A message from
Chairman, President and Chief Executive Officer
“Despite challenging economic and market conditions, 2015 was a successful year for AGCO, and our long-term outlook for our industry and our Company remains very bright.”
AGCO is dedicated to providing high-tech solutions for professional farmers feeding the world. Our innovative products help provide food for a large and growing global population. Increasing per capita incomes in emerging and developing markets are also providing more people with the means to improve and diversify their diets. Feeding our more complex world will require important innovations, providing tremendous opportunities for AGCO. Whether it’s designing products and technologies to make farmers more productive or expanding into developing agricultural markets, AGCO is ready to take on the challenges in our exciting future.
In 2015, near-record crop production for a third consecutive year contributed to higher grain inventories. This put additional pressure on commodity prices and farm profitability, thereby dampening demand in our industry. We worked aggressively to better align our costs and working capital with the softer market environment. In the midst of these challenging conditions, AGCO continued to manage for the long-term, positioning our business to be successful throughout the cycle.
Lower farmer income weakened demand for farm equipment across the major markets during 2015. Industry retail sales of large farm equipment declined significantly, particularly in North and South America. We responded by cutting production and closely managing our Company and dealer inventories. These focused efforts resulted in year-end inventories $130 million below 2014 levels on a constant currency basis. We also recorded solid sales and earnings results in the midst of the difficult demand environment. AGCO’s 2015 net sales were $7.5 billion, approximately 23 percent below 2014 levels. Adjusted net income for 2015 was $3.24 per share, excluding restructuring and other infrequent expenses of $0.18 per share. Our financial discipline supported the generation of over $300 million in free cash flow after funding significant investments in new products and other long-term growth and profitability improvement initiatives.
As we focus on healthy returns for our shareholders, we expect to make cash returns an important component of our long-term capital allocation plan. Our free cash flow was largely used to support share repurchases of approximately $288 million in 2015. Our plans call for the remaining authorization of approximately $212 million to be completed during 2016.
“ We are making significant investments in product development as a key to our sales growth and margin improvement ambitions.”
Focus on products and technology
We are making significant investments in product development as a key to our sales growth and margin improvement ambitions. Through our product plans, AGCO has significant opportunities to grow market share,reduce costs and create new revenue sources. The success of our product development investments can be seen through the numerous awards AGCO’s equipment received globally during 2015. At Agritechnica in Germany, our extensive list of awards included three Tractor of the Year awards. Our Fendt 1050 Vario, which delivers over 500 horsepower on a conventional chassis, the Massey Ferguson MF 5713 SL, with its revolutionary All in One Selective Catalytic Reduction emissions control system, and our Valtra N 174 V, recognized for its modern and compact design, were all award winners. At the Agrishow in Brazil, the Massey Ferguson MF 6700R Dyna-4 received Tractor of the Year recognition. Lastly, in North America, the Gleaner S8 Super Series combines received an AE50 Outstanding Innovations Award from the American Society of Agricultural and Biological Engineers for its improved grain handling performance.
Farmers are increasing their reliance on precision farming technology to improve their operations. To meet this demand, AGCO is growing its investment in our Fuse® precision farming technology. Fuse is AGCO’s approach to precision agriculture that optimizes the farm, providing improved access to farm data and better connections to trusted service providers. These improvements allow farmers to make more informed business decisions, reduce input costs and improve yields and profitability. The two key components of our Fuse program are Fuse Technologies and Fuse® Connected Services. Fuse Technologies is the portfolio of technology tools that is the foundation of the optimized farm. AGCO’s precision farming products support farmers throughout every phase of the crop cycle. Our solutions improve farm productivity and reduce farm waste. Fuse Connected Services combines the right machines, technology, parts, service and support to help farmers optimize their operation and maximize up time through preventative maintenance, machine monitoring and year-round consultation.
Focus on growth
Tremendous opportunity exists for our equipment to help improve yields in emerging agricultural regions around the world including Africa, Brazil and Eastern Europe. We are investing in new products, improved distribution and enhanced dealer service capabilities to capture growth in these areas. In addition, there are growth opportunities outside our tractor business. AGCO is a global leader in tractor sales, and we are working to leverage our strong brands with new and improved harvesting products as well as enhanced distribution capabilities.
Expanding our high-margin GSI business is another key component of our growth strategy. GSI provides grain storage and protein production solutions for our customers. Inefficiencies in crop handling after harvest can be mitigated with our advanced grain storage and handling products. On the protein production side of the business, significant improvements in productivity levels can be achieved through the use of our pork and chicken production equipment, which supports housing, feeding and environmental control. In addition, GSI is adding to its product offerings in both the grain and protein sectors through a combination of product development and acquisitions. GSI’s breadth of products and global footprint make it uniquely positioned to capture this growth on a worldwide basis.
Focus on costs
Our strategy also includes a heavy emphasis on cost savings. AGCO’s spend on raw materials and components is significant, and our ongoing purchasing initiatives are aimed at reducing these costs. Our procurement organization is built around global commodity teams aimed at acquiring specific commodities for all the plants in our network. Commodity-based teams develop better market and product knowledge which, along with global sourcing, helps them make better purchasing decisions, thus lowering costs. In addition, our product development plans are focused on common component solutions to reduce costs. This strategy for new products will allow us to use more standardized parts, reducing manufacturing complexity and improving our scale advantages.
Positive long-term view
Despite challenging economic and market conditions, 2015 was a successful year for AGCO and the long-term outlook for our industry and our Company remains very bright. We thank our employees for their optimism, energy and determination. I am also grateful for our customers, dealers and suppliers and their enduring relationships with us. On behalf of the incredibly hard-working women and men of AGCO, please accept my sincerest gratitude for your investment. We appreciate your trust and confidence; and we are dedicated to delivering on your behalf.
Chairman, President and Chief Executive Officer
Net Sales 2015
Free Cash Flow*
Adjusted Net Income*
*A non-GAAP measure. See page 20 in the "Financial Tables 2015"-PDF, which is available in the "Downloads" section.