerate that process. Our rapidly developing technology business is an extension of our core business where we provide the world’s food infrastructure. We supply the fundamental equipment solutions for agriculture inputs, for grain, for food and beverage processing and now, through the basic digitalization of that equipment, we move to also provide the digital infrastructure for the world’s food supply chain. The goal in our technology business is to provide our customers with the digital backbone of their business all based on data provided by the physical backbone of their operations. A natural fit and a huge opportunity for AGI. Finally, the Food platform is another area where we expect significant future growth. We use our specialized process engineering capabilities to manage the design, engineering, procurement, and execution of projects for food and beverage processors. These customers look to AGI as an important partner as they complete critical upgrades to existing manufacturing lines or install new ones. As we expand our team and develop further capabilities, we believe our Food platform will continue to be a source of growth for AGI. At AGI, we recognize the value and importance of enacting a comprehensive ESG program. We have been proactive in developing an ESG strategy that takes into account all of our stakeholders including our shareholders, employees, customers, suppliers, other key partners, and the communities in which we operate. In December 2020, we published our inaugural Sustainability Roadmap where we outlined the four key pillars and fifteen material topics which we will work through and execute against in the coming years. To ensure proper support and focus, we have invested in setting up dedicated resources internally to focus exclusively on advancing our ESG agenda. We look forward to advancing our progress and further communication on our initiatives. In closing, I would like to thank our global AGI team for stepping up and taking on the challenges that we faced in 2020. Our team, together with our diversification strategy, proved to be a powerfully resilient combination and led to record AGI results in a uniquely challenging year. With the resilience of our business model now established, we look towards a strong growth trajectory in 2021 and beyond. On behalf of our Board, our employees, and your management team, thank you for your continued support. TIM CLOSE President & CEO C E O M E S S A G E 4 Canada 10 USA 14 Europe 06 03 India 01 Brasil M A N U FA C T U R I N G FA C I L I T I E S 34 M A N U FA C T U R I N G FA C I L I T I E S A R O U N D T H E W O R L D 89 S A L E S I N C O U N T R I E S 5 2020 ANNUAL REPORTC E O M E S S A G E 6 7 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 8 Dated: March 16, 2021 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, 2020. 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 (loss)”, “diluted adjusted profit (loss) per share” and “technology sales with retail equivalent”. A description of these measures and their limitations are discussed below under “Non-IFRS Measures”. This MD&A contains forward-looking information. Please refer to the cautionary language under the heading “Risks and Uncertainties” and “Forward-Looking Information” in this MD&A and in our most recently filed Annual Information Form, all of which are available under the Company’s profile on SEDAR [www.sedar.com]. SUMMARY OF RESULTS [ THOUSANDS OF DOLL ARS E XCEPT PER SHARE AMOUNTS] Trade sales [1][2] Adjusted EBITDA [1][3] Profit (loss) Diluted profit (loss) per share Adjusted profit (loss) [1] Diluted adjusted profit (loss) per share [1][4] 1. See “Non-IFRS Measures”. THREE-MONTHS ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 2020 $ 2019 $ 2020 $ 2019 $ 227,385 229,591 1,000,130 999,935 27,815 23,196 149,328 144,279 (15,015) (8,286) (61,648) 14,633 (0.80) 8,733 0.46 (0.44) (3.30) 0.77 (1,180) 60,255 41,559 (0.06) 3.17 2.20 2. See “OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2020 - Trade Sales” and “OPERATING RESULTS – THREE MONTHS ENDED DECEMBER 31, 2020 - Trade Sales”. 3. See “OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2020 - EBITDA and Adjusted EBITDA” and “OPERATING RESULTS – THREE MONTHS ENDED DECEMBER 31, 2020 - EBITDA and Adjusted EBITDA”. 4. See “OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2020 - Diluted profit (loss) per share and diluted adjusted profit (loss) per share” and “OPERATING RESULTS – THREE MONTHS ENDED DECEMBER 31, 2020 - Diluted profit (loss) per share and diluted adjusted profit (loss) per share”. Resilient results in the fourth quarter closed out a year marked with numerous challenges but substantial strategic progress. Our investments in building our 5-6-7 diversification strategy contributed to a relatively strong performance given the challenges throughout the year created by the COVID-19 pandemic. In North America, our Farm segment trade sales grew 9% year-over-year (‘YOY’) with notably strong demand for portable farm equipment. North American Commercial markets were the most impacted by COVID-19 as large capital projects saw routine delays due to planning challenges, general market uncertainty and a tendency for our customers to be focused on status quo operations. All together these factors resulted in an overall decrease in sales within the North American Commercial segment of 27% versus 2019. International regions were strong despite COVID-19 challenges. EMEA and South America manufacturing facilities continue to show operational performance improvements resulting in enhanced margins despite COVID-19 related production interruptions. South America continues to have substantial sales growth of 18% versus 2019 coming from growing market share. Asia Pacific saw strong sales, growing 36% over 2019 or an increase of 6% excluding the March 2019 Milltec acquisition. EMEA Commercial markets were also impacted due to COVID-19 and project delays resulted in an overall decrease of 10%. Despite overall flat sales year over year, adjusted EBITDA grew 20% over 2019 in Q4 and increased 3% over 2019 for the full year. Positive movement in margins internationally along with increased Farm sales more than offset the impact of the Technology platform. AGI utilizes a subscription model for a portion of our Internet of Things (“IoT”) hardware sales that results in subscription sales being recognized over time rather than a traditional retail sale which is recognized upfront at time of sale. While having a negative impact from an accounting perspective, this model creates a long-term relationship with our customers while positively impacting adoption of the technology. Adjusting the entire segment to a Retail Equivalent approach would have resulted in a positive contribution from the Technology group in the quarter and in the year. Loss and loss per share were negatively impacted by the Company’s estimated remediation costs, non-cash losses on the Company’s equity compensation swap, non-cash losses on foreign exchange translation, other transaction and transitional costs, non-cash asset impairment charge and the Company’s share of associate’s net loss. Full year adjusted profit and adjusted profit per share increased $18.7 million and $0.97 per share representing 45% and 44% increases over the prior year respectively. 9 2020 ANNUAL REPORTUPDATE ON REMEDIATION WORK currently manufacturing at full capacity at all locations. The Company continues to make progress on the remediation of the commercial grain storage bins as previously disclosed in our Q3 2020 MD&A and our January 20, 2021 press release (the “Remediation Work”). We have recorded a total estimated cost of $70 million for the 2 affected customer sites and that estimate has not changed. Some other relevant facts include: • We are moving forward with the Remediation Work for one of the customers and expect to be completed by the Fall. AGI operations were captured as essential services in many regions throughout North America highlighting the important role we play in the global food supply chain. Although AGI’s business has been impacted by the COVID-19 related disruptions, management continues to believe 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. Additional information on the impacts of COVID-19 can also be found in “OUTLOOK, OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2020 - Trade Sales” and “OPERATING RESULTS – THREE MONTHS ENDED DECEMBER 31, 2020 - Trade Sales.” • One of the customers has decided to resolve the issue themselves with other suppliers. We do not expect this change to impact our potential obligations and consequently our estimated provision remains consistent with prior guidance. Basis of Presentation • We still expect that insurance proceeds will partially offset the costs. As indicated, insurance proceeds will not be available until after completion of Remediation Work. Farm and Commercial are AGI’s two operating segments. In the disclosure that follows, we have included product groups in order to provide additional information that may be useful to the reader. Our Farm segment includes the Farm platform (‘Farm’) and Technology platform (‘Technology’) and our Commercial segment includes the Commercial platform (‘Commercial’) and Food platform (‘Food’). Additional information on the provision for remediation can also be found in “OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2020 – Remediation Costs”. OUTLOOK COVID-19 The emergence of COVID-19 had an adverse impact on AGI’s business, including the disruption of production, our supply chain and product delivery. AGI experienced temporary production suspensions in Italy, France, Brazil, and India early in the pandemic and sporadic but short interruptions in the United States while engineering, design and quoting activity continued at all of these businesses during the suspension periods. As previously reported, international production suspensions due to COVID-19 during 2020 lasted between two and four weeks and impacted Q1 and, more significantly, Q2 and consequently sales and margins for the full year. In the United States, internal safety protocols required AGI to temporarily suspend production on several occasions during 2020 and these plant closures generally lasted three to ten days. To date there have been no production suspensions in Canada. AGI is Macro conditions are positive globally with crop volumes, crop prices, trade flow all trending positively. There has been a notable change in trade volumes as China rebuilds their swine herd and global crop inventories trended downward in many regions throughout 2020. While AGI demand drivers are more closely linked to crop volumes, trade practices, and consumption levels, the increasing crop prices do provide a favorable tailwind for our markets. Farm Farm sales activity and backlog have increased substantially over prior year levels as our dealers move to replenish inventories and get ahead of steel price increases in anticipation of a busy year correlated to high planting intentions. All of these factors have resulted in Farm backlogs increasing 56% in Canada and 26% in the U.S over December 31, 2019. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 1 0 International Farm backlogs are also strong with a substantial increase in Brazil and augmented with increases in Australia and EMEA bringing these backlogs up 109% over December 31, 2019. and our goal is to minimize backlogs and to ship orders as quickly as possible. This customer focus theme is pervasive across this newly combined and expanded team and we continue to forecast robust growth as we head into 2021. Brazil volumes continue to grow as the AGI brand is established in both the robust domestic market as well as export markets that are propelled by increasing crop sizes, increased global demand and underpinned by strong crop prices and a favourable exchange rate. The Australian market is predicted to have the second biggest harvest on record and, in the EMEA region, AGI is continuing to work with existing and new dealers / distributors to increase inventory in key locations to facilitate in season sales. Technology retail equivalent sales increased 33% in 2020 despite significant challenges in our farm direct sales channel due to COVID-19 imposed restrictions on meeting with customers. Prior to 2020, sales in this business were primarily driven by farm tradeshows, in person training programs and on farm sales meetings with growers. With these channels effectively eliminated in 2020, and as part of a move to an omni channel approach, our teams pivoted to virtual sessions while also focusing on growing our dealer partnerships. We made substantial progress in onboarding net new dealers toward the end of 2020 and this initiative has accelerated into 2021. Technology We have highlighted the Technology business to provide additional information outlining the strategic value and growth potential of our Technology platform. AGI’s Technology platform is built on a foundation of our IoT products. We design, manufacture and supply IoT hardware that monitors, operates and automates our equipment and the collection of key operational data for our customers. This operational data is fed into intuitive and rich user interfaces, AGI SureTrack Farm and Pro, to enable our customers to operate and monitor their equipment, record operational activity, manage and market their inventories and holistically operate their businesses. The IoT product portfolio is a mix of stand-alone hardware including weather stations, soil probes, grain temperature and moisture sensors and is further augmented through the digitalization of AGI products. Three recent acquisitions have been integrated into AGI SureTrack: IntelliFarms (March 2019), CMC (January 2018) and Affinity (January 2020). AGI SureTrack includes farm management tools, grain bin monitoring with automated conditioning, a grain marketing platform, hazard monitoring, and enterprise resource planning (ERP) solutions. AGI SureTrack operates out of Lenexa, Kansas with a location in Oakville, Ontario. In 2020 we moved several operations to a new facility in Lenexa, Kansas while also substantially increasing our IoT production capacity, as well as our engineering and developer teams. Increased production capacity along with increased strategic inventory positions have transformed lead times from weeks to days. In other parts of AGI, backlogs are an indication of building business volumes given the relatively longer project development and production process. Our Technology business is closer to a retail environment with standard products configured to each installation Commercial Management expects that expanded planting intentions in North America combined with a post COVID-19 rebound in project activity will drive demand for grain and fertilizer systems. While COVID-19 had a substantial impact on project activity, quoting, project development and project progression across North America, the impact on projects in western Canada was more severe than in the US as growth projects were placed on hold in favor of essential maintenance. The Canadian Commercial backlog was down 55%; however, management believes that the impact of COVID-19 on Canadian commercial projects is temporary and investment in commercial infrastructure in Canada will begin to increase in the back half of 2021. Eastern Canada is already seeing increased project activity leading to an expectation for an earlier rebound as compared to Western Canada. Overall, quoting activity has seen increased activity month over month indicating a positive trend in this impacted region. Commercial trend lines are also positive in the United States and management expects sales to continue to improve with a steady flow of maintenance and smaller capital projects in the near term. The trade tensions that have contributed to delays in capital investments in the US Commercial space over the last two years appear to be improving as crop export volumes normalize. US Commercial backlogs have increased 30% compared to the prior year leading to further expectation of growing investment across the US grain infrastructure. International Commercial sales continue to demonstrate strength and quoting activity across all regions has essentially rebounded to pre-COVID-19 levels leading to a 13% increase in backlogs over December 31, 2019. 1 1 2020 ANNUAL REPORT• The momentum in EMEA continued in Q4 supported by strong quoting activities. Backlogs are up 16% as compared to December 31, 2019. • The macro environment continues to be supportive for investment in the South America region with historically low interest rates and inflation. The positive environment extends to the fundamentals for AGI’s end markets with large and growing crop volumes, increasing global demand for Brazil agriculture products, and supportive crop prices setting up positive and sustainable structural conditions. As a result, backlogs are up 14% as compared to December 31, 2019 in the region and order intake continues to grow as we move into Q1/Q2 2021. • A favorable monsoon season and increasing rice exports are offsetting a challenging environment due to COVID-19 in India. • Backlogs have increased 24% over December 31, 2019 for India and 9% overall for the Asia Pacific region. Overall, management expects a rebound in the International Commercial space in 2021 with the ease of trade tensions and positive macroeconomic fundamentals. Food The AGI Food platform falls within AGI’s Commercial segment, however, in order to highlight some of the emerging trends of this group, we are providing selected information to promote a better understanding of this market and demand drivers that impact this platform’s performance. The Food platform’s end customers are involved in producing processed food and beverages of all types, including pet food. AGI Food provides full process design engineering, overall project engineering, project management services, and equipment supply. Our process design services result in close partnerships with our customers as we become involved early in the project formation stage. Our project management services mean we lead the project from conception to commissioning and work with our customers to manage all dynamics of the project throughout design and execution. We also manufacture and supply the infrastructure equipment components of these projects. Consistent with our other segments, our equipment products in the Food segment address the conveying, storage, blending and movement of ingredients involved in each process. The combination of services and equipment supply delivered by AGI Food result in ongoing strategic relationships as our customers expand, retrofit, upgrade and maintain their global operations. COVID-19 has driven several unique trends that are positively impacting current sales and augmenting already favourable fundamentals. Increased consumption of processed and packaged food has contributed to increased quoting activity. Pet food consumption was rising pre-COVID-19, however, a notable increase in pets during COVID-19 has resulted in both greenfield and retrofit projects globally in this sub-category. Favourable market activity combined with a growing market share for AGI Food platform has increased backlogs by 24% versus prior year. Summary Demand in 2021 will be influenced by, among other factors, weather patterns, crop conditions and the timing of harvest and conditions during harvest. Changes in global macroeconomic factors as well as sociopolitical factors in certain local or regional markets and the availability of credit and export credit agency support in offshore markets also may influence sales, primarily of Commercial grain handling and storage products. Consistent with prior periods, Commercial sales are subject to the timing of customer commitment and delivery considerations. AGI’s financial results are impacted by the rate of exchange between the Canadian and U.S. dollars and a weaker Canadian dollar relative to its U.S. counterpart positively impacts profit and adjusted EBITDA. The Company continues to mitigate its exposure to higher input costs though continued procurement of steel at lower prices, sales price increases and limiting the length of time commercial quotes remain valid. AGI’s results in 2021 may be also be impacted COVID-19 disruptions that are still impending all over the world. As shown below, the backlog for AGI is up 21% overall in each of our platforms, indicating a very positive outlook to start off 2021. In addition, with Technology moving to a retail approach, results in this platform should continue to exhibit the strong momentum seen in 2020. The following table presents changes in the Company’s backlogs as of December 31, 2020 versus December 31, 2019: Platform [1] Farm Commercial Food Overall [1] Canada % chg 56% (55%) (46%) 12% Region United States % chg International % chg 26% 30% 171% 33% 109% 13% (2%) 15% Total % chg 42% 7% 24% 21% 1. Backlog for Technology platform has been excluded as products and services are delivered on a just-in-time basis and therefore backlog is not a relevant indicator of committed sales. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 1 2 The following table presents changes in the Company’s international backlogs further segmented by region as of December 31, 2020 versus December 31, 2019: Platform [1] International by region [1] EMEA % chg [2] 22% Asia Pacific % chg [3] South America % chg [4] 9% 15% 1. Backlog for Technology has been excluded as products and services are delivered on a just-in-time basis and therefore backlog is not a relevant indicator of committed sales. 2. “EMEA” composed of Europe, Middle East and Africa 3. “Asia Pacific” composed of South East Asia, Australia, India, and Rest of World 4. “South America” composed of Latin America and Brazil Management continues to be pleased with the resilient performance across AGI during 2020. AGI’s 5-6-7 strategy providing system solutions across 5 platforms, 6 continents, and across 7 components has led to diversification in terms of products, geographies, and customers which has proven valuable during these uncertain times. OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2020 Trade Sales [see “Non-IFRS Measures”] [ THOUSANDS OF DOLL ARS] YEAR ENDED DECEMBER 31 2020 $ 2019 $ Change $ Change % Trade sales 1,000,130 999,935 195 – % Foreign exchange loss [1] (6,100) (4,148) (1,952) (47) % Total Sales 994,030 995,787 (1,757) – % 1. A portion of foreign exchange gains and losses are allocated to sales. 1 3 2020 ANNUAL REPORTTrade Sales by Segment and Product Grouping [see “Basis of Presentation” and “Non-IFRS Measures”] AGI utilized a subscription model for a portion of our IoT hardware sales that results in subscription sales being recognized over time rather than traditional retail sales which are recognized upon product sale. A portion of the Technology sales in the table below is reflected based on subscription sales being recognized over time. Please refer to the “Technology Sales with Retail Equivalent” table below for Technology sales presented at Retail Equivalent. Farm Segment YEAR ENDED DECEMBER 31 [ THOUSANDS OF DOLL ARS] Canada U.S. International EMEA Asia Pacific South America Total International 2020 $ Farm 2019 $ 205,731 195,273 265,138 238,291 13,391 20,204 22,321 55,916 9,484 23,108 16,365 48,957 Change $ 10,458 26,847 3,907 (2,904) 5,956 6,959 Total 526,785 482,521 44,264 Change % 5% 11% 41% (13%) 36% 14% 9% Technology 2020 $ 1,617 2019 $ 822 21,147 18,684 Change $ 795 2,463 Change % 97% 13% 2020 $ Total 2019 $ 207,348 196,095 286,285 256,975 121 – 216 337 275 56 43 374 (154) (56%) (56) 173 (37) (100%) 402% (10%) 13,512 20,204 22,537 56,253 9,759 23,164 16,408 49,331 Change $ 11,253 29,310 3,753 (2,960) 6,129 6,922 23,101 19,880 3,221 16% 549,886 502,401 47,485 Commercial Segment YEAR ENDED DECEMBER 31 [ THOUSANDS OF DOLL ARS] Canada U.S. International EMEA Asia Pacific South America Commercial 2020 $ 2019 $ Change $ 62,162 122,382 (60,220) 129,229 142,034 (12,805) Change % (49%) (9%) 2020 $ 12,893 27,298 Food 2019 $ 6,673 26,832 Change $ 6,220 466 2020 $ Total 2019 $ Change $ 75,055 129,055 (54,000) 156,527 168,866 (12,339) 90,649 (13,046) (14%) 13,452 15,711 (2,259) 77,603 77,017 46,834 49,644 40,386 27,373 6,448 55% 16% 11% 3,756 – 17,208 57,399 1,190 2,033 18,934 52,439 2,566 (2,033) (1,726) 4,960 Total International 201,454 180,679 20,775 Total 392,845 445,095 (52,250) (12%) 91,055 106,360 (15,305) (14%) 80,773 46,834 50,834 42,419 29,939 4,415 218,662 199,613 19,049 59% 10% 10% 450,244 497,534 (47,290) (10%) Change % 93% 2% (14%) 216% (100%) (9%) 9% Change % 6% 11% 38% (13%) 37% 14% 9% Change % (42%) (7%) M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 1 4 Trade Sales by Geography [see “Non-IFRS Measures”] YEAR ENDED DECEMBER 31 [ THOUSANDS OF DOLL ARS] Canada U.S. International EMEA Asia Pacific South America Total International Total 2020 $ 2019 $ Change $ Change % 282,403 325,150 (42,747) (13%) 442,812 425,841 16,971 4% 104,567 116,119 (11,552) (10%) 100,977 73,998 69,371 58,827 274,915 248,944 1,000,130 999,935 26,979 10,544 25,971 195 36% 18% 10% 0% Canada • Trade sales in Canada decreased 13% from 2019: • Farm trade sales were up 5% as a result of increased demand for storage and portable equipment due to favourable crop volumes resulting from generally positive weather and increases in planted acres, offset with aeration and drying equipment lower than the prior year due to drier conditions at harvest. • Technology trade sales increased 97% from a marginal baseline (retail equivalent sales increased 116%) as AGI continues to expand into the Canadian market and use existing sales channels to promote this platform. This platform and region of the business is a focal point for product development to ensure continued growth and market penetration. • Commercial trade sales were down 49% following a period of robust building in fertilizer and commercial grain projects. COVID-19 served to delay all sizes of commercial projects in both grain terminal and fertilizer projects. Quoting activity has increased towards the end of 2020 leading to an expected steadily positive trendline throughout 2021. • Food trade sales are up 93% as pent-up demand for projects was released into production. We have seen high demand for pet food greenfield and retrofit projects. 1 5 2020 ANNUAL REPORTUnited States International • Trade sales in the U.S. increased 4% from 2019: • International trade sales increased 10% from 2019: • Farm trade sales increased 11% with the largest increases in both Storage and Portable products. Favourable crop volumes resulting from generally positive weather and an increase in planted acres continued to support strong buying patterns throughout the year. • Farm trade sales increased 14% with the largest increases in both Storage and Portable products in EMEA and South America. Favourable crop volumes resulting from generally positive weather and an increase in planted acres continued to support buying patterns throughout the year. • Technology trade sales increased 13% (retail equivalent sales increased 31%) through continued focus from our expanding dealer network. • Commercial trade sales decreased 9% over 2019 as many customers delayed installation and delivery of equipment due to COVID-19. • Food trade sales grew 2% with majority of the increases coming in Q4 as a result of the release of planned projects into production. Quoting activity has rebounded significantly in the second half of 2020 leading to an increasingly positive outlook for Food in this region in 2021. • Commercial trade sales increased 11% over 2019 despite the impact of COVID-19 causing project delays. Both Asia Pacific and South America regions saw significant increases of 55% and 16% the over prior year due to commercial projects signed pre-COVID-19 and the impact of the Milltec acquisition in March 2019 offset the 14% decrease in trade sales in the EMEA region with project delays due to COVID-19 restrictions and concerns. • Food trade sales decreased 9% from 2019 as projects in the EMEA and South America region were delayed or deferred due to COVID-19. Food trade sales in the Asia Pacific region increased significantly due to continued investments in processing facilities in this region. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 1 6 Technology Sales with Retail Equivalent Technology Sales with Retail Equivalent by Geography [see “Non-IFRS Measures”] [see “Non-IFRS Measures”] As noted above, AGI utilized a subscription model for a portion of our IoT hardware sales that results in subscription sales being recognized over time rather than traditional retail sales which are recognized upon product sale. Adjusting subscription sales to a Retail Equivalent approach would have resulted in a positive contribution from the Technology platform in the quarter and in the year. The following table outlines the adjustments required to convert subscription sales to retail equivalent sales: [ THOUSANDS OF DOLL ARS] Canada U.S. International [ THOUSANDS OF DOLL ARS] Technology Trade Sales [1] Less: subscription revenue recognized in the year YEAR ENDED DECEMBER 31 2020 $ 2019 $ Change $ Change % 23,101 19,880 3,221 16% 1. See “Non-IFRS Measures”. Gross Margin [see “Non-IFRS Measures”] Annual data subscriptions (2,514) (1,740) (774) (44%) Other annual services (111) (207) 96 Add: IoT hardware deferred revenue to be recognized over remaining life of contract 13,440 7,518 5,922 46% 79% [ THOUSANDS OF DOLL ARS] Sales value of IoT hardware sold during the year (Retail equivalent) Annual data subscriptions Other annual services 33,916 25,451 8,465 33% Trade sales [1] 2,514 1,740 111 207 774 (96) 44% (46%) Cost of inventories [1] Gross margin [1] Gross margin as a % of trade sales 1. See “Non-IFRS measures”. Total Technology Sales with Retail Equivalent [1] 36,541 27,398 9,143 33% 1. See “Non-IFRS Measures”. 1 7 YEAR ENDED DECEMBER 31 2020 $ 1,818 2019 $ 841 Change $ Change $ 977 116% 34,386 26,227 8,159 337 330 7 31% 2% 33% Total Technology Sales with Retail Equivalent [1] 36,541 27,398 9,143 YEAR ENDED DECEMBER 31 2020 $ 1,000,130 678,813 321,317 32.1% 2019 $ 999,935 688,764 311,171 31.1% AGI’s gross margin percentages for 2020 increased over the prior year. Higher gross margins are attributed to the increase in sales volume in 2020 in the Farm segment plus our India location. In addition, both Brazil and EMEA locations saw significant operational gains as a result of the strategic investments made in prior years. The higher gross margin was offset by lower Commercial segment margins in North America from the challenging competitive landscape, lower sales volumes and product mix in the year. 2020 ANNUAL REPORTEBITDA and Adjusted EBITDA [see “Non-IFRS Measures”] Diluted profit (loss) per share and diluted adjusted profit per share The following table reconciles profit (loss) before income taxes to EBITDA and Adjusted EBITDA. [ THOUSANDS OF DOLL ARS] Profit (loss) before income taxes Finance costs Depreciation and amortization Share of associate’s net loss EBITDA [1] Loss (gain) on foreign exchange Share based compensation [2] Loss on financial instruments [3] M&A expenses Other transaction and transitional costs [4] Loss on sale of PP&E Gain on settlement of leases Fair value of inventory from acquisitions [5] Equipment rework and remediation [6] Impairment [7] Adjusted EBITDA [1] 1. See “Non-IFRS Measures”. 2. Excludes expenses related to the cash-settled EIAP. 3. See “Equity compensation hedge”. YEAR ENDED DECEMBER 31 2020 $ (80,966) 46,692 55,271 4,314 25,311 1,730 6,428 14,502 1,736 14,326 187 (3) – 80,000 5,111 2019 $ 18,404 44,793 48,188 2,352 113,737 (2,534) 5,968 1,503 1,588 11,562 260 – 1,962 10,000 233 149,328 144,279 The Company’s diluted profit (loss) per share for the year ended December 31, 2020 was a loss of $3.30, versus profit of $0.77 in 2019. Profit (loss) per share in 2020 and 2019 has been impacted by the items enumerated in the table below, which reconciles profit (loss) to adjusted profit. [ THOUSANDS OF DOLL ARS E XCEPT PER SHARE AMOUNTS] Profit (loss) Diluted profit (loss) 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 Gain on settlement of leases Impairment charge [4] Equipment rework and remediation [5] Share of associate's net loss Adjusted profit [1] Diluted adjusted profit per share [1] 1. See “Non-IFRS Measures”. YEAR ENDED DECEMBER 31 2020 $ (61,648) (3.30) 1,730 – 1,736 14,326 14,502 187 (3) 5,111 80,000 4,314 60,255 3.17 2019 $ 14,633 0.77 (2,534) 1,962 1,588 11,562 1,503 260 – 233 10,000 2,352 41,559 2.20 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 4. Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors. contingent consideration and amounts due to vendors. 4. See “Impairment Charge”. 5. Non-cash expenses related to the sale of inventory that acquisition accounting required be recorded at a value higher 5. To record the pre-tax charge for the estimated cost of rework and remediation including additional time, material and than manufacturing cost. services. 6. To record the pre-tax charge for the estimated cost of rework and remediation including time, material and services. 7. See “Impairment Charge”. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 1 8 1 9 2020 ANNUAL REPORTM A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 2 0 DETAILED OPERATING RESULTS Impact of Foreign Exchange YEAR ENDED DECEMBER 31 Gains and Losses on Foreign Exchange [ THOUSANDS OF DOLL ARS E XCEPT PER SHARE AMOUNTS] 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 gain on disposal of right-of-use assets Net loss on financial instruments Other Impairment charge Finance costs Finance income Share of associate’s net loss Profit (loss) before income taxes Income tax expense (recovery) Profit (loss) for the year Profit (loss) per share Basic Diluted 2020 $ 1,000,130 (6,100) 994,030 2019 $ 999,935 (4,148) 995,787 678,813 688,764 – 80,000 28,527 787,340 183,013 1,736 14,326 26,744 225,819 187 (3) 14,502 (4,152) 10,534 5,111 46,692 (4,814) 4,314 (80,966) (19,318) (61,648) (3.30) (3.30) 1,962 10,000 27,321 728,047 177,096 1,588 11,562 20,867 211,113 260 – 1,503 (4,001) (2,238) 233 44,793 (6,917) 2,352 18,404 3,771 14,633 0.79 0.77 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. 2 1 The 2020 gain on foreign exchange in finance income represents primarily non-cash items on the translation of the Company’s U.S. dollar denominated long-term debt at the rate of exchange of 1.2732 as at December 31, 2020 [2019 - 1.2988] partially offset by a slight increase in U.S dollar denominated debt of USD $204.8 million as at December 31, 2020 [2019 – USD $196.8 million]. Sales and Adjusted EBITDA AGI’s average rate of exchange for the year ended December 31, 2020 was $1.34 [2019 - $1.33]. 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. Equipment rework During the year, the Company recorded an additional provision for equipment rework of $10 million [2019 - $10 million] to address issues with equipment designed and supplied to the one commercial facility where the reported bin collapse occurred. The bin collapse and the rework are distinct and the rework did not involve the hopper product. As at December 31, 2020, included in the Company’s warranty provision is $4,520 related to the equipment rework with $13,538 [2019 - $1,942] of the provision having been utilized during the year as the rework was undertaken. The remaining provision as at December 31, 2020 is management’s best estimate of the remaining costs to complete the rework, including final costs of commissioning, legal and consulting fees. Remediation Costs Over the period of 2019 - 2020, AGI entered into agreements to supply 35 large hopper bins for installation by third parties on two grain storage projects. On September 11, 2020, a bin at one of the customer facilities collapsed during commissioning. The incident did not result in any injuries and AGI immediately 2020 ANNUAL REPORTissued a demand to suspend use of the product at both sites. A total of 15 similar bins are located at the incident site and 20 bins are located on a second site, which are erected but have yet to be commissioned. Clean-up by the customer at the site of the collapse has begun and continues to progress. The exact cause of the collapse is currently undetermined and a complete investigation can be carried out once the site is fully accessible. The Company continues to investigate the incident and has made progress in determining the approach to remediation in consultation with internal and external advisors. While the Company initially proceeded on the basis of providing full remediation to the two affected customer sites, one customer has proceeded to undertake the remediation themselves and the Company has determined to proceed with replacing the entire hopper base for the 20 bins located at the second site. The Company’s decision to replace the hopper bottoms at the second site is being done out of abundance of caution and goodwill. Remediation work on the second site is expected to begin in April 2021 and is estimated to be completed during the year. During the year, the Company recorded a provision of $70 million for the remediation work. As at December 31, 2020, the warranty provision is $69.7 million with $282 of the provision having been utilized during the year. The provision for remediation required significant estimates and judgments about the scope, nature, timing and cost of work required. It is based on management’s assumptions and estimates at the current date with the cause and determination of responsibility an area of significant estimation uncertainty as the investigation has not been completed and causation has not been determined. AGI, in consultation with its advisors, has estimated various probability weighted scenarios, including investigation and remediation costs, at the two sites. The provision was determined based on management’s assessment of the cost of investigation and remediation. Key assumptions utilized by management in the determination of its probability-weighted provision included the degree of liability, if any, the estimated number of third-party investigation and legal hours, estimated volume of materials and material costs, estimated internal and external labor hours, equipment costs and third-party construction costs. Further insight into the cause of, and responsibility for, the incident will take time. As the investigation of the incident continues to be conducted, the provision is subject to revision in the future as further information becomes available to the Company, the impact of which could be material. In addition, while there is the possibility of legal action against the Company with respect to damages, no formal claims have been filed at this time and any outcome is therefore not determinable and no disclosure has been made with respect to any potential contingent liabilities. The Company also believes that the provision of $70 million will be partially offset by insurance coverage and result in a lower net impact. AGI is working with insurance providers and external advisors to determine the extent of this cost offset. Insurance recoveries, if any, will be recorded when received. As at March 16, 2021, the Company had not filed any insurance claim or received any insurance recoveries. Selling, General and Administrative Expenses [“ SG&A” ] SG&A expenses for the year ended December 31, 2020 excluding M&A expenses, other transaction and transition expenses and depreciation/amortization, were $183.0 million [18.3% of trade sales] versus $177.1 million [17.7% of trade sales] in 2019. Variances to the prior year include the following: • The higher dollar amount in 2020 relates in part to the March 29, 2019 acquisition of Milltec. • Salaries & wages and share-based compensation expense increased $3.7 million and $2.8 million respectively. The increase relates largely to the inclusion in 2020 of certain senior management personnel hired throughout fiscal 2019, salary increases, and share award grants. • Bad debt expense increased $2.5 million primarily related to an allowance taken on three customers’ accounts. • Commissions and engineering services costs increased $2.4 million largely due to sales mix. • Office, marketing, and travel expenses decreased $7.6 million largely due to the impact of COVID-19. • Accounting, legal and consulting services increased $2.1 million as a result of ongoing strategic initiatives. • No other individual variance was greater than $1.0 million. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 2 2 Finance costs Other operating expense (income) Finance costs which represent interest incurred on all debt for the year ended December 31, 2020 were $46.7 million versus $44.8 million in 2019. In 2020, finance costs have increased due to the following: • New debt drawn in conjunction with new investments, most significantly the March 2019 acquisition of Milltec. Other operating expense (income) for the year ended December 31, 2020 was an expense of $10.5 million versus income of $2.2 million in 2019. Other operating expense (income) includes non-cash gains and losses on financial instruments, including AGI’s equity compensation hedge [see “Equity compensation hedge”], and interest income. The expense amount in 2020 relates largely to a non-cash loss on the equity compensation hedge. • New senior unsecured subordinated debentures had a slightly higher coupon rate than the convertible unsecured subordinated debentures it replaced. Impairment Charge • The amendments to the Credit Facility announced on April 29, 2020 that included a suspension of all financial covenant requirements for the six-month period ending October 31, 2020 also increased the performance adjustments during the suspension period. Finance income Finance income which represents interest income earned and foreign exchange on long term debt for the year ended December 31, 2020 was $4.8 million versus $6.9 million in 2019. The income in both periods relates primarily to non-cash translation of the Company’s U.S. dollar denominated long-term debt at the rate of exchange in effect at the end of the year as the exchange rate fell from 1.2988 as at December 31, 2019 to 1.2732 at December 31, 2020. December 31 Spot FX Rate USD Denominated Debt 2018 2019 2020 1.3642 1.2988 1.2732 USD $151.8 million USD $196.8 million USD $204.8 Million Share of associate’s net loss Share of associate’s net loss for the year ended December 31, 2020 was $4.3 million versus $2.4 million in 2019. The net loss relates to AGI’s proportionate share of the net loss of the associate. An impairment test is performed at least annually under IFRS for goodwill and indefinite-life intangible assets, that compares the recoverable amount of the asset to its carrying value. During the three-month period ended September 30, 2020, the Company decided to discontinue the Union Iron brand name (indefinite- life intangible asset) which consequently, triggered an impairment test to be performed for Union Iron, a division of the Company. As result of the value-in-use calculation, as at September 30, 2020, it was determined, using a discount rate of 9.0%, that the recoverable amount of Union Iron was less than its carrying value. The impairment amount calculated was applied on a pro rata basis over the division’s identifiable assets and consequently, an impairment charge of $1,957 against property, plant, and equipment and $3,154 against intangible assets was recognized. While reducing reported results under IFRS, the non-cash impairment charge will not impact the Company’s business operations, cash position or cash flows from operating activities. 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 of $7.1 million during the year ended December 31, 2020 compared to 2019 is due to the depreciation related to increased capital asset expenditures and amortization of internally generated intangibles, including those related to AGI’s Technology platform. 2 3 2020 ANNUAL REPORTSelected Annual Information (thousands of dollars, other than per share amounts and payout ratio) Income tax expense (recovery) Current income tax expense Current tax expense for the year ended December 31, 2020 was $7.1 million versus $5.5 million in 2019. Current tax expense relates primarily to AGI’s Canada, U.S., India, Netherlands, Italy, France, India and Brazil subsidiaries. Deferred income tax recovery Deferred tax recovery for the year ended December 31, 2020 was $26.4 million versus $1.8 million in 2019. The deferred tax recovery in 2020 related to the recognition of temporary differences between the accounting and tax treatment of equity swaps, intangible assets, tax loss carry forwards, accruals and long-term provisions. Effective tax rate [ THOUSANDS OF DOLL ARS] Current tax expense Deferred tax recovery Income tax expense (recovery) Profit (loss) before income taxes Total tax % Sales EBITDA [1] Adjusted EBITDA [1] Profit (loss) Basic profit (loss) per share Fully diluted profit (loss) per share Funds from operations [1] Payout ratio [1] Total assets Total long-term liabilities 1. See “Non-IFRS Measures”. YEAR ENDED DECEMBER 31 Dividends declared per Common Share 2020 $ 7,089 (26,407) (19,318) (80,966) 23.9 % 2019 $ 5,521 (1,750) 3,771 18,404 20.5 % The effective tax rate in 2020 was impacted by items that were included in the calculation of profit (loss) before income taxes for accounting purposes but were not included or deducted for tax purposes. Significant items are included in the tables under “Diluted profit (loss) per share and diluted adjusted profit (loss) per share”. YEAR ENDED DECEMBER 31 2020 $ 2019 $ 2018 $ 994,030 995,787 931,664 25,311 113,737 108,662 149,328 144,279 148,195 (61,648) 14,633 26,618 (3.30) (3.30) 0.79 0.77 1.58 1.56 96,680 81,267 96,067 20 % 1.05 55% 2.40 42% 2.40 1,479,179 1,462,980 1,233,559 904,942 833,979 570,684 The following factors impact comparability between years in the table above: • The acquisitions of 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], Milltec Machinery Limited [“Milltec”] [March 28, 2019] and Affinity Management Ltd. [“Affinity”][January 16, 2020] 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. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 2 4 QUARTERLY FINANCIAL INFORMATION [thousands of dollars other than per share amounts and exchange rate]: • Profit (loss) and Diluted Profit (loss) per share from 2019 Q3 to 2020 Q4 were negatively impacted by the Company’s estimated remediation costs [see – “Remediation Costs”]. Average USD/CAD Exchange Rate Sales $ Profit (Loss) $ Q1 Q2 Q3 Q4 1.32 1.40 1.34 1.32 229,107 (48,844) 257,938 14,472 281,408 (12,261) 225,577 (15,015) YTD 1.34 994,030 (61,648) Average USD/CAD Exchange Rate Sales $ Profit (Loss) $ Q1 Q2 Q3 Q4 1.33 1.34 1.32 1.32 215,035 13,222 291,938 12,516 260,198 (2,819) 228,616 (8,286) YTD 1.33 995,787 14,633 2020 Basic Profit (Loss) per Share $ (2.61) 0.77 (0.66) (0.80) (3.30) 2019 Basic Profit (Loss) per Share $ 0.71 0.68 (0.15) (0.44) 0.79 Diluted Profit (Loss) per Share $ Adjusted Profit [1] $ Diluted Adjusted Profit per Share [1] $ (2.61) 7,281 0.76 11,965 (0.66) 32,276 (0.80) 8,733 (3.30) 60,255 0.38 0.63 1.62 0.46 3.17 Diluted Profit (Loss) per Share $ 0.70 0.67 Adjusted Profit[1] $ 4,990 20,206 (0.15) 17,542 Diluted Adjusted Profit (Loss) per Share[1] $ 0.27 1.04 0.91 Interim period sales and profit historically reflect seasonality. The second and third quarters are typically the strongest primarily due to the timing of construction of commercial grain and fertilizer projects and higher in-season demand at the farm level. The seasonality of AGI’s business may be impacted by several factors including weather and the timing and quality of harvest in North America. The emergence of COVID-19 may impact historical seasonality patterns. In the longer-term, AGI’s continued expansion into the seed, fertilizer, feed and food verticals should lessen the seasonality related to annual grain volumes and harvest conditions. OPERATING RESULTS – THREE MONTHS ENDED DECEMBER 31, 2020 Trade Sales [see “Non-IFRS Measures”] [ THOUSANDS OF DOLL ARS] THREE MONTHS ENDED DECEMBER 31 2020 $ 2019 $ Change $ Change % Trade sales 227,385 229,591 (2,206) (0.44) (1,180) (0.06) Foreign exchange loss [1] (1,808) (975) (833) 0.77 41,558 2.20 Total Trade sales 225,577 228,616 (3,039) (1)% 85% (1)% 1. See “Non-IFRS Measures”. 1. A portion of foreign exchange gains and losses are allocated to sales. The following factors impact the comparison between periods in the table above: • AGI’s acquisitions of Improtech [Q1 2019], IntelliFarms [Q1 2019], Milltec [Q1 2019], and Affinity [Q1 2020] significantly impact comparisons between periods of assets, liabilities and operating results. • Sales, gain (loss) on foreign exchange, profit (loss), adjusted profit (loss), diluted profit (loss) per share, and diluted adjusted profit (loss) per share in all periods are impacted by the rate of exchange between the Canadian and U.S. dollars. 2 5 2020 ANNUAL REPORTTrade Sales by Segment and Product Grouping [see “Basis of Presentation” and “Non-IFRS Measures”] As noted above, AGI utilized a subscription model for a portion of our IoT hardware sales that results in subscription sales being recognized over time rather than traditional retail sales which are recognized upon product sale. A portion of the Technology sales in the table below is reflected based on subscription sales being recognized over time. Please refer to the “Technology Sales with Retail Equivalent” table below for Technology sales presented at Retail Equivalent. Farm Segment THREE MONTHS ENDED DECEMBER 31 [ THOUSANDS OF DOLL ARS] Canada U.S. International EMEA Asia Pacific South America Total International 2020 $ 42,616 53,201 2,590 3,790 6,253 12,633 Farm 2019 $ 36,838 49,300 Change $ 5,778 3,901 1,988 602 10,252 (6,462) 3,504 15,744 Total 108,450 101,882 Commercial Segment THREE MONTHS ENDED DECEMBER 31 [ THOUSANDS OF DOLL ARS] Canada U.S. International EMEA Asia Pacific South America Total International Total 2020 $ 12,691 27,697 14,139 28,606 10,489 53,234 Commercial 2019 $ 20,906 34,356 17,378 22,129 12,355 51,862 Change % 16% 8% 30% (63%) 78% (20%) 6% Change % (39%) (19%) (19%) 29% (15%) 3% 2020 $ 354 5,132 4 – 81 85 5,571 2020 $ 3,299 12,216 Technology 2019 $ 218 3,960 93 56 6 155 4,333 Food 2019 $ 2,396 8,780 3,896 4,089 331 – 878 109 4,227 5,076 Change $ 136 1,172 (89) (56) 75 (70) Change % 62% 30% (96%) (100%) 1250% 2020 $ 42,970 58,333 2,594 3,790 6,334 Total 2019 $ 37,056 53,260 Change $ 5,914 5,073 2,081 513 10,308 (6,518) 3,510 2,824 (45%) 12,718 15,899 (3,181) 1,238 29% 114,021 106,215 7,806 Change $ 903 3,436 (193) (547) (109) (849) Change % 38% 39% (5%) (62%) (100%) (17%) 2020 $ 15,990 39,913 18,035 28,937 10,489 57,461 Total 2019 $ 23,302 43,136 21,467 23,007 12,464 56,938 Change $ (7,312) (3,223) (3,432) 5,930 (1,975) 523 2,749 (3,111) 6,568 Change $ (8,215) (6,659) (3,239) 6,477 (1,866) 1,372 93,622 107,124 (13,502) (13%) 19,742 16,252 3,490 21% 113,364 123,376 (10,012) Change % 16% 10% 25% (63%) 80% (20%) 7% Change % (31%) (7%) (16%) 26% (16%) 1% (8%) M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 2 6 Canada • Trade sales in Canada decreased 2% from 2019: THREE MONTHS ENDED DECEMBER 31 2020 $ 2019 $ Change $ Change % 58,960 60,358 (1,398) 98,246 96,396 1,850 (2%) 2% • Farm trade sales were up 16% as a result of increased crop volumes, dealer replenishment cycles and successful product introductions. Storage sales were also a strong contributor within 2020. Extended demand stretched sales into Q4 due to lead times and post-harvest demands. Early orders grew significantly over prior years due to anticipated price increases in the new year and continued optimism in the market. 20,629 23,548 (2,919) (12%) 32,727 33,315 16,823 15,974 70,179 72,837 227,385 229,591 (588) 849 (2,658) (2,206) (2%) 5% (4%) (1%) • Technology trade sales grew by 62% (retail equivalent sales increased 48%) as AGI continues to expand into the Canadian market. Management continues to see significant activities within this region which continues to support positive expectations going into 2021. • Commercial trade sales fell by 39% largely due to COVID-19 impacts on large commercial projects. Quoting activity remains steady with the focus on maintenance, plant upgrades and plant expansions. There are regional areas of strength such as Eastern Canada. • Food trade sales grew 38% as a result of on-going projects. Customer sites have opened up on projects that were on hold in 2020 and customers are now trying to expedite projects. Trade Sales by Geography [see “Non-IFRS Measures”] [ THOUSANDS OF DOLL ARS] Canada U.S. International EMEA Asia Pacific South America Total International Total 2 7 2020 ANNUAL REPORTUnited States International • Trade sales in the U.S. increased 2% from 2019: • International trade sales decreased 4% from 2019: • Farm trade sales increased 8% partially due to higher demand related the Derecho storm in Iowa that spilled into Q4, and increased grain marketing activity generating incremental demand for portable equipment. Additionally, government subsidies had a pull through effect at year-end which, coupled with anticipation of steel price increases, all led to robust winter order intake. • Technology trade sales were up 30% (retail equivalent sales decreased 14%) due to an increase in cash sales over hardware as a service subscription model for revenue. Retail equivalent sales were down vs prior year as last year we had significant orders from Q3 pushed into Q4 due to changes made in our manufacturing capacity. • Commercial trade sales decreased 19% over the previous year as many customers continue to delay installation and delivery of equipment largely due to COVID-19. • Food trade sales are up 39% due to continued partnerships with key customers that have enabled ongoing work on projects despite COVID-19. Additionally, there is an increase in pet food projects. • Farm trade sales were down 20% with a significant decrease in the Asia Pacific region partially due to timing of sales and project delays, offset by a strong increase in both the EMEA and South American region. • Commercial trade sales increased 3% over 2019 despite the impact of COVID-19 causing project delays. The Asia Pacific region saw significant increases due to commercial projects signed pre-COVID-19 offset by a decrease in trade sales in the EMEA and South America regions due to COVID-19 restrictions and concerns impacting projects. • Food trade sales decreased 17% due to the timing of projects and focus turning to regions where project commitments are being accelerated. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 2 8 2 9 2020 ANNUAL REPORTM A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 3 0 Technology Sales with Retail Equivalent Technology Sales with Retail Equivalent by Geography [see “Non-IFRS Measures”] [see “Non-IFRS Measures”] As noted above, AGI utilizes a subscription model for a portion of our IoT hardware sales that results in subscription sales being recognized over time rather than traditional retail sales which are recognized upon product sale. Adjusted to a Retail Equivalent approach would have resulted in a positive contribution from the Technology group in the quarter. The following table outlines the adjustments required to convert subscription sales to retail equivalent sales: [ THOUSANDS OF DOLL ARS] Canada U.S. International 2020 $ 354 2019 $ 239 5,316 6,215 85 54 THREE MONTHS ENDED DECEMBER 31 Change $ Change % 115 (899) 31 (753) 48% (14%) 57% (12%) THREE MONTHS ENDED DECEMBER 31 Total Technology Sales with Retail Equivalent [1] 5,755 6,508 [ THOUSANDS OF DOLL ARS] Technology Trade Sales Less: subscription revenue recognized in the year Annual data subscriptions Other annual services Add: IoT hardware deferred revenue to be recognized over remaining life of contract Sales value of IoT hardware sold during the year (Retail equivalent) Annual data subscriptions Other annual services 2020 $ 2019 $ Change $ Change % 1. See “Non-IFRS Measures”. 5,571 4,333 1,238 29% (572) (9) 184 (465) (51) (107) (23%) 42 82% 2,175 (1,991) (92%) Gross Margin [see “Non-IFRS Measures”] [ THOUSANDS OF DOLL ARS] 5,174 5,992 (818) (14%) 572 9 465 51 107 (42) 23% (82%) Trade sales [1] Cost of inventories [1] Gross margin [1] Total Technology Sales with Retail Equivalent [1] 5,755 6,508 (753) (12%) Gross margin as a % of trade sales 1. See “Non-IFRS Measures”. 1. See “Non-IFRS Measures”. THREE MONTHS ENDED DECEMBER 31 2020 $ 2019 $ 227,385 229,591 157,013 163,375 70,372 66,216 30.9% 28.8% AGI’s gross margin percentages in Q4 2020 increased over Q4 2019. Higher gross margins are attributed to operational gains at both Brazil and EMEA as a result of the strategic investments made in prior years. We also saw continued strength in the farm segment of the business which helped drive overall margins higher; however, the higher gross margins were offset by lower Commercial segment gross margin in North America from the challenging competitive landscape, lower sales volumes and product mix during this time of the year. 3 1 2020 ANNUAL REPORTEBITDA and Adjusted EBITDA [see “Non-IFRS Measures”] Diluted loss per share and diluted adjusted profit (loss) per share The following table reconciles loss before income taxes to EBITDA and Adjusted EBITDA. THREE MONTHS ENDED DECEMBER 31 The Company’s diluted loss per share for the three months ended December 31, 2020 was $0.80, versus $0.44 in 2019. Loss per share in 2020 and 2019 has been impacted by the items enumerated in the table below, which reconciles loss to adjusted profit (loss). [ THOUSANDS OF DOLL ARS] Loss before income taxes Finance costs Depreciation and amortization Share of associate’s net loss EBITDA [1] Loss on foreign exchange Share based compensation [2] Loss on financial instruments [3] M&A expenses (recovery) Other transaction and transitional costs [4] Loss on sale of PP&E Loss on settlement of leases Fair value of inventory from acquisitions [5] Equipment rework [6] Impairment [7] Adjusted EBITDA [1] 1. See “Non-IFRS Measures”. 2. Excludes expenses related to the cash-settled EIAP. 3. See “Equity compensation hedge”. 2020 $ (23,050) 11,938 13,956 947 3,791 (8,933) 1,223 (1,975) 390 3,249 68 2 – 30,000 – 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 [ THOUSANDS OF DOLL ARS E XCEPT PER SHARE AMOUNTS] Loss Diluted loss per share Loss on foreign exchange Fair value of inventory from acquisition [2] M&A expenses (recovery) Other transaction and transitional costs [3] Loss on financial instruments Loss on sale of PP&E Loss on settlement of leases Impairment charge [4] Equipment rework and remediation [5] Share of associate's net loss Adjusted profit (loss) [1] 27,815 23,196 Diluted adjusted profit (loss) per share [1] 1. See “Non-IFRS Measures”. THREE MONTHS ENDED DECEMBER 31 2020 $ (15,015) (0.80) (8,933) – 390 3,249 (1,975) 68 2 – 30,000 947 8,733 0.46 2019 $ (8,286) (0.44) (121) 220 (1,458) 5,135 (1,557) 136 – 187 3,000 1,564 (1,180) (0.06) 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 4. Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors. contingent consideration and amounts due to vendors. 4. See “Impairment Charge”. 5. Non-cash expenses related to the sale of inventory that acquisition accounting required be recorded at a value higher 5. To record the pre-tax charge for the estimated cost of rework including additional time, material and services. than manufacturing cost. 6. To record the pre-tax charge for the estimated cost of rework including time, material and services. 7. See “Impairment Charge”. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 3 2 LIQUIDIT Y 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 Facility, 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. CASH FLOW AND LIQUIDIT Y [ THOUSANDS OF DOLL ARS] Profit (loss) 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 in cash during the period Cash, beginning of period Cash, end of period YEAR ENDED DECEMBER 31 2020 $ (80,966) 83,640 2,674 80,059 (3,001) 333 (2,882) (3,013) 74,170 2019 $ 18,404 56,107 74,511 (13,585) (8,060) – (2,553) (9,894) 40,419 (62,698) (223,134) 2,563 14,035 48,421 62,456 197,526 14,811 33,610 48,421 Cash generated by operating activities increased compared to 2019 largely due to an improvement in the net change in non-cash working capital. Accounts receivable collection patterns in Q2 and Q3 2020 did not appear to be significantly impacted by the emergence of COVID-19. Cash used in investing activities relates primarily to capital expenditures [“CAPEX”], internally generated intangibles and acquisitions. Cash provided by (used in) financing activities relates to debenture issuances, debenture redemptions, movement in long-term debt and dividends paid. Working Capital Requirements Working capital requirements typically reflect the seasonality of the business. AGI’s collections of accounts receivable in North America are weighted towards the third and fourth quarters. This collection pattern, combined with historically high sales in the second and third quarters that result from seasonality, typically lead to accounts receivable levels 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 sales in accounts receivable and may result in increased usage of working capital in certain quarters. The continuation of the COVID-19 pandemic may impact the Company’s working capital requirements. Capital Expenditures Maintenance capital expenditures in 2020 were $8.1 million [0.8% of trade sales] versus $14.8 million [1.5% of trade sales] in 2019. Maintenance capital expenditures in 2020 relate primarily to purchases of manufacturing equipment and building repairs and historically have approximated 1.0% - 1.5% of sales. 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 2020 of $19.9 million versus $33.7 million in 2019. The non-maintenance CAPEX items in 2020 relate primarily to initiatives started in fiscal 2019 or pre-COVID-19 in 2020 and include manufacturing capacity expansions in EMEA and at certain plants in North America and the addition of manufacturing equipment to support key business units. 3 3 2020 ANNUAL REPORTSubsequent to the emergence of COVID-19 pandemic, management analyzed budgeted growth CAPEX projects and deferred most projects. Growth CAPEX in 2020 included the completion of projects started in fiscal 2019 or pre-COVID-19 in 2020 which included the expansion of AGI’s manufacturing and operational capabilities at AGI SureTrack. Maintenance and non-maintenance capital expenditures in 2021 are anticipated to be financed through bank indebtedness, cash on hand or through the Company’s Credit Facility [see “Capital Resources”]. CONTRACTUAL OBLIGATIONS CAPITAL RESOURCES Assets and Liabilities [ THOUSANDS OF DOLL ARS] Total assets Total liabilities Cash DECEMBER 31 2020 $ 2019 $ 1,479,179 1,462,980 1,216,042 1,089,585 The following table shows, as at December 31, 2020 the Company’s contractual obligations for the periods indicated: The Company’s cash balance at December 31, 2020 was $62.5 million [2019 - $48.4 million]. [ THOUSANDS OF DOLL ARS] 2017 Debentures 2018 Debentures 2019 Debentures – 1 2019 Debentures – 2 2020 Debentures Total $ 86,225 86,250 86,250 86,250 85,000 2021 $ – – – – – 2022 $ 86,225 86,250 – – – 2023 $ 2024 $ 2025 $ 2026+ $ – – – – – – – 86,250 86,250 – – – – – – – – – – Canadian Swing Line 85,000 USD Swing Line Debt Facilities As at December 31, 2020: [ THOUSANDS OF DOLL ARS] Currency Maturity Long-term debt [1] 412,498 502 357 266 235 379,308 31,830 Total Swing Line 20,507 3,848 3,286 2,400 2,056 1,941 6,976 Canadian Revolver Tranche A [3][4] Lease liability [1] Short term and low value leases Due to vendor 52 46 5 1 – – 9,411 7,164 1,463 334 250 200 CAD USD CAD USD CAD USD CAD USD Total Facility [CAD] [1][2] $ 40,000 12,372 52,732 2025 2025 Effective Interest Rate Amount Drawn [1] $ – – – 4.33% 2.86% 4.37% 4.10% – % 2025 185,000 101,528 2025 2021 50,928 50,000 50,000 – 2025 210,078 202,693 2.86% 2025 2026 2025 25,000 25,000 31,830 31,830 4.74% 4.10% 1,392 1,392 Various 554,228 412,443 606,960 412,443 Canadian Revolver Tranche B Liquidity Facility [4] U.S. Revolver [5] Series B Notes [6] Series C Notes [6] – – – – – Equipment Financing various Total Long-Term Debt Total Preferred shares liability 30,520 18,312 12,208 Purchase obligations [2] 5,673 5,673 – Leases committed not yet commenced [1] 748 426 322 – – – – – – – – – Total obligations 909,384 35,971 190,116 3,001 175,041 381,449 123,806 1. Undiscounted 2. Net of deposit. 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”]. 1. USD denominated amounts translated to CAD at the rate of exchange in effect on December 31, 2020 of $1.2732. 2. Excludes the $200 million accordion available under AGI’s Credit Facility. In conjunction with the Credit Facility expansion announced on April 29, 2020 (see below) the amount of the accordion was reduced to $100 million. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 3 4 3. Interest rate fixed for $40 Million via interest rate swaps. See “Interest Rate Swaps”. 4. The Company amended its credit facility agreement to increase its senior revolving facility by $50 million and created a separate one-year revolving facility of $50 million to provide increased short-term flexibility during the COVID-19 crisis. 5. Interest rate fixed for USD $38 Million via interest rate swaps. See “Interest Rate Swaps”. 6. Fixed interest rate. AGI has swing line facilities of $40.0 million and U.S. $10.0 million as at December 31, 2020. The facilities bear interest at prime plus 0.45% to prime plus 1.5% per annum based on performance calculations. As at December 31, 2020, there was nil [2019 – $345] outstanding under the swing line. On April 29, 2020, AGI announced the expansion of its credit facility and the amendment of certain of its terms [the “Credit Facility”]. The Credit Facility is now with a syndicate of six Canadian chartered and other lenders that includes committed revolver facilities of CAD $225 million and USD $215 million with a maturity date of March 20, 2025. In addition, the Credit Facility includes a separate one-year revolving facility of $50 million to provide increased short-term flexibility during the COVID-19 crisis. Amounts drawn under the Credit Facility bear interest at BA or LIBOR plus 1.20% to BA or LIBOR plus 2.50% and prime plus 0.20% to prime plus 1.50% per annum based on performance calculations and certain other conditions. The amendments to the Credit Facility announced on April 29, 2020 included a suspension of all financial covenant requirements for the nine-month period ending October 31, 2020 as well as the ability to normalize Q1 2020 and Q2 2020 financial results for certain COVID-19 impacts when calculating trailing EBITDA in future covenant calculations. Following October 31, 2020, AGI’s minimum leverage ratio covenant returned to 3.75x up to and including the calculation as at March 31, 2021. The minimum leverage ratio decreases to 3.50x for the quarter ended June 30, 2021 and returns to 3.25x thereafter. The maturity date of the Credit Facility remains March 20, 2025. 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. The amendments to the Credit Facility did not impact the terms of the Series B and C Notes. Debentures Convertible Unsecured Subordinated Debentures The following table summarizes the key terms of the convertible unsecured subordinated debentures [the “Convertible Debentures”] of the Company that were outstanding as at December 31, 2020: Year Issued / TSX Symbol Aggregate Principal Amount $ 2017 [AFN.DB.D] 86,225,000 2018 [AFN.DB.E] 86,250,000 Coupon 4.85% 4.50% Conversion Price $ Maturity Date Redeemable at Par [1] 83.45 Jun 30, 2022 Jun 30, 2021 88.15 Dec 31, 2022 Jan 1, 2022 1. 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 Convertible Debentures by issuing and delivering Common Shares. The Company may also elect to satisfy its obligation to pay interest on the Convertible 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 2015 Convertible Debentures on January 2, 2020. Upon redemption, AGI paid to the holders of the 2015 Convertible Debentures $75,000,000 equal to the outstanding principal amount of the 2015 Convertible 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 $722,616 of deferred fees related to the 2015 Convertible Debentures. The expense was recorded to finance costs in the consolidated statements of income (loss). 3 5 2020 ANNUAL REPORTM A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 3 6 Senior Unsecured Subordinated Debentures The following table summarizes the key terms of the Senior Unsecured Subordinated Debentures [the “Senior Debentures”] that were outstanding as at December 31, 2020: • 113,013 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 Year Issued / TSX Symbol Aggregate Principal Amount $ Coupon Maturity Date 2019 March [AFN.DB.F] 86,250,000 5.40 % June 30, 2024 2019 November [AFN.DB.G] 86,250,000 5.25 % December 31, 2024 2020 March [AFN.DB.H] 85,000,000 5.25 % December 31, 2026 On redemption or at maturity, the Company may, at its option, elect to satisfy its obligation to pay the principal amount of the Senior Debentures by issuing and delivering Common Shares. The Company may also elect to satisfy its obligation to pay interest on the Senior Debentures by delivering sufficient Common Shares. The number of shares issued would be determined based on market prices at the time of issuance. COMMON SHARES The following number of Common Shares were issued and outstanding at the dates indicated: December 31, 2019 Settlement of EIAP obligations December 31, 2020 Settlement of EIAP obligations March 16, 2021 At March 16, 2021: # Common Shares 18,658,479 59,936 18,718,415 56,351 18,774,766 • 18,774,766 Common Shares are outstanding; • 1,910,000 Common Shares are available for issuance under the Company’s Equity Award Incentive Plan [the “EIAP”], of which 1,377,872 have been granted and 532,128 remain unallocated 3 7 • 2,011,697 Common Shares are issuable on conversion of the outstanding Convertible Debentures, of which there are an aggregate principal amount of $172 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, 2020 of $19.6 million versus $44.7 million in 2019. On April 14, 2020, AGI announced a reduction of its dividend to an annual level of $0.60 and at the same time moved the dividend from monthly to quarterly payments. The Company’s Board of Directors reviews financial performance and other factors when assessing dividend levels. An adjustment to dividend levels may be made at such time as the Board determines an adjustment to be appropriate. Dividends in a fiscal year are typically funded entirely through cash from operations, although due to seasonality dividends may be funded on a short-term basis by the Company’s operating lines. In the year ended December 31, 2020 dividends paid to shareholders of $19.6 million [2019 – $44.7 million] were financed from the Company’s operating lines and by cash on hand. 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. 2020 ANNUAL REPORT[ THOUSANDS OF DOLL ARS] 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 2020 $ 149,328 (46,692) 5,081 (3,013) (8,141) 96,563 19,635 20% 2019 $ 144,279 (44,793) 6,485 (9,894) (14,810) 81,267 44,705 55% 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, 2020. Interest Rate Swaps The Company has entered into interest rate swap contracts to manage its exposure to fluctuations in interest rates. Currency Maturity Amount of Swap [000’s] $ Fixed Rate [1] The interest rate swap contract is a derivative financial instrument and changes in the fair value were recognized as a gain (loss) on financial instruments in other operating income. Through this contract, the Company agreed to receive interest based on the variable rates from the counterparty and pay interest based on fixed rate of 4.1%. The notional amount is $40.0 million, resetting the last business day of each month and the contract expires May 2022. During the year ended December 31, 2020, the Company recorded a loss on financial instruments of $1.0 million versus a loss of $1.5 million in 2019. Equity swap 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, 2020, 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, 2020, the fair value of the equity swap was a loss of $6.4 million, and in the year ended December 31, 2020, the Company recorded, in the consolidated statements of income (loss) a loss of $12.0 million compared to a loss of $0.3 million in 2019. Debenture redemption options In March 2020, the Company issued $85 million of senior unsecured subordinated debentures with an option of early redemption beginning December 31, 2023. At time of issuance, the Company’s redemption option resulted in an embedded derivative with fair value of $0.8 million. During the year ended December 31, 2020, the Company recorded a loss of $0.8 million [2019 – nil] on financial instruments in other operating expense. As at December 31, 2020, the fair value of the embedded derivative was nil [December 31, 2019 – nil]. Canadian dollar contracts CAD 2022 40,000 3.6 % – 4.1 % 2019 ACQUISITIONS 1. With performance adjustments. Improtech In January 2019, AGI acquired 100% of the outstanding shares of Improtech. Improtech is a professional engineering services firm specializing in providing M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 3 8 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. matters was $989 [2019 – $435], and $425 is included in accounts payable and accrued liabilities and provisions as at December 31, 2020. These transactions are measured at the exchange amount and were incurred during the normal course of business. IntelliFarms In March 2019, AGI acquired IntelliFarms, 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. Sales at IntelliFarms for the year ended December 31, 2018 were approximately $11.0 million USD. 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. 2020 ACQUISITIONS Aff inity In January 2020, the Company acquired 100% of the outstanding shares of Affinity. Based in Canada, Affinity is a provider of software solutions to the agriculture industry under the brand name Compass. The Compass product suite is highly complementary to AGI’s current offering and will be a key component of the full AGI SureTrack platform. 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, 2020, the total cost of these legal services related to general CRITICAL ACCOUNTING ESTIMATES Described in the notes to the Company’s 2020 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, 2020 for a discussion of the significant accounting judgments, estimates and assumptions. In addition, the provision for remediation [see – “Remediation Costs”] required significant estimates and judgments about the scope, timing and cost of work that will be required. It is based on management’s assumptions and estimates at the current date and is subject to revision in the future as further information becomes available to the Company. 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 3 9 2020 ANNUAL REPORT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; product liability; contract liability; climate change risks and the risk that the assumptions and estimates underlying the provision for remediation related thereto and insurance coverage for the Incident will prove to be incorrect as further information becomes available to the Company. These risks and uncertainties are not the only risks and uncertainties we face. Additional risks and uncertainties not currently known to us or that we currently consider immaterial also may impair operations. If any of these risks actually occur, our business, results of operations and financial condition, and the amount of cash available for dividends could be materially adversely affected. CHANGES IN ACCOUNTING STANDARDS AND FUTURE ACCOUNTING CHANGES Adoption of new accounting standards Amendments to IFRS 3, Business Combinations [“ IFRS 3” ] The Company adopted IFRS 3 with a date of application of January 1, 2020. 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 are 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. Consequently, transactions that occurred in prior periods do not need to be reassessed. The Company’s adoption of IFRS 3 did not have a significant impact on the Company’s unaudited interim condensed consolidated financial statements. Amendments to IAS 1 and IAS 8 Definition of Material [“ IAS 1” and “ IAS 8” ] The Company adopted amendments IAS 1 and IAS 8 with a date of application of January 1, 2020. The amendments provide a new definition of material, such that “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments to IAS 1 and IAS 8 clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments are effective for annual periods beginning on or after January 1, 2020. The Company’s adoption of these amendments did not have a significant impact on the Company’s consolidated financial statements. Standards issued but not yet eff ective Amendments to IAS 1 – Presentation of Financial Statements [“ IAS 1” ] In January 2020, amendments were issued to IAS 1, which provide requirements for classifying liabilities as current or non-current. Specifically, the amendments clarify: • What is meant by a right to defer settlement • That a right to defer must exist at the end of the reporting period • That classification is unaffected by the likelihood that an entity will exercise its deferral right • That only if an embedded derivative in a convertible liability is itself an equity instrument, would the terms of a liability not impact its classification The amendments must be applied retrospectively for annual periods beginning after January 1, 2023. The Company will assess the impact, if any, of adoption of the amendment. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 4 0 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 has concluded that disclosure controls and procedures were effective as at December 31, 2020. 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. Management has evaluated the design and operating effectiveness of the Company’s internal controls over financial reporting as at December 31, 2020 and has concluded that the internal controls over financial reporting are effective. Subsequent to December 31, 2019, AGI acquired Affinity. Management has not completed its review of internal controls over financial reporting or disclosure controls and procedures for this acquired business. Since the acquisition 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 this acquisition, 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 Affinity. The following is the summary financial information pertaining to Affinity that was included in AGI’s consolidated financial statements for the year ended December 31, 2020: [ THOUSANDS OF DOLL ARS] Revenue [1] Loss [1] Current assets [1][2] Non-current assets [1][2] Current liabilities [1][2] Non-current liabilities [1][2] Aff inity $ 419 (4,731) 41 9,792 2,873 3,825 1. Net of intercompany 2. Statement of financial position as at December 31, 2020 There have been no material changes in AGI’s internal controls over financial reporting that occurred in the year ended December 31, 2020, 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 4 1 2020 ANNUAL REPORTfinancial measures, may provide a more complete understanding of factors and trends affecting our business. In this MD&A, we discuss the non-IFRS financial measures, including the reasons that we believe that these measures provide useful information regarding our financial condition, results of operations, cash flows and financial position, as applicable, and, to the extent material, the additional purposes, if any, for which these measures are used. Reconciliations of non-IFRS financial measures to the most directly comparable IFRS financial measures are contained in this MD&A. Management believes that the Company’s financial results may provide a more complete understanding of factors and trends affecting our business and be more meaningful to management, investors, analysts and other interested parties when certain aspects of our financial results are adjusted for the gain (loss) on foreign exchange and other operating expenses and income. These measurements are non-IFRS measurements. Management uses the non-IFRS adjusted financial results and non-IFRS financial measures to measure and evaluate the performance of the business and when discussing results with the Board of Directors, analysts, investors, banks and other interested parties. References to “EBITDA” are to profit 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 on settlement of leases, equipment rework costs, fair value of inventory from acquisitions and non-cash asset impairment charge. 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 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, cost of equipment rework, share of associate’s net loss and non-cash asset impairment charge. See “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. References to “technology sales with retail equivalent” are to subscription based technology sales adjusted for the retail value of the IoT Hardware, fair value of the annual data subscription and the fair value of other annual services. 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”, “estimate”, “believe”, “continue”, “could”, “expects”, “intend”, “plans”, “postulates”, “predict”, “will”, “may” 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. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 4 2 In addition, this MD&A may contain forward-looking information attributed to third party industry sources. Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which it is based will occur. In particular, the forward-looking information in this MD&A includes information relating to our business and strategy, including our outlook for our financial and operating performance including our expectations for our future financial results, industry demand and market conditions, the anticipated ongoing impacts of the COVID-19 pandemic on our business, operations and financial results; the estimated costs to the Company that may result from the Remediation Work, including the costs of remediation, and the availability of insurance coverage to offset such costs; the sufficiency of our liquidity; long-term fundamentals and growth drivers of our business; future payment of dividends and the amount thereof; and with respect to our ability to achieve the expected benefits of recent acquisitions and the contribution therefrom. 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 COVID-19 pandemic on our business, operations and financial results; future debt levels; 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 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; changes in trade relations between the countries in which the Company does business including between Canada and the United States; cyber security risks; the risk that the assumptions and estimates underlying the provision for remediation related thereto and insurance coverage for the Incident will prove to be incorrect as further information becomes available to the Company. These risks and uncertainties are described under “Risks and Uncertainties” in this MD&A and in our most recently filed Annual Information Form, all of which are available under the Company’s profile on SEDAR [www.sedar. com]. These factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking information. We cannot assure readers that actual results will be consistent with this forward-looking information. Readers are further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. These estimates may change, having either a negative or positive effect on profit, as further information becomes available and as the economic environment changes. Without limitation of the foregoing, the provision for remediation related to the Remediation Work required significant estimates and judgments about the scope, nature, timing and cost of work that will be required. It is based on management’s assumptions and estimates at the current date and is subject to revision in the future as further information becomes available to the Company. 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]. 4 3 2020 ANNUAL REPORTM A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 4 4 4 5 2020 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 4 6 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, 2020 and 2019, and the consolidated statements of income (loss), 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, 2020 and 2019, 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. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements. 4 7 2020 ANNUAL REPORTC O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 4 8 Key audit matter How our audit addressed the key audit matter Provision for remediation costs The Group entered into agreements to supply 35 large hopper bins for installation by third parties at two grain storage projects. On September 11, 2020, a bin at one of the customer facilities collapsed during commissioning. The Group issued a demand to suspend use of the product at both sites. The cause of the bin collapse is being investigated and the exact cause of the collapse is currently undetermined. The Group accrues a warranty provision at the time of product sale and records an additional provision for unexpected events when they are probable and estimable. The Group has recorded an additional provision for the 35 bins during the year ended December 31, 2020 of $70.0 million on the basis of estimated costs of investigation and remediation for both customers. The provision required significant estimates and judgments about the scope, nature, timing and cost of work required. Management’s probability weighted estimate of the additional provision considered estimates and assumptions with respect to the degree of liability, if any, the estimated number of third-party investigation and legal hours, estimated volume of materials and material costs, estimated internal and external labor hours, equipment costs and third-party construction costs. The matter has been deemed a key audit matter due to the estimation uncertainty and significant judgment and subjectivity involved in evaluating management’s assumptions. Our approach to testing the provision for remediation costs included performing the following procedures, among others: • We obtained an understanding of the estimation methodology and significant judgments included in the provision for remediation costs through interviews with the Group’s internal and third-party engineers, internal and external legal counsel, finance personnel and others directly involved in the project to understand the calculation. • We reviewed legal documents, third-party contracts including statements of work, equipment and labor costs and correspondence related to the projects. We corroborated the key estimates and assumptions made by management, including the degree of liability, the estimated number of third-party investigation and legal hours, estimated volume of materials and material costs, estimated internal and external labor hours, equipment costs and third-party construction costs, with external legal counsel and third-party engineers engaged by the Group to assist with the investigation and remediation for both customer sites. • We assessed the estimated costs by agreeing materials [volume and pricing], hourly rates, estimated labor hours and equipment and construction costs to historic and third-party cost information. We tested the mathematical accuracy of the provision. Refer to notes 4 and 19 in the consolidated financial statements for the Group’s disclosures related to this provision. • We assessed the adequacy of the disclosure in the consolidated financial statements. 4 9 2020 ANNUAL REPORTKey audit matter How our audit addressed the key audit matter Impairment test for indefinite life intangible assets The Group has brand names that are classified as indefinite life intangible assets, with a carrying value of $127.8 million at December 31, 2020. These indefinite life intangible assets do not generate largely independent cash flows and are therefore tested as part of the cash generating units [“CGUs”] to which they belong. CGUs that contain indefinite life intangible assets are tested for impairment annually and whenever there is an indication of impairment. A value in use model was used by management to calculate the recoverable amount of each CGU. The value in use model requires the use of significant judgment and estimation in respect of management’s assumptions in determining future cash flow forecasts, especially revenue growth rates, terminal growth rates and discount rates. An impairment loss of $5.1 million, attributed to the Union Iron CGU, was recorded during the year ended December 31, 2020. This matter has been considered a key audit matter due to the significant judgment and subjectivity involved in evaluating management’s estimates and assumptions, including revenue growth rates, terminal growth rates and discount rates, in determining the recoverable amount of each CGU. Refer to notes 4, 14 and 15 in the consolidated financial statements for the Group’s disclosures related to its indefinite life intangible assets impairment testing. Our approach to testing the recoverable amount of the CGUs included the assistance of our valuation specialists to perform the following procedures, among others: • We evaluated the appropriateness of the value in use model methodology and recalculated its mathematical accuracy. • We performed a retrospective analysis and compared the 2020 actual results to the 2020 Board approved budget to assess management’s ability to forecast. • We agreed the 2021 forecasts to the Board approved budget for 2021. • We evaluated the reasonableness of the CGUs’ revenue growth rates and terminal growth rates by comparing the significant assumptions to externally available industry and economic trends data and historical results, which considered geographic location, weather conditions, crop sizes, crop prices, changing food preferences, farming trends and trade agreements. • We evaluated the discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities. • We performed sensitivity analysis on the revenue growth rates, terminal growth rates and discount rates to evaluate changes in the recoverable amount of the CGU that would result from changes in the assumptions. • We reviewed the adequacy of the disclosures included in the consolidated financial statements. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 5 0 Other information Management is responsible for the other information. The other information comprises: • Management’s Discussion and Analysis • The information other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. We obtained Management’s Discussion 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. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditor ’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. 5 1 2020 ANNUAL REPORT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 auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the 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. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Tanis Petreny. Winnipeg, Canada March 16, 2021 CHARTERED PROFESSIONAL ACCOUNTANTS C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 5 2 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION [IN THOUSANDS OF CANADIAN DOLL ARS] As at December 31 Assets Current assets Cash and cash equivalents Restricted cash [note 7] Accounts receivable [note 8] Inventory [note 9] Prepaid expenses and other assets Current portion of notes receivable [note 10] Derivative instruments [note 31] Income taxes recoverable Non-current assets Property, plant and equipment, net [note 11] Right-of-use assets, net [note 12] Goodwill [note 13] Intangible assets, net [note 14] Investment in associate [note 16] Non-current accounts receivable [note 8] Notes receivable [note 10] Deferred tax asset [note 28] Assets held for sale [note 17] Total assets Liabilities and shareholders’ equity Current liabilities Accounts payable and accrued liabilities [note 18] Customer deposits Dividends payable Derivative instruments [note 31] Income taxes payable Current portion of due to vendor 5 3 2020 $ 2019 $ Current portion of contingent consideration Current portion of lease liability [note 20] Current portion of long-term debt [note 21] — 3,027 475 5,270 2,562 693 62,456 48,421 Current portion of optionally convertible redeemable preferred shares [note 6[c]] 17,943 — Current portion of convertible unsecured subordinated debentures [note 22] — 74,298 9,616 5,416 Provisions [note 19] 176,316 162,543 178,904 174,356 36,457 34,333 Non-current liabilities Other financial liabilities [note 27] 5,457 97 Due to vendor — 5,865 6,950 7,425 Derivative instruments [note 31] Optionally convertible redeemable preferred shares [note 6[c]] 476,156 438,456 Lease liability [note 20] Long-term debt [note 21] 354,533 363,678 14,342 9,353 350,669 351,573 249,459 264,858 Convertible unsecured subordinated debentures [note 22] Senior unsecured subordinated debentures [note 23] Deferred tax liability [note 28] 12,878 17,312 Total liabilities 19,183 16,182 Shareholders’ equity [note 24] 475 964 525 — Common shares Accumulated other comprehensive income (loss) 1,002,503 1,023,481 Equity component of convertible debentures 520 1,043 Contributed surplus 1,479,179 1,462,980 Deficit Total shareholders’ equity Total liabilities and shareholders’ equity See accompanying notes On behalf of the Board of Directors: 139,098 105,378 46,013 39,583 2,808 6,386 4,825 7,164 3,732 — 2,010 4,541 B IL L LA MBERT Director DAVID A . WHITE, CA, ICD.D Director 83,361 17,539 311,100 255,606 2,754 2,247 771 484 3,829 — 11,028 26,320 13,815 6,787 408,898 392,435 167,319 164,535 249,079 165,474 49,031 74,115 904,942 833,979 1,216,042 1,089,585 1,730 455,857 (10,262) 22,375 4,427 6,707 487,540 27,113 (220,298) (138,657) 263,137 373,395 1,479,179 1,462,980 2020 ANNUAL REPORTCONSOLIDATED STATEMENTS OF INCOME (LOSS) CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS [IN THOUSANDS OF CANADIAN DOLL ARS, E XCEPT PER SHARE AMOUNTS] Years ended December 31 Sales [note 34] Cost of goods sold [note 26[a]] Gross profit Expenses 2020 $ 2019 $ [IN THOUSANDS OF CANADIAN DOLL ARS] Years ended December 31 994,030 995,787 Profit (loss) for the year 787,340 728,047 Other comprehensive loss 2020 $ 2019 $ (61,648) 14,633 206,690 267,740 Item that may be reclassifiead subsequently to profit or loss Exchange differences on translation of foreign operations (32,275) (34,080) Selling, general and administrative [note 26[b]] 225,819 211,113 (32,275) (34,080) Other operating expense (income) [note 26[c]] 10,534 (2,238) Items that will not be reclassified to profit or loss Impairment charge Finance costs [note 26[d]] 5,111 233 Change in the fair value of equity investment [note 16[a]] 46,692 44,793 Actuarial gain (loss) on defined benefit plans Finance expense (income) [note 26[e]] (4,814) (6,917) Income tax effect on defined plans Share of associate's net loss [note 16[b]] 4,314 2,352 Profit (loss) before income taxes (80,966) 18,404 Total comprehensive loss for the year Income tax expense (recovery) [note 28] See accompanying notes 287,656 249,336 Other comprehensive loss for the year — (493) 131 (362) (900) 43 (12) (869) (32,637) (34,949) (94,285) (20,316) Current Deferred Profit (loss) for the year Profit (loss) per share [note 29] Basic Diluted See accompanying notes 7,089 5,521 (26,407) (1,750) (19,318) 3,771 (61,648) 14,633 (3.30) (3.30) 0.79 0.77 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 5 4 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUIT Y [IN THOUSANDS OF CANADIAN DOLL ARS] Years ended December 31 As at January 1, 2020 Loss for the year Other comprehensive loss Common shares $ 455,857 — — Share-based payment transactions [note 24[a] and [b]] 5,642 Dividends paid to shareholders [note 24[d] Dividends on share-based compensation awards [note 24[d]] Redemption of convertible unsecured subordinated debentures [note 22] Reduction in stated capital [note 24[a]] As at December 31, 2020 See accompanying notes — — — Equity component of convertible debentures $ Contributed surplus $ Deficit $ Foreign currency reserve $ Equity investment $ Defined benefit plan reserve $ Total shareholders' equity $ 6,707 27,113 (138,657) 23,337 (900) — — — — — — — (1,646) — — (19,635) (358) (61,648) — — — — — (32,275) — — — — — — — — — — — — (2,280) 2,304 (459,769) 1,730 — 4,427 459,769 (62) — (362) — — — — — 373,395 (61,648) (32,637) 3,996 (19,635) (358) 24 — 487,540 (220,298) (8,938) (900) (424) 263,137 As at January 1, 2019 Profit for the year Other comprehensive loss Common shares $ 450,645 — — Share-based payment transactions [notes 24[a] and 24[b]] 5,187 Dividends paid to shareholders [note 24 [d]] Dividends on share-based compensation awards [note 24[d]] Conversion of convertible unsecured subordinated debentures [note 24[a]] Redemption of convertible unsecured subordinated debentures [notes 22 and 24[b]] — — 25 — Equity component of convertible debentures $ Contributed surplus $ Deficit $ Foreign currency reserve $ 8,203 26,045 (108,018) 57,417 Equity investment $ — — — — — — — — — — (82) — — — (1,496) 1,150 14,633 — — — (44,705) (567) — — (34,080) (900) — — — — — — — — — — Defined benefit plan reserve $ (93) — 31 — — — — — Total shareholders' equity $ 434,199 14,633 (34,949) 5,105 (44,705) (567) 25 (346) 455,857 6,707 27,113 (138,657) 23,337 (900) (62) 373,395 As at December 31, 2019 See accompanying notes 5 5 2020 ANNUAL REPORTCONSOLIDATED STATEMENTS OF CASH FLOWS [IN THOUSANDS OF CANADIAN DOLL ARS] Years ended December 31 Operating activities Profit (loss) before income taxes Add (deduct) items not affecting cash 2020 $ 2019 $ Investing activities (80,966) 18,404 Acquisition of property, plant and equipment Acquisitions, net of cash acquired [note 6] Depreciation of property, plant and equipment 25,642 22,431 Investment in associate Depreciation of right-of-use assets Amortization of intangible assets Loss on sale of property, plant and equipment Gain on settlement of lease liability Loss (gain) on redemption of convertible debentures Impairment charge 3,935 3,027 Transfer to restricted cash 25,694 22,730 Proceeds from sale of property, plant and equipment 187 (3) 746 5,111 260 — (55) 233 Development and purchase of intangible assets Transaction costs and post-combination expense Cash used in investing activities Financing activities Share of loss of associate's net loss 4,314 2,352 Issuance of long-term debt, net of issuance costs Non-cash component of interest expense 5,081 6,485 Repayment of long-term debt Non-cash movement in derivative instruments 13,756 1,793 Repayment of obligation under lease liabilities (122) (226) Change in interest accrued Non-cash investment tax credits Share-based compensation expense Employer contribution to defined benefit plans Defined benefit plan expense Contingent consideration and due to vendor Translation gain on foreign exchange 8,854 5,968 — 132 (27) 131 9,778 7,267 (19,465) (16,262) 2,674 74,511 Changes in non-cash working capital balances related to operations [note 30[a]] 80,059 (13,585) Non-current accounts receivable Long-term payables Settlement of EIAP obligation Income taxes paid Cash provided by operating activities (3,001) (8,060) 333 — (2,882) (2,553) (3,013) (9,894) 74,170 40,419 (28,063) (48,539) (7,301) (112,619) — (19,720) (4,603) (3,274) 423 792 (12,064) (13,257) (11,090) (26,517) (62,698) (223,134) 149,212 203,329 (128,173) (72,563) (3,340) (2,674) (526) 464 80,979 165,402 Issuance of senior unsecured subordinated debentures, net of issuance costs [note 23] Redemption of convertible unsecured subordinated debentures (75,031) (51,786) Dividends paid in cash [note 24[d]] Cash provided by financing activities Net increase in cash during the year Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental cash flow information Interest paid See accompanying notes (20,558) (44,646) 2,563 197,526 14,035 14,811 48,421 33,610 62,456 48,421 42,312 37,442 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 5 6 5 7 2020 ANNUAL REPORTC O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 5 8 1. ORGANIZATION The consolidated financial statements of Ag Growth International Inc. [“AGI” or the “Company”] for the year ended December 31, 2020 were authorized for issuance in accordance with a resolution of the directors on March 16, 2021. 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 equipment solutions for agriculture bulk commodities, 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”]. 5 9 2020 ANNUAL REPORT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, contingent consideration, and optionally convertible redeemable preferred shares 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., Improtech Ltd., Union Iron Inc. [“Union Iron”], Airlanco Inc., Tramco, Inc., 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., Danmare, Inc., Sabe S.A.S., Milltec Machinery Private Limited, AGI SureTrack LLC, AGI SureTrack Ltd., Ag Growth International (Thailand) Ltd. as at December 31, 2020. Subsidiaries are fully consolidated from the date of acquisition, it being the date on which AGI obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. All intercompany balances, income and expenses and unrealized gains and losses resulting from intercompany transactions are eliminated in full. Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments and liabilities incurred or assumed at the date of exchange. Acquisition costs for business combinations are expensed and included in selling, general and administrative expenses. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair values at the date of acquisition. Goodwill is initially measured at cost, being the excess of the cost of the business combination over AGI’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Any negative difference is recognized directly in the consolidated statements of income (loss). If the fair values of the assets, liabilities and contingent liabilities can only be calculated on a provisional basis, the business combination is recognized using provisional values. Any adjustments resulting from the completion of the measurement process are recognized within 12 months of the date of acquisition [“measurement period”]. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of AGI’s cash-generating units [“CGUs”] or groups of 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. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 6 0 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 (loss). Non-monetary items that are not carried at fair value are translated using the exchange rates as at the dates of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The assets and liabilities of foreign operations are translated into Canadian dollars at the rate of exchange prevailing at the reporting date and their consolidated statements of income (loss) 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 (loss) when the gain or loss on disposal is recognized. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the reporting date. Cash and cash equivalents All highly liquid temporary cash investments with an original maturity of three months or less when purchased are considered to be cash equivalents. For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash, 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 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 (loss) as an expense when incurred. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows: BUILDINGS MANUFACTURING EQUIPMENT COMPUTER HARDWARE LEASEHOLD IMPROVEMENTS FURNITURE AND FIXTURES VEHICLES 5 – 60 years 1– 20 years 3 – 5 years Over the lease period 3 –15 years 2–16 years 6 1 2020 ANNUAL REPORT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 (loss) when the asset is derecognized. 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 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 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 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 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. 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 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 the consolidated statements of income (loss) if the carrying amount of the right-of- use asset has been reduced to zero. 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. 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. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 6 2 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 (loss) in the expense category consistent with the function of the intangible assets. Intangible assets with indefinite useful lives, which include brand names, are not amortized, but are tested for impairment annually, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Internally generated intangible assets are capitalized when the product or process is technically and commercially feasible and AGI has sufficient resources to complete development. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Expenditures incurred to develop new demos and prototypes are recorded at cost as internally generated intangible assets. Amortization of the internally generated intangible assets begins when the development is complete and the asset is available for use and it is amortized over the period of expected future benefit. Amortization is recorded in cost of goods sold. 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 BRAND NAMES (FINITE LIVES) 4 – 20 years 8 – 25 years 2–15 years 3 – 6 months 7 years 3 –10 years 3 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 (loss) 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 (loss) 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 (loss) and represents 6 3 2020 ANNUAL REPORTprofit or loss after tax and non-controlling interests in the subsidiaries of the associate. 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. 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 (loss). 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 the consolidated statements of income (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 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. An impairment loss is recognized in the consolidated statements of income (loss) 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 (loss), the impairment losses are recognized in those expense categories consistent with the function of the impaired asset. For assets other than goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, AGI estimates the asset’s or CGU group’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset or CGU group in prior years. Such a reversal is recognized in the consolidated statements of income (loss). 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 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 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 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 6 4 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 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 (loss). The losses arising from impairment are recognized in the consolidated statements of income (loss) in finance costs. Fair value through other comprehensive income (debt securities) Debt securities are measured at FVTOCI if [i] the financial asset is held within a business model whose object is achieved by both collecting contractual cash flows and selling financial assets and [ii] the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of 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. 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 (loss) 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 (loss). 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 (loss). 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 FVTPL. 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 6 5 2020 ANNUAL REPORT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]. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. 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, convertible unsecured subordinated debentures, and senior 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 (loss). Financial liabilities measured at FVTPL include contingent consideration resulting from business combinations and derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. AGI has not designated any financial liabilities upon initial recognition as FVTPL. Derecognition A financial asset is derecognized when the contractual rights to receive cash flows from the asset have expired or when AGI has transferred its rights to receive cash flows from the asset. 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 (loss). 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 analyzes 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 (loss), 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]. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 6 6 6 7 2020 ANNUAL REPORTC O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 6 8 A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements: Fair value of financial instruments • 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. 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. Hedges that meet the strict criteria for hedge accounting are accounted for as follows: Provisions Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognized directly as OCI in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the consolidated statements of income (loss) in other operating income or expenses. Amounts recognized as OCI are transferred to the consolidated statements of income (loss) 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 (loss). 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 OCI remains in OCI until the forecast transaction or firm commitment affects profit or loss. Off setting of financial instruments 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. 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 (loss), 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. Additional provisions for unexpected warranty events are recorded when probable and can be estimated. The initial estimate of warranty- related costs is revised at each reporting period. Profit per share The computation of profit per share is based on the weighted average number of shares outstanding during the period. Diluted profit per share is computed in 6 9 2020 ANNUAL REPORT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. 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. 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. 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 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 7 0 statements of income (loss). 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 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 amounts of deferred tax assets are 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 (loss), OCI or directly in equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognized subsequently if information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill if it occurred during the measurement period or in profit or loss, when it occurs subsequent to the measurement period. Sales tax Revenue, expenses and assets are recognized net of the amount of sales tax, except where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable and where receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statements of financial position. Share-based compensation plans Employees of AGI may receive remuneration in the form of share-based payment transactions, whereby employees render services and receive consideration in the form of equity instruments [equity-settled transactions 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 7 1 2020 ANNUAL REPORT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 (loss) in the respective function line. When options and other share-based compensation awards are exercised or exchanged, the amounts previously credited to contributed surplus are reversed and credited to shareholders’ equity. The amount of cash, if any, received from participants is also credited to shareholders’ equity. Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation and any expense not yet recognized for the award [being the total expense as calculated at the grant date] is recognized immediately. This includes any award where vesting conditions within the control of either the Company or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. Cash-settled transactions A liability is recognized for the fair value of cash-settled transactions. The fair value is measured initially and at each reporting date up to and including the settlement date, with changes in fair value recognized in employee benefits expense. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The cost of cash-settled transactions is determined using the grant date fair value and is recognized, together with a corresponding increase in liabilities, over the period in which the performance and/or service conditions are fulfilled. The approach used to account for vesting conditions when measuring equity-settled transactions also applies to cash-settled transactions. 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. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 7 2 Re-measurements including actuarial gains and losses and the impact of any minimum funding requirements are recognized through OCI. Adoption of new accounting policies 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 (loss) 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 (loss) over the expected useful life in a consistent manner with the depreciation method for the relevant assets. Income-related government grants received are recorded against cost of goods sold and selling, general and administrative expenses. 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. Amendments to IAS 1 and IAS 8 Definition of Material [“IAS 1” and “IAS 8”] The Company adopted amendments IAS 1 and IAS 8 with a date of application of January 1, 2020. The amendments provide a new definition of material, such that “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments to IAS 1 and IAS 8 clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments are effective for annual periods beginning on or after January 1, 2020. The Company’s adoption of these amendments did not have a significant impact on the Company’s consolidated financial statements. Amendments to IFRS 3, Business Combinations [“IFRS 3”] The Company adopted amendments to IFRS 3 with a date of application of January 1, 2020. 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 are 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. Consequently, transactions that occurred in prior periods do not need to be reassessed. The Company’s adoption of the amendments to IFRS 3 did not have a significant impact on the Company’s consolidated financial statements. 7 3 2020 ANNUAL REPORT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. Impact of COVID-19 pandemic Although the Company’s business has been impacted by the emergence of COVID-19, disruption of production, its supply chain and product delivery was temporary in nature. AGI operations were captured as essential services in many regions. Large capital projects saw routine delays due to planning challenges and general market uncertainty The Company has assessed its accounting estimates and other matters that require the use of forecasted financial information for the impact of the COVID-19 pandemic. Accounting estimates and other matters assessed include the allowance for expected credit losses of receivables from customers, goodwill and other long-lived assets, financial assets, and tax assets. Based on management’s assessment, there was not a material impact to these consolidated financial statements. As additional information becomes available, the future assessment of these estimates, including the impact of expectations about the severity, duration and scope of the pandemic on estimates and assumptions made by management, could differ materially in future reporting periods. Provisions for equipment rework and remediation costs As a component of its warranty provisions, the Company has recognized a provision for equipment rework and remediation costs in relation to events that occurred in 2019 and 2020 [note 19]. In determining the provision, assumptions and estimates are made in relation to expected costs and expected timing of those costs. Assumptions and judgments are used in various probability weighted scenarios based on information known as at the reporting date. The nature and scope of work and costs estimated are determined in consultation with internal and external advisors and is management’s best estimate of the expenditures required to settle the present obligation at the end of the reporting period. As additional information becomes available, estimates and assumptions made by management, could differ materially in future reporting periods. 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 gross margins and revenue growth rate used for extrapolation purposes. A change in any of the significant assumptions or estimates used to evaluate goodwill and other non-financial assets could result in a material change to the results of operations. The key assumptions used to determine the recoverable amount for the different CGUs are further explained in note 15. 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. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 7 4 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, Africa, 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 31[b]. The letters of credit and other forms of credit insurance are considered an 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. 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 cannot be derived from active markets, it is determined using valuation techniques including 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 7 5 2020 ANNUAL REPORT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. Leases – Estimating the incremental borrowing rate The Company cannot readily determine the interest rate implicit in leases; therefore, it uses its incremental borrowing rate [“IBR”] to measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Company “would have to pay”, which requires estimation when no observable rates are available [such as subsidiaries that do not enter into financing transactions] or when they need to be adjusted to reflect the terms and conditions of the lease. The Company estimates the IBR using observable inputs, such as market interest rates, when available and is required to make certain entity-specific estimates [such as a subsidiary’s stand-alone credit rating]. Business combinations For acquisition accounting purposes, all identifiable assets, liabilities and contingent liabilities acquired in a business combination are recognized at fair value at the date of acquisition. Estimates are used to calculate the fair value of these assets and liabilities as at the date of acquisition. Contingent consideration resulting from business combinations is valued at fair value at the acquisition date as part of the business combination. Where the contingent consideration is recognized, it is subsequently remeasured to fair value at each reporting date. The determination of the fair value is based on discounted cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount factor. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 7 6 7 7 2020 ANNUAL REPORT5. STANDARDS ISSUED BUT NOT YET EFFECTIVE Amendments to IAS 1 – Presentation of Financial Statements [“ IAS 1” ] In January 2020, amendments were issued to IAS 1, which provide requirements for classifying liabilities as current or non-current. Specifically, the amendments clarify: • What is meant by a right to defer settlement • That a right to defer must exist at the end of the reporting period • That classification is unaffected by the likelihood that an entity will exercise its deferral right • That only if an embedded derivative in a convertible liability is itself an equity instrument, would the terms of a liability not impact its classification The amendments must be applied retrospectively for annual periods beginning after January 1, 2023. The Company will assess the impact, if any, of adoption of the amendment. 6. BUSINESS COMBINATIONS [a] 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, 2020, $556 [2019 – $1,222] related to certain terms of the purchase agreement were expensed and $667 was paid. 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. 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 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 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 7 8 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. The $7.3 million of post-combination expense is contingent on certain conditions that may not be fully met. During the year ended December 31, 2020, $1,202 [2019 – $3,041] related to certain terms of the purchase agreement was expensed. During the year ended December 31, 2020, the earn-out target was met and as a result, the contingent consideration of $5.1 million was reclassified to due to vendor and was paid in full. The components of the purchase consideration are as follows: Cash paid Due to vendor Purchase consideration $ 1,000 1,041 2,041 In 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 (recovery) related to the Improtech acquisition in the year ended December 31, 2020, were $(10) [2019 – $107] and are included in selling, general and administrative expenses. [b] 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 7 9 $ 19,350 53 87 5,105 (1,566) 23,029 (7,340) 15,689 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. 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 The goodwill of $13,358 comprises the value of the assembled workforce and other expected synergies arising from the acquisition. 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. 2020 ANNUAL REPORT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 from vendor Contingent consideration Purchase consideration $ 12,010 (1,426) 5,105 15,689 Cash Restricted cash Accounts receivable Inventory In 2019, the allocation of the purchase price to acquired assets and liabilities was finalized. Transaction costs related to the IntelliFarms acquisition in the year ended December 31, 2020, were $119 [2019 – $162] and are included in selling, general and administrative expenses. [c] 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. 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 $ 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 Purchase price Cash acquired Working capital adjustment Due to vendor Optionally convertible redeemable preferred shares [“OCRPS”] Purchase consideration $ Deferred tax liability 113,079 Long-term payables Purchase consideration 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 2020 through 2024. During the year ended December 31, 2020, due to vendor amounts of $1.1 million related to pre-acquisition GST refunds was paid to the vendor upon Milltec’s receipt from the India government. 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 goodwill of $92,297 comprises the value of the assembled workforce and other expected synergies arising from the acquisition. 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. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 8 0 The components of the purchase consideration are as follows: Cash paid Due to vendor Optionally convertible redeemable preferred shares Purchase consideration Purchase price $ Cash acquired 106,845 Due to vendor 17,929 26,494 Total purchase price Post-combination expense 151,268 Purchase consideration $ 12,500 199 153 12,852 (5,000) 7,852 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 [$30.5 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 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 FVTPL. The $5 million of post-combination expense is expected to be expensed over a five- year period, contingent on certain conditions. During the year ended December 31, 2020, $2,283 [2019 – nil] related to certain terms of the purchase agreement were expensed. The purchase has been accounted for by the acquisition method, with the results of Affinity included in the Company’s net earnings from the date of acquisition. During the measurement period, a change was identified in Affinity’s opening tax position, resulting in a $34 increase in income taxes recoverable and amounts due to vendor, and a $32 decrease in deferred tax liability and goodwill. In addition, during the measurement period, the fair value of right-of-use assets and lease liability has been adjusted, resulting in an increase of $141 to each. During the three-month period ended March 31, 2020, the allocation of the purchase price to acquired assets and liabilities was finalized. Subsequent to the year ended December 31, 2020, the allocation of the purchase price to acquired assets and liabilities was finalized. Transaction costs related to the Milltec acquisition in the year ended December 31, 2020, were $680 [2019 – $2,148] and are included in selling, general and administrative expenses. [d] Aff inity Management Ltd. Effective January 16, 2020, the Company acquired 100% of the outstanding shares of Affinity Management Ltd. [“Affinity”]. Based in Canada, Affinity is a provider of software solutions to the agriculture industry under the brand name Compass®. The Compass product suite is highly complementary to AGI’s current offering and will be a key component of the full AGI SureTrack platform. 8 1 2020 ANNUAL REPORTThe following table summarizes the fair values of the identifiable assets and liabilities as at the date of acquisition: 7. RESTRICTED CASH Cash Accounts receivable Prepaid expenses and other assets Income taxes recoverable Property, plant and equipment Right-of-use assets Intangible assets Software Goodwill Accounts payable and accrued liabilities Customer deposits Lease liability Deferred tax liability Purchase consideration $ 199 18 15 153 63 2,207 3,322 5,012 (92) (5) (2,207) (833) 7,852 Restricted cash relates to a division of AGI’s arrangement with a supplier under which the terms of the arrangement require the division to secure letters of credit to cover a certain percentage of the amounts payable. The restricted cash balance changes in proportion to the division’s purchases from the supplier to meet sales demand. As at December 31, 2020, restricted cash is $9,616 [2019 – $5,416]. 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: The goodwill of $5,012 comprises the value of the assembled workforce and other expected synergies arising from the acquisition. Total current accounts receivable Less allowance for doubtful accounts The fair value of the accounts receivable acquired is $18. This consists of the gross contractual value of $20 less the estimated amount not expected to be collected of $2. From the date of acquisition, Affinity contributed to the results $419 of revenue and $4,731 of net loss. Revenue and net loss that occurred as though the acquisition date for the business had been as of the beginning of the annual reporting period is impracticable to disclose due to Affinity historically reporting under differing reporting standards and differing year-end. The components of the purchase consideration are as follows: Cash paid Due to vendor Purchase consideration $ 7,500 352 7,852 Transaction costs related to the Affinity acquisition in the year ended December 31, 2020 were $50 [2019 – nil] and are included in selling, general and administrative expenses. The due to vendor balance was paid during the year. 2020 $ 180,384 (4,068) 2019 $ 164,301 (1,758) 176,316 162,543 19,183 16,182 195,499 178,725 Non-current accounts receivable Total accounts receivable, net Of which Neither impaired nor past due 159,254 132,022 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 14,321 18,200 5,169 5,047 15,776 (4,068) 5,877 8,051 16,333 (1,758) 195,499 178,725 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 8 2 8 3 2020 ANNUAL REPORTNon-current accounts receivable is the present value of asset-backed receivables. These receivables are backed by customers’ crop pledge and/or property, plant and equipment. Trade receivables assessed to be impaired are included as an allowance in selling, general and administrative expenses in the period of the assessment. The movement in the Company’s allowance for doubtful accounts for the years ended December 31, 2020 and December 31, 2019 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 2020 $ 1,758 2,798 (674) 186 4,068 2019 $ 1,531 298 (27) (44) 1,758 2020 $ 87,312 91,592 2019 $ 85,017 89,339 178,904 174,356 10. NOTES RECEIVABLE Included in notes receivable is a promissory note in the amount of $5.3 million due from a third-party. The note receivable bears interest at 5% per annum payable quarterly and is due on October 29, 2021. In addition, the Company sold selected assets of a wholly owned subsidiary during 2016 and as a result a remaining non- interest bearing note receivable of $600 is due in six annual payments. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 8 4 11. PROPERT Y, PLANT AND EQUIPMENT Land $ Grounds $ Buildings $ Leasehold improvements $ Furniture and fixtures $ Vehicles $ Computer hardware $ Manufacturing equipment $ Construction in progress $ Total $ Cost Balance, January 1, 2020 34,761 Additions Leasehold improvements received Acquisitions Transfer from assets held for sale Disposals Impairment [note 15] Exchange differences Balance, December 31, 2020 Depreciation Balance, January 1, 2020 Depreciation Disposals Exchange differences Balance, December 31, 2020 Net book value, January 1, 2020 Net book value, December 31, 2020 — — — — — (80) (631) 34,050 — — — — — 34,761 34,050 7,186 204 169,236 8,784 — — — — (177) (271) 6,942 — — 375 — (1,700) (5,743) 170,952 1,699 20,419 608 — (52) 2,255 5,487 4,687 5,094 — (417) 25,096 148,817 145,856 9,102 4,622 2,086 — — (62) — (307) 15,441 2,020 1,252 (29) (42) 3,201 7,082 12,240 4,255 1,303 — 46 — (135) — (42) 20,311 593 — — — (591) — (239) 5,427 20,074 1,918 527 (107) (10) 2,328 2,337 3,099 6,935 2,217 (256) (154) 8,742 13,376 11,332 10,025 2,189 — 17 — (93) — (136) 12,002 5,614 1,451 (85) (90) 6,890 4,411 5,112 195,375 13,569 12,705 462,956 (3,201) 28,063 — — — (635) — (4,579) 203,730 60,673 14,493 (429) (1,891) 72,846 134,702 130,884 — — — — — 2,086 63 375 (1,516) (1,957) (2,231) (14,179) 7,273 475,891 — — — — — 99,278 25,642 (906) (2,656) 121,358 12,705 363,678 7,273 354,533 8 5 2020 ANNUAL REPORTLand $ Grounds $ Buildings $ Leasehold improvements $ Furniture and fixtures $ Vehicles $ Computer hardware $ Manufacturing equipment $ Construction in progress $ Total $ Cost Balance, January 1, 2019 Additions Acquisitions Transfer to right-of-use assets [note 12] Disposals Impairment Exchange differences Balance, December 31, 2019 Depreciation Balance, January 1, 2019 Depreciation Transfer to right-of-use assets [note 12] Disposals Exchange differences Balance, December 31, 2019 Net book value, January 1, 2019 Net book value, December 31, 2019 22,411 503 13,754 — — (187) (1,720) 34,761 — — — — — — 22,411 34,761 6,350 1,055 — — (31) — (188) 7,186 1,303 466 — (7) (63) 1,699 5,047 5,487 167,486 5,840 2,854 — (3) — (6,941) 169,236 15,967 4,891 — — (439) 20,419 151,519 148,817 5,688 4,067 45 — (96) — (602) 9,102 3,632 703 235 — (111) — (204) 4,255 1,478 1,649 573 — (23) (8) 2,020 4,210 7,082 400 — (51) (80) 1,918 1,983 2,337 17,327 6,278 578 (70) (1,197) — (2,605) 20,311 7,083 2,079 (21) (705) (1,501) 6,935 10,244 13,376 7,443 2,513 214 — (31) — (114) 10,025 4,522 1,163 — (30) (41) 5,614 2,921 4,411 169,489 13,150 412,976 27,496 3,596 (259) (956) — (3,991) 195,375 48,329 12,859 (28) (557) 70 60,673 121,160 134,702 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 13,150 332,645 12,705 363,678 AGI regularly assesses its long-lived assets for impairment. As at December 31, 2020 and 2019, 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 2020 or 2019. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 8 6 12. RIGHT-OF-USE ASSETS Vehicles $ Manufacturing equipment $ Furniture and fixtures $ 387 175 — Buildings $ 6,745 2,601 420 (2,147) (128) (23) 7,596 6,122 2,207 (46) (13) 421 186 — (26) 589¹ 140 24 (293) (17) 443 747 — (10) Total $ 9,071 2,968 444 1,350¹ 52 — (459) (3,027) (50) 893 225 — (8) (103) 9,353 7,280 2,207 (90) (2,787) (189) (429) (530) (3,935) Balance, January 1, 2019 Additions Acquisitions Depreciation Exchange differences Balance, December 31, 2019 Additions Acquisitions Termination Depreciation Exchange differences (362) Balance, December 31, 2020 12,730 (15) 377 (70) 681 (26) 554 (473) 14,342 ¹ Includes $280 transferred from property, plant and equipment for leases previously classified as finance leases under IAS 17 and IFRIC 4. 13. GOODWILL Balance, beginning of year Acquisitions [note 6] Exchange differences Balance, end of year 2020 $ 2019 $ 351,573 256,619 5,012 107,308 (5,916) (12,354) 350,669 351,573 8 7 2020 ANNUAL REPORT14. INTANGIBLE ASSETS Cost Balance, January 1, 2020 Internal development Acquisitions Impairment Exchange differences Balance, December 31, 2020 Amortization Balance, January 1, 2020 Amortization Impairment Exchange differences Balance, December 31, 2020 Net book value, January 1, 2020 Net book value, December 31, 2020 Cost Balance, January 1, 2019 Internal development Acquisitions Exchange differences Distribution networks and customer relationships $ Brand names $ Patents $ Software $ Order backlog $ Non-compete agreement $ Development projects $ 175,164 135,810 3,068 — — — (1,367) 173,797 75,207 14,218 — (862) 88,563 99,957 85,234 Distribution networks and customer relationships $ — — (2,812) (872) 132,126 — 1,441 — (14) 1,427 135,810 130,699 Brand names $ 59 — — (24) 3,103 2,218 164 — (24) 2,358 850 745 12,203 1,859 3,322 — (245) 17,139 4,776 3,677 — (177) 8,276 7,427 8,863 13,419 — — — (132) 13,287 13,417 2 — (132) 13,287 2 — 114 — — — — 114 95 17 — — 112 19 2 27,275 10,146 — (625) (674) 6,482 6,175 (283) (168) 12,206 20,793 23,916 Patents $ Software $ Order backlog $ Non-compete agreement $ Development projects $ 36,122 375,688 153,863 124,579 3,023 — 25,950 (4,649) — 14,533 (3,302) 106 — (61) 6,725 2,488 3,335 (345) Balance, December 31, 2019 175,164 135,810 3,068 12,203 Amortization Balance, January 1, 2019 Amortization Exchange differences Balance, December 31, 2019 Net book value, January 1, 2019 Net book value, December 31, 2019 63,304 13,436 (1,533) 75,207 90,559 99,957 — — — — 124,579 135,810 2,157 153 (92) 2,218 866 850 3,522 1,445 (191) 4,776 3,203 7,427 9,768 — 4,215 (564) 13,419 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 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 8 8 Total $ 367,053 12,064 3,322 (3,437) (3,314) 102,195 25,694 (283) (1,377) 126,229 264,858 249,459 Total $ 313,574 13,257 48,033 (7,811) 367,053 80,375 22,730 (910) 102,195 233,199 264,858 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. Included within intangible assets are brand names with a carrying amount of $127,847 [2019 – $135,810] 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. Additionally, during the year ended December 31, 2020, the Company identified brand names in which an end point of useful life could be determined. As at December 31, 2020, the carrying amount of $2,852 and remaining life of 2 years are included within intangible assets. The Company assesses the assumption of an indefinite useful life at least annually. For intangible assets, the Company assesses whether there are indicators of impairment at each reporting dates as a triggering event for performing an impairment test. During the year ended December 31, 2020, the Company decided to discontinue the Union Iron brand name (indefinite-life intangible asset), which consequently, at September 30, 2020, triggered an impairment test to be performed for Union Iron, a CGU of the Company. As a result of the value-in-use calculation, as at September 30, 2020, it was determined, using a discount rate of 9.0%, that the recoverable amount of Union Iron was less than its carrying value. The impairment amount calculated was applied on a pro rata basis over the CGU’s identifiable assets, and consequently, an impairment charge of $1,957 against property, plant and equipment [note 11] and $3,154 against intangible assets was recognized. Intangible assets and research and development expenses for the year ended December 31, 2020 are net of combined federal and provincial scientific research and experimental development [“SR&ED”] tax credits in the amounts of $(51) and $121, 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, 2020, the Company had federal investment tax credit carryforwards in the amount of $908 [2019 – nil], federal SR&ED investment tax credit carryforwards in the amount of $1,340 [2019 – $1,038], provincial SR&ED investment tax credit carryforwards in the amount of $366 [2019 – $786] and provincial manufacturing or processing tax credits in the amount of $384 [2019 – $658]; these begin expiring in 2026. Other significant intangible assets are 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. 15. 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, 2020, 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 10.4% and 10.8%, respectively [2019 – 11.1% and 10.9%] and cash flows beyond the five-year period are extrapolated using a 2% growth rate [2019 – 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 2020 $ 2019 $ 150,098 79,299 200,571 48,548 350,669 127,847 145,378 79,501 206,195 56,309 351,573 135,810 8 9 2020 ANNUAL REPORTThe values of significant indefinite-life intangible assets are held by the Westfield and Westeel CGUs, the values of which are $19,000 and $43,300, respectively. 16. EQUIT Y INVESTMENTS Key assumptions used in valuation calculations [a] Equity investment at fair value through OCI The calculation of value in use for all the CGUs or group of CGUs is most sensitive to the following assumptions: • Gross margins; • Discount rates; • Revenue growth rate used to extrapolate cash flows beyond the budget period. Gross margins Forecasted gross margins are based on actual gross margins achieved in the years preceding the forecast period. Margins are kept constant over the forecast period and the terminal period unless management has started an efficiency improvement process. Discount rates Discount rates reflect the current market assessment of the risks specific to each CGU or group of CGUs. The discount rate was estimated based on the weighted average cost of capital for the industry. This rate was further adjusted to reflect the market assessment of any risk specific to the CGU or group of CGUs for which future estimates of cash flows have not been adjusted. Revenue and terminal growth rate estimates Revenue and terminal growth rates are based on approved budgets, published research and the terminal growth rate 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. 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 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. [b] Investment in associate Carrying value, beginning of year Additions in the year Share of net loss for the year before adjustments Amortization of fair value adjustments Share of net loss for the year Share of other comprehensive loss Carrying value, end of year 2020 $ 17,312 2019 $ — — 19,720 (3,653) (661) (4,314) (120) 12,878 (1,598) (754) (2,352) (56) 17,312 In 2019, the Company acquired an equity interest in Farmobile Inc. [“Farmobile”], a privately owned agriculture technology company, headquartered in Leawood, Kansas. 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. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 9 0 Set out below is select financial information derived from Farmobile’s consolidated financial statements in United States dollars (“USD”) using United States GAAP converted into IFRS in Canadian dollars (“CAD”) for information purposes: 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 31. 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 17. ASSETS HELD FOR SALE 2020 $ 6,047 8,363 (4,137) (94) 10,179 3,868 12,696 (3,686) 12,878 2019 $ 19,359 3,542 (1,706) (8) 21,187 8,051 12,696 (3,435) 17,312 19. 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, with the exception of the equipment rework and remediation costs which were estimated as described below. Balance, beginning of year Additional provisions recognized Amounts written off and utilized Acquisitions Balance, end of year 2020 $ 17,539 88,386 2019 $ 7,685 18,007 (22,564) (10,870) — 83,361 2,717 17,539 Assets held for sale include a building in Brazil recorded at the lower of cost and fair value less cost to sell. As at December 31, 2020, the carrying amount of the assets held for sale is $520. Remediation costs 18. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Over the period of 2019-2020, AGI entered into agreements to supply 35 large hopper bins for installation by third parties on two grain storage projects. On September 11, 2020, a bin at one of the customer facilities collapsed during commissioning. The incident did not result in any injuries and AGI immediately issued a demand to suspend use of the product at both sites. A total of 15 similar bins are located at the incident site and 20 bins are located on a second site, which are erected but have yet to be commissioned. Clean-up by the customer at the site of the collapse has begun and continues to progress. The exact cause of the collapse is currently undetermined and a complete investigation can be carried out once the site is fully accessible. 2020 $ 77,161 25,237 33,883 2,817 2019 $ 51,753 25,280 26,523 1,822 139,098 105,378 The Company continues to investigate the incident and has made progress in determining the approach to remediation in consultation with internal and external Trade payables Other payables Personnel-related accrued liabilities Accrued outstanding service invoices 9 1 2020 ANNUAL REPORTadvisors. While the Company initially proceeded on the basis of providing full remediation to the two affected customer sites, one customer has proceeded to undertake the remediation themselves and the Company has determined to proceed with replacing the entire hopper base for the 20 bins located at the second site. Remediation work on the second site is expected to begin in April 2021 and is estimated to be completed during the year. During the year, the Company recorded a provision of $70 million for the remediation work. As at December 31, 2020, the warranty provision is $69.7 million with $282 of the provision having been utilized during the year. The provision for remediation required significant estimates and judgments about the scope, nature, timing and cost of work required. It is based on management’s assumptions and estimates at the current date with the cause and determination of responsibility an area of significant estimation uncertainty as the investigation has not been completed and causation has not been determined. AGI, in consultation with its advisors, has estimated various probability weighted scenarios, including investigation and remediation costs, at the two sites. The provision was determined based on management’s assessment of the cost of investigation and remediation. Key assumptions utilized by management in the determination of its probability-weighted provision included the degree of liability, if any, the estimated number of third-party investigation and legal hours, estimated volume of materials and material costs, estimated internal and external labor hours, equipment costs and third-party construction costs. Further insight into the cause of, and responsibility for, the incident will take time. As the investigation of the incident continues to be conducted, the provision is subject to revision in the future as further information becomes available to the Company, the impact of which could be material. In addition, while there is possibility of legal action against the Company with respect to damages, no formal claims have been filed at this time and any outcome is therefore not determinable and no disclosure has been made with respect to any potential contingent liabilities. The Company also believes that the provision of $70 million will be partially offset by insurance coverage and result in a lower net impact. AGI is working with insurance providers and external advisors to determine the extent of this cost offset. Insurance recoveries, if any, will be recorded when received. As at March 16, 2021, the Company had not filed any insurance claim or received any insurance recoveries. Equipment rework During the year, the Company recorded an additional provision for equipment rework of $10 million [2019 - $10 million] to address issues with equipment designed and supplied to the one commercial facility where the reported bin collapse occurred. The bin collapse and the rework are distinct, and the rework did not involve the hopper product. As at December 31, 2020, included in the Company’s warranty provision is $4,520 related to the equipment rework with $13,538 [2019 - $1,942] of the provision having been utilized during the year as the rework was undertaken. The remaining provision as at December 31, 2020 is management’s best estimate of the remaining costs to complete the rework, including final costs of commissioning, legal and consulting fees. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 9 2 20. LEASE LIABILIT Y Current Non-current Lease liability Incremental borrowing rate % Maturity 1.7 – 29.3 2021 2020 $ 3,027 1.7 – 29.3 2022 – 2030 13,815 16,842 2019 $ 2,562 6,787 9,349 [a] Bank indebtedness 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, 2020, there was nil [2019 – $345] 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. The Company has various lease contracts that have not yet commenced as at December 31, 2020. The future lease payments for the non-cancellable lease contracts are $426 within one year and $322 within five years. [b] Long-term debt On April 29, 2020, the Company amended its credit facility agreement to include Farm Credit Canada to its Canadian lending syndicate, increased the Company’s senior revolving facility by $50 million and created a separate one-year revolving facility of $50 million to provide increased short-term flexibility during the COVID-19 crisis. No amount has been drawn on this facility as of December 31, 2020. AGI’s revolver facilities of $225 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 1.2% to BA or LIBOR plus 2.5% and prime plus 0.2% to prime plus 1.5% per annum based on performance calculations. The combined effective interest rate for the year ended December 31, 2020 on AGI’s revolver facilities was 3.92%. As at December 31, 2020, there was $354 million [2019 – $337 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 31[a]]. 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. 21. LONG-TERM DEBT Interest rate % Maturity Current portion of long-term debt Canadian swing line Equipment financing Non-current portion of long-term debt Equipment financing Nil Nil Series B secured notes 4.4 – 5.2 2020 $ — 475 475 2019 $ 345 348 693 2025 2025 917 773 25,000 25,000 Series C secured notes [U.S. dollar denominated] Canadian Revolver U.S. Revolver Less deferred financing costs Long-term debt 3.7 – 4.5 2026 31,830 32,470 3.5 – 6.5 2.1 – 4.8 2025 2025 151,528 140,511 202,693 196,379 411,968 395,133 (3,070) (2,698) 408,898 392,435 409,373 393,128 9 3 2020 ANNUAL REPORT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 3.75 for fiscal 2020 and 3.25 thereafter, the calculation of which excludes the convertible unsecured subordinated debentures and the senior 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 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. The April 29, 2020 amendments to the credit facility include a suspension of all financial covenant requirements for the nine-month period ending October 31, 2020 as well as the ability to normalize Q1 2020 and Q2 2020 financial results for certain COVID-19 impacts when calculating trailing EBITDA in future covenant calculations. Following October 31, 2020, AGI’s minimum leverage ratio covenant returned to 3.75x up to and including the calculation as at March 31, 2021. The minimum leverage ratio decreases to 3.50x for the quarter ending June 30, 2021 and returns to 3.25x thereafter. The maturity date of the facility remains March 20, 2025. The amendments do not impact terms of AGI’s Series B and C secured notes that total $60 million. As at December 31, 2020 and December 31, 2019, AGI was in compliance with all financial covenants. 22. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES Current portion of convertible unsecured subordinated debentures — 74,298 Non-current portion of convertible unsecured subordinated debentures 2020 $ 2019 $ Principal amount Equity component Accretion Financing fees, net of amortization Convertible unsecured subordinated debentures 172,475 172,475 (6,351) (6,351) 4,091 2,827 (2,896) (4,416) 167,319 164,535 167,319 238,833 Year issued Aggregate principal amount $ Coupon Conversion price $ Conversion rate [1] Number of common shares reserved for issuance upon conversion Maturity date Redeemable at par [2][3] 2015 75,000 5.00% 60.00 16.6667 1,250,000 31-Dec-20 01-Jan-20 2017 86,225 4.85% 2018 86,250 4.50% 83.45 88.15 11.9832 1,033,551 30-Jun-22 30-Jun-21 11.3443 978,446 31-Dec-22 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, 2020. 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. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 9 4 On redemption or at maturity, the Company may, at its option, elect to satisfy its obligation to pay the principal amount of the Debentures by issuing and delivering common shares. The Company may also elect to satisfy its obligation to pay interest on the Debentures by delivering sufficient common shares. The Company does not expect to exercise the option to satisfy its obligations to pay the principal amount or interest by delivering common shares. The number of shares issued will be determined based on market prices at the time of issuance. On January 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. A loss of $746 was recorded to loss on financial instruments, and the equity component of the 2015 Debentures was reclassified to contributed surplus. In 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 (loss). 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: 2020 Year issued 2017 2018 Accretion $ Non-cash interest expense $ Interest expense $ 853 412 731 790 4,182 3,881 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 Accretion $ Non-cash interest expense $ Interest expense $ 2019 2014 2015 2017 2018 117 663 806 398 137 681 689 759 649 3,750 4,182 3,881 23. SENIOR UNSECURED SUBORDINATED DEBENTURES Year issued Aggregate principal amount $ Offering costs $ Equity component $ 2017 2018 86,250 86,250 3,673 3,957 4,290 2,063 Principal amount Debenture put options, net of amortization Financing fees, net of amortization Senior unsecured subordinated debentures 2020 $ 2019 $ 257,500 172,500 661 — (9,082) (7,026) 249,079 165,474 The liability component is accreted using the effective interest rate method. The equity component of $4,427 [2019 – $6,707] on the consolidated statements of financial position is net of income taxes of $1,636 [2019 – $2,471] and its pro rata share of financing costs of $290 [2019 – $452]. During the year ended December 31, 2020, the Company recorded accretion, non-cash interest expense relating to financing costs, and interest expense on the coupon of: Year issued 2019 March 2019 November 2020 March Aggregate principal amount $ Coupon Maturity date Redeemable 86,250 86,250 85,000 5.40% 5.25% 5.25% 30-Jun-24 30-Jun-22[1][3] 31-Dec-24 31-Dec-22[2][3] 31-Dec-26 31-Dec-22 9 5 2020 ANNUAL REPORT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. On March 5, 2020, the Company closed the offering of $85 million aggregate principal amount of senior subordinated unsecured debentures [the “2020 Debentures”] at a price of $1,000 per Debenture [the “Offering”]. The net proceeds of the Offering were used to repay indebtedness and for general corporate purposes. The Debentures will not be convertible into common shares of the Company at the option of the holders at any time. The Company’s redemption option resulted in recognition of an embedded derivative with a fair value of $754 at time of issuance [note 31[a]]. An offsetting and equal amount was recorded to senior unsecured subordinated debentures and will be amortized over the term of the 2020 Debentures. During the year ended December 31, 2020, the Company recorded non-cash interest expense of $1,688 [2019 – $561] relating to financing costs and interest expense on the coupon of $13,368 [2019 – $4,164], offset by amortization of the embedded derivative of $93 [2019 – nil]. 24. EQUIT Y The Debentures 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 have a maturity date of December 31, 2026. [a] Common shares Authorized 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 [note 31[a]]. 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. Unlimited number of voting common shares without par value Issued 18,718,415 common shares Balance, January 1, 2019 Settlement of EIAP obligation Convertible unsecured subordinated debentures Balance, December 31, 2019 Settlement of EIAP obligation Reduction in stated capital Balance, December 31, 2020 Shares # Amount $ 18,363,780 450,645 294,400 5,187 299 25 18,658,479 455,857 59,936 5,642 — (459,769) 18,718,415 1,730 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 9 6 9 7 2020 ANNUAL REPORTC O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 9 8 On May 19, 2020, the Company’s shareholders voted to reduce the stated capital account maintained in respect of common shares to $1 without payment or distribution to shareholders. A corresponding increase was made to the Company’s contributed surplus. [b] Contributed surplus Balance, beginning of year Equity-settled director compensation [note 25[a]] Dividends on EIAP Obligation under EIAP [note 25[a]] Settlement of EIAP obligation 2020 $ 2019 $ 27,113 26,045 626 358 497 567 5,802 5,471 (8,432) (6,617) Redemption of convertible unsecured subordinated debentures 2,304 1,150 Reduction in stated capital Balance, end of year 459,769 — 487,540 27,113 [c] Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss) comprises of the following: 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, 2020, the Company declared dividends of $19,635 or $1.05 per common share [2019 – $44,705 or $2.40 per common share] and dividends on share compensation awards of $358 [2019 – $567]. In the year ended December 31, 2020, dividends paid to shareholders were financed $20,558 [2019 – $44,646] from cash on hand. On April 14, 2020, the Company announced a reduction of its dividend from an annual level of $2.40 to $0.60 per common share. At the same time, the dividend moved from monthly to quarterly payments. [e] Shareholder protection rights plan On December 20, 2010, the Company’s Board of Directors adopted a Shareholders’ Protection Rights Plan [the “Rights Plan”]. Specifically, the Board of Directors has implemented the Rights Plan by authorizing the issuance of one right [a “Right”] in respect of each common share [the “Common Shares”] of the Company. If a person or a Company, acting jointly or in concert, acquires [other than pursuant to an exemption available under the Rights Plan] beneficial ownership of 20% or more of the Common Shares, Rights [other than those held by such acquiring person, which will become void] will separate from the Common Shares and permit the holder thereof to purchase that number of Common Shares having an aggregate market price [as determined in accordance with the Rights Plan] on the date of consummation or occurrence of such acquisition of Common Shares equal to four times the exercise price of the Rights for an amount in cash equal to the exercise price. The exercise price of the Rights pursuant to the Rights Plan is $150 per Right. [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 9 9 2020 ANNUAL REPORTiii. The aggregate number of votes, which the holders of all preferred shares then outstanding would be entitled to cast at any meeting of the shareholders of the Company [other than meetings at which only holders of preferred shares are entitled to vote], would exceed 20% of the aggregate number of votes, which the holders of all common shares then outstanding would be entitled to cast at any such meeting. As at December 31, 2020, 742,477 [2019 – 600,852] Restricted Awards and 723,585 [2019 – 663,408] 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, 2020, AGI expensed $8,229 for the EIAP [2019 – $5,471]. As at December 31, 2020 and December 31, 2019, no preferred shares were issued or outstanding. A summary of the status of the options under the EIAP is presented below: 25. SHARE-BASED COMPENSATION PLANS [a] Equity incentive award plan [“ EIAP” ] On May 11, 2012, the shareholders of AGI approved an Equity Incentive Award Plan [the “EIAP”], which authorizes the Board to grant Restricted Awards [“Restricted Awards”] and Performance Awards [“Performance Awards”] [collectively, the “Awards”] to persons who are officers, employees or consultants of the Company and its affiliates. Awards may not be granted to non-management Directors. On May 19, 2020 the shareholders of AGI approved an amendment to the EIAP to increase the number of common shares available for issuance to 1,910,000. 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. Outstanding, January 1, 2019 Granted Vested Forfeited Balance, December 31, 2019 Granted Vested Forfeited Modified Cancelled Balance, December 31, 2020 EIAP Restricted Awards # Performance Awards # 138,980 194,846 (80,918) (8,500) 244,408 224,578 (70,582) (6,724) (82,952) — 308,728 156,777 222,736 (249,762) (20,254) 109,497 60,178 (7,108) (892) — (58,501) 103,174 There is no exercise price on the EIAP awards. 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. During the year ended December 31, 2020, AGI’s short-term incentive plan for the year was changed from an equity-settled to a cash-settled shared-based plan. As a result of the modification, $2,910 was recorded in accounts payable and accrued liabilities. 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%. [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 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 0 0 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, 2020, an expense of $626 [2019 – $497] 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, 2020, 25,068 [2019 – 9,793] common shares were granted under the DDCP, and as at December 31, 2020, a total of 113,013 [2019 – 87,946] common shares had been granted under the DDCP and 18,436 [2019 – 18,436] common shares had been issued. [c] Summary of expenses recognized under share-based payment plans For the year ended December 31, 2020, an expense of $8,854 [2019 – $5,968] was recognized for employee and Director services rendered. 1 0 1 2020 ANNUAL REPORT2020 $ 2019 $ (444) (235) (4,370) (6,682) (4,814) (6,917) 260,994 246,103 8,854 6,679 5,968 6,430 276,527 258,501 26. OTHER EXPENSES (INCOME) 2020 $ 2019 $ [a] Cost of goods sold [e] Finance income Depreciation of property, plant and equipment 22,853 20,275 Interest income Depreciation of right-of-use assets Amortization of intangible assets Warranty expense 1,431 4,243 1,133 5,913 Gain on foreign exchange 88,386 20,725 [f ] Employee benefits expense Cost of inventory recognized as an expense 670,427 680,001 Wages and salaries [b] Selling, general and administrative expenses Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortization of intangible assets 787,340 728,047 Share-based compensation expense [note 25] Pension costs 2,789 2,504 2,156 1,894 21,451 16,817 Included in cost of goods sold 169,741 164,057 Minimum lease payments recognized as lease expense 196 449 Included in selling, general and administrative expense 106,786 94,444 Transaction costs and post-combination expense Selling, general and administrative [c] Other operating expense (income) Net loss on sale of property, plant and equipment Net gain on settlement of lease liability Loss on financial instruments Other [d] Finance costs Interest on overdrafts and other finance costs Interest on lease liabilities 16,062 13,150 182,817 176,647 225,819 211,113 187 (3) 260 — 14,502 1,503 (4,152) (4,001) 10,534 (2,238) 1,374 876 1,626 357 276,527 258,501 In response to COVID-19, the Government of Canada implemented the Canadian Emergency Wage Subsidy [“CEWS”] and the Canada Emergency Rent Subsidy [“CERS”] programs. Similarly, in the United Kingdom, the Coronavirus Job Retention Scheme [“CJRS”] was implemented in response to COVID-19. The CEWS and CJRS programs offer qualifying organizations government assistance in the form of a payroll subsidy to offset the cost of employees. The CERS program offers qualifying organizations government assistance in the form of reimbursements for rent paid during a period. There are no unfulfilled conditions attached to this government assistance. As at December 31, 2020, $1.9 million has been recorded as an offset to cost of goods sold and selling, general, and administrative expenses and all amounts claimed were received in full. Interest, including non-cash interest, on debts and borrowings 19,142 20,272 Interest, including non-cash interest, on senior and convertible unsecured subordinated debentures [notes 22 and 23] 25,300 22,538 46,692 44,793 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 0 2 27. 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, 2020 was $6,679 [2019 – $6,430]. AGI expects to contribute $6,669 for the year ending December 31, 2021. The Company has a defined benefit plan providing pension benefits to certain of its union employees and former employees. The Company operates the defined benefit pension plan in Canada. The plan is a flat-dollar defined benefit pension plan, which provides clearly defined benefits to members based on negotiated benefit rates and years of credited service. Responsibility for the governance of the plan and overseeing the plan including investment policy and performance lies with the Pension and Investment Committee. Effective May 16, 2017, new enrolments in the defined benefit pension plan were closed. All benefits earned by employees up to that date remain in place. As such, the Company continues to manage any residual obligation for past service consistent with the plan text and applicable legislation and will continue to account for the residual obligations based on IAS 19. In addition, effective May 17, 2017, the group of affected employees will receive retirement contributions from the Company on a defined contribution basis when they qualify as enrollees in the new plan. The Company’s pension committee and appointed and experienced, independent professional experts such as investment managers and actuaries 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, 2020. The Company has used the same methods and assumptions used at December 31, 2019 for the purpose of estimating the liabilities at December 31, 2020. 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 2020 % 2.50 2.50 2.50 n/a 2019 % 3.10 3.10 3.10 n/a The weighted average duration of the defined benefit obligation as of December 31, 2020 is 15.4 years [2019 – 15.8 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 2020 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 (1,072,534) 1,206,367 Impact of one-year increase/decrease in life expectancy assumption 448,935 (455,174) Increase in assumption $ Decrease in assumption $ The net expense of $132 [2019 – $131] for the year is included in cost of goods sold. 1 0 3 2020 ANNUAL REPORTInformation about the Company’s defined benefit pension plan, in aggregate, is as follows: Plan assets Fair value of plan assets, beginning of year 13,969 12,641 2020 $ 2019 $ Interest income on plan assets Actual return on plan assets Employer contributions Benefits paid 424 844 — (637) 483 1,572 27 (754) Fair value of plan assets, end of year 14,600 13,969 Accrued benefit obligation Accrued benefit obligation, beginning of year Current service cost Interest cost Actuarial losses from changes in financial assumptions Actuarial losses (gains) from experience adjustments Benefits paid Accrued benefit obligation, end of year Net accrued benefit liability 14,115 12,727 125 431 125 489 1,273 1,533 64 (637) (5) (754) 15,371 14,115 (771) (146) Asset volatility 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 of $844 [2019 – $1,572]. All equity and debt securities are valued based on quoted prices in active markets for identical assets or liabilities or based on inputs other than quoted prices in active markets that are observable for the asset or liability, either directly [i.e., as prices] or indirectly [i.e., derived from prices]. The Company’s asset allocation reflects a balance of fixed-income investments, which are sensitive to interest rates, and equities, which are expected to provide higher returns and inflation-sensitive returns over the long term. The Company’s targeted asset allocations are actively monitored and adjusted to align the asset mix with the liability profile of the plan. The Company expects to make contributions of nil [2020 – nil] to the defined benefit plan in 2021. The actual amount paid may vary from the estimate based on actuarial valuations being completed, investment performance, volatility in discount rates, regulatory requirements and other factors. Through its defined benefit plan, the Company is exposed to a number of risks, the most significant of which are detailed below: The net accrued benefit liability of $771 [2019 – $146] is included in non-current other liabilities. The major categories of plan assets for each category are as follows: Canadian equity securities U.S. equity securities International equity securities Fixed-income securities $ 4,336 2,570 2,570 5,124 2020 % 29.7 17.6 17.6 35.1 $ 4,204 2,431 2,445 4,889 2019 % 30.1 17.4 17.5 35.0 14,600 100.0 13,969 100.0 The plan liability is calculated using a discount rate set with reference to corporate bond yields; if plan assets under-perform this yield, this will create a deficit. The plan holds a significant proportion of equities, which are expected to outperform corporate bonds in the long term while contributing volatility and risk in the short term. However, the Company believes that due to the long-term nature of the plan liabilities and the strength of the supporting group, a level of continuing equity investment is an appropriate element of the Company’s long-term strategy to manage the plan efficiently. Change in fixed-income security yields A decrease in corporate fixed-income security yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plan’s fixed- income security holdings. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 0 4 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. 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, 2020 and 2019 is as follows: 28. INCOME TAXES Profit (loss) before income taxes 2020 $ 2019 $ (80,966) 18,404 At the Company’s statutory income tax rate of 26.5% [2019 – 27%] (21,456) 4,969 The major components of income tax expense for the years ended December 31, 2020 and 2019 are as follows: Additional deductions allowed in a foreign jurisdiction Tax losses not recognized as a deferred tax asset Tax rate changes Consolidated statements of income (loss) Current income tax expense Current income tax expense Deferred tax recovery Foreign rate differential Non-deductible EIAP expense State income tax, net of federal tax benefit 2020 $ 2019 $ Unrealized foreign exchange gain Permanent differences and others At the eff ective income tax rate 23.86% [2019 – 20.49%] 7,089 5,521 (1,142) (2,736) — 5 1,092 2,087 385 (1,751) (106) 82 132 388 (1,222) (1,444) 3,049 (19,318) 2,121 3,771 Origination and reversal of temporary differences (26,407) (1,750) Income tax expense (recovery) reported in the consolidated statements of income (loss) (19,318) 3,771 Consolidated statements of comprehensive income Deferred tax related to items charged or credited directly to other comprehensive income during the year Defined benefit plan reserve Exchange differences on translation of foreign operations Income tax credited directly to other comprehensive income 2020 $ 2019 $ (131) (252) (383) 12 (1,479) (1,467) 1 0 5 2020 ANNUAL REPORTThe tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: Reconciliation of deferred tax liabilities, net Consolidated statements of financial position Consolidated statements of income (loss) Balance, beginning of year 2020 $ 2019 $ (74,115) (61,497) Deferred tax recovery during the year recognized in profit or loss 26,407 1,750 Deferred tax liability set up on business acquisition (833) (17,242) Deferred tax recovery during the year recognized in contributed surplus 91 1,407 Deferred tax recovery during the year recognized in other comprehensive income 737 (110) Balance, end of year 383 1,467 (48,067) (74,115) Inventory 2020 $ — 2019 $ — Property, plant and equipment (39,386) (38,774) 2020 $ — 645 2019 $ (502) 2,181 Intangible assets (43,712) (44,388) (1,556) (2,150) Deferred financing costs Accruals and long-term provisions Tax loss carryforwards start to expire in 2039 Investment tax credits 109 29,174 6,523 — Capitalized development expenditures (4,278) Convertible debentures Derivative instruments EIAP liability Equity swap Exchange difference on translation of foreign operations Deferred tax recovery (427) 203 2,027 1,700 — 832 9,684 4,381 — (4,667) (1,148) (60) 1,521 (1,496) (19,359) (1,980) (2,142) (4,381) — (389) (721) (263) (415) (3,196) (627) 1,940 (627) (396) 3,512 (89) — 252 1,479 (26,407) (1,750) Deferred tax liabilities, net (48,067) (74,115) Reflected in the consolidated statements of financial position as follows Deferred tax asset Deferred tax liability 964 — (49,031) (74,115) Deferred tax liabilities, net (48,067) (74,115) 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 Canadian operations of $4,726 [2019 – nil], its Finnish operations of 5,425 Euros [2019 – 5,442 euros] and its Brazilian operations of 88,897 BRL [2019 – 81,685 BRL]. Accordingly, the Company has recorded a deferred tax asset for all other deductible temporary differences as at December 31, 2020 and as at December 31, 2019. 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 $4,432 [2019 – $2,408]. 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 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 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 0 6 1 0 7 2020 ANNUAL REPORTC O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 0 8 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. The DDCP, RSU, and 2017 and 2018 Debentures were excluded from the calculation of diluted profit per share in the year ended December 31, 2020, because their effect is anti-dilutive. 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. There are no income tax consequences to the Company attached to the payment of dividends in either 2020 or 2019 by the Company to its shareholders. 30. STATEMENTS OF CASH FLOWS 29. PROFIT (LOSS) PER SHARE Profit (loss) per share is based on the consolidated profit (loss) for the year divided by the weighted average number of shares outstanding during the year. Diluted profit (loss) 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 (loss) per share computations: [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: 2020 $ 2019 $ (18,953) (14,778) (9,201) 24,060 3,013 (848) 33,423 (17,753) 6,425 (13,879) 65,352 9,613 80,059 (13,585) 2020 $ 2019 $ Accounts receivable Inventory Profit (loss) attributable to shareholders for basic and diluted profit (loss) per share (61,648) 14,633 Prepaid expenses and other assets Accounts payable and accrued liabilities Basic weighted average number of shares 18,703,669 18,613,273 Customer deposits Dilutive effect of DDCP Dilutive effect of RSU — — 63,007 236,250 Provisions Diluted weighted average number of shares 18,703,669 18,912,530 Profit (loss) per share Basic Diluted (3.30) (3.30) 0.79 0.77 1 0 9 2020 ANNUAL REPORT[b] Reconciliation of liabilities arising from financing activities Non-cash changes December 31, 2019 $ Cash flows $ Acquisitions $ Additions $ Accretion $ Amortization $ Fair value $ Other $ Long-term debt 393,128 21,039 Convertible unsecured subordinated debentures Senior unsecured subordinated debentures 238,833 (75,031) 165,474 80,979 Lease liability 9,349 Total liabilities from financing activities 806,784 (3,433) 23,554 — — — 2,207 2,207 — 671 1,275 1,520 — — 1,275 1,595 — 3,786 — — 754 — 754 December 31, 2018 $ Cash flows $ Acquisitions $ Conversion $ Long-term debt 271,421 130,766 Convertible unsecured subordinated debentures Senior unsecured subordinated debentures Lease liability 284,848 (51,786) — 165,402 8,791 (2,674) Total liabilities from financing activities 565,060 241,708 464 — — 220 684 Non-cash changes Foreign exchange $ (10,604) — — (183) Accretion $ Amortization $ Fair value $ — 535 546 1,984 3,414 — — 561 — — — — (25) (10,787) 1,984 4,510 546 Foreign exchange $ (5,465) — — 9,481 9,481 (762) (6,227) — — — — (25) — — December 31, 2020 $ 409,373 167,319 249,079 16,842 842,613 December 31, 2019 $ 393,128 238,833 — 722 277 — 999 Other $ — 398 (489) 165,474 3,195 3,104 9,349 806,784 31. 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 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 1 0 AGI’s sales denominated in U.S. dollars for the year ended December 31, 2020 were $400 million [2019 - 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. $303 million [2019 - 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 $40 million increase or decrease in sales and a total increase or decrease of $30.3 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, 2020 and December 31, 2019 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 expense (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 3.8% and 4.1%. The notional amounts are $40,000 in aggregate, resetting the last business day of each month. The contracts expire in May 2022. During the year ended December 31, 2020, an unrealized loss of $995 [2019 – $1,466] was recorded in loss on financial instruments in other operating expense (income). As at December 31, 2020, the fair value of the interest rate swap was $(771) [2019 – $224]. 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 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 loss on financial instruments in the consolidated statements of income (loss). The Company had no outstanding foreign exchange forward contracts at December 31, 2020. 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, 2020, AGI’s U.S. dollar denominated debt totalled $205 million [2019 – $197 million]. 1 1 1 2020 ANNUAL REPORTThe open interest rate swap contracts as at December 31, 2020 are as follows, for which no hedge accounting is applied: Maturity date Contract rate % Notional amount $ Fair value $ of issuance, the Company’s redemption option resulted in an embedded derivative with a fair value of $754. During the year ended December 31, 2020, a loss of $754 [2019 – nil] was recorded in loss on financial instruments in other operating expense (income). As at December 31, 2020, the fair value of the embedded derivative was nil [2019 – nil]. Canadian dollar contracts May 2022 3.6 – 4.1 40,000 (771) Credit risk The open interest rate swap contracts as at December 31, 2019 are as follows: Maturity date Contract rate % Notional amount $ Canadian dollar contracts May 2022 3.6 – 4.1 40,000 U.S. dollar contracts November 2020 3.8 38,000 Fair value $ 147 77 Equity swap On March 18, 2016, the Company entered into an equity swap agreement with a financial institution [the “Counterparty”] to manage the cash flow exposure due to fluctuations in its share price related to the EIAP. Pursuant to this agreement, the Counterparty has agreed to pay the Company the total return of the defined underlying common shares, which includes both the dividend income they may generate and any capital appreciation. In return, the Company has agreed to pay the Counterparty a funding cost calculated daily based on floating rate option [CAD- BA-COOR] plus a spread of 2.0% and any administrative fees or expenses that are incurred by the Counterparty directly. As at December 31, 2020, 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. During the year ended December 31, 2020, an unrealized loss of $12,007 [2019 – $327] was recorded in loss on financial instruments in other operating expense (income). As at December 31, 2020, the fair value of the equity swap was $(6,386) [2019 – $5,641]. Debenture put options On March 5, 2020, the Company issued the 2020 Debentures. Beginning on and after December 31, 2022, the Company has the option of early redemption. At time 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 or the Company secures asset-backed receivables to mitigate against credit risk. In cases where the credit quality of a customer does not meet the Company’s requirements, a cash deposit or letter of credit is received before goods are shipped. Assessments about the recoverability of financial assets, including accounts receivable, require significant judgment in determining whether there is objective evidence that a loss event has occurred and estimates of the amount and timing of future cash flows. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability to collect on its trade receivables, which is netted against the accounts receivable on the consolidated statements of financial position. Emerging markets are subject to various additional risks including currency exchange rate fluctuations, foreign economic conditions and foreign business practices. One or more of these factors could have a material effect on the future collectability of such receivables. In assessing whether objective evidence of impairment exists at each reporting period, the Company considers its past experience of collecting payments, historical loss experience, customer credit ratings and financial data as available, collateral on amounts owing including insurance coverage from export credit agencies, as well as observable changes in national or local economic conditions. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 1 2 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. The Company’s interest rate swap and equity swap agreements are also exposed to the credit risk of our counter parties. The Company only enters into agreements with major financial institutions that meets or exceeds our minimal credit rating requirements and the Company regularly monitors for changes in the credit risk of our counter parties. 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. The tables below summarize the undiscounted contractual payments of the Company’s financial liabilities as at December 31, 2020 and 2019: December 31, 2020 Total $ 2021 $ 2022 $ 2023 $ 2024 $ 2025+ $ Accounts payable and accrued liabilities 139,098 139,098 Dividends payable 2,808 2,808 — — — — — — — — Due to vendor 9,411 7,164 1,463 334 250 200 Optionally convertible redeemable preferred shares Lease liability Term debt Convertible unsecured subordinated debentures [includes interest] Senior unsecured subordinated debentures [includes interest] Total financial liability payments 30,520 18,312 12,208 — — — 20,507 3,848 3,286 2,400 2,056 8,917 412,498 502 357 266 235 411,138 186,511 8,064 178,447 — — — 321,017 13,648 13,648 13,648 186,148 93,925 1,122,370 193,444 209,409 16,648 188,689 514,180 December 31, 2019 Total $ 2020 $ 2021 $ 2022 $ 2023 $ 2024+ $ Accounts payable and accrued liabilities 105,378 105,378 Dividends payable 3,732 3,732 — — Due to vendor 8,370 4,541 3,066 Contingent consideration 5,270 5,270 — — — 763 — Optionally convertible redeemable preferred shares 30,258 — 18,155 12,103 — — — — — — — — — — Lease liability Term debt 9,932 2,798 2,102 1,652 1,028 2,352 395,862 722 348 208 115 394,469 Convertible unsecured subordinated debentures [includes interest] Senior unsecured subordinated debentures [includes interest] Total financial liability payments 273,323 86,813 8,063 178,447 — — 218,429 9,186 9,186 9,186 9,186 181,685 1,050,554 218,440 40,920 202,359 10,329 578,506 1 1 3 2020 ANNUAL REPORT[b] Fair value Set out below is a comparison, by class, of the carrying amounts and fair value of the Company’s financial instruments that are carried in the consolidated financial statements, as well as their level on the fair value hierarchy: December 31, 2020 December 31, 2019 Level Carrying amount $ Fair value $ Carrying amount $ Fair value $ During the reporting years ended December 31, 2020 and December 31, 2019, there were no transfers between Level 1, Level 2 and Level 3 fair value measurements. 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. The following methods and assumptions were used to estimate the fair values: • Cash and cash equivalents, cash held in trust, restricted cash, accounts receivable, dividends payable, accounts payable and accrued liabilities, due to vendor, and other financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. Financial assets Amortized cost: Cash and cash equivalents Cash held in trust and restricted cash Accounts receivable Notes receivable Fair value through profit or loss: Derivative instruments 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: Derivative instruments Optionally convertible redeemable preferred shares 1 1 2 2 2 2 2 2 2 3 2 2 2 3 62,456 62,456 48,421 48,421 9,616 9,616 5,416 5,416 • The fair value of unquoted instruments and loans from banks is estimated by 176,316 176,316 162,543 162,543 5,932 5,932 622 622 discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. — — 5,865 5,865 409,373 405,907 393,128 393,623 • 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. 139,098 139,098 105,378 105,378 • 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. 2,808 9,411 — 2,808 9,411 — 3,732 8,370 5,270 3,732 8,370 5,270 167,319 171,366 238,833 246,128 249,079 253,498 165,474 166,456 7,157 7,157 — — 28,971 28,971 26,320 26,320 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 1 4 Reconciliation of recurring fair value measurements categorized within Level 3 of the fair value hierarchy: Level 2 Contingent consideration and OCRPS: Balance, beginning of year Acquisitions Fair value change Reclassification to due to vendor Exchange differences Balance, end of year 2020 $ 2019 $ 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. 31,590 6,386 — 31,599 Level 3 3,872 173 (5,270) (4,000) (1,221) (2,568) 28,971 31,590 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. Set out below are the significant unobservable inputs to valuation as at December 31, 2020: 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 8%–10% 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. 32. 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, 2020 and December 31, 2019, all of these covenants were complied with [note 21[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 12 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. 1 1 5 2020 ANNUAL REPORT33. RELATED PART Y DISCLOSURES 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, 2020, the total cost of these legal services related to general matters was $989 [2019 – $435], and $425 is included in accounts payable and accrued liabilities and provisions as at December 31, 2020. 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 Contributions to defined contribution plans Salaries Share-based payments 2020 $ 109 148 4,253 8,854 2019 $ 159 172 8,391 5,968 Total compensation paid to key management personnel 13,364 14,690 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 1 6 1 1 7 2020 ANNUAL REPORT34. REPORTABLE BUSINESS SEGMENT 35. 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 $5,673 [2019 – $8,488]. [b] Letters of credit As at December 31, 2020, the Company has outstanding letters of credit in the amount of $23,421 [2019 – $16,885]. [c] Legal actions The Company is involved in various legal matters arising in the ordinary course of business. Except as otherwise disclosed in these financial statements, 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. 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, 2020, 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: Property, plant and equipment, goodwill, intangible assets and equity investments 2020 $ 414,565 306,274 246,700 967,539 2019 $ 413,751 318,613 265,057 997,421 Sales 2019 $ 325,080 421,661 249,046 995,787 2020 $ 282,402 436,713 274,915 994,030 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. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 1 8 1 1 9 2020 ANNUAL REPORTC O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 2 0 AGGROWTH.COM 1 2 3 

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