DEAR FELLOW SHAREHOLDERS, CUSTOMERS, DEALERS AND EMPLOYEES:
Modern agriculture continues to evolve. Enhanced with promising technology, farming is becoming more innovative, more precise, and more productive.
At AGCO, our farm-centric mindset is focused on delivering smart, efficient, and sustainable agricultural equipment. Through our digital solutions, we strive to ensure our customers’ operations are optimized, coordinated, and connected throughout all stages of the crop cycle. Improvements start with field preparation, then planting, and continue all the way through harvesting, grain storage and handling, as well as animal protein production.
Our farmer-first approach delivered strong results in 2019. Despite difficult market conditions driven by low commodity prices, unfavorable growing conditions, and a lingering trade dispute, our results showed promising improvements in a number of key areas. Our achievements are the direct result of the relentless effort of our over 20,000 employees and our dealer partners. We did it by focusing on our customers, striving for excellence, and acting with integrity. We strengthened our position in key global markets through the successful launch of new products and a strong focus on customer service.
In the midst of challenging industry conditions, AGCO produced solid financial results while making important investments to position us for future success. AGCO reported 2019 net sales of approximately $9.0 billion, a decrease of approximately 3.3% compared to 2018. Reported net income per share was $1.63 and adjusted net income per share was $4.44,* an increase of approximately 14% from the previous year. We generated approximately $423 million in free cash flow* after funding significant investments in new products and other long-term profitability improvement initiatives. Our free cash flow largely was used to support share repurchases and dividend payments in 2019.
Delivering Customer Value
By focusing on delivering smart, efficient and sustainable agricultural equipment, we believe that we can grow profitably and improve our return on invested capital through margin expansion. Our strategic initiatives have two major themes: delivering greater value for our customers and improving operating efficiency. Delivering customer value comes from our smart-farming solutions, including Fendt globalization, moving towards a full-line offering in all markets, and expanding our high-margin parts business. Dealer development in both AGCO’s established markets and emerging regions also will contribute to our growth.
We are equally engaged in becoming more efficient. We’ve done a lot of work over the years to make ourselves a leaner company through investments in factory automation as well as improved systems and processes throughout the company. A key ongoing initiative addresses product complexity reduction and platform consolidation, which supports efficient engineering and increased purchasing scale.
Designing Sustainable Agriculture Solutions
AGCO is focusing our product development efforts on making agriculture more efficient, more profitable, and, at the same time, more sustainable. Our goal is to contribute to healthy and affordable nutrition for all people, while caring for our environment. Helping farmers grow crops more efficiently with lower inputs and higher yields is core to our purpose. Around the globe, we design smart solutions for real-world production challenges.
As standards of living rise worldwide, driving demand for animal protein, so do concerns about animal welfare. AGCO is engineering solutions to help producers care for their animals while also improving efficiency and profitability. AGCO’s innovations include technology that makes it easier to maintain a healthy and comfortable environment, equipment that ensures proper nutrition, and tools to address bio-security concerns. Our smart protein solutions of the future will use sensors to monitor behavior, activities and physical characteristics, so the producer can make better decisions based on their animals’ individual needs.
“AGCO is focusing our product development efforts on making agriculture more efficient, more profitable, and, at the same time, more sustainable.”
Expanding Our Capabilities
We are continuing to invest in AGCO’s digital capabilities so that we can deliver more power to our customers. Last year, I introduced you to AGCO’s Digital Customer Experience initiative. Once complete, it will deliver customer and dealer portals that provide engaging experiences for our customers and enhanced analytic capabilities for dealers and for AGCO. The online tool will enable our customers to configure, price and quote both new equipment and parts and to interact with us seamlessly. Our customer relationship management tools will allow our dealers to identify which customers are the best fit for our solutions and help direct targeted marketing efforts towards those customers.
I also want to mention the role the Fendt brand has in our smart machine effort. Fendt always has had a well-deserved reputation as the premier tractor brand, and we have the awards to prove it. Over the last few years we’ve been working on a two-dimensional growth effort to make Fendt a full-line global brand. The first dimension is expanding the Fendt portfolio to cover the entire crop cycle, providing a full-line of solutions to our customers. We’ve added hay equipment, sprayers, and harvesters, each of which we believe matches Fendt’s long-standing reputation. This expansion significantly increases Fendt’s growth opportunity in its core market of Europe. The second dimension is taking the Fendt products to the rest of the world. We’ve redesigned the Fendt tractor range with the flexibility to adjust to the differing farming practices across the globe, while continuing to be a perfect fit for the European market. We are very excited about Fendt’s future!
Investing in Our People and Our Communities
I’d like to close this message with some thoughts on our most important asset: our people. AGCO is investing in attracting and retaining the best people in the business. At the heart of our employee development efforts is a diversity and inclusion initiative we call TRAIT. This initiative embraces AGCO’s core values of Transparency, Respect, Accountability, Integrity, and Team Spirit and is focused on enabling regional diversity and inclusive strategies. The TRAIT program promotes a collaborative culture that supports business success and individual fulfillment.
We are also investing in our communities. Last year, we established the AGCO Agriculture Foundation (AAF), a private foundation committed to food security and sustainable agricultural development. One of AAF’s first projects was the AGCO Agribusiness Qualification Program at Strathmore University Business School in Nairobi, Kenya. I am pleased to tell you that on December 5, 2019, the first class of 20 students graduated from the inaugural two-year program. The students rotated between working commercial farms, agricultural machinery manufacturers and dealers, and more traditional campus settings in Kenya, Zambia, South Africa, and the United States, to obtain a wide variety of experiential and classroom-learning opportunities. Helping to build the agribusiness talent pool in Africa is a key part of AGCO’s commitment to corporate social responsibility and sustainability to assist in the achievement of food security on the continent.
As I reflect on the past year, I’m proud of our progress and impact. And I’m even more optimistic about our opportunities ahead. I would like to thank our customers, employees, dealers and shareholders for their support and commitment. We are well-positioned to leverage our considerable strengths and take advantage of the favorable long-term industry fundamentals in order to create meaningful shareholder value. Thank you for your confidence in AGCO. We look forward to rewarding you for your continued support in the years ahead.
and Chief Executive Officer
* See reconciliations of non-GAAP measures on page 4 of the AGCO 2019 Annual Report PDF.