2020 ANNUAL REPORT
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2020 ANNUAL REPORT 5
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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
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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.
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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
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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
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2020 ANNUAL REPORT C E O M E S S A G E
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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
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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.
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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
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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
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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
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DISCLOSURE CONTROLS AND PROCEDURES
AND INTERNAL CONTROLS
Disclosure controls and procedures are designed to provide reasonable assurance
that all relevant information is gathered and reported to senior management,
including AGI’s Chief Executive Officer and Chief Financial Officer, on a timely
basis so that appropriate decisions can be made regarding public disclosure.
Management 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
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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].
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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.
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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AGGROWTH.COM
1 2 3