Ag Growth International : AGI MDA and FS 2023 Q4

AG GROWTH INTERNATIONAL INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Dated: March 5, 2024

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, 2023. Results are reported in Canadian dollars unless otherwise state.

This MD&A is based on the Company's audited consolidated comparative financial statements for the year ended December 31, 2023 ("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 makes reference to certain specified financial measures, including non-IFRS financial measures, non-IFRS ratios and supplementary financial measures. 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. Please refer to the "NON-IFRS AND OTHER FINANCIAL MEASURES" section of this MD&A for more information on each specified financial measure.

This MD&A contains forward-looking information. Please refer to the cautionary language under the headings "Risks and Uncertainties", "Forward-Looking Information" and "Financial Outlook" in this MD&A and in our most recently filed Annual Information Form, all of which is available under the Company's profile on SEDAR+ [www.sedarplus.ca].

SUMMARY OF RESULTS

Three-months ended December 31

	[thousands of dollars except per share
		2023		2022		Change		Change
	amounts, percentages and basis points
	("bps")]		$		$		$		%
	Revenue [1]	379,317		374,034		5,283		1%
	Adjusted EBITDA [2][3]	73,076		50,997		22,079		43%
	Adjusted EBITDA Margin % [4]	19.3%		13.6%		563 bps	41%
	Profit (loss) before income taxes	10,529		(76,526)		87,055		N/A
	Profit (loss)	11,378		(67,811)		79,189		N/A
	Diluted profit (loss) per share	0.58		(3.59)		4.17		N/A
	Adjusted profit [2][5]	36,591		18,581		18,010		97%
	Diluted adjusted profit per share [4][5]	1.70		0.92		0.78		85%

Year ended December 31

	[thousands of dollars except per share
		2023		2022		Change		Change
	amounts, percentages and basis
	points ("bps")]		$		$		$		%
	Revenue [1]	1,526,669	1,458,082		68,587		5%
	Adjusted EBITDA [2][3]	293,894	234,683		59,211		25%
	Adjusted EBITDA Margin % [4]	19.3%	16.1%		316 bps	20%
	Profit (loss) before income taxes	86,067	(45,313)		131,380		N/A
	Profit (loss)	68,889	(50,583)		119,472		N/A
	Diluted profit (loss) per share	3.44	(2.68)		6.12		N/A
	Adjusted profit [2][5]	125,574	75,781		49,793		66%
	Diluted adjusted profit per share [4][5]	5.91	3.74		2.17		58%

1. See "BASIS OF PRESENTATION".
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. See "DETAILED OPERATING RESULTS - Profit (loss) before income taxes and Adjusted EBITDA".
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.
5. See "DETAILED OPERATING RESULTS - Diluted profit per share and diluted adjusted profit per share".

Consolidated Operating Segment Results Summary

		Three-months ended December 31
	2023	2022	Change	Change
[thousands of dollars except
percentages]	$	$	$	%
Revenue [1][2]
Farm	188,855	180,985	7,870	4%
Commercial	190,462	193,049	(2,587)	(1%)
Total	379,317	374,034	5,283	1%
			Year ended December 31
	2023	2022	Change	Change
[thousands of dollars except
percentages]	$	$	$	%
Revenue [1][2]
Farm	831,951	778,088	53,863	7%
Commercial	694,718	679,994	14,724	2%
Total	1,526,669	1,458,082	68,587	5%

1. See "BASIS OF PRESENTATION".
2. The revenue information in this table 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.

2

		Three-months ended December 31
	2023	2022	Change	Change
[thousands of dollars except
percentages]	$	$	$	%
Adjusted EBITDA [1] [2] [3]
Farm	46,694	32,482	14,212	44%
Commercial	35,870	30,658	5,212	17%
Other [4]	(9,488)	(12,143)	2,655	N/A
Total	73,076	50,997	22,079	43%
			Year ended December 31
	2023	2022	Change	Change
[thousands of dollars except
percentages]	$	$	$	%
Adjusted EBITDA [1] [2] [3]
Farm	217,155	163,118	54,037	33%
Commercial	121,039	106,760	14,279	13%
Other [4]	(44,300)	(35,195)	(9,105)	N/A
Total	293,894	234,683	59,211	25%

1. See "BASIS OF PRESENTATION".
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. See "DETAILED OPERATING RESULTS - Profit (loss) before income taxes and Adjusted EBITDA" and "DETAILED OPERATING RESULTS - Profit (loss) before income taxes and Adjusted EBITDA by Segment".
4. 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.

		Three-months ended December 31
	2023	2022	Change	Change
	%	%	basis points	%
Adjusted EBITDA Margin % [1] [2]
Farm	24.7%	17.9%	678 bps	38%
Commercial	18.8%	15.9%	295 bps	19%
Other [3]	(2.5%)	(3.2%)	75 bps	N/A
Consolidated	19.3%	13.6%	563 bps	41%
			Year ended December 31
	2023	2022	Change	Change
	%	%	basis points	%
Adjusted EBITDA Margin % [1] [2]
Farm	26.1%	21.0%	514 bps	25%
Commercial	17.4%	15.7%	172 bps	11%
Other [3]	(2.9%)	(2.4%)	(49) bps	N/A
Consolidated	19.3%	16.1%	316 bps	20%

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1. See "BASIS OF PRESENTATION".
2. 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.
3. 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. The Adjusted EBITDA Margin % for Other is calculated based on total revenue since it does not generate revenue without the segments.

AGI delivered strong fourth quarter results ("Q4") as significant margin expansion combined with a consistent revenue performance to drive a 43% increase in Adjusted EBITDA year-over-year ("YOY"). Adjusted EBITDA margin % increased 563 basis points ("bps") YOY to 19.3%. Full year 2023 Adjusted EBITDA increased 25% with an Adjusted EBITDA margin % increase of 316 bps, also to 19.3%, and above our stated guidance of at least 18.5%. The continued contributions from our operational excellence initiatives and a favorable sales mix in our Farm segment combined to drive a strong margin result in 2023. Adjusted Gross margins benefited from the implementation of centralized procurement strategies, enhanced revenue management, upgraded manufacturing processes, and reduced warranty costs through improved product quality standards. In addition, we continue to focus on streamlining selling, general, and administrative ("SG&A") expenses through the implementation of more consistent cost control protocols across the organization. The combination of ongoing demand for AGI's products and progress in steadily embedding greater efficiencies throughout all areas of the Company led to a marked increase in margins which we expect to sustain going forward into 2024.

Farm segment revenue and Adjusted EBITDA grew by 4% and 44% YOY, respectively, in Q4. Revenue growth was primarily driven by strong demand in the U.S. market. Adjusted EBITDA margin

• increased 678 bps to 24.7% YOY, in Q4, benefiting from manufacturing efficiency initiatives, a revenue mix weighted towards higher margin portable grain handling equipment, and the impact of the Digital reorganization efforts completed throughout 2023. Looking ahead, the overall Farm order book1 continues to trend higher YOY. This was driven mostly by Canada where we are seeing sustained levels of high demand for portable equipment and an encouraging uptick in orders for permanent handling and storage solutions.

Commercial segment revenue and Adjusted EBITDA decreased 1% and increased 17% YOY, respectively, in Q4. Strong revenue growth in the Asia Pacific region ("APAC") was underpinned by continued success of our operations in India. This was offset by areas with challenging year-over-year comparable results, particularly Canada, and areas undergoing turnaround efforts, particularly our Food platform. Similar to the Farm segment, the Company's operational excellence initiatives, including effective management of manufacturing expenses, contributed to the full year Adjusted EBITDA margin

• increase to 17.4% from 15.7% YOY. Looking ahead, the overall Commercial segment order book increased notably YOY, anchored by a significant conversion of quoting activity to secured orders within our International regions, specifically the Europe, Middle East and Africa regions ("EMEA"). Given the project-based nature of our Commercial segment orders, we anticipate the timing and acceleration in Commercial results to be most pronounced in the second half of 2024.

Our success in implementing margin expanding operational excellence initiatives across the Company enables AGI to enter 2024 with a favourable outlook. In combination with an all-time record order book,

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.

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we anticipate full year 2024 Adjusted EBITDA to be at least $310 million2. Given the project-based nature of our strengthening Commercial segment order book and the timing of these orders, we anticipate a gradual ramp-up of our 2024 results, gathering momentum as the year progresses. This guidance represents yet another year of strong growth and highlights the benefits of our diversified and resilient business model, in addition to the ongoing demand for our products which are critical to the proper functioning of the global food supply chain.

BASIS OF PRESENTATION

On December 29, 2022, the Company announced that it would be reorganizing its Digital business to better reflect changes in its operations and management structure. As a result of this change, the Company has identified its reportable segments as Farm and Commercial, each of which are supported by the corporate office. The previously identified Digital segment is now included within the Farm segment, and the Food platform which was a sub-segment of the Commercial segment is now amalgamated into the Commercial segment. These segments are strategic business units that offer specific products and services to their respective markets. Certain corporate overheads are allocated to each segment 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.

During the year ended December 31, 2023, AGI replaced the term "sales" with "revenue"; however there has been no change to the underlying calculation. Revenue is the sale of goods primarily recognized at a point in time when the Company satisfies a performance obligation and control of the goods is transferred from AGI to its customer. 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. Additionally, we have simplified the disclosure on revenue to Canada, U.S., and International; removing further regional breakdown. Financial information for the comparative period has been restated to reflect the new presentation.

Description of Business Segments

Farm Segment

AGI's Farm segment focuses on the needs of on-farm customers, and its product offerings include: grain, seed, and fertilizer handling equipment; aeration products; grain and fuel storage solutions; and grain management technologies (see "BASIS OF PRESENTATION").

Commercial Segment

AGI's Commercial segment focuses on commercial entities such as port facility operators, food processors and elevators. Its product offerings include: larger diameter grain storage bins and high- capacity grain handling equipment; high-capacity seed and fertilizer storage and handling systems; food and feed handling storage and processing equipment; aeration products; automated blending

2 See "BASIS OF PRESENTATION", "RISKS AND UNCERTAINTIES", "FORWARD-LOOKING INFORMATION", "FINANCIAL OUTLOOK" and "NON-IFRS AND OTHER FINANCIAL MEASURES.

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systems and control systems; and project management services and food engineering solutions (see

"BASIS OF PRESENTATION").

OPERATING RESULTS and OUTLOOK 3

Revenue by Geography 4

Three-months ended December 31

	[thousands of dollars except		2023	2022	Change	Change
	percentages]		$	$	$	%
	Canada	76,678	87,725	(11,047)	(13%)
	U.S.	155,190	141,676	13,514	10%
	International	147,449	144,633	2,816	2%
	Total Revenue	379,317	374,034	5,283	1%
						Year ended December 31
	[thousands of dollars except		2023	2022	Change	Change
	percentages]		$	$	$	%
	Canada	352,454	333,353	19,101	6%
	U.S.	661,447	649,905	11,542	2%
	International	512,768	474,824	37,944	8%
	Total Revenue	1,526,669	1,458,082	68,587	5%
Revenue by Segment and Geography 5
Farm Segment
					Three-months ended December 31
	[thousands of dollars except			2023	2022	Change	Change
	percentages]			$	$	$	%
	Canada	60,044	64,098	(4,054)	(6%)
	U.S.	98,610	85,739	12,871	15%
	International	30,201	31,148	(947)	(3%)
	Total Revenue	188,855	180,985	7,870	4%

1. See "BASIS OF PRESENTATION", "RISKS AND UNCERTAINTIES", "FORWARD-LOOKING INFORMATION" and "FINANCIAL OUTLOOK".
2. The revenue 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.
3. The revenue 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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Year ended December 31

	[thousands of dollars except	2023	2022	Change	Change
	percentages]	$	$	$	%
	Canada	275,758	240,850	34,908	14%
	U.S.	437,530	413,450	24,080	6%
	International	118,663	123,788	(5,125)	(4%)
	Total Revenue	831,951	778,088	53,863	7%
Commercial Segment
				Three-months ended December 31
	[thousands of dollars except		2023	2022	Change	Change
	percentages]		$	$	$	%
	Canada	16,634	23,627	(6,993)	(30%)
	U.S.	56,580	55,937	643	1%
	International	117,248	113,485	3,763	3%
	Total Revenue	190,462	193,049	(2,587)	(1%)
					Year ended December 31
	[thousands of dollars except	2023	2022	Change	Change
	percentages]	$	$	$	%
	Canada	76,696	92,503	(15,807)	(17%)
	U.S.	223,917	236,455	(12,538)	(5%)
	International	394,105	351,036	43,069	12%
	Total Revenue	694,718	679,994	14,724	2%

The following table presents YOY changes in the Company's order book[1] as at December 31, 2023:

As at December 31, 2023

			2023		2022		Change		Change
	[thousands of dollars except
	percentages]		$		$		$		%
	Order book	747,330	596,956		150,374	25%

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.

Farm Segment

Farm segment's financial performance by separate geographic region is detailed below. For a summary of Farm segment's performance overall, please see page [4].

Canada

Canada Farm segment revenue decreased 6% YOY in Q4. The decrease is in part due to a very strong Q4 2022 comparable period as well as the generally drier conditions throughout the 2023 harvest

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season which reduced demand for grain drying products. The Canada Farm order book continues to benefit from significant demand for portable grain handling equipment, setting up Canada Farm for a strong first half of 2024.

United States

U.S. Farm segment revenue increased 15% YOY in Q4. The increase was driven by significant dealer interest in the Company's early order program, particularly for portable grain handling equipment. The U.S. Farm order book decreased YOY primarily due to the timing of order shipments. However, the usual cadence of dealer inventory replenishment is expected to provide momentum to the U.S. Farm business as we progress through 2024.

International

International Farm segment revenue decreased 3% YOY in Q4 with a strong contribution from South America offset by some weakness in the EMEA and Asia Pacific regions. In South America, we continue to see healthy demand for our products, despite challenging market conditions expected to continue into early 2024. Additionally, the recent introduction of new financing options available to Farm-level customers in Brazil is expected to provide some demand support.

Commercial Segment

Commercial segment's financial performance by separate geographic region is detailed below. For a summary of Commercial segment's performance overall, please see page [4-5].

Canada

Canada Commercial segment revenue decreased 30% YOY in Q4. Record revenue in Q4 2022, as noted by a revenue increase YOY of 122% compared to Q4 2021, resulted in a weaker comparable period for Q4 2023. Encouragingly, we are seeing increasing quoting and pipeline activity in areas that have faced challenges in recent years, particularly for oil seed processing and fertilizer equipment solutions.

United States

U.S. Commercial segment revenue increased 1% YOY in Q4. Consistent with last quarter, demand for permanent grain handling and storage equipment solutions remains stable, with some additional support by an increase in demand for Fertilizer. This increase in revenue was partially offset by a reduction in the Food platform business which continues to progress through the final phases of reorganization. While the overall order book for U.S. Commercial is consistent YOY, the Food order book within the broader overall order book is beginning to build, a clear sign that our reorganization efforts are taking hold.

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International

International Commercial segment revenue increased 3% YOY in Q4, with notable strength in APAC results contributing to the growth. Within the Asia Pacific region, India continues to deliver solid quarterly results with revenue increasing 29% YOY in Q4. We will continue to maintain our focus on expanding the Company's product portfolio to this region. In 2024, we expect to launch new storage and material handling product lines to capture strong demand for this type of equipment in the region. South America Commercial segment revenue decreased slightly YOY in Q4 as challenged conditions in Brazil persist, offset by favourable results in the broader Latin America ("LATAM") region. EMEA Commercial segment revenue decreased in the quarter owing to project-specific timing. Significant Commercial project wins in EMEA led the overall growth of the International order book for Commercial. The EMEA region continues to secure meaningful long-term project work from emerging geographies and compelling macro-level growth trends, reflecting success in our strategic planning and execution.

Summary

Our record revenue and Adjusted EBITDA performance in 2023 continues to demonstrate the strength of our balanced and diversified business strategy. This strategy enables AGI to capitalize on demand from a wide variety of products, regions, and customers while also navigating some of the challenges caused by regional conflicts and climate-related impacts. In addition to our revenue and business mix diversification strategies, we have layered-in significant operational excellence initiatives to help strengthen margins across AGI, adding a critical operating lever that further strengthens our ability to consistently deliver profitable growth. With a favourable outlook across AGI, we anticipate full year 2024 Adjusted EBITDA to be at least $310 million6.

6 See "BASIS OF PRESENTATION", "RISKS AND UNCERTAINTIES", "FORWARD-LOOKING INFORMATION", "FINANCIAL OUTLOOK" and "NON-IFRS AND OTHER FINANCIAL MEASURES.

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DETAILED OPERATING RESULTS

			Three-months ended	Year ended December
				December 31		31
	[thousands of dollars except per share		2023	2022	2023	2022
	amounts]		$	$	$	$
	Revenue [1]	379,317	374,034	1,526,669	1,458,082
	Cost of goods sold
	Cost of inventories	248,209	255,560	989,085	985,073
	Equipment rework [2]	3,000	6,100	7,900	6,100
	Remediation [2]	600	-	16,208	-
	Depreciation and amortization	9,155	11,383	34,348	46,310
			260,964	273,043	1,047,541	1,037,483
	Selling, general and administrative expenses
	Selling, general & administrative expenses [3]	63,291	74,399	266,908	263,604
	Mergers and acquisitions expense (recovery) [4]	-	(25)	50	(144)
	Transaction, transitional and other costs [5]	10,975	15,395	27,124	44,301
	Enterprise Resource Planning ("ERP") system
	transformation costs [6]	14,001	-	14,001	-
	Accounts receivable reserve for RUK	(82)	-	1,651	-
	Depreciation and amortization	7,087	7,641	30,968	30,635
			95,272	97,410	340,702	338,396
	Other operating expense (income)
	Net loss (gain) on disposal of property, plant
	and equipment [7]	493	(12)	768	340
	Net gain on sale of assets held for sale [8]	(339)	-	(314)	-
	Net loss (gain) on financial instruments [9]	1,117	(8,211)	(5,369)	(9,629)
	Other	(2,367)	(1,914)	(10,663)	(8,722)
			(1,096)	(10,137)	(15,578)	(18,011)
	Finance costs	18,296	17,197	73,667	61,067
	Finance expense (income)	(4,786)	(2,309)	(7,967)	8,614
	Impairment charge [10]	138	75,356	2,237	75,846
	Profit (loss) before income taxes	10,529	(76,526)	86,067	(45,313)
	Income tax expense (recovery)	(849)	(8,715)	17,178	5,270
	Profit (loss) for the year	11,378	(67,811)	68,889	(50,583)
	Profit (loss) per share
	Basic	0.60	(3.59)	3.63	(2.68)
	Diluted	0.58	(3.59)	3.44	(2.68)

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