2021 ANNUAL REPORT
5
CEO MESSAGE
Before discussing our 2021 results and progress in more depth, I’d like to begin by reiterating that across AGI we are committed to supporting Ukraine and
playing an active role in addressing the growing humanitarian crisis. AGI has assembled a group bringing together an internal team with partners including
government agencies, suppliers, and customers. Together, this group can process donations, secure urgently required medical supplies, and manage
distribution directly through our team on the ground in Ukraine. As part of our #StepUp4Ukraine collaboration, AGI has made direct donations to lead
fundraising efforts, in addition to providing administrative support to ensure delivery of supplies. In mid-April, we made our first shipment of lifesaving medical
supplies with additional shipments en route. Ukraine is a critical source of grain for the world and our relationships with Ukrainian customers go back well
over a decade. AGI remains committed to the region and we will continue to monitor the situation, providing support where and when we can.
While we posted significant growth and record results this past year, 2021 was amongst the most challenging years in AGI’s history. Our business model,
teams, and strategies were tested in new ways. Our ability to deliver significant organic growth, amid a very challenging operating environment, validates our
recent investment phase and the purposeful strategy to diversify our business across new products, markets, customers, and geographies. Over 2021 to 2025,
we are now well into the next phase of our journey focused on integrating, optimizing, and growing this new AGI to maintain a high rate of sustainable organic
growth going forward.
Throughout 2015 to 2020, guided by our 5-6-7 strategy, AGI matured into a truly global company with a broadly diversified business. We made investments
in new geographies such as Brazil, India, and EMEA. We entered new segments such as Food and Digital. We significantly expanded within the U.S. Farm
business, building a market leading platform for permanent grain handling solutions. We invested with a sense of urgency, recognizing that regional conditions
can change dramatically year-to-year. The vision through this period was simple: build AGI into a global food infrastructure leader capable of supporting the
food supply chain from ‘field to consumer’. In achieving substantial diversification, we move much closer to global food and feed consumption as our primary
demand driver while also substantially reducing our exposure to regional political, economic, or weather-related events.
Our 2021 results were a record for AGI across the board. Record sales, record adjusted EBITDA, and a record backlog exiting the year to help carry the
momentum into 2022. However, I believe another word more accurately characterizes our performance this year - validation. Validation that our efforts to
diversify the business and embed resilience into our operations have enabled us to achieve significant growth despite several large and exceptional challenges.
While 2020 was a uniquely difficult year with the rapid onset of a global pandemic, in many ways 2021 was more complicated to navigate.
The most prominent challenge was the impact of significant disruption to the steel market. Steel is AGI’s largest area of raw material spending and critical to
our manufacturing. As steel producers around the world grappled with pandemic-related production and supply issues, pricing became unstable. In some
cases, prices more than doubled – and nearly overnight. Escalating prices were compounded by availability issues – stock-outs, stretched lead-times, and
shifting delivery schedules all created additional complexity for our facilities to meet very strong customer demand.
Across AGI, our teams quickly implemented a host of countermeasures to proactively minimize the impact of significant input cost increases for steel and, to a
lesser extent, other components required for production. In many cases, we were successful in finding new solutions to manage through the volatility. Adjusted
EBITDA margins coming in flat year-over-year, despite sharp increases to our largest input cost, is a tangible example of the resilience built into our culture
which perfectly complements the revenue diversification efforts made through our recent investment phase.
Though managing our supply chain was a major focus for AGI throughout the year, other significant challenges persisted. Western Canada faced a severe and
widespread drought with wheat production falling 40% year-over-year and to its lowest level since 2007. In our Digital business, industry-wide shortages of
chips critical to manufacturing impacted our ability to produce and meet demand. Further, cancelled or deferred tradeshows minimized access to one of our
most fruitful channels for generating leads in the Digital business. On top of this, multiple COVID waves spread throughout the world, hampering the pace of
resuming more normalized activities by interfering with customer purchasing behaviour, creating logistical issues for our supply chain, and disrupting project
timing and installation activities.
C E O M E S S A G E
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2
In the past, any one of these events could have had a dramatic impact to AGI. However, to post such strong results, amid the numerous challenges and
uncertainties throughout the year, is validation of our vision and diversified model. Our 2021 results are an ideal way to cap AGI’s twenty-fifth anniversary
and in-line with the fighting spirit which AGI was founded upon.
Another important element that makes our 2021 results so promising, despite overcoming a cascading series of meaningful challenges, is that our 20% sales
growth was essentially entirely organic. M&A has played a prominent role throughout AGI’s history, particularly over the 2015 to 2020 investment phase.
However, with minimal acquired revenue contribution in 2021, we view this year’s results as a clear signal of the sustainable organic growth potential of our
business going forward.
While several of the areas across AGI contributed to our overall growth profile including U.S. Farm, India, Food, Digital, and EMEA, our business in Brazil was
among the strongest contributors to our results and is worth additional recognition.
After several years of careful planning, market research, and product development, AGI Brazil hit an inflection point this year and is now a material contributor
to overall AGI results. Sales grew by more than 250% and represent approximately 10% of overall AGI sales. Brazil’s margin profile has closed the gap to broader
corporate averages, putting it in a firmly profitable position. While reaching this point took slightly longer than initially planned, the time and effort we’ve invested
to ensure we assembled the right team, developed the right products, and established the right channel strategy has created a significant competitive advantage
for AGI within this strategically important market. We expect the combination of increasing market share in a rapidly growing agriculture market will fuel continued
success for Brazil in the years to come.
Throughout 2021, we also accelerated several areas of our business transformation in response to a bin collapse that occurred at a customer site in Western Canada in the fall of 2020.
This included a re-design of several groups within AGI to establish new leadership, develop new processes, revise organizational structures, and install new tools and systems to
augment and reinforce these changes. Our engineering department was overhauled and re-tooled with several new standard processes to ensure quality, visibility, consistency, and
best-in-class execution. While these changes may create a short-term margin impact, they will deliver a long-term benefit to AGI’s ability to continue delivering market-leading products
and solutions. Simply put, situations like the bin collapse are unacceptable but our response and commitment to improve has ultimately created a stronger AGI overall.
While the integration, optimization, and growth phase will keep our focus on our current operations and opportunities for the next several years, we remain flexible to tactically deploy
capital towards tuck-in acquisitions where we have conviction that a relatively modest investment can create significant strategic advantages and growth opportunities for AGI.
In this light, we acquired the remaining shares outstanding in Farmobile in April 2021, building on our initial minority ownership position. Their flagship product, the Farmobile PUC, is a
critical and highly differentiated technology, capable of extracting standardized, real-time, and geo-tagged data in an interoperable format from nearly any piece of farm equipment. It’s a
cornerstone of our industry leading suite of IoT hardware products and enables us to capture a full data set from the time a seed is planted through to post-harvest conditioning.
In the first week of 2022, we also made an addition to our Food platform by acquiring Eastern Fabricators. Eastern specializes in process engineering, equipment fabrication, and project
execution. Our Food platform continues to see very strong demand, both from current strategic clients as well as new accounts, underscoring the necessity of securing additional
capacity. Eastern brings additional resources to all three areas of our integrated offering -- engineering, equipment supply, and project management. Even in the months since
acquisition, we have seen strong revenues synergies surface as we combine efforts to service some of the world’s largest food manufacturers. Adding Eastern to our Food platform will
accelerate the expansion of one of our highest growth segments which further reinforces our overall diversification efforts.
We are proud of our progress and results, but 2021 was just the first step in our multi-year journey to change how we approach the market, interact with customers,
develop new products, and execute customer projects. While 2015 to 2020 was characterized by investment to diversify, 2021 to 2025 marks the beginning of a new
phase of integration, optimization, and organic growth.
AGI’s products and services have always been naturally aligned with food supply and sustainability objectives given they are designed to reduce post-harvest losses and spoilage. As
AGI matured from a regional to a global business, our role expanded to include helping reduce grain handling infrastructure deficits in the developing world where huge portions of
crops are lost post-harvest simply due to a lack of basic equipment and infrastructure.
As we embark on our next phase, we recognized the value of having strong, experienced leadership to help guide the organization, structure our strategic planning,
and set priorities. In March, we promoted Paul Householder from his role as EVP, Global Operations to the newly created position of Chief Operating Officer, filling a
critical role in the organization. Paul joined AGI in 2019 after a long and successful career in the industrial chemicals sector where he ran global businesses with multiple
facilities across several geographies.
Broadly, Paul’s focus is to oversee and organize the deepening of integration across AGI and orchestrate our continued transformation which is a key enabler for us to
achieve our aggressive goals. This will help AGI accelerate the shift from a narrower ‘division-first’ mindset to a wider ‘customer-first’ approach. While we have completed
some rooftop consolidation, the main goal of this new phase of AGI’s evolution is to fundamentally re-orient aspects of our operations to ensure we always have a sharp
focus on our customers and what’s most important to them.
In July, we took the first major step on this journey by opening our Center of Excellence in Chicago. This new space brings together dedicated teams in Application
Engineering, Customer Success, Global Product Management, and Sales Execution. This new structure will enable better coordination through the entire sales cycle
including quoting, manufacturing activity, customer account management, and overall order execution. Teams from both the U.S. and Canada are being brought together and
will support our project-based businesses including Commercial and Permanent Farm. In addition, this office will provide a location and resources to help grow our Digital
and Food businesses. This Centre of Excellence approach is an important milestone in the maturation of our business which will remove cost and time from project execution,
increase overall project quality, all while enhancing the AGI customer experience.
Another example of what we will achieve through our new office in Chicago is more rapid progress on the execution of our Global Product Management agenda. This newly-
formed team has many important objectives. Increasing the level of product standardization across our facilities will promote operational efficiency throughout our manufacturing
network in addition to simplifying our product catalogue. Consolidating our supplier base for commonly purchased items will help optimize costs. But perhaps most importantly,
this team will focus on streamlining our overall R&D and innovation approach with a clear objective on reducing concept-to-delivery time and enhancing product functionality.
This dedicated, centrally coordinated, and customer-centric approach to product road mapping will be a source of differentiation and a major asset for AGI in the years ahead.
Late in 2020, we published our inaugural Sustainability Roadmap which identified the key areas we will focus on as we look to expand our sustainability scope and objectives in the
years ahead. Throughout 2021, AGI made tangible progress on our ESG objectives including publishing our environmental & safety policies, developing tools to collect facility-level
energy and water consumption data, updating our sustainability governance model, among several other areas. As we move into 2022, we aim to continue expanding our ESG program
into additional areas including a more formal D&I structure as well as measuring important operational data such as safety metrics and GHG emissions, among other priorities.
As we lookout to 2022 and beyond, we expect new challenges, new obstacles, new problems to solve. This excites us. AGI is at it’s best when challenged and 2021 proved as much.
With the resilience of our business model validated, AGI is well-positioned for further sustainable organic growth as we push deeper into our next phase integrating, optimizing, and
growing our operations. Entering 2022 with a record backlog helps provide momentum, but the confidence that our business model has the resilience to withstand unforeseen and
unprecedented challenges, and deliver record results in the process, reinforces our optimism that the future remains bright for AGI. Our journey to become a global food infrastructure
leader isn’t finished – it’s just getting started.
On behalf of our Board, our employees, and your management team, thank you for your continued support.
TIM CLOSE
President & CEO
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C E O M E S S A G E
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2021 ANNUAL REPORT CANADA
USA
09
11
EUROPE
06
01
BRASIL
MANUFACTURING FACILITIES
03
INDIA
AROUND THE WORLD
30 MANUFACTURING FACILITIES
95
SALES INTO COUNTRIES
5
2 0 2 1 A N N U A L R E P O R T
6
6
7
88
2021 ANNUAL REPORT Dated: March 8, 2022
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, 2021. Results are reported in Canadian dollars unless
otherwise stated.
This MD&A is based on the Company’s audited consolidated financial statements
for the year ended December 31, 2021 (“consolidated financial statements”) based on
International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”), unless otherwise noted.
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].
NON-IFRS AND OTHER FINANCIAL MEASURES
This MD&A makes reference to certain specified financial measures, including non-
IFRS financial measures, non-IFRS ratios or supplementary financial measures.
Management uses these financial measures for purposes of comparison to prior periods
and development of future projections and earnings growth prospects. This information
is also used by management to measure the profitability of ongoing operations and in
analyzing our business performance and trends. These specified financial measures are
not recognized measures under IFRS, do not have a standardized meaning prescribed
by IFRS and are therefore unlikely to be comparable to similar measures presented
by other companies. Rather, these measures are provided as additional information
to complement our financial information reported under IFRS by providing further
understanding of our results of operations from management’s perspective. Accordingly,
they should not be considered in isolation nor as a substitute for analysis of our financial
information reported under IFRS.
We use the following (i) non-IFRS financial measures: “adjusted earnings before interest,
taxes, depreciation, and amortization (“adjusted EBITDA”)”, “adjusted gross margin” ,
“funds from operations”, and “adjusted profit”; (ii) non-IFRS ratios: “adjusted EBITDA
margin %”, “adjusted gross margin as a % of sales” , “gross profit as a % of sales”,
“diluted adjusted profit per share” and “payout ratio”; and (iii) supplementary financial
measures: “backlog”, “sales by segment” and “sales by geography”, “maintenance capital
expenditures” and “non-maintenance capital expenditures”; to provide supplemental
measures of our operating performance and thus highlight trends in our core
business that may not otherwise be apparent when relying solely on IFRS financial
measures. Management also uses non-IFRS financial measures, non-IFRS ratios and
supplementary financial measures in order to prepare annual operating budgets and to
determine components of management compensation. 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 or ratio.
We use these specified financial measures in addition to, and in conjunction with,
results presented in accordance with IFRS. These specified financial measures reflect
an additional way of viewing aspects of our operations that, when viewed with our
IFRS results and, in the case of non-IFRS financial measures, the accompanying
reconciliations to the most directly comparable IFRS financial measures may provide a
more complete understanding of factors and trends affecting our business.
In this MD&A, we discuss the specified 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.
The following is a list of non-IFRS financial measures, non-IFRS ratios and
supplementary financial measures that are referenced throughout this MD&A:
“Adjusted EBITDA” is defined as profit (loss) before income taxes before finance costs,
depreciation and amortization, share of associate’s net loss, gain on remeasurement
of equity investment, gain or loss on foreign exchange, non-cash share based
compensation expenses, gain or loss on financial instruments, M&A expenses, change
in estimate on variable considerations, other transaction and transitional costs, net loss
on the sale of property, plant & equipment, gain or loss on settlement of right-of-use
assets, gain on disposal of foreign operation, equipment rework and remediation and
impairment. Adjusted EBITDA is a non-IFRS financial measure and its most directly
comparable financial measure that is disclosed in our consolidated financial statements
is profit (loss) before income taxes. Management believes adjusted EBITDA is a useful
measure to assess the performance and cash flow of the Company as it excludes the
effects of interest, taxes, depreciation, amortization and expenses that management
believes are not reflective of the Company’s underlying business performance.
Management cautions investors that 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 – Profit (loss) before income taxes and Adjusted EBITDA” for the reconciliation
of adjusted EBITDA to profit (loss) before income taxes for the current and comparative
periods. Adjusted EBITDA guidance is a forward-looking non-IFRS financial measure.
We do not provide a reconciliation of such forward-looking measure to the most directly
comparable financial measure calculated and presented in accordance with IFRS due
to unknown variables and the uncertainty related to future results. These unknown
variables may include unpredictable transactions of significant value that may be
inherently difficult to determine without unreasonable efforts. Guidance for adjusted
EBITDA excludes the impacts of finance costs, depreciation and amortization, share of
associate’s net loss, gain on remeasurement of equity investment, gain or loss on foreign
exchange, non-cash share based compensation expenses, gain or loss on financial
instruments, M&A expenses, change in estimate on variable considerations, other
transaction and transitional costs, net loss on the sale of property, plant & equipment,
gain or loss on settlement of right-of-use assets, gain on disposal of foreign operation,
equipment rework and remediation and impairment.
“Adjusted EBITDA margin %” is defined as adjusted EBITDA divided by sales. Adjusted
EBITDA margin % is a non-IFRS ratio because one of its components, adjusted EBITDA,
is a non-IFRS financial measure. Management believes adjusted EBITDA margin % is a
useful measure to assess the performance and cash flow of the Company.
“Adjusted gross margin” is defined as gross profit less equipment rework and
depreciation and amortization. Adjusted gross margin is a non-IFRS financial measure
and its most directly comparable financial measure that is disclosed in our consolidated
financial statements is gross profit. Management believes that adjusted gross margin is
a useful measure to assess the performance of the Company as it excludes the effects of
equipment rework, depreciation and amortization. See “Operating Results – Gross Profit
and Adjusted Gross Margin” for the reconciliation of adjusted gross margin to gross
profit for the current and comparative periods.
“Adjusted Gross Margin as a % of sales” is defined as adjusted gross margin divided
by sales. Adjusted gross margin as a % of sales is a non-IFRS ratio because one of its
components, adjusted gross margin, is a non-IFRS financial measure. Management
believe adjusted gross margin as a % of sales is a useful measure to assess the
performance of the Company.
“Adjusted profit” is defined as profit or loss adjusted for the gain or loss on foreign
exchange, M&A expenses, other transaction and transitional costs, gain or loss on
financial instruments, change in estimate on variable considerations, net loss on
sale of property, plant and equipment, gain or loss on settlement of right-of-use
assets, equipment rework and remediation, share of associate’s net loss, gain on
remeasurement of equity investment, gain on disposal of foreign operations and
impairment. Adjusted profit is a non-IFRS financial measures and its most directly
comparable financial measure that is disclosed in our consolidated financial statements
is profit or loss. Management believe adjusted profit is a useful measure to assess
the performance of the Company as it provides more meaningful operating results by
excluding the effects of expenses that are not reflective or our underlying business
performances. See “Operating Results – Diluted profit (loss) per share and diluted
adjusted profit per share” for the reconciliation of adjusted profit to profit (loss) for the
current and comparative periods.
“Backlogs” are defined as the total value of committed sales orders that have not
yet been fulfilled that: (a) have a high certainty of being performed as a result of the
existence of a purchase order, an executed contract or work order specifying job scope,
value and timing; or (b) has been awarded to the Company or its divisions, as evidenced
by an executed binding letter of intent or agreement, describing the general job scope,
value and timing of such work, and where the finalization of a formal contract in respect
of such work is reasonably assured. Backlog is a supplementary financial measure.
“Diluted adjusted profit per share” is defined as adjusted profit divided by the total
weighted average number of outstanding diluted shares of AGI at the end of the most
recently completed quarter for the relevant period. Diluted adjusted profit per share is a
non-IFRS ratio because one of its components, adjusted profit, is a non-IFRS financial
measure. Management believes diluted adjusted profit per share is a useful measure to
assess the performance of the Company.
“Funds from operations” is defined as cash provided by operations adjusted for items
not involving current cashflows, combined adjustments to adjusted EBITDA, interest
expense, non-cash interest, cash taxes and maintenance capital expenditures. Funds
from operations is a non-IFRS financial measure and its most directly comparable
financial measure that is disclosed in our consolidated financial statements is cash
provided by operations. Management believes that, in addition to cash provided by
operations, funds from operations provide a useful supplemental measure in evaluating
the Company’s performance and liquidity. 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. See
“Operating Results – CASH PROVIDED BY OPERATIONS, FUNDS FROM OPERATIONS
AND PAYOUT RATIOS” for the reconciliation of funds from operations to cash provided
by operations for the current and comparative periods and see also “Adjusted EBITDA”
above and “Operating results – Profit (loss) before income taxes and Adjusted EBITDA”
for the “combined adjustments to Adjusted EBITDA” for the current and comparative
periods.
“Gross Profit as a % of sales” is defined as gross profit divided by sales. Gross profit as a
% of sales is a supplementary financial measure.
“Maintenance capital expenditures” and “non-maintenance capital expenditures” are
both components of the Company’s acquisition of property, plant and equipment.
Management defines maintenance capital expenditures as cash outlays required
to maintain plant and equipment at current operating capacity and efficiency levels
and non-maintenance capital expenditures as other investments, including cash
outlays required to increase operating capacity or improve operating efficiency. Both
“maintenance capital expenditures” and “non-maintenance capital expenditures”
9
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
1 0
2021 ANNUAL REPORT SUMMARY OF RESULTS
[thousands of dollars except per share amounts]
Three-months Ended December 31
Sales
Adjusted EBITDA [1][2]
Adjusted EBITDA Margin % [3]
Loss before income taxes
Loss
Diluted loss per share
Adjusted profit [1][4]
Diluted adjusted profit per share [1][4]
2021
$
2020
$
Change
$
Change
%
327,095
227,385
44,651
14%
27,816
12%
(21,701)
(23,049)
(16,350)
(15,014)
(0.87)
19,127
0.89
(0.80)
8,734
0.46
99,710
16,835
N/A
1,348
(1,336)
(0.07)
10,393
0.43
44%
61%
2%
N/A
N/A
N/A
119%
93%
[thousands of dollars except per share amounts]
Year Ended December 31
Sales
Adjusted EBITDA [1][2]
Adjusted EBITDA Margin % [3]
Profit (loss) before income taxes
Profit (loss)
Diluted profit (loss) per share
Adjusted profit [1][4]
Diluted adjusted profit per share [1][4]
2021
$
2020
$
Change
$
Change
%
1,198,523
1,000,130
198,393
176,266
149,328
26,938
15%
15%
9,383
(80,966)
10,558
(61,648)
0.50
(3.30)
63,242
60,255
2.90
3.17
(0)
90,349
72,206
3.80
2,987
(0.27)
20%
18%
0%
N/A
N/A
N/A
5%
(9%)
1. This is a non-IFRS measure and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL
MEASURES” for more information on each non-IFRS measure.
2. See “OPERATING RESULTS – Profit (loss) before income taxes and Adjusted EBITDA”.
3. This is a non-IFRS ratio and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL MEASURES”
for more information on each non-IFRS ratio.
4. See “OPERATING RESULTS – Diluted profit (loss) per share and diluted adjusted profit per share”.
Strong demand for AGI’s products across most regions resulted in consolidated sales
and Adjusted EBITDA increasing 44% and 61% year-over-year (‘YOY’), respectively, for
the three-months ended December 31, 2021. Consolidated backlogs continued to remain
strong and were up 47% over December 31, 2020, with broad-based demand for AGI
products across all segments and geographies.
Farm segment sales grew 28% while Adjusted EBITDA increased 78% YOY, respectively,
for the three-months ended December 31, 2021, as we continue to see strong demand
for both portable and permanent equipment. The demand for Farm segment equipment
continues to be very robust as customers focus on securing critical products based on
the increase in crop volumes. The potential for supply chain disruption continues to
impact some dealers’ propensity to order equipment earlier than prior years to ensure
certainty of supply. Farm backlog is up 48% over the prior year as of December 31, 2021,
with considerable strength across all geographies including the U.S. and Brazil.
Commercial segment sales and Adjusted EBITDA increased 60% and 64% YOY,
respectively, for the three-months ended December 31, 2021, with particular strength
in the U.S., Europe, Middle East and Africa (“EMEA”), and South America markets.
The Food platform continues to grow in response to strong customer demand with
sales increasing 13% YOY for the three-months ended December 31, 2021. Overall,
the Commercial segment is seeing strong demand as backlogs are up 46% YOY with
the Commercial platform and Food platform contributing 23% and 212% increases,
respectively, signaling a strong outlook for Q1 2022.
Within the Farm and Commercial segments, we had notable strength in the quarter from
our Brazilian operations. Brazil continued to gain momentum with sales and Adjusted
EBITDA growing 271% and 639% YOY, respectively, for the three-months ended
December 31, 2021. The adjusted gross margin profile for the Brazilian operation is now
in-line with global corporate averages, a key milestone in the evolution of this business.
In our Digital segment (previously Technology segment, see “Description of Business
Segments and Platforms”), the fourth quarter was marked by continued progress on
a variety of strategic priorities intended to facilitate sales growth and adjusted gross
margin stability, including production related initiatives and sales channel development.
Digital segment sales increased 27% and 43% YOY for the three-months and year
ended December 31, 2021.
With backlogs up 47% at the end of December 2021 and very robust quoting pipelines
globally, the Company expects the strong pace of growth to continue into 2022.
As a result, full year 2022 Adjusted EBITDA is expected to be at least $200 million,
representing continued growth and expansion over a record 2021 result.
UPDATE ON REMEDIATION WORK
Progress on advancing the remediation work as it relates to the previously disclosed
grain bin incident continued in the quarter with remediation work completed at one of
the two customer sites. The completed site is fully commissioned and operational. At
the second customer site, the site of the grain bin incident, the customer has decided to
remediate themselves and with other suppliers. As at the end of December 31, 2021, the
Company has spent approximately $43.4 million of the $86.1 million total accrual, which
was increased by $8.6 million in the quarter to reflect an updated view of the costs to
resolve the issue.
In 2021, two legal claims related to the bin collapse were initiated against the Company
for a cumulative amount in excess of $190 million. The Company’s assessment of these
claims and our legal and contractual defenses to each claim has resulted in no further
provisions being recorded for these claims. The Company will fully and vigorously defend
against these claims. In addition, the Company continues to believe that any financial
impact will be partially offset by insurance coverage. 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.
Following a thorough technical review, the previously disclosed rework accrual was
increased in the quarter by $10 million, totalling $30 million to-date. The rework accrual
is unrelated to the grain bin incident, as noted above, but it is located at the same
customer site. This increase was made to supplement certain aspects of structural
work that became apparent as the site was moved back into operation. This site is now
operational and will remain in operation as we work directly with this customer over the
next three months to complete the final remediation to the site. This increase accounts
for the final work to remedy all deficiencies at this site and put this issue behind AGI.
Additional information on the provision for remediation and equipment rework can also
be found in “OPERATING RESULTS –– Remediation costs and equipment rework” .
COVID-19
The emergence of COVID-19 has had an adverse impact on AGI’s business, including
the disruption of production, our supply chain, and product delivery. While AGI
experienced temporary production suspensions early in the pandemic in 2020, there
were no significant production suspension or interruptions in 2021 as a result of
COVID-19.
AGI operations were considered “essential services” in many regions throughout North
America, highlighting the important role the Company plays in the global food supply
chain. Management continues to believe post pandemic demand will be positively
impacted as the world builds additional redundancy into the global food infrastructure to
account for similar events in the future.
AGI is currently fully operational across all manufacturing locations globally, with no
loss of productive capacity owing to COVID-19 during the fourth quarter (“Q4”) of
2021. However, headwinds stemming from the pandemic have impacted the availability
and cost of raw materials required for production. Various disruptions in the supply
chain including steel supply and logistics have caused significant delays on a number
of projects which impacted the timing of revenue recognition in Q4 2021. In addition,
potential restrictions and lockdowns in countries such as Brazil and India that have been
severely impacted by COVID-19 may cause supply chain disruptions and temporary
are supplementary financial measures. Management believes that in addition to
acquisition of property, plant and equipment, maintenance capital expenditures and
non-maintenance capital expenditures provide a useful supplemental measure in
evaluating the Company’s performance. See “Operating Results - Capital Expenditures”
for the reconciliation of maintenance capital expenditures and non-maintenance
capital expenditures to acquisition of property plant and equipment for the current and
comparative periods.
“Payout ratio” is defined as either cash provided by operations or funds from operations
for the year divided into the dividends declared during the most recently completed
financial year. “Payout ratio from cash provided by operations” is a supplementary
financial measure. “Payout ratio from funds from operations” is a non-IFRS ratio
because one of its components, funds from operations, is a non-IFRS financial measure.
Management believes payout ratio is a useful measure to assess the performance and
liquidity of the company and as an indicator of the sustainability of AGI’s dividend.
“Sales by Segment and Geography”: The sales information presented under “Sales by
Segment and Geography” are supplementary financial measures used to present the
Company’s sales by segment, product group and geography.
1 1
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
1 2
2021 ANNUAL REPORT production suspensions. Our 2022 results remain subject to the effect of COVID-19
on our manufacturing facilities, markets, and customers as management continues to
monitor for any emerging risks associated with COVID-19.
Additional information on the impacts of COVID-19 can also be found in “OUTLOOK”
and “OPERATING RESULTS – Sales by Segment and Geography”.
EMERGING CONFLICT BETWEEN RUSSIA AND UKRAINE
AGI’s exposure to Russia and Ukraine varies year-to-year, but the region generally
contributes about 3% of AGI’s consolidated sales annually. AGI has no production
facilities in either country. Given the contributions of Brazil, India, and the rest of the
EMEA region, AGI is more diversified from the region than we were in years past. While
the region is important to AGI, any negative impacts would not be material to AGI
overall.
AGI has identified all contracts and counterparties related to the Russia and Ukraine
region. We have engaged our U.S.-based external sanctions counsel to assist in
navigating the situation. Currently, we are compiling a list of customers, projects, scope
of work, and contracts with a view to vetting these through the Canadian, U.S., and E.U.
sanctions. We will continue to update and monitor as these sanctions evolve in the near-
term. Of note, AGI contracts in the Russia/Ukraine region have built-in force majeure
provisions that provide specifically for the potential of military action, government action,
and/or sanctions.
(expenses); historically, the foreign exchange impact was presented in sales and a
reconciliation was made to trade sales as presented in prior MD&As. This change
in presentation effectively eliminates the need for trade sales and therefore sales is
presented in this MD&A with the reclassification of comparative information.
The Company’s change in presentation in its consolidated financial statements was
made in accordance with IAS 1 and IFRS 8. Under IFRS 8, a change in accounting policy
is permitted if the change results in the financial statements providing more reliable and
relevant information about the effects of transactions on the entity’s financial position. In
addition, IAS 1 requires an entity to reclassify its comparative information when making
such changes in presentation and therefore comparative figures have been restated
accordingly.
Description of Business Segments and Platforms
Farm Segment
AGI’s Farm segment includes the sale of grain, seed, and fertilizer handling equipment,
aeration products, grain and fuel storage solutions, and grain management technologies.
Commercial Segment
AGI’s Commercial segment includes the sale of larger diameter grain storage bins,
high-capacity grain handling equipment, seed and fertilizer storage and handling
systems, feed handling and storage equipment, aeration products, automated blending
systems, control systems, and food processing solutions.
BASIS OF PRESENTATION
Food Platform
On January 1, 2021, the Company reorganized its business segments to better reflect
changes in its operations and management structure. As a result of those changes,
the Company identified three reportable segments: Farm, Commercial, and Digital.
These segments are strategic business units that offer different products and services.
Certain corporate overheads are allocated to the segments based on revenue as well as
applicable cost drivers. Taxes and certain other expenses are managed at a consolidated
level and are not allocated to the reportable operating segments. Financial information
for the comparative period has been restated to reflect the new presentation. In the
segment disclosure that follows, we have also included product platforms in order
to provide additional information within a segment that may be useful to the reader.
Specifically, our Commercial segment includes the Commercial and Food product
platforms.
For the year ended December 31, 2021, the effect of foreign currency translations arising
from the settlement of accounts receivables and payables recorded in a currency other
than the Company’s functional currency have been presented within finance income
The AGI Food platform falls within AGI’s Commercial segment. The Food platform’s
end customers are involved in producing processed food and beverages of all types.
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 include leading the customer project
from conception to commissioning and working 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
Farm and Commercial segments, our equipment products in the Food platform address
the storage, blending, and movement of ingredients involved in each process.
Digital Segment (previously Technology Segment)
AGI’s Digital segment (previously Technology Segment) is built on a foundation of
our Internet of Things (‘IoT’) products and technologies. 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, CO2 sensors,
grain temperature and moisture sensors, and field equipment data (Farmobile PUC)
and is further augmented through the digitalization of AGI products. The acquisition
of a controlling interest in Farmobile Inc. (“Farmobile”) in 2021 further moves AGI into
the middle of the data verification space required by the rapidly developing carbon
and traceability markets. This strengthens our unique ability to capture machine and
agronomic data across the entire farming process – from seeding through to harvest
and into the broader grain supply chain. As a result, we have renamed our Technology
Segment as the Digital Segment to recognize the digital evolution of this group. In
addition, our digital and technology products offer monitoring, operation, measurement
and blending controls, automation, hazard monitoring, embedded electronics, farm
management, grain marketing and tools for agronomy, and Enterprise Resource
Planning [“ERP”] for agriculture retailers and grain buyers. These products are available
both as standalone offerings, as well as in combination with larger farm or commercial
systems from AGI.
OUTLOOK
AGI’s demand drivers are closely linked to crop production volumes, global grain
movement, and global food and feed consumption levels. A relative lack of investment
in food infrastructure in developing regions along with required ongoing maintenance
capital requirements in developed regions provide positive demand dynamics for AGI.
These core demand drivers are further augmented by increasing population, changing
dietary trends and increased focus on food security infrastructure.
Farm Segment
Farm backlog increased substantially, 48% over prior year as of December 31, 2021,
as inventory levels remain low at many of our dealers as a result of a strong crop yield
in many parts of the U.S. and Brazil. These factors have resulted in Farm backlogs
increasing 114% in the U.S., and 52% in International, over prior year as of December 31,
2021. Notwithstanding potential supply chain impact on production and delivery of our
products, AGI is anticipating a strong start to 2022 in the U.S. The Canadian Prairies
experienced drought conditions in 2021 resulting in a reduction of 27% in Farm backlog
in Canada. We anticipate there will be an impact to the Canadian Farm segment in
the first six months (“H1”) of 2022 but note the current demand and backlog in the U.S.
should more than offset any potential impact from the drought conditions in Canada.
Supply chain challenges and logistics could have a potential impact on adjusted gross
margins in the Farm segment in H1 2022.
Commercial Segment
Commercial Platform
Overall, growth continued in the Commercial segment in Q4 2021 with notable strength
in the International segment with a 105% increase in sales over Q4 2020.
Adjusted gross margins in the Commercial platform are a focus as, similar to the Farm
segment, securing steel and other components on a timely and cost-effective basis amid
the supply chain disruptions has been challenging. Many of AGI’s Commercial platform
contracts include provisions to pass along some or all of the key raw material cost
increases. Open sales quotes are continuously reviewed and updated for changes in
market conditions. Ongoing disruption of raw material, freight, and labour could lead to
ongoing pressure on adjusted gross margin performance of the platform.
Canada
While COVID-19 had a substantial impact on project activity, quoting, development, and
progression across North America, the impact on projects in Western Canada continues
to be more severe than in the U.S. as many growth projects continue to be placed on
hold in favor of essential maintenance. Despite the challenges, quoting and project
activities across the grain terminal and grain processing markets increased in Q4 2021
and the Canadian Commercial platform’s backlog is up 153% over the prior year as of
December 31, 2021. Management is cautiously optimistic that this market is set up for a
sustained rebound in activity and results throughout 2022.
United States
Sales continue to improve in the U.S. Commercial segment as demand for commercial
grain infrastructure continues to move higher with the increase in corn and soybean
exports. The U.S. Commercial segment’s backlogs have increased 7% over prior year as
of December 31, 2021.
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
1 4
2021 ANNUAL REPORT International
The International Commercial platform also has strong demand resulting in a 17% YOY increase in backlogs.
• EMEA: Momentum for EMEA remains strong with backlogs up 66% YOY. This YOY increase in part relates to some projects being deferred to future quarters due to minor supply
chain interruptions, customer’s on-site availability, and project readiness. We note that a portion of EMEA’s backlogs is from the Russia-Ukraine region. Additional information of the
potential impact of the emerging conflict between Russia and Ukraine can be found in “EMERGING CONFLICT BETWEEN RUSSIA AND UKRAINE”.
• Asia Pacific: Backlog is down 17% YOY due to a large project landing in the prior year. This is a relatively new region for AGI and we expect lumpy results as we build the pipeline of
small, medium, and large projects. This lumpy ramp up is expected and similar to our entry into other markets.
• South America: Backlog is down 10% due to the completion of a few large projects but a very active quoting pipeline, strong market fundamentals, and market share growth across
both the Farm and Commercial segments all reinforce our positive outlook for this region.
Food Platform
Food platform backlogs increased 212% YOY driven by a combination of robust demand from the food and beverage end markets, repeat business from existing strategic customers,
and onboarding of new customers. As with all our segments, increasing prices of raw materials, labour, and foreign exchange fluctuations are closely monitored and we constantly
evaluate all quotes and current projects to manage margins. Subsequent to the year ended December 31, 2021, AGI announced the acquisition of Eastern Fabricators (“Eastern”).
Eastern specializes in the engineering, design, fabrication, and installation of high-quality stainless-steel equipment. Eastern operates three facilities in Canada with two in Prince
Edward Island and one in Ontario and serves a range of customers across North America. Adding Eastern to the Food platform will increase capacity to help enable growth and satisfy
very strong customer demand.
Digital Segment
Prior to the onset of the COVID-19 pandemic, the Digital segment’s strongest source of sales leads and conversion was industry tradeshows. With the widespread cancellation of
tradeshow activity throughout the 2021 growing season, direct interaction with growers has been restricted which has hampered the pace of sales growth for the segment. In addition,
ongoing chip availability issues restricted our ability to produce some pieces of IoT hardware, further restricting sales. As conditions normalize and tradeshow activity resumes, we
expect this to have a positive impact on Digital segment sales and growth.
The Digital segment substantially completed several initiatives to position the business for continued growth in 2022 and diversify our sales channels to provide scalability and reduce
the impact of tradeshow disruptions. In the year, we built our dealer channel for Digital products, expanded direct sales channels, automated areas of production, and increased
capacity. In response to ongoing customer feedback, a new subscription model for SureTrack’s IoT hardware was introduced in Q4 2021.
Summary
AGI’s 5-6-7 strategy has led to diversification of our products, geographies, and customers which provided stability and resilience during the trade wars of 2019 and the COVID crisis
in 2020 and 2021. This strategy was critical in setting up AGI to generate record results in 2021 despite the challenges of operating a global business amid difficult conditions. With
backlogs up 47% at the end of December 2021 and very robust quoting pipelines globally, the Company expects the strong pace of growth to continue into 2022. As a result, full year
2022 Adjusted EBITDA is expected to be at least $200 million, representing continued growth and expansion over a record 2021 result.
See also, “Risks and Uncertainties” and “Forward-Looking Information”.
The following table presents YOY changes in the Company’s backlogs[1]:
OPERATING RESULTS [see “BASIS OF PRESENTATION’]
Segments and Platforms [2]
Farm
Commercial
Commercial Platform
Food Platform
Total Commercial Segment
Overall [2]
Region
United States
%
International
%
114%
7%
379%
81%
100%
52%
17%
84%
22%
26%
Canada
%
(27%)
153%
(9%)
123%
(3%)
Overall
%
48%
23%
212%
46%
47%
1. This is a supplementary financial measure and is used throughout this MD&A. See “NON-IFRS and OTHER
FINANCIAL MEASURES” for more information on this supplementary financial measure.
2. Backlog for our Digital segment 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.
The following table presents YOY changes in the Company’s international backlogs[1]
further segmented by region:
Farm and Commercial Segments [2]
International by region [1]
EMEA [3]
%
58%
Asia-Pacific [4]
%
South America [5]
%
(1%)
5%
1. This is a supplementary financial measure and is used throughout this MD&A. See “NON-IFRS and OTHER
FINANCIAL MEASURES” for more information on this supplementary financial measure.
2. Backlog for our Digital segment 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.
3. “EMEA” is composed of Europe, Middle East and Africa.
4. “Asia Pacific” is composed of Southeast Asia, Australia, India, and Rest of World.
5. “South America” is composed of Latin America and Brazil.
Sales by Segment and Geography [1]
Farm Segment
[thousands of dollars]
Three-months Ended December 31
Canada
U.S.
International
EMEA
Asia Pacific
South America
Total International
Total Sales
2021
$
35,635
68,283
6,008
11,043
17,526
2020
$
42,616
53,201
2,590
3,790
6,253
34,577
12,633
Change
$
(6,981)
15,082
Change
%
(16%)
28%
3,418
7,253
11,273
21,944
132%
191%
180%
174%
28%
138,495
108,450
30,045
[thousands of dollars]
Year Ended December 31
Canada
U.S.
International
EMEA
Asia Pacific
South America
Total International
Total Sales
2021
$
2020
$
Change
$
Change
%
215,692
205,731
9,961
310,345
265,137
45,208
15,366
13,390
27,511
20,204
45,833
22,322
88,710
55,916
614,747
526,784
1,976
7,307
23,511
32,794
87,963
5%
17%
15%
36%
105%
59%
17%
1. The sales information in this section are supplementary financial measures and are used throughout this MD&A.
See “NON-IFRS and OTHER FINANCIAL MEASURES” for more information on these supplementary financial
measures.
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
1 6
2021 ANNUAL REPORT Commercial Segment
Digital Segment
Sales by Geography
[thousands of dollars]
Three-months Ended December 31
[thousands of dollars]
Canada
U.S.
International
EMEA
Asia Pacific
South America
Total International
Total Sales
2021
$
10,624
53,174
45,951
31,367
40,402
117,720
2020
$
Change
$
Change
%
15,989
(5,365)
(34%)
39,905
13,269
33%
18,043
28,938
10,489
57,470
27,908
2,429
29,913
60,250
68,154
155%
8%
285%
105%
60%
181,518
113,364
Canada
U.S.
International
Commercial Platform
Three-months Ended December 31
Food Platform
Three-months Ended December 31
2021
$
2020
$
Change
$
Change
%
8,863
12,690
(3,827)
(30%)
2021
$
1,761
2020
$
Change
$
Change
%
3,299
(1,538)
(47%)
38,784
27,689
11,095
40%
14,390
12,216
2,174
18%
EMEA
40,969
14,147
26,822
190%
4,982
3,896
1,086
28%
Asia Pacific
30,295
28,606
1,689
6%
1,072
South America
40,354
10,489
29,865
285%
48
332
–
Total International
111,618
53,242
58,376
110%
6,102
4,228
Total Sales [1]
159,265
93,621
65,644
70% 22,253
19,743
740
48
1,874
2,510
223%
N/A
44%
13%
[thousands of dollars]
Three-months Ended December 31
[thousands of dollars]
Three-months Ended December 31
Canada
U.S.
International
EMEA
Asia Pacific
South America
Total International
Total Sales
2021
$
471
6,593
6
10
2
18
2020
$
353
5,134
3
–
81
84
7,082
5,571
Change
$
Change
%
118
1,459
3
10
(79)
(66)
1,511
33%
28%
100%
N/A
(98%)
(79%)
27%
Canada
U.S.
International
EMEA
Asia Pacific
South America
Total International
Total Sales
2021
$
2020
$
Change
$
Change
%
46,730
58,958
(12,228)
128,050
98,240
29,810
51,965
20,636
31,329
42,420
57,930
152,315
32,728
16,823
70,187
327,095
227,385
9,692
41,107
82,128
99,710
(21%)
30%
152%
30%
244%
117%
44%
[thousands of dollars]
Year Ended December 31
[thousands of dollars]
Year Ended December 31
[thousands of dollars]
Year Ended December 31
Canada
U.S.
International
EMEA
Asia Pacific
South America
Total International
Total Sales
2021
$
2020
$
Change
$
Change
%
50,486
75,054
(24,568)
(33%)
190,648
156,526
34,122
22%
112,524
91,063
101,169
80,765
95,827
46,834
309,520
218,662
21,461
20,404
48,993
90,858
550,654
450,242
100,412
24%
25%
105%
42%
22%
We have included product groups in the table below in order to provide additional
information that may be useful to the reader. The Commercial segment includes the
Commercial platform and Food platform.
[thousands of dollars]
Commercial Platform
Year Ended December 31
Food Platform
Year Ended December 31
2021
$
2020
$
Change
$
Change
%
2021
$
2020
$
Change
$
Change
%
39,126
62,161
(23,035)
(37%)
11,360
12,893
(1,533)
(12%)
147,002
129,228
17,774
14% 43,646
27,298
16,348
60%
Canada
U.S.
International
EMEA
93,438
77,611
15,827
20%
19,086
13,452
5,634
42%
Asia Pacific
99,859
77,009
22,850
30%
1,310
3,756
(2,446)
(65%)
South America
95,779
46,834
48,945
105%
48
–
48
Total International
289,076
201,454
87,622
43% 20,444
17,208
3,236
Total Sales [1]
475,204
392,843
82,361
21% 75,450
57,399
18,051
N/A
19%
31%
1. The aggregate of the Total Sales from the Commercial Platform and Food Platform equal the Total Sales of the
Commercial Segment.
Canada
U.S.
International
EMEA
Asia Pacific
South America
Total International
Total Sales
2021
$
1,577
2020
$
1,617
Change
$
(40)
31,450
21,150
10,300
Change
%
(2%)
49%
9
78
8
95
121
–
216
337
33,122
23,104
(112)
78
(208)
(242)
10,018
(93%)
N/A
(96%)
(72%)
43%
Canada
U.S.
International
EMEA
Asia Pacific
South America
Total International
Total Sales
2021
$
2020
$
Change
$
Change
%
267,755
282,402
(14,647)
532,443
442,813
89,630
127,899
104,574
128,758
100,969
141,668
69,372
23,325
27,789
72,296
398,325
274,915
123,410
1,198,523
1,000,130
198,393
(5%)
20%
22%
28%
104%
45%
20%
1 7
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
1 8
2021 ANNUAL REPORT • Sales in Brazil and India increased 271% and
3%, respectively, from Q4 2020.
• Brazil continued to see very strong
demand for AGI products and systems
across both the Farm and Commercial
segments.
• Sales continue to grow in India and
are up 10% YOY for the year ended
December 31, 2021.
Canada
• Sales in Canada decreased 21% and 5% YOY for the three-months and year ended
December 31, 2021, respectively
• Farm segment sales decreased 16% and increased 5% YOY for the three-
months and year ended December 31, 2021, respectively, as result of a change
in management estimate on variable considerations on a number of contracts.
Backlog in Canada decreased 27% YOY as at December 31, 2021 as many parts of
Western Canada experienced drought conditions in 2021 that impacted demand
for storage and handling equipment. We anticipate that the drought in Western
Canada will have an impact on H1 2022 which will be mitigated by growth in
Eastern Canada.
• Digital segment sales increased 33% but decreased 2% YOY for the three-months
and year ended December 31, 2021, respectively, as we continue to expand our
Digital products in the Canadian market. We anticipate continued growth in
Canada for the Digital segment.
resulted in a 114% increase in U.S. Farm backlog as compared to December 31,
2020.
• U.S. Digital segment sales increased 28% and 49%YOY for the three-months and
year ended December 31, 2021, respectively, as SureTrack continues to expand its
dealer network.
• U.S. Commercial segment sales increased 33% and 22% YOY for the three-months
and year ended December 31, 2021, respectively. Specifically:
• Commercial platform sales increased 40% in Q4 YOY largely due to timing on
key projects. We anticipated this sales growth due to the release of projects that
were impacted by supply chain delays. This resulted in 14% overall growth for
the year ended December 31, 2021.
• U.S. Food platform sales grew 18% in Q4 YOY as a result of continued demand
in the petfood market a contributor to overall growth of 60% growth in 2021. Our
efforts to develop strategic relationships with key partners for the past several
years are now crystalizing with larger projects wins in this group.
• Commercial segment sales decreased 34% and 33% YOY for the three-months
and year ended December 31, 2021, respectively. Specifically:
International
• Commercial platform sales in Canada were down 30% and 37% YOY for the
three-months and year ended December 31, 2021, respectively, as COVID-19
continues to impact projects of all sizes in both grain terminal and fertilizer
sectors. Increased quoting activities in Q4 2021 for grain terminal projects
have increased backlogs significantly as compared to December 31, 2020.
Management anticipates further recovery in the Canadian commercial platform
in 2022.
• Food platform sales were down 47% and 12%YOY for the three-months and year
ended December 31, 2021, respectively, as resources were shifted to support the
demands in the US and International markets.
United States
• Sales in the U.S. increased 30% and 20% YOY, for the three-months and year ended
December 31, 2021 respectively:
• Farm segment sales increased 28% and 17% YOY for the three-months and year
ended December 31, 2021, respectively as a result of continued demand for storage
and portable equipment. Demand for storage and portable equipment remains
strong with many dealers reporting low inventory levels. In addition, a sustained
focus on expanding our U.S. dealer base has also helped build demand for AGI
products within a key sales channel for the segment. Together, these factors have
• International sales increased 117% and 45% YOY, for the three-months and year ended
December 31, 2021 respectively:
• Farm segment increased 174% and 59%YOY for the three-months and year ended
December 31, 2021, respectively, with Asia Pacific and South America experiencing
the largest increases in portable and permanent handling products.
• Commercial segment sales increased 105% and 42% YOY for the three-months
and year ended December 31, 2021, respectively. Specifically:
• Commercial platform sales increased 110% and 43% YOY for the three-months
and year ended December 31, 2021, respectively, despite the impact of COVID-19
causing project delays. Both EMEA and South America regions continue to
see significant sales increases, 190% and 285% respectively, over Q4 2020
as favourable macroeconomic conditions continue to stimulate commercial
infrastructure investment; and
• Food platform sales increased 44% and 19% YOY for the three-months and
year ended December 31, 2021, respectively, mainly due to timing of projects as
continued demand has driven up the backlog by 84% YOY.
1 9
2 0
2021 ANNUAL REPORT DETAILED OPERATING RESULTS
[thousands of dollars]
Three-months Ended December 31
Year Ended December 31
2021
$
2020
$
2021
$
2020
$
3. Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement
4.
in contingent consideration and amounts due to vendors.
Impairment charge is a result of a write-down in property, plant and equipment ($1,558) and intangible of assets
($3,516). See “Note 12 - Property, plant and equipment and Note 15 – Intangible assets in our consolidated
financial statements.
Sales
Cost of goods sold
Cost of inventories
327,095
227,385
1,198,523
1,000,130
5. See “Share of associate's net loss (gain) and revaluation gains”.
232,998
157,013
834,402
678,813
Gross Profit and Adjusted Gross Margin
Equipment rework and remediation
18,600
30,000
26,100
80,000
Depreciation and amortization
9,602
7,240
34,006
28,527
261,200
194,253
894,508
787,340
Selling, general and administrative expenses
Selling, general & administrative expenses [1]
64,752
45,338
213,208
183,013
Sales
Mergers and acquisitions expense [2]
Other transaction and transitional costs [3]
Depreciation and amortization
962
4,763
6,772
390
3,249
6,716
3,035
12,058
28,043
1,736
14,326
26,744
Cost of goods sold
Gross Profit
Gross Profit as a % of sales [1]
77,249
55,693
256,344
225,819
Equipment rework and remediation
Other operating expense (income)
Net loss on disposal of property, plant and equipment
Net (gain) loss on settlement of lease liability
Net gain on disposal of foreign operations
Net (gain) loss on financial instruments
Other
Finance costs
Finance expense
Impairment charge [4]
Share of associate's net loss [5]
Gain on remeasurement of equity investment [5]
(60)
(28)
–
68
2
–
23
(17)
(898)
(1,929)
(1,287)
(1,975)
(1,382)
(1,420)
(5,025)
(3,304)
(3,325)
(7,299)
187
(3)
–
14,502
(4,152)
10,534
11,948
11,938
43,599
46,692
145
(9,072)
1,558
–
–
–
947
–
2,615
5,074
1,077
(6,778)
1,286
5,111
4,314
–
Profit (loss) before income taxes
(21,701)
(23,049)
9,383
(80,966)
Income tax recovery
Profit (loss) for the year
Profit (loss) per share
Basic
Diluted
(5,351)
(8,035)
(1,175)
(19,318)
(16,350)
(15,014)
10,558
(61,648)
(0.87)
(0.87)
(0.80)
(0.80)
0.56
0.50
(3.30)
(3.30)
1.
Includes minimum lease payments recognized as lease expense. See “Note 25 [b] - Other expenses (income)” in
our consolidated financial statements.
2. Transaction costs associated with completed and ongoing mergers and acquisitions activities.
[thousands of dollars]
Three-months Ended December 31
Year Ended December 31
2021
$
2020
$
2021
$
2020
$
327,095
227,385
1,198,523
1,000,130
261,200
194,253
894,508
787,340
65,895
20.1%
18,600
9,602
94,097
28.8%
33,132
14.6%
30,000
304,015
212,790
25.4%
26,100
21.3%
80,000
28,527
7,240
34,006
70,372
30.9%
364,121
321,317
30.4%
32.1%
Depreciation and amortization
Adjusted Gross Margin [2]
Adjusted Gross Margin as a % of sales [1]
1. This is a supplementary financial measure and is used throughout this MD&A. See “NON-IFRS and OTHER
FINANCIAL MEASURES” for more information on each supplementary financial measure.
2. This is a non-IFRS measure and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL
MEASURES” for more information on each non-IFRS measure.
3. This is a non-IFRS ratio and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL MEASURES”
for more information on each non-IFRS ratio.
AGI’s gross profit as a percentage of sales for the year ended December 31, 2021,
increased over the prior year as a result of the reduction in cost of equipment rework
and remediation. The adjusted gross margin as a percentage of sales for the year ended
December 31, 2021 decreased over the prior year, which is partially attributable to higher
input costs including steel, components, freight, and labour in the year in addition to the
impact of sales mix on consolidated adjusted gross margins.
Impact of Foreign Exchange
Gains and Losses on Foreign Exchange
The 2021 loss on foreign exchange in finance expense is primarily comprised of non-
cash items related to the translation of the Company’s U.S. dollar denominated long-
term debt at the rate of exchange in effect as at December 31, 2021. See also “Financial
Instruments – Foreign exchange contracts”.
Sales and Adjusted EBITDA
AGI’s average rate of exchange for the three-months and year ended December 31, 2021
was $1.27 [2020 - $1.32] and $1.25 [2020 - $1.34]. A stronger Canadian dollar relative
to the U.S. dollar results in lower reported sales for AGI, as U.S. dollar denominated
sales are translated into Canadian dollars at a lower rate. Similarly, a stronger Canadian
dollar results in lower costs for U.S. dollar denominated inputs and SG&A expenses. In
addition, a stronger Canadian dollar may result in lower input costs of certain Canadian
dollar denominated inputs, including steel. On balance, Adjusted EBITDA decreases
when the Canadian dollar strengthen relative to the U.S. dollar.
Remediation costs and equipment rework
Remediation costs
As previously disclosed, over the period of 2019-2020, AGI entered into agreements to
supply 35 large hopper bins [the “Bins”] for installation by third parties on two grain
storage projects. In 2020, one of the Bins erected at one of these projects [“Customer
A”] collapsed during commissioning [the “Incident”]. The Incident did not result in
any injuries and AGI immediately issued a demand to suspend use of the Bins at both
projects. A total of 15 Bins are located at Customer A’s site and 20 Bins are located at the
second site [“Customer B”].
AGI agreed on a remediation plan with Customer B and completed extensive product
revisions, remediation and testing during 2021. Subsequent to year-end, AGI announced
the successful completion of the remediation at Customer B’s site.
Customer A has proceeded to conduct remediation of the Bins themselves by replacing
the Bins with another equipment solution.
In 2021, two legal claims related to the Incident were initiated against AGI for a
cumulative amount in excess of $190 million. The claim by Customer A is in excess of
$80 million. In addition, claims have been made by a second claimant [a customer of
Customer A with respect to the Incident site] seeking damages of $110 million against
AGI. AGI had no contractual relationship with the second claimant and is defending the
claims as being remote, not proximate and without merit. AGI has legal and contractual
defenses to these legal claims, has filed defenses and will fully and vigorously defend
itself.
Customer A has also made a separate legal claim against its own insurance broker over
coverage they allege the broker failed to put in place, causing Customer A to suffer
damages and uninsured losses. Customer A was required to maintain this insurance
coverage under the Customer A’s contract with AGI and was required to name AGI as an
additional insured.
During the year ended December 31, 2021, an additional provision of $16.1 million was
recorded for revised cost estimates in the audited consolidated financial statements. As
at December 31, 2021, the warranty provision for the estimated remediation costs is $42.4
million [December 31, 2020 – $69.7 million], with $43.4 million of the provision having
been utilized during the year ended December 31, 2021.
The provision for remediation at Customer A’s site requires significant estimates and
judgments about the scope, nature, timing and cost of investigation and remediation
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 Incident site. Key
assumptions included, the degree of liability if any, the estimated number of third-
party investigation and legal hours, estimated volume of materials and materials
costs, estimated internal and external labour hours, equipment costs and third-party
construction costs. As investigation of the incident continues, the provision is subject to
revision in the future as further information becomes available, the impact of which could
be material.
The provision is based on management’s assessment of the remaining scope, nature,
and timing of the work outstanding and has been revised based on experience
gained and lessons learned from the successful completion and costs incurred in the
reinforcement and commissioning of Customer B’s site during the year. In addition,
management has considered the merits of related legal claims and have taken them into
consideration in assessing its exposure.
AGI continues to believe that any financial impact will be, at least, partially offset by
insurance coverage. 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.
Equipment rework
The provision for equipment rework relates to previously identified issues with
equipment designed and supplied to a customer’s commercial facility. During the
year ended December 31, 2021, an additional provision of $10 million was recorded as
result of revised cost estimates. As at December 31, 2021, the warranty provision for the
equipment rework is $11.8 million [2020 – $4.5 million], with $2.7 million of the provision
having been utilized during the year.
2 1
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
2 2
2021 ANNUAL REPORT Selling, General and Administrative Expenses [“SG&A”]
remeasurement of its previously held equity investment at its acquisition-date fair value.
SG&A expenses for the year ended December 31, 2021 excluding merger and acquisition
expenses [“M&A”], other transaction and transitional expenses and depreciation /
amortization, were $213.2 million [17.8% of sales], versus $183.0 million [18.3% of sales] in
2020. Year-to-date variances from the prior year include the following:
• $8.8 million increase in sales and marketing as a result of sales and marketing
activities return to normal in 2021.
• $8.4 million increase in salaries, wages and share-based compensation related to
performance-based awards.
• $5.2 million increase in Engineering and IT Expense where $1.5 million is related to
increase in engineering services throughout the Company and $1.3 million is related
to additional IT security investments with the remainder to enhance support of a
complex IT infrastructure.
• $3.5 million increase in consulting expense of which $3.4 million is related to AGI
SureTrack for the work to assist with sales strategy and product enhancements.
• No other individual variance was greater than $2.0 million.
Finance costs
Finance costs which represent interest incurred on all debt for the twelve-months ended
December 31, 2021 were $43.6 million versus $46.7 million in 2020. Finance costs have
decreased in 2021 as a result of a lower effective interest rate as compared to 2020.
Finance expense (income)
Finance expense (income) which represents interest income earned and foreign
exchange on long term debt for the year ended December 31, 2021, was expense of $2.6
million versus $1.3 million in 2020. The expense in 2021 relates primarily to the effect of
foreign currency translations arising from the settlement of accounts receivables and
payables recorded in a currency other than the Company’s functional currency (see
“BASIS OF PRESENTATION”) and non-cash translation of the Company’s U.S. dollar
denominated long-term debt as the exchange rate fell from 1.2732 as at December 31,
2020 to 1.2678 at December 31, 2021.
Share of associate’s net loss (gain) and revaluation gains
Share of associate’s net loss for the twelve-months ended December 31, 2021 was a
loss of $1.1 million versus $4.3 million in 2020. The Company acquired a controlling
interest of Farmobile in Q2 2021 [See 2021 Acquisition - Farmobile] and recognized a
gain on remeasurement of equity investment of $6.8 Million in Q2 2021 as a result of the
Other operating expense (income)
Other operating expense (income) for the twelve-months ended December 31, 2021, was
income of $7.3 million versus expense of $10.5 million in 2020. Other operating expense
(income) includes non-cash gains and losses on financial instruments, including AGI’s
equity compensation hedge [see “Equity swap”], and interest income from customer
financing arrangements. A significant portion of the increase relates to the unrealized
change in fair value of the equity swap.
Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors.
5. Transaction costs associated with completed and ongoing mergers and acquisitions activities.
6. The result of a change in management estimate on variable considerations for a one-time sales concessions related to previous sales contracts.
7.
8. See “Remediation costs and equipment rework”
9.
10. This is a non-IFRS measure and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL MEASURES” for more information on each non-IFRS measure.
Impairment charge is a result of a write-down in property, plant and equipment ($1,558) and intangible of assets ($3,516). See “Note 12 - Property, plant and equipment” and “Note 15 – Intangible assets in our consolidated financial statements.
Profit (loss) before income taxes and Adjusted EBITDA
Profit (loss) before income taxes and Adjusted EBITDA by Segment
The following table reconciles profit (loss) before income taxes to Adjusted EBITDA.
[thousands of dollars]
Three-months Ended December 31
Year Ended December 31
Profit (loss) before income taxes
(21,701)
(23,049)
9,383
(80,966)
2021
$
2020
$
2021
$
2020
$
[thousands of dollars]
Year Ended December 31, 2021
[thousands of dollars]
Year Ended December 31, 2020
Farm
$
Commercial
$
Digital
$
Other [12]
$
Total
$
Farm
$
Commercial
$
Digital
$
Other [12]
$
Total
$
Profit (loss) before income taxes
116,987
38,192
(19,850)
(125,946)
9,383
Profit (loss) before income taxes
96,762
33,700
(10,320)
(201,108)
(80,966)
Finance costs
–
–
–
43,599
43,599
Finance costs
–
–
–
46,692
46,692
Finance costs
Depreciation and amortization
Share of associate's net loss [1]
Gain on remeasurement of equity investment [1]
11,948
16,374
–
–
11,938
13,956
947
–
Loss (gain) on foreign exchange [2]
211
(8,933)
Share-based compensation [3]
(Gain) loss on financial instruments [4]
M&A expense [5]
Change in estimate on variable considerations [6]
Other transaction and transitional costs [7]
Net loss on disposal of property, plant and
equipment
Loss (gain) on settlement of right-of-use assets
Gain on disposal of foreign operation
2,553
(1,929)
962
11,400
4,763
(60)
(28)
–
43,599
62,049
1,077
(6,778)
2,992
8,551
46,692
55,271
4,314
–
1,730
6,428
1,223
(1,975)
(1,382)
14,502
390
–
3,035
11,400
1,736
–
3,249
12,058
14,326
68
2
–
23
(17)
(898)
187
(3)
–
Equipment rework and remediation [8]
18,600
30,000
26,100
80,000
Impairment charge [9]
Adjusted EBITDA [10]
1,558
44,651
–
5,074
5,111
27,816
176,266
149,328
1. See “Share of associate's net loss (gain) and revaluation gains”.
2. See “Note 25 [e] - Other expenses (income)” in our consolidated financial statements.
3. The Company’s share-based compensation expense pertains to our equity incentive award plan (“EIAP”) and
directors’ deferred compensation plan (“DDCP”). See “Note 24 – Share-based compensation plans” in our
consolidated financial statements.
4. See “Equity swap”.
Depreciation and amortization [1]
19,994
25,070
5,063
Depreciation and amortization [1]
20,250
23,292
12,354
Share of associate's net loss [2]
Gain on remeasurement of equity
investment [2]
Loss (gain) on foreign exchange [3]
Share-based compensation [4]
(Gain) loss on financial instruments [5]
M&A expense [6]
–
–
–
–
–
–
Change in estimate on variable
considerations [7]
11,400
Other transaction and transitional costs [8]
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,153
1,077
62,049
1,077
(6,778)
(6,778)
2,992
8,551
2,992
8,551
Share of associate's net loss [2]
Gain on remeasurement of equity
investment [2]
Loss (gain) on foreign exchange [3]
Share-based compensation [4]
(1,382)
(1,382)
(Gain) loss on financial instruments [5]
3,035
3,035
M&A expense [6]
–
11,400
Change in estimate on variable
considerations [7]
12,058
12,058
Other transaction and transitional costs [8]
Net loss on disposal of property, plant and
equipment [1]
Loss (gain) on settlement of right-of-use
assets [1]
Gain on disposal of foreign operation
Equipment rework and remediation [9]
Impairment charge [10]
Adjusted EBITDA [11]
(189)
213
(2)
1
23
Net loss on disposal of property, plant and
equipment [1]
11
–
–
–
–
–
–
5,074
–
–
–
–
(28)
(17)
Loss (gain) on settlement of right-of-use
assets [1]
(898)
(898)
Gain on disposal of foreign operation
26,100
26,100
Equipment rework and remediation [9]
–
5,074
Impairment charge [10]
–
–
–
–
–
–
–
–
82
(1)
–
–
–
–
–
–
–
–
–
–
–
37
(2)
–
–
–
–
–
–
–
–
–
–
–
49
–
–
–
–
5,144
4,314
55,271
4,314
–
–
1,730
6,428
1,730
6,428
14,502
14,502
1,736
1,736
–
–
14,326
14,326
19
–
–
187
(3)
–
80,000
80,000
5,111
5,111
148,459
66,771
(7,498)
(31,466)
176,266
Adjusted EBITDA [11]
116,837
58,805
(5,208)
(21,106)
149,328
2 3
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
2 4
2021 ANNUAL REPORT [thousands of dollars]
Three-Months Ended December 31, 2021
[thousands of dollars]
Three-Months Ended December 31, 2020
[thousands of dollars]
Year Ended December 31, 2021
[thousands of dollars]
Year Ended December 31, 2020
Farm
$
Commercial
$
Digital
$
Other [12]
$
Total
$
Farm
$
Commercial
$
Digital
$
Other [12]
$
Total
$
Canada
$
US
$
International
$
Other [12]
$
Total
$
Canada
$
US
$
International
$
Other [12]
$
Total
$
Profit (loss) before income taxes
19,326
16,917
(8,428)
(49,516)
(21,701)
Profit (loss) before income taxes
15,068
8,683
(3,315)
(43,485)
(23,049)
Profit (loss) before income taxes
29,757
60,701
44,871
(125,946)
9,383
Profit (loss) before income taxes
39,785
53,869
26,488
(201,108)
(80,966)
Profit (loss) before income taxes and Adjusted EBITDA by Geography
–
5,212
–
–
5,663
3,907
11,948
1,592
11,948
16,374
–
–
–
–
–
–
–
–
Finance costs
Depreciation and amortization [1]
Share of associate's net loss [2]
Gain on remeasurement of equity
investment [2]
Loss (gain) on foreign exchange [3]
Share-based compensation [4]
(Gain) loss on financial instruments [5]
M&A expense [6]
–
–
–
–
–
–
Change in estimate on variable
considerations [7]
11,400
Other transaction and transitional costs [8]
–
Net loss on disposal of property, plant and
equipment [1]
(258)
198
Loss (gain) on settlement of right-of-use
assets [1]
Gain on disposal of foreign operation
Equipment rework and remediation [9]
Impairment charge [10]
Adjusted EBITDA [11]
–
–
–
–
–
–
–
1,558
–
–
–
–
Finance costs
Depreciation and amortization [1]
Share of associate's net loss [2]
Gain on remeasurement of equity
investment [2]
211
211
Loss (gain) on foreign exchange [3]
2,553
2,553
Share-based compensation [4]
(1,929)
(1,929)
(Gain) loss on financial instruments [5]
962
962
M&A expense [6]
–
11,400
Change in estimate on variable
considerations [7]
4,763
4,763
Other transaction and transitional costs [8]
–
(28)
–
(60)
(28)
–
Net loss on disposal of property, plant and
equipment [1]
Loss (gain) on settlement of right-of-use
assets [1]
Gain on disposal of foreign operation
18,600
18,600
Equipment rework and remediation [9]
–
1,558
Impairment charge [10]
–
4,954
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,938
6,194
1,488
–
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
45
–
–
–
–
11,938
13,956
947
–
1,320
947
–
(8,933)
(8,933)
1,223
1,223
(1,975)
(1,975)
390
–
390
–
3,249
3,249
17
–
–
68
2
–
30,000
30,000
–
–
Finance costs
–
–
–
43,599
43,599
Finance costs
–
–
–
46,692
46,692
Depreciation and amortization [1]
12,487
24,832
18,577
6,153
62,049
Depreciation and amortization [1]
14,154
22,194
13,779
5,144
55,271
Share of associate's net loss [2]
Gain on remeasurement of equity
investment [2]
Loss (gain) on foreign exchange [3]
Share-based compensation [4]
(Gain) loss on financial instruments [5]
M&A expense [6]
–
–
–
–
–
–
Change in estimate on variable
considerations [7]
11,400
Other transaction and transitional costs [8]
Net loss on disposal of property, plant and
equipment [1]
Loss (gain) on settlement of right-of-use
assets [1]
Gain on disposal of foreign operation
Equipment rework and remediation [9]
Impairment charge [10]
Adjusted EBITDA [11]
–
5
2
–
–
–
–
–
–
–
–
–
–
–
10
5
–
–
5,074
–
–
–
–
–
–
–
–
7
4
–
–
–
1,077
1,077
Share of associate's net loss [2]
(6,778)
(6,778)
2,992
8,551
2,992
8,551
Gain on remeasurement of equity
investment [2]
Loss (gain) on foreign exchange [3]
Share-based compensation [4]
(1,382)
(1,382)
(Gain) loss on financial instruments [5]
3,035
3,035
M&A expense [6]
–
11,400
Change in estimate on variable
considerations [7]
12,058
12,058
Other transaction and transitional costs [8]
1
(28)
23
(17)
Net loss on disposal of property, plant and
equipment [1]
Loss (gain) on settlement of right-of-use
assets [1]
(898)
(898)
Gain on disposal of foreign operation
26,100
26,100
Equipment rework and remediation [9]
–
5,074
Impairment charge [10]
–
–
–
–
–
–
–
–
47
(1)
–
–
–
–
–
–
–
–
–
–
–
74
(1)
–
–
–
–
–
–
–
–
–
–
–
47
(1)
–
–
–
4,314
4,314
–
–
1,730
6,428
1,730
6,428
14,502
14,502
1,736
1,736
–
–
14,326
14,326
19
–
–
187
(3)
–
80,000
80,000
5,111
5,111
35,680
24,336
(4,521)
(10,844)
44,651
Adjusted EBITDA [11]
20,028
14,879
(1,782)
(5,309)
27,816
53,651
90,622
63,459
(31,466)
176,266
Adjusted EBITDA [11]
53,985
76,136
40,313
(21,106)
149,328
1. Allocated based on the segment of the underlying asset’s cash generating unit (“CGU”).
2. See “Share of associate's net loss (gain) and revaluation gains”.
3. See “Note 25 [e] - Other expenses (income)” in our consolidated financial statements.
4. The Company’s share-based compensation expense pertains to our EIAP and DDCP. See “Note 24 – Share-based compensation plans” in our consolidated financial statements.
5. See “Equity swap”.
6. Transaction costs associated with completed and ongoing mergers and acquisitions activities.
7. The result of a change in management estimate on variable considerations for a one-time sales concessions related to previous sales contracts.
8.
9. See “Remediation costs and equipment rework”
10. Impairment charge is a result of a write-down in property, plant and equipment ($1,558) and intangible of assets ($3,516). See “Note 12 - Property, plant and equipment” and “Note 15 – Intangible assets in our consolidated financial statements.
11. This is a non-IFRS measure and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL MEASURES” for more information on each non-IFRS measure.
12. Included in Other is the corporate office, which is not a reportable segment, and which provides finance, treasury, legal, human resources and other administrative support to the segments.
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 5
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
2 6
2021 ANNUAL REPORT [thousands of dollars]
Three-Months Ended December 31, 2021
[thousands of dollars]
Three-Months Ended December 31, 2020
Canada
$
US
$
International
$
Other [12]
$
Total
$
Canada
$
US
$
International
$
Other [12]
$
Total
$
Profit (loss) before income taxes
(1,995)
7,980
21,830
(49,516)
(21,701)
Profit (loss) before income taxes
6,469
8,282
5,685
(43,485)
(23,049)
Finance costs
Depreciation and amortization [1]
Share of associate's net loss [2]
Gain on remeasurement of equity
investment [2]
Loss (gain) on foreign exchange [3]
Share-based compensation [4]
(Gain) loss on financial instruments [5]
M&A expense [6]
Change in estimate on variable
considerations [7]
11,400
Other transaction and transitional costs [8]
Net loss on disposal of property, plant and
equipment [1]
Loss (gain) on settlement of right-of-use
assets [1]
Gain on disposal of foreign operation
Equipment rework and remediation [9]
Impairment charge [10]
Adjusted EBITDA [11]
–
–
2,112
5,787
–
6,883
11,948
1,592
11,948
16,374
Finance costs
–
–
–
11,938
11,938
Depreciation and amortization [1]
3,277
5,458
3,901
1,320
13,956
–
–
–
–
–
–
–
(9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Share of associate's net loss [2]
Gain on remeasurement of equity
investment [2]
211
211
Loss (gain) on foreign exchange [3]
2,553
2,553
Share-based compensation [4]
(1,929)
(1,929)
(Gain) loss on financial instruments [5]
962
962
M&A expense [6]
–
11,400
Change in estimate on variable
considerations [7]
4,763
4,763
Other transaction and transitional costs [8]
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(23)
(28)
–
–
–
1,558
–
–
–
–
–
(28)
–
(60)
(28)
–
Net loss on disposal of property, plant and
equipment [1]
13
22
Loss (gain) on settlement of right-of-use
assets [1]
Gain on disposal of foreign operation
18,600
18,600
Equipment rework and remediation [9]
–
1,558
Impairment charge [10]
1
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
16
–
–
–
–
947
947
–
–
(8,933)
(8,933)
1,223
1,223
(1,975)
(1,975)
390
–
390
–
3,249
3,249
17
–
–
68
2
–
30,000
30,000
–
–
11,508
15,302
28,685
(10,844)
44,651
Adjusted EBITDA [11]
9,760
13,763
9,602
(5,309)
27,816
1. Allocated based on the geographical region sales with the exception of expenses noted in Other.
2. See “Share of associate's net loss (gain) and revaluation gains”.
3. See “Note 25 [e] - Other expenses (income)” in our consolidated financial statements.
4. The Company’s share-based compensation expense pertains to our EIAP and DDCP. See “Note 24 – Share-based compensation plans” in our consolidated financial statements.
5. See “Equity swap”.
6. Transaction costs associated with completed and ongoing mergers and acquisitions activities.
7. The result of a change in management estimate on variable considerations for a one-time sales concessions related to previous sales contracts.
8.
9. See “Remediation costs and equipment rework”
10. Impairment charge is a result of a write-down in property, plant and equipment ($1,558) and intangible of assets ($3,516). See “Note 12 - Property, plant and equipment” and “Note 15 – Intangible assets in our consolidated financial statements.
11. This is a non-IFRS measure and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL MEASURES” for more information on each non-IFRS measure.
12. Included in Other is the corporate office which provides finance, treasury, legal, human resources and other administrative support to the geographical regions.
Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors.
As expected, AGI’s Adjusted EBITDA for the year ended December 31, 2021, increased 18% over 2020. The Farm segment’s Adjusted EBITDA increased 27% over 2020 for the year
ended December 31, 2021, largely due to solid demand owing to a strong crop year and low dealer inventories. The Commercial segment’s 14% Adjusted EBITDA increase is largely
due to timing of international projects in addition to the impact of rising input costs including materials, labour, and freight. Updated procedures and countermeasures enacted have
mitigated the impact of input cost inflation going forward.
Depreciation and amortization
Diluted profit (loss) per share and diluted adjusted profit per share
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. Depreciation and amortization
are consistent with the prior year.
The Company’s diluted profit (loss) per share for the three-months and year ended
December 31, 2021, were loss of $0.87 and profit of $0.50 compares to a loss of $0.80 and
$3.30 in 2020, respectively. Profit (loss) per share in 2021 and 2020 has been impacted
by the items enumerated in the table below, which reconciles profit (loss) to adjusted
profit.
Income tax (recovery) expense
Current income tax expense
Current tax expense for the three-month and year ended December 31, 2021, was $4.3
million and $9.4 million, respectively, versus $3.6 million and $7.1 million, respectively, in
2020.
Deferred income tax recovery
Deferred tax recovery for the three-month and year ended December 31, 2021 was a
recovery of $9.6 million and $10.6 million, respectively, versus $11.6 million and $26.4
million, respectively, in 2020. The deferred tax recovery in 2021 related to the recognition
of temporary differences between the accounting and tax treatment of intangible assets
and non-capital loss carryforwards.
[thousands of dollars]
Three-months Ended December 31
Year Ended December 31
[thousands of dollars except per share amounts]
Three-months Ended December 31
Year Ended December 31
2021
$
2020
$
2021
$
2020
$
Profit (loss)
(16,350)
(15,014)
10,558
(61,648)
Diluted profit (loss) per share
Loss (gain) on foreign exchange [1]
M&A expense [2]
Other transaction and transitional costs [3]
(Gain) loss on financial instruments [4]
Change in estimate on variable considerations [5]
Net loss on disposal of property, plant and
equipment
Loss (gain) on settlement of right-of-use assets
Impairment charge [6]
(0.87)
211
962
4,763
(1,929)
11,400
(60)
(28)
1,558
(0.80)
(8,933)
390
3,249
(1,975)
–
68
2
–
0.50
2,992
3,035
12,058
(1,382)
11,400
23
(17)
5,074
(3.30)
1,730
1,736
14,326
14,502
–
187
(3)
5,111
Equipment rework and remediation [7]
18,600
30,000
26,100
80,000
Current tax expense
Deferred tax recovery
Total tax
2021
$
4,280
(9,631)
(5,351)
2020
$
3,593
2021
$
9,445
2020
$
7,089
Gain on disposal of foreign operation
Share of associate's net loss [8]
(11,628)
(10,620)
(26,407)
Gain on remeasurement of equity investment [8]
(8,035)
(1,175)
(19,318)
Adjusted profit [9]
Diluted adjusted profit per share [10]
–
–
–
19,127
0.89
–
947
–
8,734
0.46
(898)
1,077
(6,778)
–
4,314
–
63,242
60,255
2.90
3.17
Profit (loss) before income taxes
(21,701)
(23,049)
9,383
(80,966)
Effective income tax rate
24.7%
34.9%
(12.5%)
23.9%
The effective income tax rate in 2021 was impacted by the current period recognition of
previously unrecognized deferred tax assets in Brazil and items that were included in
the calculation of earnings before tax for accounting purposes but were not included or
deducted for tax purposes. Significant items are included in the tables under “Diluted
profit (loss) per share and diluted adjusted profit per share”.
1. See “Note 25 [e] - Other expenses (income)” in our consolidated financial statements.
2. Transaction costs associated with completed and ongoing mergers and acquisitions activities.
3. Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement
in contingent consideration and amounts due to vendors.
4. See “Equity swap”.
5. The result of a change in management estimate on variable considerations for a one-time sales concessions
related to previous sales contracts.
6. Impairment charge is a result of a write-down in property, plant and equipment ($1,558) and intangible of assets
($3,516). See “Note 12 - Property, plant and equipment and Note 15 – Intangible assets in our consolidated
financial statements.
7. See “Remediation costs and equipment rework”
8. See “Share of associate's net loss (gain) and revaluation gains”.
9. This is a non-IFRS measure and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL
MEASURES” for more information on each non-IFRS measure.
10. This is a non-IFRS ratio and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL MEASURES”
for more information on each non-IFRS ratio.
2 7
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
2 8
2021 ANNUAL REPORT
3 03 0
QUARTERLY FINANCIAL INFORMATION
[thousands of dollars other than per share amounts and exchange rate]:
2021
Sales [1]
$
255,977
301,592
313,859
327,095
1,198,523
Profit (Loss)
$
12,704
14,276
(73)
(16,349)
10,558
2020
Sales [1]
$
228,875
261,420
282,450
227,385
1,000,130
Profit (Loss)
$
(48,844)
14,472
(12,262)
(15,014)
(61,648)
Basic
Profit (Loss)
per Share
$
Diluted
Profit (Loss)
per Share
$
0.68
0.76
0.00
(0.87)
0.56
0.66
0.74
0.00
(0.87)
0.50
Basic
Profit (Loss)
per Share
$
Diluted
Profit (Loss)
per Share
$
(2.61)
0.77
(0.66)
(0.80)
(3.30)
(2.61)
0.76
(0.66)
(0.80)
(3.30)
Average USD/CAD
Exchange Rate
1.27
1.23
1.25
1.27
1.25
Average USD/CAD
Exchange Rate
1.32
1.40
1.34
1.32
1.34
Q1
Q2
Q3
Q4
YTD
Q1
Q2
Q3
Q4
YTD
1. See “BASIS OF PRESENTATION”
The following factors impact the comparison between periods in the table above:
• AGI’s acquisitions of Affinity [Q1 2020] and a controlling interest in Farmobile [Q2
2021] impact comparisons between periods of assets, liabilities and operating results.
• Sales, gain (loss) on foreign exchange, profit (loss), and diluted profit (loss) per share
in all periods are impacted by the rate of exchange between the Canadian and U.S.
dollars.
• Profit (loss) and Diluted Profit (loss) per share from 2020 and 2021 were negatively
impacted by the Company’s estimated remediation costs [see – “Remediation costs
and equipment rework”].
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.
LIQUIDITY AND CAPITAL RESOURCES
AGI’s financing requirements are subject to variations due to the seasonal and cyclical
nature of its business. Sales historically have been higher in the second and third
calendar quarters compared with the first and fourth quarters and cash flow has been
lower in the first half of each calendar year. Internally generated funds are supplemented,
when necessary, from external sources, primarily the Company’s 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 LIQUIDITY
[thousands of dollars]
Three-months Ended December 31
Year Ended December 31
2021
$
2020
$
2021
$
2020
$
Profit (loss) before tax
(21,701)
(23,049)
9,383
(80,966)
Items not involving current cash flows
19,056
1,063
Cash provided by operations
(2,645)
(21,986)
73,379
82,762
83,640
2,674
Net change in non-cash working capital
36,209
63,243
(20,951)
80,059
Transfer from(to) restricted cash
–
–
7,068
–
Non-current accounts receivable and other
(5,337)
(1,804)
(15,559)
(3,001)
Long-term payables
Settlement of EIAP
Post-combination payments
Income tax paid
24
(48)
–
(3,817)
144
(86)
–
265
(8)
333
(817)
(2,882)
(4,154)
(9,226)
Cash flows provided by (used in) operating activities
24,386
39,776
39,115
Cash used in investing activities
(13,306)
(9,656)
(75,318)
(62,698)
Cash provided by (used in) financing activities
1,617
(42,489)
35,054
Net increase (decrease) in cash during the period
12,697
(12,369)
Cash, beginning of period
Cash, end of period
48,610
61,307
74,825
62,456
(1,149)
62,456
–
(3,013)
74,170
2,563
14,035
48,421
The decrease in cash provided by operating activities for the three-months ended
December 31, 2021, as compared to 2020 is due to net change in non-cash working
capital offset by changes in items not involving current cash flows, non-current accounts
receivables, post combination expenses and income tax paid whereas the decrease
in cash provided by operating activities for the year ended December 31, 2021, as
compared to 2020 is due to net change in non-cash working capital, increase in non-
current accounts receivable, post combination payments and income taxes paid.
The change in non-cash working capital is largely due to the higher cost of steel,
sales mix towards the Farm segment and the reduction in warranty provision as
equipment rework and remediation work continues [see “Remediation costs and
equipment rework”]. Cash used in investing activities relates primarily to the acquisition
of a controlling interest in Farmobile [see “2021 Acquisition – Farmobile”], capital
expenditures and internally generated intangibles. Cash provided by (used in) financing
activities relates to issuance of the 2021 convertible unsecured subordinated debentures
net of redemption of the 2017 convertible unsecured subordination debentures.
Working Capital Requirements
Interim period working capital requirements typically reflect the seasonality of the
business. AGI’s collections of accounts receivable in North America are weighted
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 offset by Milltec’s seasonality that 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 which typically has longer
payment terms than North America may result in an increase in the number of days
accounts receivable remain outstanding 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
[thousands of dollars]
Three-months Ended December 31
Year Ended December 31
61,307
62,456
Maintenance capital expenditures [1]
Non-maintenance capital expenditures [1]
Acquisition of property plant and equipment
2021
$
2,488
7,691
10,179
2020
$
2,295
2,460
4,755
2021
$
10,374
18,302
28,676
2020
$
8,141
19,922
28,063
1. This is a supplementary financial measure and is used throughout this MD&A. See “NON-IFRS and OTHER
FINANCIAL MEASURES” for more information on each non-IFRS measure.
3 1
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
3 2
2021 ANNUAL REPORT The acquisition of property, plant and equipment in the three-months and year ended
December 31, 2021 were $10.2 million and $28.7 million respectively as compared to $4.8
million and $28.1 million, respectively, in 2020.
The debentures relate to the aggregate principal amount of the debentures [see “Capital
Resources - Debentures”] and long-term debt is comprised of the Company’s credit
facility and non-amortizing notes [see “Capital Resources – Debt Facilities”].
Maintenance capital expenditures in the three-months and year ended December 31,
2021, were $2.5 million [0.8% of sales] and $10.4 million [0.9% of sales], respectively
versus $2.3 million [1.0% of sales] and $8.1 million [0.8% of sales], respectively, in 2020.
Maintenance capital expenditures in 2021 relate primarily to purchases of manufacturing
equipment and building repairs and historically have approximated 1.0% - 1.5% of sales.
CAPITAL RESOURCES
Assets and Liabilities
AGI had non-maintenance capital expenditures in the three-months and year ended
December 31, 2021, of $7.7 million and $18.3 million, respectively versus $2.5 million and
$19.9 million, respectively in 2020. $3.9 million of the $18.3 million of non-maintenance
capital expenditures were relating to investment in equipment leasing with the remaining
amounts relate to manufacturing capacity expansions in AGI SureTrack, EMEA, Brazil
and at certain plants in North America and the addition of manufacturing equipment to
support key business units.
The acquisition of property, plant and equipment and its components of maintenance
and non-maintenance capital expenditures in 2021 were financed through bank
indebtedness, cash on hand or through the Company’s credit facility [see “Capital
Resources”].
CONTRACTUAL OBLIGATIONS
[thousands of dollars]
December 31
December 31
Total assets
Total liabilities
Cash
2021
$
1,593,654
1,324,903
2020
$
1,479,179
1,216,042
The Company’s cash balance at December 31, 2021 was $61.3 million [2020 - $62.5
million].
Debt Facilities
As at December 31, 2021:
The following table shows, as at December 31, 2021 the Company’s contractual
obligations for the periods indicated:
[thousands of dollars]
Currency
Maturity
Total Facility
[CAD] [1][2]
$
Amount
Drawn [1]
$
Effective
Interest
Rate
[thousands of dollars]
Total
$
2022
$
2023
$
2018 Debentures
86,250
86,250
2019 Debentures – 1
2019 Debentures – 2
2020 Debentures
2021 Debentures
Long-term debt [1]
Lease liability [1]
Short term and low value leases
Due to vendor
Preferred shares liability [1][2]
Purchase obligations [3]
86,250
86,250
85,000
115,000
437,294
27,098
10
6,836
11,690
3,204
–
–
–
–
552
6,155
6
5,269
11,690
3,204
–
–
–
–
–
461
4,412
2
667
–
–
2024
$
–
86,250
86,250
–
–
2025
$
2026+
$
–
–
–
–
–
–
–
–
85,000
115,000
Canadian Swing Line
USD Swing Line
Canadian Revolver Tranche A [3]
Canadian Revolver Tranche B [4]
U.S. Revolver
Series B Notes [5]
Series C Notes [5]
CAD
USD
CAD
USD
USD
CAD
USD
430
403,536
32,315
Equipment Financing
various
2025
2025
2025
2025
2025
2025
2026
2025
40,000
12,678
235,000
50,712
209,187
25,000
31,695
2,306
–
–
126,417
50,000
201,834
25,000
31,695
2,306
2.83%
2.20%
2.98%
2.50%
2.20%
4.44%
3.70%
Various
3,537
3,273
9,721
Total
606,578
437,252
2
500
–
–
–
400
–
–
–
–
–
–
1. USD denominated amounts translated to CAD at the rate of exchange in effect on December 31, 2021 of $1.2678.
2. Excludes the $150 million accordion available under AGI’s credit facility.
3. Interest rate fixed for $40 million via interest rate swaps. See “Interest Rate Swaps”.
4. Amounts were drawn in CAD with a 105% overdraft limit on FX fluctuation.
5. Fixed interest rate.
Total obligations
944,882
113,126 5,542 176,969 407,209 242,036
1. Undiscounted
2. Related to optionally convertible redeemable preferred shares as part of the Milltec Machinery Inc. acquisition.
3. Net of deposit.
AGI has swing line facilities of $40 million and U.S. $10 million as at December 31, 2021.
The facilities bear interest at prime plus 0.2% to prime plus 1.5% per annum based
on performance calculations. As at December 31, 2021, there was $nil [2020 – $nil]
outstanding under the swing line.
AGI’s revolver facilities of $275 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 Company has issued U.S. $25 million and CAD $25 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.
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, 2021:
Year Issued / TSX Symbol
2018 [AFN.DB.E]
2021 [AFN.DB.I]
Aggregate
Principal
Amount
$
86,250,000
115,000,000
Coupon
4.50%
5.00%
Conversion
Price
$
Maturity
Date
Redeemable
at Par [1]
88.15
45.14
Dec 31, 2022
Jan 1, 2022
Jun 30, 2027
Jun 30, 2025
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,
2. Such Convertible Debentures may be redeemed, in whole or in part, at the option of the Company at a redemption
price equal to the principal amount plus accrued and unpaid interest, provided that the volume weighted average
trading price of the 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 of the Company (“Common Shares”). The Company may
also elect to satisfy its obligation to pay interest on the Convertible Debentures by
delivering sufficient Common Shares to the trustee the Convertible Debentures to be
sold, with the proceeds used to satisfy the obligation to pay interest. 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 Common Shares issued would be
determined based on market prices at the time of issuance.
On October 14, 2021, AGI entered into an agreement with a syndicate of underwriters
pursuant to which AGI issued on November 3, 2021 on a “bought deal” basis $100 million
aggregate principal amount of convertible unsecured subordinated debentures [the
“Debentures”] at a price of $1,000 per Debenture [the “Offering”]. On November 9, 2021,
AGI issued an additional $15 million aggregate principal amount of Debentures at the
same price pursuant to the exercise of the over-allotment option granted by AGI to the
underwriters. With the full exercise of the over-allotment option, the total gross proceeds
from the Offering to AGI were $115 million.
The Debentures bear interest from the date of issue at 5.00% per annum, payable semi-
annually in arrears on June 30 and December 31 each year, commencing June 30, 2022.
The Debentures have a maturity date of June 30, 2027 [the “Maturity Date”].
The Debentures are convertible at the holder’s option at any time prior to the close of
business on the earlier of the business day immediately preceding the Maturity Date
and the date specified by AGI for redemption of the Debentures into fully paid and non-
assessable Common Shares at a conversion price of $45.14 per Common Share [the
“Conversion Price”], being a conversion rate of approximately 22.1533 Common Shares
for each $1,000 principal amount of Debentures.
The Debentures are not redeemable by the Company before June 30, 2025. On and after
June 30, 2025 and prior to June 30, 2026, the Debentures may be redeemed in whole or
in part from time to time at AGI’s option 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 on the Toronto Stock Exchange for the 20 consecutive trading days
ending on the fifth trading day preceding the date on which the notice of the redemption
is given is not less than 125% of the Conversion Price. On and after June 30, 2026, the
Debentures may be redeemed in whole or in part from time to time at AGI’s option at a
price equal to their principal amount, plus accrued and unpaid interest, regardless of the
trading price of the Common Shares.
The net proceeds of the Offering were used to partially repay outstanding indebtedness
under the Company’s revolving credit facilities, a portion of which were then redrawn
to fund the redemption of the Company’s 4.85% convertible unsecured subordinated
debentures due June 30, 2022 and for general corporate purposes.
On November 16, 2021, the Company redeemed its 4.85% convertible unsecured
subordinated debentures due June 30, 2022 [“2017 Debentures”] in accordance with the
terms of the supplemental trust indenture governing such debentures. Upon redemption,
AGI paid to the holders of the 2017 Debentures the aggregate redemption price of $87.8
million equal to the outstanding principal amount of the 2017 Debentures redeemed
including accrued and unpaid interest up to but excluding the redemption date, less
taxes deducted or withheld. A loss of $0.7 million was recorded to loss on financial
instruments, and the equity component of the 2017 Debentures was reclassified to
contributed surplus.
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
3 4
2021 ANNUAL REPORT The Company expensed the remaining unamortized balance of $0.6 million of deferred
fees related to the 2017 Debentures. The expense was recorded to finance costs in the
consolidated statements of income (loss).
At March 8, 2022:
• 18,820,529 Common Shares are outstanding;
CASH PROVIDED BY OPERATIONS, FUNDS FROM OPERATIONS
AND PAYOUT RATIOS
Interest Rate Swaps
The Company has entered into interest rate swap contracts to manage its exposure to
fluctuations in interest rates.
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, 2021:
Year Issued / TSX Symbol
2019 March [AFN.DB.F]
2019 November [AFN.DB.G]
2020 March [AFN.DB.H]
Aggregate Principal
Amount
$
86,250,000
86,250,000
85,000,000
Coupon
5.40 %
5.25 %
5.25 %
Maturity Date
June 30, 2024
December 31, 2024
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 to the trustee
of the Senior Debentures to be sold, with the proceeds used to satisfy the obligation
to pay interest. The number of Common 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, 2020
Settlement of EIAP obligations
Conversion of 2017 Debentures
December 31, 2021
Settlement of EIAP obligations
March 8, 2022
#Common Shares
18,718,415
74,653
502
18,793,570
26,959
18,820,529
• 1,565,000 Common Shares are available for issuance under the Company’s Equity
Incentive Award Plan [the “EIAP”], of which 1,412,129 have been granted and 152,571
remain unallocated;
• 500,000 Common Shares are available for issuance under the Company’s Stock
Option Plan, of which, 500,000 remain unallocated;
• 120,000 deferred grants of Common Shares have been granted under the Company’s
Directors’ Deferred Compensation Plan and 19,788 Common Shares have been
issued; and
• 3,526,075 Common Shares are issuable on conversion of the outstanding Convertible
Debentures, of which there are an aggregate principal amount of $200 million
outstanding.
AGI’s Common Shares trade on the TSX under the symbol AFN.
DIVIDENDS
AGI declared dividends to shareholders in the three-month period and year ended
December 31, 2021 of $2.8 million and $11.3 million, respectively, versus $2.8 million and
$19.6 million, in the same period in 2020. 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.
Year Ended December 31
2021
$
2020
$
82,762 2,674
(73,379) (83,640)
Currency
Maturity
Amount of Swap
[000’s]
$
Fixed Rate [1]
Canadian dollar contracts
CAD
2022
40,000
4.1%
9,383
(80,966)
1. With performance adjustment.
[thousands of dollars]
Cash provided by operations
Items not involving current cashflows
Profit (loss) before income taxes
Combined adjustments to Adjusted EBITDA [1]
Adjusted EBITDA [2]
Interest expense
Non-cash interest
Cash taxes
Maintenance capital expenditures [2]
Funds from operations [2]
Dividends
Payout Ratio [3] from cash provided by operations
Payout Ratio [4] from funds from operations
166,883 230,294
176,266 149,328
(43,599) (46,692)
6,034 5,081
(9,226) (3,013)
(10,374) (8,141)
119,101 96,563
11,271
19,635
14%
9%
734%
20%
1. See “Profit (loss) before income taxes and Adjusted EBITDA”
2. This is a non-IFRS measure and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL
MEASURES” for more information on each non-IFRS measure.
3. This is a supplementary financial measure and is used throughout this MD&A. See “NON-IFRS and OTHER
FINANCIAL MEASURES” for more information on each supplementary financial measure.
4. This is a non-IFRS ratio and is used throughout this MD&A. See “NON-IFRS and OTHER FINANCIAL MEASURES”
for more information on each non-IFRS ratio.
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, 2021.
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 three-month period and year ended December 31, 2021, the Company
recorded an unrealized gain $0.2 million and $0.6 million, respectively, versus an
unrealized gain of $0.2 million and a loss $1.0 million, respectively, in 2020.
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 Common Share
price related to the EIAP and the Company signed an amending agreement on March 4,
2021 to extend the maturity date to May 7, 2024.
As at December 31, 2021, the equity swap agreement covered 722,000 Common Shares
at a weighted average price of $38.76 and the fair value of the equity swap was a $5.0
million liability [2020 – $6.4 million liability]. During the three-month period and year
ended December 31, 2021, the Company recorded, in the consolidated statements of
income (loss) an unrealized gain of $2.4 million and $1.4 million, respectively, compared
to an unrealized gain of $1.9 million and a loss of $12.0 million, respectively in 2020.
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 $0.3 million. During the three-month period and year ended December 31, 2021,
the Company recorded an unrealized gain of $0.1 million and $0.3 million, respectively,
as compared to a loss of $0.2 million and $0.8 million, respectively in 2020, on financial
instruments in other operating expense.
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
3 6
2021 ANNUAL REPORT
2020 ACQUISITION
Affinity
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.
2021 ACQUISITION
Farmobile
Effective April 16, 2021, AGI acquired additional outstanding shares of Farmobile for
approximately $11 million USD pursuant to stock purchase agreements. AGI now owns
100% of the preferred stock and approximately 76% of the common stock of Farmobile.
The terms of the agreements will facilitate the acquisition of all outstanding shares of
Farmobile, building on AGI’s initial minority equity investment made in Farmobile in 2019.
Farmobile brings the market-leading, two-way, field data management device along
with a robust platform for data standardization and management. The Farmobile PUCTM
enables the real-time automation and standardization of critical data collection from
equipment used in the field. This acquisition builds on AGI’s robust IoT product portfolio
as an addition to the AGI SureTrack platform.
SUBSEQUENT EVENTS
Eastern Fabricators Acquisition
On January 4, 2022, AGI announced that it had acquired Eastern Fabricators (“Eastern”).
Eastern specializes in the engineering, design, fabrication, and installation of high-quality
stainless-steel equipment and systems for food processors. Eastern operates three
facilities in Canada with two in Prince Edward Island and one in Ontario. Eastern serves
a range of customers across North America and has developed strong relationships
with some of the world’s largest multinational food processors. Consideration for the
acquisition included an upfront purchase price of $29.25 million paid on closing plus the
potential for an additional $15.75 million in earn out payments based on the achievement
of financial targets in future years. The acquisition was funded primarily through AGI’s
senior debt facilities.
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 three-month period
and year ended December 31, 2021, the total cost of these legal services related to
general matters was $0.3 million and $1.0 million [2020 – $0.1 million and $0.9 million],
and $0.5 million is included in accounts payable and accrued liabilities as at December
31, 2021.
These transactions are measured at the exchange amount and were incurred during the
normal course of business.
CRITICAL ACCOUNTING ESTIMATES
Described in the notes to the Company’s 2021 consolidated financial statements are
the accounting policies and estimates that AGI believes are critical to its business.
Please refer to note 4 to the consolidated financial statements 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 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; 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; adjustment
to and delays or cancellation of backlogs; and requirement to re-supply equipment or
re-complete work previously supplied or completed at AGI’s costs, and the risk that
AGI’s assumptions and estimates made in respect of such costs and underlying the
provision for warranty accrual and remediation in our consolidated financial statements
related thereto and insurance coverage therefor (including 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
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; and
• 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, 2024. The Company will assess the impact, if any, of adoption of the
amendment.
Amendments to IAS 1 and IFRS Practice Statement [“PS”] 2 Making
Materiality Judgements
In February 2021, amendments were issued to IAS 1 and IFRS PS 2, which provide
guidance and examples to help entities apply materiality judgment to accounting policy
disclosures. Specifically, the amendments aim to:
• Replace the requirement for entities to disclose their “significant” accounting policies
with a requirement to disclose their “material” accounting policies; and
• Add guidance on how to apply the concept of materiality in making decisions about
accounting policy disclosures.
The amendments are effective for annual periods beginning after January 1, 2023. The
Company will assess the impact, if any, of adoption of the amendment.
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, 2021.
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 consolidated 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, 2021 and has concluded that
the internal controls over financial reporting are effective.
AGI acquired a controlling interest in Farmobile in 2021. 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 Farmobile. The following is the summary
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
3 8
2021 ANNUAL REPORT financial information pertaining to Farmobile that was included in AGI’s consolidated
financial statements:
[thousands of dollars]
Revenue [1]
Loss [1]
Current assets [1][2]
Non-current assets [1][2]
Current liabilities [1][2]
Non-current liabilities [1][2]
Farmobile
$
1,111
10,434
2,493
34,951
2,874
4,083
1. Net of intercompany
2. Statement of financial position as at December 31, 2021
There have been no changes in AGI’s internal controls over financial reporting that
occurred in the three-month period ended December 31, 2021, that have materially
affected, or are reasonably likely to materially affect, the Company’s internal controls over
financial reporting.
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”,
“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. 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; our outlook for our financial and operating performance in 2022, including
our expectations for our future financial results (including our forecast for full year 2022
adjusted EBITDA), industry demand and market conditions, growth prospects, and 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 associated with the Incident, including the costs of remediation,
and the availability of insurance coverage to offset such costs; matters relating to
litigation arising as a result of the Incident; the estimated costs to the Company from
ongoing equipment rework; our ability to mitigate the impact of inflation; our ability to
lessen the seasonality of our business; the factors that may impact our working capital
requirements; 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 to the Incident and insurance coverage for the Incident will
prove to be incorrect as further information becomes available to the Company; and the risk of litigation in respect
of equipment or work previously supplied or completed or in respect of other matters and the risk that AGI incurs
material liabilities in connection with such litigation that are not covered by insurance in whole or in part. 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.
Further, AGI cannot guarantee that the anticipated revenue from its backlogs will be realized or, if realized, will
result in profits or adjusted EBITDA. Delays, cancellations and scope adjustments occur from time-to-time with
respect to contracts reflected in AGI’s backlogs, which can adversely affect the revenue and profit that AGI
actually receives from its backlogs. 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 Incident 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.
FINANCIAL OUTLOOK
Also included in this MD&A is an estimate of AGI’s 2022 Adjusted EBITDA, which is based on, among
other things, the various assumptions disclosed in this news release including under “Forward-Looking
Information” and including our assumptions regarding (i) the adjusted EBITDA contribution that
AGI anticipates receiving in 2022 from Eastern, which was acquired by AGI on January 4, 2022 (see
“SUBSEQUENT EVENTS – Eastern Fabricators Acquisition” in our MD&A for further details regarding
the acquisition of Eastern), and (ii) the adjusted EBITDA contribution that AGI anticipates receiving
from revenue growth in 2022 as a result of the 47% YOY increase in AGI’s backlogs at December 31,
2021. To the extent such estimate constitutes a financial outlook, it was approved by management
on March 8, 2022 and is included to provide readers with an understanding of AGI’s anticipated
Adjusted EBITDA based on the assumptions described herein and readers are cautioned that the
information may not be appropriate for other purposes.
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].
3 9
4 0
4 0
2021 ANNUAL REPORT December 31, 2021
4 1
4 24 2
2021 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
To the Shareholders of
Ag Growth International Inc.
Opinion
We have audited the consolidated financial statements of Ag Growth International Inc. and its subsidiaries [the ”Group”], which comprise the consolidated statements of financial
position as at December 31, 2021 and 2020, and the consolidated statements of income (loss), consolidated statements of comprehensive 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, 2021 and
2020, 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.
KEY AUDIT MAT TER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MAT TER
Provision for remediation costs
The Group entered into an agreement with a customer to supply 15 large hopper
bins for installation by third parties with respect to a grain storage project. On
September 11, 2020, a bin at the customer facility collapsed during commissioning.
During the year ended December 31, 2021, a legal claim was initiated by the
customer against the Group in excess of $80 million alleging damages and losses
arising from the Group’s contractual agreement to supply equipment to the
customer.
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’s provision as at December 31, 2021 is $42.4 million on the basis of
estimated costs of investigation and remediation for the equipment relating to the
customer under the terms of the product warranty obligation.
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.
Refer to notes 3, 4 and 18 in the consolidated financial statements for the Group’s
disclosures related to this provision.
Our approach to testing the provision 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 engineers, internal and external legal counsel, finance personnel and
others directly involved in the project.
• We reviewed the legal claim made by the customer and related legal correspondence
together with the customer supply agreement. Our procedures included discussions
with internal and external legal counsel.
• 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 materials costs, estimated internal and
external labour 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 the customer site.
• We assessed the estimated remediation costs by agreeing materials (volume and
pricing), hourly rates, estimated labour hours and equipment and construction costs
to historic and third-party cost information. We tested the mathematical accuracy of
the provision.
• We evaluated the reasonableness of management’s assumptions used in the
remediation provision by comparing actual costs incurred during the year for similar
remediation work performed at a site for another customer with estimates used in the
calculation of the remediation provision recorded for the customer at December 31,
2021.
• We assessed the adequacy of the disclosure in the consolidated financial statements.
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4 4
KEY AUDIT MAT TER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MAT TER
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 $124.4 million at December 31, 2021. 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, gross margins and
discount rates.
This matter has been considered a key audit matter due to the significant judgment
and subjectivity involved in evaluating management’s estimates and assumptions,
specifically revenue growth rates, terminal growth rates, gross margins and discount
rates, in determining the recoverable amount of each CGU.
Refer to notes 3, 4, 15 and 16 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 2021 actual results
to the 2021 Board approved budget to assess management’s ability to
forecast.
• We agreed the 2022 forecasts to the Board approved budget for 2022.
• We evaluated the reasonableness of the CGUs’ revenue growth rates,
terminal growth rates and gross margins 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, gross margins and discount rates to evaluate changes in the
recoverable amount of the CGU that would result from changes in these
assumptions.
• We reviewed the adequacy of the disclosures included in the consolidated
financial statements.
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.
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
4 5
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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
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 Ashraf El-Bakri.
Winnipeg, Canada
March 8, 2022
Chartered Professional Accountants
4 7
2 0 2 1 A N N U A L R E P O R T
4 8
4 84 8
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
[in thousands of Canadian dollars]
As at
Assets
Current assets
Cash and cash equivalents
Restricted cash [note 8]
Accounts receivable [note 9]
Inventory [note 10]
Prepaid expenses and other assets [note 26]
Current portion of notes receivable [note 11]
Income taxes recoverable
Non-current assets
Property, plant and equipment, net [note 12]
Right-of-use assets, net [note 13]
Goodwill [note 14]
Intangible assets, net [note 15]
Investment in associate [note 6[b]]
Non-current accounts receivable [note 9]
Notes receivable [note 11]
Deferred tax asset [note 27]
Assets held for sale
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities [note 17]
Customer deposits
Dividends payable
Derivative instruments [note 30]
Income taxes payable
Current portion of due to vendor
Current portion of lease liability [note 19]
Current portion of long-term debt [note 20]
5,016
3,027
532
475
Current portion of convertible unsecured subordinated debentures [note 21]
84,913
–
Current portion of optionally convertible redeemable preferred shares [note 30[b]]
11,690
17,943
2021
$
2020
$
61,307
62,456
2,424
9,616
206,271
176,316
243,250
178,904
44,788
36,457
5,428
5,457
9,351
6,950
Provisions [note 18]
Non-current liabilities
Other financial liabilities [note 26]
Derivative instruments [note 30]
Due to vendor
Optionally convertible redeemable preferred shares [note 30[b]]
Lease liability [note 19]
572,819
476,156
Other non-current liabilities
349,310
354,533
19,211
14,342
358,610
350,669
253,042
249,459
Long-term debt [note 20]
Convertible unsecured subordinated debentures [note 21]
Senior unsecured subordinated debentures [note 22]
Deferred tax liability [note 27]
–
12,878
Total liabilities
34,742
19,183
364
5,556
475
964
Shareholders’ equity [note 23]
Common shares
1,020,835
1,002,503
Accumulated other comprehensive loss
–
520
Equity component of convertible debentures
1,593,654
1,479,179
Contributed surplus
Deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes
On behalf of the Board of Directors:
195,646
139,098
86,457
46,013
2,819
2,808
337
6,386
6,350
4,825
5,269
7,164
65,618
83,361
464,647
311,100
704
2,754
5,036
771
1,567
2,247
–
11,028
17,263
13,815
5,400
–
434,009
408,898
94,620
167,319
250,872
249,079
50,785
49,031
860,256
904,942
1,324,903
1,216,042
5,233
1,730
(22,799)
(10,262)
12,905
4,427
494,684
487,540
(221,272)
(220,298)
268,751
263,137
1,593,654
1,479,179
BILL L AMBERT
Director
DAVID A . WHITE , CA , ICD.D
Director
[in thousands of Canadian dollars, except per share amounts]
[in thousands of Canadian dollars]
Years ended December 31
Sales [notes 3 and 7]
Cost of goods sold [note 25[a]]
Gross profit
Expenses
2021
$
2020
$
Years ended December 31
1,198,523
1,000,130
Profit (loss) for the year
894,508
787,340
Other comprehensive loss
304,015
212,790
Item that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Selling, general and administrative [note 25[b]]
256,344
225,819
Other operating expense (income) [note 25[c]]
(7,299)
10,534
Items that will not be reclassified to profit or loss
Impairment charge [notes 12 and 15]
Finance costs [note 25[d]]
Finance expense [note 25[e]]
Share of associate's net loss [note 6[b]]
5,074
5,111
Actuarial gain (loss) on defined benefit plans
43,599
46,692
Income tax effect on defined plans
2,615
1,077
1,286
4,314
Other comprehensive loss for the year
Gain on remeasurement of equity investment [note 6[b]]
(6,778)
–
Total comprehensive loss for the year
294,632
293,756
See accompanying notes
2021
$
2020
$
10,558
(61,648)
(14,333)
(32,275)
(14,333)
(32,275)
2,444
(493)
(648)
131
1,796
(362)
(12,537)
(32,637)
(1,979)
(94,285)
Profit (loss) before income taxes
Income tax expense (recovery) [note 27]
Current
Deferred
Profit (loss) for the year
Profit (loss) per share [note 28]
Basic
Diluted
See accompanying notes
9,383
(80,966)
9,445
7,089
(10,620)
(26,407)
(1,175)
(19,318)
10,558
(61,648)
0.56
0.50
(3.30)
(3.30)
4 9
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
2021 ANNUAL REPORT CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
[thousands of Canadian dollars]
Year ended December 31, 2021
As at January 1, 2021
Profit for the year
Other comprehensive income (loss)
Share-based payment transactions [note 23[a][b]]
Dividends paid to shareholders [note 23[d]]
Dividends on share-based compensation awards [note 23[d]]
Issuance of 2021 convertible debentures [note 21]
Redemption of convertible unsecured subordinated debentures [note 21]
As at December 31, 2021
See accompanying notes
[thousands of Canadian dollars]
Year ended December 31, 2020
As at January 1, 2020
Loss for the year
Other comprehensive loss
Share-based payment transactions [note 23[a][b]]
Dividends paid to shareholders [note 23[d]]
Dividends on share-based compensation awards [note 23[d]]
Redemption of convertible unsecured subordinated debentures [note 21]
Reduction in stated capital [note 23[b]]
As at December 31, 2020
See accompanying notes
Common shares
$
Equity component
of convertible
debentures
$
Contributed
surplus
$
Foreign
currency
reserve
$
Equity
investment
$
Defined
benefit plan
reserve
$
Total
shareholders'
equity
$
Deficit
$
1,730
4,427
487,540
(220,298)
(8,938)
(900)
–
–
3,461
–
–
42
–
–
–
–
–
–
11,472
(2,994)
–
–
4,175
–
–
–
2,969
10,558
–
–
–
(11,271)
(261)
–
–
(14,333)
–
–
–
–
–
–
–
–
–
–
–
–
(424)
–
263,137
10,558
1,796
(12,537)
–
–
–
–
–
7,636
(11,271)
(261)
11,514
(25)
5,233
12,905
494,684
(221,272)
(23,271)
(900)
1,372
268,751
Common shares
$
Equity component
of convertible
debentures
$
Contributed
surplus
$
Foreign
currency
reserve
$
Equity
investment
$
Defined
benefit plan
reserve
$
Total
shareholders'
equity
$
Deficit
$
455,857
6,707
27,113
(138,657)
23,337
(900)
–
–
5,642
–
–
–
(459,769)
1,730
–
–
–
–
–
–
–
(1,646)
–
–
(2,280)
2,304
–
459,769
(61,648)
–
–
–
(19,635)
(358)
–
–
(32,275)
–
–
–
–
–
–
–
–
–
–
–
–
(62)
–
(362)
–
–
–
–
–
373,395
(61,648)
(32,637)
3,996
(19,635)
(358)
24
–
4,427
487,540
(220,298)
(8,938)
(900)
(424)
263,137
CONSOLIDATED STATEMENTS OF CASH FLOW
[in thousands of Canadian dollars]
Years ended December 31
Operating activities
Profit (loss) before income taxes
Add (deduct) items not affecting cash
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Loss on sale of property, plant and equipment
Gain on settlement of lease liability
Loss on redemption of convertible debentures
Impairment charge
Share of associate's net loss
Gain on remeasurement of equity investment [note 6[b]]
Foreign exchange reclassification on disposal of foreign operation
Non-cash component of interest expense
Non-cash movement in derivative instruments
Non-cash investment tax credits
Share-based compensation expense
Defined benefit plan expense
Employer contribution to defined benefit plans
Due to vendor
Translation gain on foreign exchange
(28,676)
(28,063)
511
423
(16,890)
(12,064)
(12,865)
(7,301)
(17,398)
(11,090)
–
(4,603)
(75,318)
(62,698)
41,144
149,212
(15,545)
(128,173)
(43)
–
(3,877)
(3,340)
956
(526)
2021
$
2020
$
Investing activities
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Development and purchase of intangible assets
9,383
(80,966)
Acquisitions, net of cash acquired [note 6]
Transaction cost paid and payable
Transfer from (to) restricted cash
Cash used in investing activities
Financing activities
Issuance of long-term debt, net of issuance costs
Repayment of long-term debt
Change in swing line
Repayment of obligation under lease liabilities
Change in interest accrued
24,912
25,642
4,619
3,935
32,518
25,694
23
(17)
676
5,074
1,077
(6,778)
(898)
187
(3)
746
5,111
4,314
–
–
6,034
5,081
(2,058)
13,756
(484)
(122)
8,551
8,854
144
(9)
132
–
4,097
9,778
(4,102)
(19,465)
82,762
2,674
Issuance of senior unsecured subordinated debentures, net of issuance costs [note 22]
(153)
80,979
Issuance of convertible unsecured subordinated debentures, net of costs
110,016
–
Redemption of convertible unsecured subordinated debentures
Dividends paid in cash [note 23[d]]
Cash provided by financing activities
Net increase (decrease) 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
(86,183)
(75,031)
(11,261)
(20,558)
35,054
2,563
(1,149)
14,035
62,456
48,421
61,307
62,456
36,941
42,312
Changes in non-cash working capital balances related to operations [note 29[a]]
(20,951)
80,059
Transfer from (to) restricted cash
Non-current accounts receivable
Long-term payables
Settlement of EIAP obligation
Post-combination payments
Income taxes paid
Cash provided by operating activities
7,068
–
(15,559)
(3,001)
(8)
333
(817)
(2,882)
(4,154)
–
(9,226)
(3,013)
39,115
74,170
5 1
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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
NOTES TO THE CONSOLIDATED FINANCIAL STATMENTS
[in thousands of Canadian dollars, except where otherwise noted and per share data]
1
ORGANIZATION
The consolidated financial statements of Ag Growth International Inc. [“AGI” or the
“Company”] for the year ended December 31, 2021 were authorized for issuance in
accordance with a resolution of the directors on March 8, 2022. 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”].
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards [“IFRS”] as issued by the International
Accounting Standards Board [“IASB”].
Basis of preparation
The consolidated financial statements are presented in Canadian dollars, which is also
the functional currency of the parent company, Ag Growth International Inc. All values
are rounded to the nearest thousand. They are prepared on the historical cost basis,
except for derivative financial instruments, assets held for sale, and 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 Agricultural
Equipment Pty Limited, AGI Agricultural Equipment (Nigeria) Limited, Farmobile, Inc.,
Farmobile LLC, Ag Growth International Australia Pty Ltd., Westfield Distributing (North
Dakota) Inc., Hansen Manufacturing Corp., Improtech Ltd., Union Iron Inc., Airlanco
Inc., Tramco, Inc., Tramco Europe Limited, Euro-Tramco B.V., AGI Netherlands B.V., 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., and Ag Growth International
(Thailand) Ltd. as at December 31, 2021. 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.
In a business combination achieved in stages, previously held equity interest in the
acquiree is remeasured at its acquisition-date fair value and the resulting gain or loss,
if any, is recognized in profit or loss or other comprehensive income, as appropriate.
Any previously recognized changes in the value of the equity interest recorded in other
comprehensive income is recognized in the consolidated statement of income (loss)
on the same basis as would be required had the Company disposed directly of the
previously held equity interest.
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.
For the year ended December 31, 2021, the effect of foreign currency translations arising
from the settlement of accounts receivable and payable recorded in a currency other
than the Company’s functional currency has been presented within finance income
(expenses); historically, the foreign exchange impact was presented in sales. The
Company’s change in presentation on its audited consolidated financial statements was
made in accordance with IAS 1 and IAS 8. Under IAS 8, a change in accounting policy
is permitted if the change results in the financial statements providing more reliable and
relevant information about the effects of transactions on the entity’s financial position. In
addition, IAS 1 requires an entity to reclassify its comparative information when making
such changes in presentation and therefore comparative figures have been restated
accordingly. As a result, for the year ended December 31, 2021, a foreign exchange loss
of $1,612 [2020 – $6,099] has been recorded in finance expense on the consolidated
statement of profit and loss.
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
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2021 ANNUAL REPORT 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
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.
The assets’ useful lives and methods of depreciation 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;
use of the asset throughout the period of use; and
• The Company has the right to direct the use of the asset. The Company has this right
when it has the decision-making rights that are most relevant to changing how and
for what purpose the asset is used.
At inception or on reassessment of a contract that contains a lease component, the
consideration in the contract is allocated to each lease component on the basis of their
relative stand-alone prices. For leases of land and buildings, the lease and non-lease
components are accounted for as a single lease component as permitted within IFRS 16.
The Company recognizes a right-of-use asset and a lease liability at the lease
commencement date. The right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for any lease payments
made at or before the commencement date, plus any initial direct costs incurred and
an estimate of costs to dismantle and remove the underlying asset or to restore the
underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from
the commencement date to the earlier of the useful life of the right-of-use asset or the
end of the lease term. The estimated useful lives of right-of-use assets are determined on
the same basis as those of property, plant and equipment.
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
• The Company has the right to obtain substantially all of the economic benefits from
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.
Order backlog
Non-compete agreement
Software
Brand names (finite lives)
Technology
3–6 months
7 years
1–10 years
3 years
3 years
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The
cost of intangible assets acquired in a business combination is their 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
4–20 years
8–25 years
2–15 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 profit or loss after tax and non-controlling interests in the subsidiaries of the
associate.
The financial statements of the associate are prepared for the same reporting period as
the Company. When necessary, adjustments are made to bring the accounting policies
in line with those of AGI.
After application of the equity method, the Company determines whether it is necessary
to recognize an impairment loss on its investment in its associate. At each reporting
date, the Company determines whether there is objective evidence that the investment
in the associate is impaired. If there is such evidence, the Company calculates the
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2021 ANNUAL REPORT 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.
AGI bases its impairment calculation on detailed budgets and forecast calculations that
are prepared separately for each of AGI’s CGU groups to which the individual assets are
allocated. These budgets and forecast calculations generally cover a period of five years.
For periods after five years, a terminal value approach is used.
An impairment loss is recognized in the consolidated statements of income (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 classifies its financial assets as [i] amortized cost, [ii] financial assets at fair value
through profit or loss [“FVTPL”] or [iii] fair value through other comprehensive income
[“FVTOCI”]. Appropriate classification of financial assets is based on the Company’s
business model for managing the financial assets and the contractual cash flow
characteristics of the financial assets. Certain derivatives are designated as hedging
instruments and hedge accounting is applied, as appropriate.
All financial instruments are recognized initially at fair value plus, in the case of
instruments not at FVTPL, directly attributable transaction costs. Financial instruments
are recognized on the trade date, which is the date on which AGI commits to purchase
or sell the asset. Accounts 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
amount outstanding. Assets in this category include cash and cash equivalents,
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]
Impairment
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.
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 for which there has been a
significant increase in credit risk since initial recognition, a loss allowance is required for
credit losses expected over the remaining life of the exposure, irrespective of the timing
of the default [a lifetime ECL].
For accounts receivable, AGI applies a simplified approach in calculating ECLs.
Therefore, the Company does not track changes in credit risk, but instead recognizes
a loss allowance based on lifetime ECLs at each reporting date. The Company has
established a provision matrix that is based on its historical credit loss experience,
adjusted for forward-looking factors specific to the debtors and the economic
environment.
The Company considers a financial asset in default when internal or external information
indicates that the Company is unlikely to receive the outstanding contractual amounts
in full before taking into account any credit enhancements held by the Company. A
financial asset is written off when there is no reasonable expectation of recovering the
contractual cash flows.
Financial liabilities
Financial liabilities are measured at amortized cost, using the effective interest rate
method, except for financial liabilities designated at initial recognition at FVTPL and
those required to be FVTPL. Liabilities measured at amortized cost include accounts
payable and accrued liabilities, dividends payable, due to vendor, long-term debt,
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.
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2021 ANNUAL REPORT AGI has not designated any financial liabilities upon initial recognition as FVTPL.
effectiveness requirements:
Derecognition
A financial asset is derecognized when the contractual rights to receive cash flows from
the asset have expired or when AGI has transferred its rights to receive cash flows from
the asset.
A financial liability is derecognized when the obligation under the liability is discharged
or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the difference in the respective
carrying amounts is recognized in the consolidated statements of income (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].
A hedging relationship qualifies for hedge accounting if it meets all of the following
• There is “an economic relationship” between the hedged item and the hedging
instrument.
• The effect of credit risk does not “dominate the value changes” that result from that
economic relationship.
• The hedge ratio of the hedging relationship is the same as that resulting from the
quantity of the hedged item that the Company actually hedges and the quantity of
the hedging instrument that Company actually uses to hedge that quantity of hedged
item.
Hedges that meet the strict criteria for hedge accounting are accounted for as follows:
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized directly
as 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.
Offsetting 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.
Fair value of financial instruments
Fair value is the estimated amount that AGI would pay or receive to dispose of these
contracts in an arm’s length transaction between knowledgeable, willing parties who
are under no compulsion to act. The fair value of financial instruments that are traded
in active markets at each reporting date is determined by reference to quoted market
prices, without any deduction for transaction costs.
For financial instruments not traded in an active market, the fair value is determined
using appropriate valuation techniques that are recognized by market participants. Such
techniques may include using recent arm’s length market transactions, reference to the
current fair value of another instrument that is substantially the same, discounted cash
flow analysis or other valuation models.
Provisions
Provisions are recognized when AGI has a present obligation, legal or constructive, as a
result of a past event, it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate can be made
of the amount of the obligation. Where AGI expects some or all of a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognized
as a separate asset but only when the reimbursement is virtually certain. The expense
relating to any provision is presented in the consolidated statements of income (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 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 of 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.
6 1
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6 2
2021 ANNUAL REPORT Contract liabilities include customer deposits, which represent cash received from
the customer in advance of the delivery of goods or work being performed. Contract
liabilities are subsequently recognized in revenue when AGI performs under contracts,
which typically occurs within 12 months or less. AGI has elected to use the practical
expedient to not disclose the Company’s remaining performance obligations as those
obligations are part of contracts that have an original expected duration of less than one
year.
The Company has also elected to apply the practical expedient of expensing the
incremental costs of obtaining a contract when incurred as the amortization period of
the asset that would be recognized is one year or less.
Income taxes
AGI and its subsidiaries are generally taxable under the statutes of their country of
incorporation.
Current income tax assets and liabilities for the current and prior period are measured
at the amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted at the reporting date in the countries where AGI operates and
generates taxable income. Current income tax relating to items recognized directly in
equity is recognized in equity and not in the consolidated statements of income (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
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.
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.
Sales tax
• 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
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.
The dilutive effect of outstanding options is reflected as additional share dilution in the
computation of diluted earnings per share.
Share-based compensation plans
Cash-settled transactions
Employees of AGI may receive remuneration in the form of share-based payment
transactions, whereby employees render services and receive consideration in the form
of equity instruments [equity-settled transactions or share award incentive plan and
directors’ deferred compensation plan]. In situations where equity instruments are issued
and some or all of the goods or services received by the entity as consideration cannot
be specifically identified, the unidentified goods or services received are measured
as the difference between the fair value of the share-based payment transaction and
the fair value of any identifiable goods or services received at the grant date and are
capitalized or expensed as appropriate.
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.
Equity-settled transactions
Employee benefits
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.
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.
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6 4
2021 ANNUAL REPORT Re-measurements including actuarial gains and losses and the impact of any minimum
funding requirements are recognized through OCI.
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.
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
The COVID-19 pandemic continues to impact the global economy, supply chains, and
business productivity. 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. AGI is currently fully operational
across all manufacturing locations globally, with no loss of productive capacity owing to
COVID-19 during the year ended December 31, 2021.
However, headwinds stemming from the pandemic have impacted the availability
and cost of raw materials required for production. Various disruptions in the supply
chain including steel supply and logistics have caused significant delays on a number
of projects. Potential restrictions and lockdowns in countries severely impacted
by COVID-19, such as Brazil and India, may experience supply chain disruptions
and temporary production suspensions. In addition, while restrictions imposed by
governments around the world to limit the impact of the pandemic have eased and
vaccination rates have increased, the emergence of other variants remains a risk to
the global economy. Therefore, although AGI operations were captured as essential
services and management has undertaken appropriate steps to mitigate the disruptions,
unexpected future developments, such as the emergence and progression of new
variants and actions taken by governments in response to a resurgence of cases, may
have impact on the consolidated financial results and conditions of the Company in
future 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 18]. 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 are 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
adjusted 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 16.
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.
Impairment of financial assets
the Company uses a provision matrix to measure expected credit losses. The provision
rates are based on days past due for groupings of various customer segments with
similar loss patterns [i.e., by geographical region, product type, customer type and rating,
and coverage by letters of credit or other forms of credit insurance]. The calculation
reflects the probability-weighted outcome, the time value of money and reasonable and
supportable information that is available at the reporting date about past events, current
conditions and forecasts of future economic conditions. The maximum exposure to credit
risk at the reporting date is the carrying value of each class of financial assets disclosed
in note 30[b]. The letters of credit and other forms of credit insurance are considered
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.
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,
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.
6 5
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6 6
2021 ANNUAL REPORT Share-based payments
AGI measures the cost of equity-settled share-based payment transactions with
employees by reference to the fair value of equity instruments at the grant date, whereas
the fair value of cash-settled share-based payments is remeasured at every reporting
date. Estimating fair value for share-based payments requires determining the most
appropriate valuation model for a grant of these instruments, which is dependent on the
terms and conditions of the grant.
Income taxes
Uncertainties exist with respect to the interpretation of complex tax regulations, changes
in tax laws and the amount and timing of future taxable income. Given the wide range
of international business relationships and the long-term nature and complexity of
existing contractual agreements, differences arising between the actual results and
the assumptions made, or future changes to such assumptions, could necessitate
future adjustments to taxable income and expenses already recorded. AGI establishes
provisions, based on reasonable estimates, for possible consequences of audits by
the tax authorities of the respective countries in which it operates. The amount of such
provisions is based on various factors, such as experience of previous tax audits and
differing interpretations of tax regulations by the taxable entity and the responsible tax
authority.
Such differences of interpretation may arise on a wide variety of issues, depending on
the conditions prevailing in the respective company’s domicile. As AGI assesses the
probability for litigation and subsequent cash outflow with respect to taxes as remote,
no contingent liability has been recognized. Deferred tax assets are recognized for all
unused tax losses to the extent that it is probable that taxable profit will be available
against which the losses can be utilized. Significant management judgment is required
to determine the amount of deferred tax assets that can be recognized, based upon
the likely timing and the level of future taxable profits together with future tax planning
strategies.
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].
• Replace the requirement for entities to disclose their “significant” accounting policies
with a requirement to disclose their “material” accounting policies; and
The following table summarizes the fair values of the identifiable assets and liabilities as
at the date of acquisition:
Business combinations
For acquisition accounting purposes, all identifiable assets, liabilities and contingent
liabilities acquired in a business combination are recognized at fair value at the date
of acquisition. Estimates are used to calculate the fair value of these assets and
liabilities as at the date of acquisition. Contingent consideration resulting from business
combinations is valued at fair value at the acquisition date as part of the business
combination. Where the contingent consideration is recognized, it is subsequently
remeasured to fair value at each reporting date. The determination of the fair value
is based on discounted cash flows. The key assumptions take into consideration the
probability of meeting each performance target and the discount factor.
5
STANDARDS ISSUED BUT NOT YET EFFECTIVE
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; and
• 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, 2024. The Company will assess the impact, if any, of adoption of the
amendment.
Amendments to IAS 1 and IFRS Practice Statement [“PS”] 2, Making
Materiality Judgments
In February 2021, amendments were issued to IAS 1 and IFRS PS 2, which provide
guidance and examples to help entities apply materiality judgment to accounting policy
disclosures. Specifically, the amendments aim to:
• Add guidance on how to apply the concept of materiality in making decisions about
accounting policy disclosures.
The amendments are effective 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] Affinity 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.
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
Purchase price
Cash acquired
Due to vendor
Total purchase price
Post-combination expense
Purchase consideration
$
12,500
199
153
12,852
(5,000)
7,852
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,
2021, $1,283 [2020 – $2,283] related to certain terms of the purchase agreement was
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.
The goodwill of $5,012 comprises the value of the assembled workforce and other
expected synergies arising from the acquisition.
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.
In 2021, the allocation of the purchase price to acquired assets and liabilities was
finalized.
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, 2021
were $30 [2020 – $50] and are included in selling, general and administrative expenses.
The due to vendor balance was paid during the year.
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6 8
2021 ANNUAL REPORT $
884
178
412
642
45
1,671
24,078
274
11,795
(1,245)
(977)
(1,671)
(3,582)
32,504
[b] Farmobile, Inc.
Effective April 16, 2021, AGI acquired additional outstanding shares of Farmobile, Inc.
[“Farmobile”] for approximately $11 million USD pursuant to the preferred share and
common share stock purchase agreements. The terms of the agreements facilitate
the acquisition of all outstanding shares of Farmobile, building on AGI’s initial equity
investment made in Farmobile in 2019. The investment was financed by cash on hand.
Cash
Accounts receivable
Inventory
Prepaid expenses and other assets
Property, plant and equipment
Farmobile, headquartered in Leawood, Kansas, is an agriculture technology company.
The Farmobile PUCTM is a two-way, field data management device with a platform
for data standardization and management; it enables the real-time automation and
standardization of critical data collection from equipment used in the field. This
acquisition builds on AGI’s Internet of Things [“IoT”] product portfolio as an addition to
the AGI SureTrack platform.
Right-of-use assets
Intangible assets
Technology
Patents
Goodwill
Fair value of consideration transferred, net of cash acquired
Cash acquired
Fair value of consideration transferred
Fair value of equity investment prior to control
Purchase price
$
12,865
884
13,749
18,755
32,504
AGI’s investment in its associate was accounted for using the equity method. For the
year ended December 31, 2021, the Company share of associate’s net loss was $1,077.
The additional purchase of shares resulted in control being obtained and has been
accounted for by the acquisition method, with the results of Farmobile included in the
Company’s net earnings subsequent to control being obtained. Immediately before
obtaining control, the Company remeasured its previously held equity investment at its
acquisition-date fair value and recognized a gain of $6,778 in profit and loss.
The fair value of the assets acquired and the liabilities assumed has been determined
on a provisional basis utilizing information available at the time the audited consolidated
financial statements were prepared. Additional information is being gathered to finalize
these provisional measurements, particularly with respect to intangible assets, inventory
and deferred taxes. Accordingly, the measurement of assets acquired and liabilities
assumed may change upon finalization of the Company’s valuation and completion of
the purchase price allocation, both of which are expected to occur no later than one year
from the acquisition date.
The following table summarizes the fair values of the identifiable assets and liabilities as
at the date of acquisition:
Accounts payable and accrued liabilities
Customer deposits
Lease liability
Deferred tax liability
Purchase consideration
The goodwill of $11,795 comprises the value of the assembled workforce and other
expected synergies arising from the acquisition. During the measurement period, further
information regarding tax balances were obtained, resulting in a $2.1 million adjustment
to deferred tax liability with an offsetting increase to goodwill.
The fair value of the accounts receivable acquired is $178. This consists of the gross
contractual value of $241 less the estimated amount not expected to be collected of $63.
From the date of acquisition, Farmobile contributed to the results $1,111 of revenue and
$12,377 of net loss. If the acquisition had taken place as at January 1, 2021, revenue would
have increased by an additional $458 and profit would have decreased by $4,708.
The components of the purchase consideration are as follows:
Cash paid
Fair value of equity investment prior to control
Purchase price
$
13,749
18,755
32,504
Additional contingent consideration, dependent on the outcome of future events, may
be payable to certain selling shareholders of Farmobile and AGI. No amount has been
accrued as the outcome of the future events is not yet determinable and any payments
will be limited to proceeds received from the future events.
Transaction costs related to the Farmobile acquisition in the year ended December 31,
2021 of $1,389 are included in selling, general and administrative expenses.
7
REPORTABLE BUSINESS SEGMENT
On January 1, 2021, the Company reorganized its business segments to better reflect
changes in its operations and management structure. As a result of those changes,
the Company identified three reportable segments: Farm, Commercial, and Digital
(previously Technology), each supported by the corporate office. The acquisition of
Farmobile Inc. in 2021 further moves AGI into the middle of the data verification space
required by the rapidly developing carbon and traceability markets. This strengthens
the Company’s unique ability to capture machine and agronomic data across the
entire farming process – from seeding through to harvest and into the broader grain
supply chain. As a result, the Company renamed the Technology segment to the
Digital segment to recognize the digital evolution of this group. These segments are
strategic business units that offer different products and services, and each is managed
separately. Certain corporate overheads are included in the segments based on
revenue. Taxes and certain other expenses are managed at a consolidated level and
are not allocated to the reportable operating segments. Financial information for the
comparative period has been restated to reflect the new presentation.
• Commercial: AGI’s Commercial business includes the sale of larger diameter
storage bins, high-capacity stationary grain handling equipment, fertilizer storage
and handling systems, feed handling and storage equipment, aeration products,
hazard monitoring systems, automated blending systems, control systems and food
processing solutions. AGI’s Commercial customers include large multi-national agri-
businesses, grain handlers, regional cooperatives, contractors, food and animal feed
manufacturers, and fertilizer blenders and distributors. Commercial equipment is
used at port facilities for both the import and export of grains, inland grain terminals,
corporate farms, fertilizer distribution sites, ethanol production, oilseed crushing,
commercial feed mills, rice mills and flour mills.
• Digital: AGI’s Digital business is built on a foundation of IoT products that are
designed to monitor, operate, and automate the Company’s equipment including
the collection of key operation data. The Digital business offers monitoring,
operation, measurement and blending controls, automation, hazard monitoring,
embedded electronics, farm management, grain marketing and tools for agronomy,
and Enterprise Resource Planning for agriculture retailers and grain buyers. These
products are available both as standalone offerings as well as in combination with
larger farm or commercial systems from AGI.
The following tables sets forth information by segment:
The operating segments are being reported based on the financial information provided
to the Chief Executive Officer, who has been identified as the Chief Operating Decision
Maker [“CODM”] in monitoring segment performance and allocating resources
between segments. The CODM assesses segment performance based on adjusted
earnings before income tax, depreciation, and amortization [“Adjusted EBITDA”], which
is measured differently than profit (loss) from operations in the consolidated financial
statements.
Farm
Commercial
Digital
Sales
The Company’s reportable segments are as follows:
• Farm: AGI’s Farm business includes the sale of grain and fertilizer handling
equipment, aeration products and storage bins, primarily to farmers where on-farm
storage practices are conducive to the sale of portable handling equipment and
smaller diameter storage bins for grain and fertilizer.
2021
$
2020
$
614,747
526,784
550,654
450,242
33,122
23,104
1,198,523
1,000,130
6 9
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
2021 ANNUAL REPORT Farm
$
Commercial
$
2020 3
Digital
$
Other 1
$
Total
$
Profit (loss) before income taxes
96,762
33,700
(10,320)
(201,108)
(80,966)
The Company operates primarily within three geographical areas: Canada, United States
and International. The following details the sales, property, plant and equipment, right-of-
use assets, goodwill, intangible assets and investment by geographical area, reconciled
to the Company’s consolidated financial statements:
Total current accounts receivable
Less expected credit loss
Farm
$
Commercial
$
2021
Digital
$
Other 1
$
Profit (loss) before income taxes
116,987
38,192
(19,850)
(125,946)
Finance costs
–
–
–
43,599
Depreciation and amortization
20,250
23,292
12,354
Total
$
9,383
43,599
62,049
1,077
6,153
1,077
(6,778)
(6,778)
2,992
8,551
2,992
8,551
(1,382)
(1,382)
3,035
3,035
–
11,400
12,058
12,058
–
–
–
–
–
–
11,400
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Share of associate’s net loss
Gain on remeasurement of equity
investment [note 6]
Loss on foreign exchange
Share-based compensation
Gain on financial instruments
Mergers and acquisitions expense
Change in estimate on variable
consideration 3
Other transaction and
transitional costs
Loss (gain) on sale of property,
plant and equipment
Loss (gain) on settlement of
lease liability
Foreign exchange reclassification on
disposal of foreign operation
Equipment rework and
remediation [note 18]
Impairment [notes 12 and 15]
Adjusted EBITDA 2
1 Included in Other is the corporate office, which is not a reportable segment, and which provides finance, treasury,
legal, human resources and other administrative support to the segments.
2 The CODM uses Adjusted EBITDA as a measure of financial performance for assessing the performance of each of
the Company’s segments. Adjusted EBITDA is defined as net income before depreciation and amortization, financial
expenses, operational restructuring costs and other, income taxes and share of income (loss) of associates. Adjusted
EBITDA as defined above is not a measure of results that is consistent with IFRS.
3 The result of a change in management estimate on variable considerations for a one-time sales concessions related
to previous sales contracts.
Finance costs
–
–
–
46,692
Depreciation and amortization
19,994
25,070
5,063
Share of associate’s net loss
Loss on foreign exchange
Share-based compensation
Loss on financial instruments
Mergers and acquisitions expense
Other transaction and transitional
costs
Loss on sale of property, plant and
equipment
Gain on settlement of lease liability
Equipment rework and remediation
[note 18]
Impairment [notes 12 and 15]
–
–
–
–
–
–
82
(1)
–
–
–
–
–
–
–
–
37
(2)
–
–
–
–
–
–
–
–
49
–
–
–
5,144
4,314
1,730
6,428
14,502
1,736
46,692
55,271
4,314
1,730
6,428
14,502
1,736
14,326
14,326
19
–
187
(3)
80,000
80,000
5,111
5,111
(189)
213
(2)
1
23
11
–
–
–
–
–
–
5,074
–
–
–
–
(28)
(17)
Adjusted EBITDA 2
116,837
58,805
(5,208)
(21,106)
149,328
(898)
(898)
1 Included in Other is the corporate office, which is not a reportable segment, and which provides finance, treasury,
legal, human resources and other administrative support to the segments.
26,100
26,100
–
5,074
2 The CODM uses Adjusted EBITDA as a measure of financial performance for assessing the performance of each of
the Company’s segments. Adjusted EBITDA is defined as net income before depreciation and amortization, financial
expenses, operational restructuring costs and other, income taxes and share of income (loss) of associates. Adjusted
EBITDA as defined above is not a measure of results that is consistent with IFRS.
148,459
66,771
(7,498)
(31,466)
176,266
3 Financial information for the comparative year has been restated to reflect the new presentation.
2021
$
2020
$
211,509
180,384
(5,238)
(4,068)
206,271
176,316
34,742
19,183
241,013
195,499
213,787
159,254
12,870
14,321
2,485
1,928
15,181
5,169
5,047
15,776
(5,238)
(4,068)
241,013
195,499
Property, plant and equipment,
right-of-use assets, goodwill, intangible
assets and equity investments
Non-current accounts receivable
Total accounts receivable, net
Of which
Neither impaired nor past due
Not impaired and past the due date as follows
Within 30 days
31 to 60 days
61 to 90 days
Over 90 days
Expected credit loss
Total accounts receivable, net
Canada
United States
International
Sales
2021
$
267,755
532,444
398,324
1,198,523
2020
$
282,402
442,813
274,915
1,000,130
2021
$
407,357
329,435
243,381
980,173
2020
$
422,489
312,016
247,376
981,881
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.
8
RESTRICTED CASH
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, 2021, restricted cash is $2,424 [2020 – $9,616].
9
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:
Non-current accounts receivable consists of 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, 2021
and December 31, 2020 was as follows:
Balance, beginning of year
Additional provision recognized
Amounts written off during the year as uncollectible
Exchange differences
Balance, end of year
2021
$
4,068
2,390
(347)
(873)
5,238
2020
$
1,758
2,798
(674)
186
4,068
7 1
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
2021 ANNUAL REPORT 10
INVENTORY
Raw materials
Finished goods
11
NOTES RECEIVABLE
2021
$
130,995
112,255
2020
$
87,312
91,592
243,250
178,904
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, 2022. 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 $500 is due in five annual payments.
7 3
7 4
7 4
2021 ANNUAL REPORT 12
PROPERTY, PLANT AND EQUIPMENT
Land
$
Grounds
$
Buildings
$
Leasehold
improvements
$
Furniture
and
fixtures
$
Vehicles
$
Computer
hardware
$
Manufacturing
equipment
$
Construction
in progress
$
Total
$
Land
$
Grounds
$
Buildings
$
Leasehold
improvements
$
Furniture
and
fixtures
$
Vehicles
$
Computer
hardware
$
Manufacturing
equipment
$
Construction
in progress
$
Cost
Balance, January 1, 2021
34,050
6,942
170,952
Additions
Acquisitions
Transfer from assets held for sale
Disposals
Impairment
Exchange differences
Balance, December 31, 2021
Depreciation
Balance, January 1, 2021
Depreciation
Disposals
Impairment
Exchange differences
Balance, December 31, 2021
904
–
121
–
–
(721)
34,354
–
–
–
–
–
–
Net book value, January 1, 2021
Net book value, December 31, 2021
34,050
34,354
133
–
20
–
–
(83)
7,012
2,255
579
–
–
(27)
2,807
4,687
4,205
1,491
–
386
–
(2,310)
(2,892)
167,627
25,096
4,566
–
(752)
(228)
28,682
145,856
138,945
15,441
739
–
–
–
–
(99)
16,081
3,201
1,557
–
–
(4)
5,427
1,226
26
–
(25)
–
(134)
6,520
2,328
687
(15)
–
(28)
4,754
2,972
12,240
11,327
3,099
3,548
20,074
358
–
–
(878)
–
(97)
12,002
2,420
19
–
(192)
–
49
19,457
14,298
8,742
2,030
(510)
–
(45)
10,217
11,332
9,240
6,890
1,752
(187)
–
25
8,480
5,112
5,818
203,730
21,371
–
–
(1,284)
–
(4,809)
219,008
72,846
13,741
(1,133)
–
(1,141)
84,313
130,884
134,695
7,273
34
–
–
–
–
(129)
7,178
–
–
–
–
–
–
475,891
28,676
45
527
(2,379)
(2,310)
(8,915)
491,535
121,358
24,912
(1,845)
(752)
(1,448)
142,225
Cost
Balance, January 1, 2020
34,761
Additions
Leasehold improvements received
Acquisitions
Transfer from assets held for sale
Disposals
Impairment
Exchange differences
Balance, December 31, 2020
Depreciation
Balance, January 1, 2020
Depreciation
Disposals
Exchange differences
Balance, December 31, 2020
–
–
–
–
–
(80)
(631)
34,050
–
–
–
–
–
7,273
7,178
354,533
349,310
Net book value, January 1, 2020
Net book value, December 31, 2020
34,761
34,050
7,186
204
–
–
–
–
(177)
(271)
6,942
1,699
608
–
(52)
2,255
5,487
4,687
169,236
8,784
–
–
375
—
(1,700)
(5,743)
170,952
20,419
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)
5,427
1,918
527
(107)
(10)
2,328
2,337
3,099
20,311
593
–
–
–
(591)
–
(239)
20,074
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
–
–
–
(635)
–
(4,579)
203,730
60,673
14,493
(429)
(1,891)
72,846
134,702
130,884
195,375
13,569
12,705
(3,201)
Total
$
462,956
28,063
2,086
63
375
(1,516)
(1,957)
(14,179)
475,891
99,278
25,642
(906)
(2,656)
121,358
–
–
–
–
–
(2,231)
7,273
–
–
–
–
–
12,705
7,273
363,678
354,533
7 5
2 0 2 1 A N N U A L R E P O R T
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
During the year ended December 31, 2021, the manufacturing operation of a division
was realigned and transitioned to another AGI division. As a result, an impairment
loss of $1,558 was recorded to adjust the carrying amount of the division’s assets to its
recoverable amount.
Capitalized borrowing costs
No borrowing costs were capitalized in 2021 or 2020.
13
RIGHT-OF-USE ASSETS
Buildings
$
Furniture
and fixtures
$
Vehicles
$
Manufacturing
equipment
$
Total
$
9,353
7,280
2,207
(90)
893
225
–
(8)
7,596
6,122
2,207
(46)
(2,787)
(362)
12,730
4,656
1,671
(151)
(3,386)
(177)
15,343
421
186
–
(26)
(189)
(15)
377
173
–
–
(182)
(8)
360
443
747
–
(10)
(429)
(70)
681
2,372
–
–
(526)
(32)
2,495
Balance, January 1, 2020
Additions
Acquisitions
Termination
Depreciation
Exchange differences
Balance, December 31, 2020
Additions
Acquisitions
Termination
Depreciation
Exchange differences
Balance, December 31, 2021
14
GOODWILL
Balance, beginning of year
Acquisitions [note 6]
Exchange differences
Balance, end of year
(530)
(3,935)
(26)
554
1,103
–
–
(473)
14,342
8,304
1,671
(151)
(525)
(4,619)
(119)
1,013
(336)
19,211
2021
$
2020
$
350,669
351,573
11,795
5,012
(3,854)
(5,916)
358,610
350,669
7 8
7 8
15
INTANGIBLE ASSETS
Cost
Balance, January 1, 2021
Internal development
Acquisitions
Impairment
Discontinued operations
Exchange differences
Balance, December 31, 2021
Amortization
Balance, January 1, 2021
Amortization
Impairment
Discontinued operations
Exchange differences
Balance, December 31, 2021
Net book value, January 1, 2021
Net book value, December 31, 2021
Distribution
networks and
customer
relationships
$
Brand
names
$
Patents
$
Software
$
Order
backlog
$
Non-compete
agreement
$
Development
projects
$
Technology
$
CIP
Intangibles
$
13,287
114
173,797
132,126
91
–
–
–
(6,407)
(3,627)
–
(1,364)
166,117
88,563
13,321
(4,402)
–
(1,147)
96,335
85,234
69,782
–
(1,021)
127,478
1,427
1,608
(2,116)
–
(21)
898
130,699
126,580
3,103
2,870
274
–
–
(1)
6,246
2,358
166
–
–
(5)
2,519
745
3,727
17,139
418
–
–
–
(119)
17,438
8,276
3,850
–
–
575
12,701
8,863
4,737
–
–
–
–
(231)
13,056
–
–
–
(231)
13,056
–
–
114
49,468
13,287
112
36,122
13,427
–
–
(77)
(4)
12,206
7,897
–
(77)
(37)
–
–
–
–
–
2
–
–
–
–
–
24,078
–
–
340
24,418
–
5,674
–
–
91
114
19,989
5,765
2
–
23,916
29,479
–
18,653
Total
$
375,688
16,890
24,352
(10,034)
(77)
(2,400)
404,419
126,229
32,518
(6,518)
(77)
(775)
151,377
249,459
253,042
Distribution
networks and
customer
relationships
$
Brand
names
$
Patents
$
Software
$
Order
backlog
$
Non-compete
agreement
$
Development
projects
$
Cost
Balance, January 1, 2020
175,164
135,810
Internal development
Acquisitions
Impairment [note 16]
Exchange differences
Balance, December 31, 2020
Amortization
Balance, January 1, 2020
Amortization
Impairment [note 16]
Exchange differences
Balance, December 31, 2020
Net book value, January 1, 2020
Net book value, December 31, 2020
–
–
–
(1,367)
173,797
75,207
14,218
–
(862)
88,563
99,957
85,234
–
–
(2,812)
(872)
132,126
–
1,441
–
(14)
1,427
135,810
130,699
3,068
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)
36,122
6,482
6,175
(283)
(168)
12,206
20,793
23,916
Total
$
367,053
12,064
3,322
(3,437)
(3,314)
375,688
102,195
25,694
(283)
(1,377)
126,229
264,858
249,459
–
84
–
–
–
–
84
–
–
–
–
–
–
–
84
7 9
2 0 2 1 A N N U A L R E P O R T
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 Company had no contractual commitments for the acquisition of intangible assets
as of the reporting date.
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.
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 $124,400 [2020 – $127,847] 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 years ended December 31, 2021 and December 31,
2020, the Company identified brand names in which an end point of useful life could
be determined. As at December 31, 2021, the carrying amount of definite-life intangible
assets of $2,180 [2020 – $2,852] and remaining life of 4 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 date as a triggering event for performing an impairment test. During
the year ended December 31, 2021, AGI announced that the operations of AGI Solutions,
a division of the Company in its commercial segment, ceased effective November 30,
2021. As a result, during the year ended December 31, 2021, an impairment charge of
$3,516 against intangible assets was recorded in the consolidated financial statements.
Intangible assets and research and development expenses for the year ended December
31, 2021, are net of combined federal and provincial scientific research and experimental
development [“SR&ED”] tax credits in the amounts of $(79) and $448, 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, 2021, the Company had federal
investment tax credit carryforwards in the amount of $309 [2020 – $908], federal SR&ED
investment tax credit carryforwards in the amount of $2,088 [2020 – $1,340], provincial
SR&ED investment tax credit carryforwards in the amount of $768 [2020 – $366] and
provincial manufacturing or processing tax credits in the amount of $96 [2020 – $384];
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. During
the year ended December 31, 2021, the Company reclassified $3,322 of intangible assets
from development to software.
16
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, 2021, using cash flow projections covering
a five-year period. The Company performs its indefinite-life intangible assets impairment
test as at December 31; the indefinite-life intangible assets are tested at the individual
CGU level.
The pre-tax discount rates applied to the cash flow projections for Farm, Commercial
and Digital are 10.2%, 10.3%, and 18.9%, respectively [2020 – 10.4%, 10.8%, n/a], and cash
flows beyond the five-year period are extrapolated using a 2% growth rate [2020 – 2%],
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
Digital
Goodwill
Intangible assets with indefinite lives
Total
Goodwill
Intangible assets with indefinite lives
2021
$
2020
$
132,335
132,342
77,577
77,612
193,937
200,571
44,691
48,096
32,338
2,132
17,756
2,139
358,610
350,669
124,400
127,847
Key assumptions used in valuation calculations
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; and
• 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
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
liquidity risk management processes, refer to note 30.
18
PROVISIONS
Provisions consist of the Company’s warranty and other provisions. 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.
2021
$
2020
$
83,361
17,539
37,225
88,386
(54,968)
(22,564)
65,618
83,361
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.
Balance, beginning of year
Additional provisions recognized
Amounts utilized
Balance, end of year
Revenue and terminal growth rate estimates
Remediation costs
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.
17
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade payables
Other payables
Personnel-related accrued liabilities
Accrued outstanding service invoices
2021
$
2020
$
100,700
77,161
42,068
25,237
50,562
33,883
2,316
2,817
195,646
139,098
As previously disclosed, over the period of 2019-2020, AGI entered into agreements to
supply 35 large hopper bins [the “Bins”] for installation by third parties on two grain
storage projects. In 2020, one of the Bins erected at one of these projects [“Customer
A”] collapsed during commissioning [the “Incident”]. The Incident did not result in
any injuries and AGI immediately issued a demand to suspend use of the Bins at both
projects. A total of 15 Bins are located at Customer A’s site and 20 Bins are located at the
second site [“Customer B”].
AGI agreed on a remediation plan with Customer B and completed extensive product
revisions, remediation and testing during 2021. Subsequent to year-end, AGI announced
the successful completion of the remediation at Customer B’s site.
Customer A has proceeded to conduct remediation of the Bins themselves by replacing
the Bins with another equipment solution.
In 2021, two legal claims related to the Incident were initiated against AGI for a
cumulative amount in excess of $190 million. The claim by Customer A is in excess of
$80 million. In addition, claims have been made by a second claimant [a customer of
Customer A with respect to the Incident site] seeking damages of $110 million against
8 1
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
2021 ANNUAL REPORT AGI. AGI had no contractual relationship with the second claimant and is defending the claims as being remote, not proximate and without merit. AGI has legal and contractual
defenses to these legal claims, has filed defenses and will fully and vigorously defend itself.
Customer A has also made a separate legal claim against its own insurance broker over coverage they allege the broker failed to put in place, causing Customer A to suffer damages
and uninsured losses. Customer A was required to maintain this insurance coverage under the Customer A’s contract with AGI and was required to name AGI as an additional insured.
During the year ended December 31, 2021, an additional provision of $16.1 million was recorded for revised cost estimates in the audited consolidated financial statements. As at
December 31, 2021, the warranty provision for the estimated remediation costs is $42.4 million [December 31, 2020 – $69.7 million], with $43.4 million of the provision having been
utilized during the year ended December 31, 2021.
The provision for remediation at Customer A’s site requires significant estimates and judgments about the scope, nature, timing and cost of investigation and remediation 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 Incident site. Key assumptions included,
the degree of liability if any, the estimated number of third-party investigation and legal hours, estimated volume of materials and materials costs, estimated internal and external labour
hours, equipment costs and third-party construction costs. As investigation of the incident continues, the provision is subject to revision in the future as further information becomes
available, the impact of which could be material.
The provision is based on management’s assessment of the remaining scope, nature, and timing of the work outstanding and has been revised based on experience gained and lessons
learned from the successful completion and costs incurred in the reinforcement and commissioning of Customer B’s site during the year. In addition, management has considered the
merits of related legal claims and have taken them into consideration in assessing its exposure.
AGI continues to believe that any financial impact will be, at least, partially offset by insurance coverage. 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.
Equipment rework
The provision for equipment rework relates to previously identified issues with equipment designed and supplied to a customer’s commercial facility. During the year ended December
31, 2021, an additional provision of $10 million was recorded as result of revised cost estimates. As at December 31, 2021, the warranty provision for the equipment rework is $11.8 million
[2020 – $4.5 million], with $2.7 million of the provision having been utilized during the year.
19
LEASE LIABILITY
Current
Non-current
Lease liability
Incremental borrowing rate
%
1.7 – 29.3
1.7 – 29.3
Maturity
2022
2023 – 2030
2021
$
5,016
17,263
22,279
2020
$
3,027
13,815
16,842
The Company has various lease contracts that have not yet commenced as at December 31, 2021. The future lease payments for the non-cancellable lease contracts are nil within one
year and $2,264 within five years.
20
LONG-TERM DEBT
Interest rate
%
Maturity
Current portion of long-term debt
Equipment financing
Nil
Non-current portion of long-term debt
Nil
4.4 – 5.2
3.7 – 4.5
3.5 – 6.5
2.1 – 4.8
2025
2025
2026
2025
2025
Equipment financing
Series B secured notes
Series C secured notes
[U.S. dollar denominated]
Canadian Revolver
U.S. Revolver
Less deferred financing costs
Long-term debt
[a] Bank indebtedness
2021
$
532
532
2020
$
475
475
1,774
25,000
917
25,000
31,695
31,830
176,417
201,834
436,720
(2,711)
434,009
434,541
151,528
202,693
411,968
(3,070)
408,898
409,373
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, 2021, there was nil [2020 – nil] outstanding under the swing line.
Collateral for the swing line ranks pari passu with the Series B and C secured notes and
includes a general security agreement over all assets, first position collateral mortgages
on land and buildings, assignments of rents and leases and security agreements for
patents and trademarks.
[b] Long-term debt
On April 29, 2021, the Company's one-year liquidity facility matured. Upon maturity,
the Company’s liquidity agreement was incorporated into the existing revolver facility
through the accordion feature. As a result, $50 million was added to the Company’s
Canadian revolver availability. The maturity date of the revolver facility remains
unchanged at March 20, 2025. In addition, the Company drew $40 million from its
Canadian revolver, of which $15 million was repaid during the year ended December 31,
2021.
AGI’s revolver facilities of $275 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, 2021 on AGI’s
revolver facilities was 2.56% [2020 – 3.92%]. As at December 31, 2021, there was $378
million [2020 – $354 million] outstanding under these facilities. Interest on a portion
of the revolver line has been fixed at 4.7% through an interest rate swap contract [note
30[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.
The Series C secured notes were issued on October 31, 2016. The non-amortizing notes
bear interest at 3.7% payable quarterly and mature on October 31, 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 Consolidated EBITDA, as defined in the
credit facility agreement, a ratio of less than 3.25, 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 Consolidated EBITDA ratio requirement increases to 3.75 or less for
the financial quarter and the three following financial quarters in which the acquisition
occurred.
As at December 31, 2021 and December 31, 2020, AGI was in compliance with all
financial covenants.
8 3
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
2021 ANNUAL REPORT 2 1
CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES
Current portion of convertible unsecured subordinated debentures
Non-current portion of convertible unsecured subordinated debentures
Principal amount
Equity component
Accretion
Financing fees, net of amortization
Convertible unsecured subordinated debentures
2021
$
84,913
2020
$
–
115,000
172,475
(16,318)
(6,351)
377
4,091
(4,439)
(2,896)
94,620
179,533
167,319
167,319
Year issued
2018
2021
Aggregate principle amount
$
86,250
115,000
Coupon
%
4.50%
5.00%
Conversion price
$
88.15
45.14
Conversion
rate [1]
11.3443
22.1533
Number of common shares
reserved for issuance
upon conversion
Maturity date
Redeemable at par [2][3]
978,446
2,547,630
31-Dec-22
30-Jun-27
01-Jan-22
30-Jun-25
1 During the year ended December 31, 2021, a holder of the 2017 Debentures converted $41,892 into common shares.
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 consecu-
tive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the conversion price.
On redemption or at maturity, the Company may, at its option, elect to satisfy its obligation to pay the principal amount of the debentures by issuing and delivering common shares.
The Company may also elect to satisfy its obligation to pay interest on the debentures by delivering sufficient common shares. The Company does not expect to exercise the option
to satisfy its obligations to pay the principal amount or interest by delivering common shares. The number of shares issued will be determined based on market prices at the time of
issuance.
Issuance of 2021 convertible unsecured subordinated debentures
On October 14, 2021, AGI entered into an agreement with a syndicate of underwriters pursuant to which AGI issued on November 3, 2021 on a “bought deal” basis $100 million
aggregate principal amount of convertible unsecured subordinated debentures [the “Debentures”] at a price of $1,000 per Debenture [the “Offering”]. On November 9, 2021, AGI issued
an additional $15 million aggregate principal amount of Debentures at the same price pursuant to the exercise of the over-allotment option granted by AGI to the underwriters. With the
full exercise of the over-allotment option, the total gross proceeds from the Offering to AGI were $115 million.
The Debentures bear interest from the date of issue at 5.00% per annum, payable semi-annually in arrears on June 30 and December 31 each year, commencing June 30, 2022. The
Debentures will have a maturity date of June 30, 2027 [the “Maturity Date”].
The Debentures are convertible at the holder’s option at any time prior to the close of
business on the earlier of the business day immediately preceding the Maturity Date
and the date specified by AGI for redemption of the Debentures into fully paid and non-
assessable common shares of the Company at a conversion price of $45.14 per Common
Share [the “Conversion Price”], being a conversion rate of approximately 22.1533
Common Shares for each $1,000 principal amount of Debentures.
The Debentures are not redeemable by the Company before June 30, 2025. On and after
June 30, 2025 and prior to June 30, 2026, the Debentures may be redeemed in whole or
in part from time to time at AGI’s option 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 on the Toronto Stock Exchange for the 20 consecutive trading days
ending on the fifth trading day preceding the date on which the notice of the redemption
is given is not less than 125% of the Conversion Price. On and after June 30, 2026, the
Debentures may be redeemed in whole or in part from time to time at AGI’s option at a
price equal to their principal amount, plus accrued and unpaid interest, regardless of the
trading price of the Common Shares.
The net proceeds of the Offering will be used to partially repay outstanding
indebtedness under the Company’s revolving credit facilities, a portion of which will
then be redrawn to fund the redemption of the Company's 4.85% convertible unsecured
subordinated debentures due June 30, 2022 and for general corporate purposes.
Year issued
2017
2018
2021
Year issued
Aggregate principal amount
$
Offering costs
$
Equity component
$
2017
2018
2021
86,250
86,250
115,000
3,673
3,957
4,548
4,290
2,063
16,318
The liability component is accreted using the effective interest rate method. The equity
component of $12,905 [2020 – $4,427] on the consolidated statements of financial
position is net of income taxes of $4,624 [2020 – $1,636] and its pro rata share of
financing costs of $852 [2020 – $290].
During the year ended December 31, 2021, the Company recorded accretion, non-cash
interest expense relating to financing costs, and interest expense on the coupon of:
2021
Accretion
$
Non-cash interest expense
$
Interest expense
$
672
433
377
576
834
109
3,682
3,881
958
Redemption of 2017 Debentures
On November 16, 2021, the Company redeemed its 4.85% convertible unsecured
subordinated debentures due June 30, 2022 [“2017 Debentures”] in accordance with the
terms of the supplemental trust indenture. Upon redemption, AGI paid to the holders of
the 2017 Debentures the redemption price of $87,775 equal to the outstanding principal
amount of the 2017 Debentures redeemed including accrued and unpaid interest up
to but excluding the redemption date, less taxes deducted or withheld. A loss of $676
was recorded to loss on financial instruments, and the equity component of the 2017
Debentures was reclassified to contributed surplus.
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
2017
2018
2020
Accretion
$
Non-cash interest expense
$
Interest expense
$
853
412
731
790
4,182
3,881
The Company expensed the remaining unamortized balance of $602 of deferred fees
related to the 2017 Debentures. The expense was recorded to finance costs in the
consolidated statements of income (loss).
22
SENIOR UNSECURED SUBORDINATED DEBENTURES
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:
Principal amount
Debenture put options, net of amortization
Financing fees, net of amortization
Senior unsecured subordinated debentures
2021
$
2020
$
257,500
257,500
550
661
(7,178)
(9,082)
250,872
249,079
8 5
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
2021 ANNUAL REPORT Year issued
2019 March
2019 November
2020 March
Aggregate principal amount
$
86,250
86,250
85,000
Coupon
%
5.40%
5.25%
5.25%
Maturity
date
Issued
Redeemable
18,793,570 common shares
30-Jun-24
30-Jun-22 [1][3]
31-Dec-24
31-Dec-22 [2][4]
31-Dec-26
31-Dec-22 [3][4]
1 On and after June 30, 2022 and prior to June 30, 2023, the Debentures may be redeemed at the Company’s option at
a price equal to 102.70% of their principal amount plus accrued and unpaid interest. On or after June 30, 2023, the 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 Com-
pany’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 On and after December 31, 2022 and prior to December 31, 2023, the Debentures may be redeemed at the Com-
pany’s option at a price equal to 103.9375% of their principal amount plus accrued and unpaid interest. On and after
December 31, 2023 and prior to December 31, 2024, the Debentures may be redeemed at the Company’s option at
a price equal to 102.625% of their principal amount plus accrued and unpaid interest. On and after December 31,
2024 and prior to December 31, 2025, the Debentures may be redeemed at the Company’s option at a price equal
to 101.3125% of their principal amount plus accrued and unpaid interest. On and after December 31, 2025 and prior
to maturity, the Debentures will be redeemable at the Company’s option at a price equal to their principal amount
plus accrued and unpaid interest. The Debentures will not be convertible into common shares of the Company at the
option of the holders at any time.
4 The Company will have the option to satisfy its obligation to repay the principal amount of the Debentures due at
redemption or maturity by issuing and delivering that number of freely tradeable common shares in accordance with
the terms of the Indenture.
The Company’s redemption option for the 2020 Debentures resulted in recognition of
an embedded derivative with a fair value of $754 at time of issuance [note 30[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, 2021, the Company recorded non-cash interest
expense of $1,867 [2020 – $1,688] relating to financing costs and interest expense on the
coupon of $13,648 [2020 – $13,368], offset by amortization of the embedded derivative of
$112 [2020 – $93].
23
SHAREHOLDERS’ EQUITY
[a] Common shares
Authorized
Unlimited number of voting common shares without par value
Balance, January 1, 2020
Settlement of EIAP obligation
Reduction in stated capital
Balance, December 31, 2020
Settlement of EIAP obligation
Convertible unsecured subordinated debentures
Balance, December 31, 2021
Shares
#
Amount
$
18,658,479
455,857
59,936
5,642
–
(459,769)
18,718,415
74,653
502
18,793,570
1,730
3,461
42
5,233
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 24[a]]
Dividends on EIAP
Obligation under EIAP [note 24[a]]
Settlement of EIAP obligation
Redemption of convertible unsecured subordinated debentures
Reduction in stated capital
Balance, end of year
2021
$
487,540
287
261
7,820
(4,193)
2,969
–
494,684
2020
$
27,113
626
358
5,802
(8,432)
2,304
459,769
487,540
[c] Accumulated other comprehensive loss
Accumulated other comprehensive 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, 2021, the Company declared dividends of $11,271 or
$0.60 per common share [2020 – $19,635 or $1.05 per common share] and dividends
on share compensation awards of $261 [2020 – $358]. In the year ended December 31,
2021, dividends paid to shareholders were financed $11,261 [2020 – $20,558] 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 and accordingly the dividend of $0.15 per share relates
to the months of October, November, and December 2021. The dividend is payable
on January 15, 2022 to common shareholders of record at the close of business on
December 31, 2021.
[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
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, 2021 and December 31, 2020, no preferred shares were issued or
outstanding.
24
SHARE-BASED COMPENSATION PLANS
[a] Equity incentive award plan [“EIAP”]
On May 11, 2012, the shareholders of AGI approved an EIAP, which authorizes the Board
to grant Restricted Awards [“RSU”] and Performance Awards [“PSU”] [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.
As at December 31, 2021, 1,565,000 shares are reserved for issuance under the EIAP
[December 31, 2020 – 1,910,000 shares]. At the discretion of the Board, the EIAP provides
for cumulative adjustments to the number of common shares to be issued pursuant to,
or the value of, Awards on each date that dividends are paid on the common shares. The
EIAP provides for accelerated vesting in the event of a change in control, retirement,
death or termination without cause.
Each RSU will entitle the holder to be issued the number of common shares designated
in the RSU. The Company has an obligation to settle any amount payable in respect of a
RSU by common shares issued from treasury of the Company.
Each PSU requires the Company to deliver to the holder at the Company’s discretion
either the number of common shares designated in the PSU multiplied by a Payout
Multiplier or the equivalent amount in cash. The Payout Multiplier is determined based
on an assessment of the achievement of pre-defined measures in respect of the
applicable period. The Payout Multiplier may not exceed 200%.
As at December 31, 2021, 880,064 [2020 – 742,477] RSUs and 886,280 [2020 – 723,585]
PSUs have been granted. The Company has accounted for the EIAP as an equity-settled
8 7
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
2021 ANNUAL REPORT plan. The fair values on grant date of the RSUs and the PSUs 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, 2021, AGI expensed $7,820 for the EIAP [2020 – $8,229].
A summary of the status of the options under the EIAP is presented below:
Balance, January 1, 2020
Granted
Vested
Forfeited
Modified
Cancelled
Balance, December 31, 2020
Granted
Vested
Forfeited
Balance, December 31, 2021
EIAP
Restricted Awards
#
Performance Awards
#
244,408
224,578
(70,582)
(6,724)
(82,952)
–
308,728
153,590
(65,284)
(11,600)
385,434
109,497
60,178
(7,108)
(892)
–
(58,501)
103,174
162,695
(81,163)
(114,267)
70,439
There is no exercise price on the EIAP awards.
[b] Directors’ deferred compensation plan [“DDCP”]
Under the DDCP, every Director receives a fixed base retainer fee, an attendance fee for
meetings and a committee chair fee, if applicable, and a predetermined minimum of the
total compensation must be taken in common shares. A Director will not be entitled to
receive the common shares he or she has been granted until a period of three years has
passed since the date of grant or until the Director ceases to be a Director, whichever is
earlier. The Directors’ common shares are fixed based on the fees eligible to him or her
for the respective period and his or her decision to elect for cash payments for dividends
related to the common shares; therefore, the Director’s remuneration under the DDCP
vests directly in the respective service period. The three-year period [or any shorter
period until a Director ceases to be a Director] qualifies only as a waiting period to
receive the vested common shares.
During the year ended December 31, 2021, the Company adopted a cash-settled
DDCP for non-employee directors; as a result, for the year ended December 31, 2021,
an expense of $731 [2020 – $626] was recorded for the share grants of which $444
is recorded in accounts payable and accrued liabilities for cash-settled and $287 is
recorded in contributed surplus for equity-settled. 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,
2021, 6,987 [2020 – 25,068] common shares were granted under the DDCP, and as at December 31, 2021, a total of 120,000 [2020 – 113,013] common shares had been granted under the
DDCP and 19,788 [2020 – 18,436] common shares had been issued.
[c] Share Option Plan
On March 23, 2021, the Board approved the adoption of a new fixed number share option plan for AGI which was ratified and approved by the Company’s shareholders at the annual
meeting on May 12, 2021 (the “Option Plan”) under which 500,000 common shares have been authorized for issuance. The Option Plan authorizes the Board to grant options to eligible
officers and employees of the Company.
[d] Summary of expenses recognized under share-based payment plans
For the year ended December 31, 2021, an expense of $8,551 [2020 – $8,854] was recognized for employee and Director services rendered.
25
OTHER EXPENSES (INCOME)
[a] Cost of goods sold
Depreciation of property, plant, and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Warranty expense
2021
$
2020
$
21,711
1,305
10,990
22,853
1,431
4,243
37,225
88,386
[d] Finance costs
Interest on overdrafts and other finance costs
Interest, including non-cash interest, on leases
1,239
1,084
1,374
876
Interest, including non-cash interest, on debts and borrowings
13,747
19,142
Interest, including non-cash interest, on senior and convertible unsecured
subordinated debentures [notes 21 and 22]
Cost of inventory recognized as an expense
823,277
670,427
[e] Finance expense (income)
[b] Selling, general and administrative expenses
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Minimum lease payments recognized as lease expense
894,508
787,340
Interest income
Loss on foreign exchange
3,201
3,314
21,528
45
2,789
2,504
21,451
196
[f] Employee benefits expense
Wages and salaries
Share-based compensation expense [note 24]
Transaction costs and post-combination expense
15,093
16,062
Pension costs
Selling, general and administrative
213,163
182,817
[c] Other operating expense (income)
Net loss on sale of property, plant and equipment
Net gain on settlement of lease liability
Loss (gain) on financial instruments
Foreign exchange reclassification on disposal of foreign operation
Other
256,344
225,819
Included in cost of goods sold
Included in selling, general and administrative expense
23
(17)
187
(3)
(1,382)
14,502
(898)
(5,025)
(7,299)
–
(4,152)
10,534
27,529
25,300
43,599
46,692
(377)
2,992
2,615
(444)
1,730
1,286
288,460
260,994
8,551
6,904
8,854
6,679
303,915
276,527
182,977
169,741
120,938
106,786
303,915
276,527
8 9
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
2021 ANNUAL REPORT 9 1
9 2
2021 ANNUAL REPORT 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. For the year
ended December 31, 2021, $558 [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.
26
RETIREMENT BENEFIT PLANS
AGI contributes to group retirement savings plans subject to maximum limits per
employee. The expense recorded during the year ended December 31, 2021 was $6,904
[2020 – $6,679]. AGI expects to contribute $7,180 for the year ending December 31, 2022.
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 receives 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 measures 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, 2021. The Company has used the same
methods and assumptions used at December 31, 2020 for the purpose of estimating the
liabilities at December 31, 2021. 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
2021
%
3.00
3.00
3.00
n/a
2020
%
2.50
2.50
2.50
n/a
The weighted average duration of the defined benefit obligation as of December 31,
2021 is 14.8 years [2020 – 15.4 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 2021 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.
Increase in
assumption
$
Decrease in
assumption
$
Impact of 0.5% increase/decrease in discount rate assumption
(930,272)
1,029,452
Impact of one-year increase/decrease in life expectancy assumption
399,650
(427,448)
The net expense of $144 [2020 – $132] for the year is included in cost of goods sold.
Information about the Company’s defined benefit pension plan, in aggregate, is as
follows:
Plan assets
2021
$
2020
$
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].
Fair value of plan assets, beginning of year
14,600
13,969
Interest income on plan assets
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets, end of year
Accrued benefit obligation
Accrued benefit obligation, beginning of year
Current service cost
Interest cost
Actuarial losses (gains) from changes in financial assumptions
Actuarial losses from experience adjustments
Benefits paid
Accrued benefit obligation, end of year
357
1,413
9
(771)
15,608
15,371
125
378
(1,031)
–
(771)
14,072
424
844
–
(637)
14,600
14,115
125
431
1,273
64
(637)
15,371
Net accrued benefit asset (liability)
1,536
(771)
The net accrued benefit asset (liability) of $1,536 [2020 – $(771)] is included in other
assets (other financial 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
2021
$
4,682
2,716
2,716
5,494
15,608
%
30.0
17.4
17.4
35.2
100.0
2020
$
4,336
2,570
2,570
5,124
%
29.7
17.6
17.6
35.1
14,600
100.0
Management’s assessment of the expected returns is based on historical return trends
and analysts’ predictions of the market for the asset over the life of the related obligation.
The actual return on plan assets was a gain of $1,413 [2020 – $844].
All equity and debt securities are valued based on quoted prices in active markets
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 [2021 – nil] to the defined benefit
plan in 2022. The actual amount paid may vary from the estimate based on actuarial
valuations being completed, investment performance, volatility in discount rates,
regulatory requirements and other factors.
Through its defined benefit plan, the Company is exposed to a number of risks, the most
significant of which are detailed below:
Asset volatility
The plan liability is calculated using a discount rate set with reference to corporate bond
yields; if plan assets under-perform this yield, this will create a deficit. The plan holds a
significant proportion of equities, which are expected to outperform corporate bonds in
the long term while contributing volatility and risk in the short term.
However, the Company believes that due to the long-term nature of the plan liabilities
and the strength of the supporting group, a level of continuing equity investment is an
appropriate element of the Company’s long-term strategy to manage the plan efficiently.
Change in fixed-income security yields
A decrease in corporate fixed-income security yields will increase plan liabilities,
although this will be partially offset by an increase in the value of the plan’s fixed-income
security holdings.
Life expectancy
The plan’s obligation is to provide benefits for the life of the member, so increases in life
expectancy will result in an increase in the plan’s liability.
9 3
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
2021 ANNUAL REPORT 2 7
INCOME TAXES
The major components of income tax expense for the years ended December 31, 2021
and 2020 are as follows:
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, 2021 and 2020 is
as follows:
Consolidated statements of income (loss)
Current income tax expense
Current income tax expense
Deferred tax recovery
2021
$
2020
$
Profit (loss) before income taxes
9,445
7,089
At the Company’s statutory income tax rate of 26.5% [2020 – 26.5%]
Tax rate changes
Tax losses (recognized) not recognized as a deferred tax asset
Origination and reversal of temporary differences
(10,620)
(26,407)
Foreign rate differential
Income tax recovery reported in the consolidated statements of income (loss)
(1,175)
(19,318)
Non-deductible EIAP expense
2021
$
2020
$
9,383
(80,966)
2,486
(21,456)
(260)
(1,142)
(2,950)
(191)
53
126
128
(567)
1,092
385
(106)
82
(1,222)
3,049
State income tax, net of federal tax benefit
Unrealized foreign exchange loss (gain)
Permanent differences and others
At the effective income tax rate of 12.52% [2020 – 23.86%]
(1,175)
(19,318)
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 charged (credited) directly to other comprehensive income
2021
$
2020
$
648
(456)
192
(131)
(252)
(383)
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
2021
$
2020
$
Property, plant and equipment
(40,991)
(39,386)
Consolidated
statements
of income (loss)
2021
$
1,703
2020
$
645
Intangible assets
Deferred financing costs
Accruals and long-term provisions
Tax loss carryforwards starting to expire in 2039
(46,328)
(43,712)
(1,820)
(1,556)
(467)
28,649
18,847
109
29,174
6,523
576
737
1
(19,359)
Balance, beginning of year
Deferred tax recovery during the year recognized in profit or loss
Deferred tax liability set up on business acquisition
Deferred tax expense during the year recognized in equity component
of convertible debentures
Deferred tax recovery during the year recognized in contributed surplus
Deferred tax recovery (expense) during the year recognized in other
comprehensive income
2021
$
(48,067)
10,620
(3,582)
(4,094)
86
(192)
2020
$
(74,115)
26,407
(833)
–
91
383
(11,692)
(2,142)
Balance, end of year
(45,229)
(48,067)
Capitalized development expenditures
(4,677)
(4,278)
Convertible debentures
Derivative instruments
EIAP liability
Equity swap
Exchange difference on translation
of foreign operations
Deferred tax recovery
(4,199)
89
2,565
1,283
–
(427)
203
2,027
1,700
–
399
(322)
114
(452)
(389)
(721)
(263)
(415)
417
(3,196)
456
252
(10,620)
(26,407)
Deferred tax liabilities, net
(45,229)
(48,067)
Reflected in the consolidated statements
of financial position as follows
Deferred tax asset
Deferred tax liability
Deferred tax liabilities, net
5,556
964
(50,785)
(49,031)
(45,229)
(48,067)
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 the following
temporary differences:
• Canadian operations of $7,589 non-capital loss carryforwards [2020 – $4,726] which
would start to expire in 2040, and $16,767 capital loss carryforwards [2020 – nil], no
expiry;
• US operations of $35,905 USD [2020- nil], no expiry;
• UK operations of £695 GBP [2020 – nil], no expiry; and
• Brazilian operations of 16,225 BRL [2020 – 88,897 BRL], no expiry.
Accordingly, the Company has recorded a deferred tax asset for all other deductible
temporary differences as at December 31, 2021 and as at December 31, 2020.
The temporary differences associated with investments in subsidiaries and associate, for
which a deferred tax asset has not been recognized, aggregate to nil [2020 – $4,432].
9 5
2 0 2 1 A N N U A L R E P O R T
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
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 its tax filing positions are probable to be sustained, there are a
number of tax filing positions that may be the subject of review by taxation authorities.
Therefore, it is possible that additional taxes could be payable by AGI, and the ultimate
value of AGI’s income tax assets and liabilities could change in the future, and that
changes to these amounts could have a material effect on these consolidated financial
statements.
There are no income tax consequences to the Company attached to the payment of
dividends in either 2021 or 2020 by the Company to its shareholders.
28
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:
2021
$
2020
$
29
STATEMENTS OF CASH FLOWS
Profit (loss) attributable to shareholders for basic profit (loss) per share
10,558
(61,648)
Convertible debentures
358
–
Profit (loss) attributable to shareholders for diluted profit (loss) per share
10,916
(61,648)
Basic weighted average number of shares
18,778,726
18,703,669
Dilutive effect of DDCP
Dilutive effect of RSU
Dilutive effect of 2021 Debentures
108,713
441,680
2,547,630
–
–
–
Diluted weighted average number of shares
21,876,749
18,703,669
Profit (loss) per share
Basic
Diluted
0.56
0.50
(3.30)
(3.30)
The DDCP and RSU were excluded from the calculation of diluted profit (loss) per share
in the year ended December 31, 2020, because their effect is anti-dilutive. The 2018
Debenture was excluded from the calculation of diluted profit (loss) per share in the
years ended December 31, 2021 and December 31, 2020, because their effect is
anti-dilutive.
[a] Net change in non-cash working capital
Cash and cash equivalents as at the date of the consolidated statements of financial position and for
the purpose of the consolidated statements of cash flows relate to cash at banks and cash on hand.
Cash at banks earns interest at floating rates based on daily bank deposit rates.
The net change in the non-cash working capital balances related to continuing operations is
calculated as follows:
Accounts receivable
Inventory
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Customer deposits
Provisions
2021
$
2020
$
(29,883)
(18,953)
(63,923)
(5,758)
56,891
39,468
(17,746)
(20,951)
(9,201)
3,013
33,423
6,425
65,352
80,059
9 7
2 0 2 1 A N N U A L R E P O R T
9 8
9 8
[b] Reconciliation of liabilities arising from financing activities
Long-term debt
Convertible unsecured subordinated
debentures
Senior unsecured subordinated
debentures
December
31, 2020
$
Cash
flows
$
409,373
25,556
167,319
23,833
249,079
(153)
Acquisitions
$
Additions
$
–
–
–
–
–
–
Foreign
exchange
$
(1,062)
–
–
Lease liability
16,842
(4,045)
Total liabilities from financing activities
842,613
45,191
1,671
1,671
8,304
8,304
(493)
(1,555)
Non-cash changes
Accretion
$
Amortization
$
Conversion
$
–
1,481
–
–
1,481
674
2,123
1,755
–
4,552
Non-cash changes
Equity
component
$
Other
$
December
31, 2021
$
–
–
434,541
(16,318)
1,137
179,533
–
–
191
–
250,872
22,279
–
(42)
–
–
(42)
(16,318)
1,328
887,225
Long-term debt
Convertible unsecured subordinated
debentures
Senior unsecured subordinated
debentures
December
31, 2019
$
393,128
Cash
flows
$
21,039
238,833
(75,031)
165,474
80,979
Lease liability
9,349
Total liabilities from financing activities
806,784
(3,433)
23,554
Acquisitions
$
Additions
$
Foreign
exchange
$
(5,465)
–
–
–
–
–
9,481
9,481
(762)
(6,227)
Accretion
$
Amortization
$
Fair value
$
Other
$
–
1,275
–
–
1,275
671
1,520
1,595
–
3,786
–
–
754
–
754
–
722
277
–
999
December
31, 2020
$
409,373
167,319
249,079
16,842
842,613
–
–
–
2,207
2,207
30
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
[a] Management of risks arising from financial instruments
AGI’s principal financial liabilities, other than derivatives, comprise loans and borrowings
and trade and other payables. The main purpose of these financial liabilities is to finance
the Company’s operations and to provide guarantees to support its operations. The
Company has deposits, trade and other receivables and cash and short-term deposits
that are derived directly from its operations. The Company also holds investments and
enters into derivative transactions.
The Company’s activities expose it to a variety of financial risks: market risk [including
foreign exchange risk and interest rate risk], credit risk and liquidity risk. The Company’s
overall risk management program focuses on the unpredictability of financial
markets and seeks to minimize potential adverse effects on the Company’s financial
performance. The Company uses derivative financial instruments to mitigate certain risk
exposures. The Company does not purchase any derivative financial instruments for
speculative purposes. Risk management is the responsibility of the corporate finance
function, which has the appropriate skills, experience and supervision. The Company’s
domestic and foreign operations, along with the corporate finance function, identify,
evaluate and, where appropriate, mitigate financial risks. Material risks are monitored
and are regularly discussed with the Audit Committee of the Board of Directors. The
Audit Committee reviews and monitors the Company’s financial risk-taking activities
and the policies and procedures that were implemented to ensure that financial risks are
identified, measured and managed in accordance with Company policies.
The risks associated with the Company’s financial instruments are as follows:
on financial instruments in the consolidated statements of income (loss).
The Company had one outstanding foreign exchange forward contract at December 31,
2021 with a fair value of $(138).
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, 2021, AGI’s U.S. dollar denominated
debt totalled $205 million [2020 – $205 million].
AGI’s sales denominated in U.S. dollars for the year ended December 31, 2021 were $498
million [2020 – U.S. $400 million], and the total of its cost of goods sold and its selling,
general and administrative expenses denominated in that currency was U.S. $383 million
[2020 – U.S. $303 million]. Accordingly, a 10% increase or decrease in the value of the
U.S. dollar relative to its Canadian counterpart would result in a $49.8 million increase
or decrease in sales and a total increase or decrease of $38.3 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, 2021 and
December 31, 2020 are at a fixed rate of interest.
Market risk
Interest rate swap contracts
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, 2021, the Company entered into a short-term
forward contract that resulted in a loss of $138, which has been recorded in loss (gain)
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 of 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, 2021, an unrealized gain (loss) of $572 [2020 –
$(995)] was recorded in gain (loss) on financial instruments in other operating expense
(income). As at December 31, 2021, the fair value of the interest rate swap was $(199)
[2020 – $(771)].
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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 open interest rate swap contracts as at December 31, 2021 are as follows, for which
no hedge accounting is applied:
Maturity date
Contract rate
%
Canadian dollar contracts
May 2022
4.1%
Notional
amount
$
40,000
Fair value
$
(199)
The open interest rate swap contracts as at December 31, 2020 are as follows:
Maturity date
Contract rate
%
Canadian dollar contracts
May 2022
3.6 – 4.1
Notional
amount
$
40,000
Fair value
$
(771)
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, 2021, the equity swap agreement covered 722,000 common shares
of the Company at a price of $38.76, and the agreement matures on May 7, 2024.
During the year ended December 31, 2021, an unrealized gain (loss) of $1,350 [2020
– $(12,007)] was recorded in gain (loss) on financial instruments in other operating
expense (income). As at December 31, 2021, the fair value of the equity swap was
$(5,036) [2020 – $(6,386)].
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 of
issuance, the Company’s redemption option resulted in an embedded derivative with a
fair value of $754. During the year ended December 31, 2021, a gain (loss) of $274 [2020
– $(754)] was recorded in gain (loss) on financial instruments in other operating expense
(income). As at December 31, 2021, the fair value of the embedded derivative was $274
[2020 – nil].
Credit risk
Credit risk is the risk that a customer will fail to perform an obligation or fail to pay
amounts due, causing a financial loss. A substantial portion of AGI’s accounts receivable
is with customers in the agriculture industry and is subject to normal industry credit
risks. A portion of the Company’s sales and related accounts receivable are also
generated from transactions with customers in overseas markets, several of which are
in emerging markets such as countries in Eastern Europe and Asia. It is often common
business practice for international customers to pay invoices over an extended period
of time. Accounts receivable are subject to credit risk exposure and the carrying
values reflect management’s assessment of the associated maximum exposure to
such credit risk. The Company regularly monitors customers for changes in credit risk.
The Company’s credit exposure is mitigated through the use of credit practices that
limit transactions according to the customer’s credit quality and due to the accounts
receivable being spread over a large number of customers. Trade receivables from
international customers are often insured for events of non-payment through third-party
export insurance 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.
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 its counterparties. The Company only enters into agreements with major
financial institutions that meet or exceed its minimal credit rating requirements, and the
Company regularly monitors for changes in the credit risk of our counter parties.
In addition, with regard to the conflict between Russia and Ukraine subsequent to the
year ended December 31, 2021, management assessed that any negative impacts would
not be material.
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, 2021 and 2020:
December 31, 2021
Total
$
2022
$
2023
$
2024
$
2025
$
2026+
$
Accounts payable and accrued
liabilities
Dividends payable
Due to vendor
Optionally convertible redeemable
preferred shares
195,646
195,646
2,819
6,836
2,819
5,269
–
–
–
–
–
–
667
500
400
11,690
11,690
–
–
–
–
–
–
–
Lease liability
Term debt
27,098
437,294
6,155
552
4,412
3,537
3,273
9,721
461
430
403,536
32,315
Convertible unsecured
subordinated debentures
[includes interest]
Senior unsecured subordinated
debentures [includes interest]
205,131
90,131
–
–
–
115,000
316,555
13,648
13,648
186,148
13,648
89,463
Total financial liability payments
1,203,069
325,910
19,188
190,615
420,857
246,499
December 31, 2020
Total
$
2021
$
2022
$
2023
$
2024
$
2025+
$
Accounts payable and accrued
liabilities
Dividends payable
Due to vendor
Optionally convertible redeemable
preferred shares
139,098
139,098
2,808
9,411
2,808
7,164
–
–
–
–
–
–
–
–
1,463
334
250
200
30,520
18,312
12,208
–
–
–
Lease liability
Term debt
20,507
3,848
3,286
2,400
2,056
8,917
412,498
502
357
266
235
411,138
Convertible unsecured
subordinated debentures
[includes interest]
Senior unsecured subordinated
debentures [includes interest]
186,511
8,064
178,447
–
–
–
321,017
13,648
13,648
13,648
186,148
93,925
Total financial liability payments
1,122,370
193,444
209,409
16,648
188,689
514,180
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2021 ANNUAL REPORT [b] Fair value
The following methods and assumptions were used to estimate the fair values:
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:
• Cash and cash equivalents, 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.
December 31, 2021
December 31, 2020
Carrying
amount
$
Level
Fair value
$
Carrying
amount
$
Fair value
$
• The fair value of unquoted instruments and loans from banks is estimated by
discounting future cash flows using rates currently available for debt on similar terms,
credit risk and remaining maturities.
• The Company enters into derivative financial instruments with financial institutions
with investment-grade credit ratings. Derivatives include interest rate swaps and
equity swaps that are marked-to-market at each reporting period. The fair values of
derivatives are determined by the derivative counterparty using a discounted cash
flow technique, which incorporates various inputs including the related interest rate
swap curves and/or the Company's stock price for the equity swaps.
• The fair value of contingent consideration and the optionally convertible redeemable
preferred shares [“OCRPS”] arising from business combinations is estimated by
discounting future cash flows based on the probability of meeting set performance
targets.
Reconciliation of recurring fair value measurements categorized within Level 3 of the fair
value hierarchy:
Financial assets
Amortized cost:
Cash and cash equivalents
Restricted cash
Accounts receivable
Notes receivable
Financial liabilities
Amortized cost:
Interest-bearing loans and
borrowings
Accounts payable and
accrued liabilities
Dividends payable
Due to vendor
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
2
2
3
61,307
2,424
61,307
2,424
62,456
9,616
62,456
9,616
206,271
206,271
176,316
176,316
5,792
5,792
5,932
5,932
434,541
431,299
409,373
405,907
195,646
195,646
139,098
139,098
2,819
6,836
2,819
6,836
2,808
9,411
2,808
9,411
179,533
188,967
167,319
171,366
250,872
252,075
249,079
253,498
Contingent consideration and OCRPS:
Balance, beginning of year
Fair value change
Reclassification to due to vendor
Payments
Exchange differences
5,373
11,690
5,373
11,690
7,157
7,157
28,971
28,971
Balance, end of year
2021
$
2020
$
28,971
1,289
–
(17,505)
(1,065)
11,690
31,590
3,872
(5,270)
–
(1,221)
28,971
During the reporting years ended December 31, 2021 and December 31, 2020, 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.
Set out below are the significant unobservable inputs to valuation as at December 31,
2021:
31
CAPITAL DISCLOSURE AND MANAGEMENT
Valuation
technique
Significant
unobservable
inputs
Range
Sensitivity
of the input
to fair value
OCRPS
Discounted
cash flow
method
• Probability
of achieving
earnings target
0%–100%
achievement
• Weighted average
cost of capital
[“WACC”]
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.
Level 2
Fair value measurements that require inputs other than quoted prices in Level 1, and for
which all inputs that have a significant effect on the recorded fair value are observable,
either directly or indirectly, are classified as Level 2 in the FV hierarchy.
Level 3
Fair value measurements that require unobservable market data or use statistical
techniques to derive forward curves from observable market data and unobservable
inputs are classified as Level 3 in the FV hierarchy.
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, 2021 and December 31, 2020, all
of these covenants were complied with [note 20[c]].
The Board of Directors does not establish quantitative capital structure targets for
management, but rather promotes sustainable and profitable growth. Management
monitors capital using non-GAAP financial metrics, primarily total debt to the trailing
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.
32
RELATED PARTY 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.
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2021 ANNUAL REPORT 34
SUBSEQUENT EVENT
On January 4, 2022, AGI completed the acquisition of 100% of Eastern Fabricators
[“Eastern”]. Eastern specializes in the engineering, design, fabrication, and installation
of high-quality stainless-steel equipment and systems for food processors. Eastern
operates three facilities in Canada, with two in Prince Edward Island and one in Ontario.
Eastern’s market-leading products, services, manufacturing capacity and customer
relationships will provide strong revenue synergies as Eastern is integrated into AGI’s
Food platform.
Consideration for the transaction includes an upfront purchase price of $29.25 million
paid upon closing plus the potential for an additional $15.75 million in earn-outs based
on the achievement of financial targets in future years.
The transaction was funded primarily through AGI’s senior debt facilities.
Management is in the process of calculating the purchase price allocation and
identifying the fair value measurement of the assets acquired and liabilities assumed,
both of which are expected to be completed no later than one year from the acquisition
date.
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, 2021, the total cost of these legal services related to general matters was
$1,029 [2020 – $989], and $451 is included in accounts payable and accrued liabilities
and provisions as at December 31, 2021.
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
Total compensation paid to key management personnel
33
COMMITMENTS AND CONTINGENCIES
2021
$
140
213
10,146
2,087
12,586
2020
$
109
148
4,253
8,854
13,364
[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 $3,204 [2020 – $5,673].
[b] Letters of credit
As at December 31, 2021, the Company has outstanding letters of credit in the amount of
$21,066 [2020 – $23,421].
[c] Legal actions
The Company is involved in various legal matters arising in the ordinary course of
business. Except as otherwise disclosed in these consolidated 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.
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2021 ANNUAL REPORT 1 0 9
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2021 ANNUAL REPORT AGGROW TH.COM
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