Investor Presentation. September 2018

Transcription

1 Investor Presentation September 2018

2 Forward Looking Statements Certain information discussed today constitutes forward-looking statements. Actual results could differ materially from those presented in the forward looking statements as a result of many factors including general economic conditions, weather, competitive conditions in the Company s industries, both in the U.S. and internationally, and additional factors that are described in the Company s publicly-filed documents, including its 34 Act filings and the prospectuses prepared in connection with the Company s offerings. This presentation includes financial information which the Company s independent auditors have not completely reviewed. Although the Company believes that the assumptions upon which the financial information and its forward looking statements are based are reasonable, it can give no assurances that these assumptions will prove to be accurate. This presentation contains non-gaap financial measures. The Company believes adjusted pretax income, EBITDA and adjusted EBITDA provide additional information to investors and others about its operations, allowing an evaluation of underlying operating performance and better period-to-period comparability. Adjusted pretax income, EBITDA and adjusted EBITDA do not and should not be considered as alternatives to net income or income before income taxes as determined by generally accepted accounting principles. Reconciliations of the GAAP to non-gaap measures may be found in the appendix of this presentation. 2

3 Table of Contents Company and Financial Overview 6 Grain Group 14 Ethanol Group 20 Plant Nutrient Group 28 Rail Group Outlook 40 Company Strategy and Goals 41 Appendix 45 3

4 Leadership Team Pat Bowe President & CEO Joined: 2015 Brian Valentine SVP & CFO 2018 (August) Val Blanchett VP, Human Resources 2016 Naran Burchinow SVP, General Counsel 2004 Corey Jorgenson President, Grain 2016 Mike Irmen President, Ethanol 1977 Jeff Blair President, Plant Nutrient 2017 (December) Joe McNeely President, Rail 2017 (December) New to ANDE within the last 3 years 4

5 Brian Valentine Joins ANDE Senior Vice President and Chief Financial Officer Brian Valentine Sr. Vice President and CFO August 1, years of senior management experience, including corporate finance, treasury, public capital markets, accounting, tax and investment management. Served as CFO of Lubrizol Corporation, a Berkshire Hathaway company, since He received his Bachelor s degree in business administration in accounting as well as his MBA from John Carroll University, Cleveland, Ohio. He is a certified public accountant licensed in Ohio. 5

6 The Andersons Founded Listed (NASDAQ) Market Cap 1 Employees U.S. Locations Dividend History , ANDE ~$1.2B ~1,850 ~ Years 5 Year Avg. Adj. EBITDA by Business 3 $48M Grain (23%) $49M Plant Nutrient (24%) $49M Ethanol (24%) $60M Rail (29%) Top 10 U.S. Player in All Four Sectors Diversified Company Rooted in Agriculture Conducting Business Across North America 1 As of 8/31/18. 2 Consecutive years of paying a dividend. 3 Excludes Retail Group (closed in June 2017), which reported 2017 EBITDA of ($6.9M). Ethanol and Grain results exclude ratable portion of IDA adjustments on equity income from affiliates. Non-GAAP measure. See reconciliation tables in Appendix. 6

7 Leveraging Our Solid Foundation CORE STRENGTHS Culture built on strong values and community stewardship Focus on safety and operational efficiency Merchandising, plant operations, logistics and risk management COMPETITIVE DIFFERENTIATORS 70 years of market expertise and ingenuity with unique assets in place to provide customer solutions Well respected history as partner of choice with deep customer relationships Strong market presence in Eastern Corn Belt Strong portfolio and balance sheet to weather industry cycles Solid reputation due to nimble and customized approach Experienced, dedicated leadership focused on profitable growth 7

8 Volume Facilities The Andersons Grain Ethanol Rail Plant Nutrient Purchase, store, handle and merchandize grain Provide value-added risk management and pricing tools to growers Focused in Eastern Corn Belt Growing food ingredients and specialty grains business Refiner of corn into ethanol and coproducts Partnership with Marathon Petroleum; ownership structure mitigates risk Top quartile ethanol production plants Subject to different economic factors than the ag businesses, creating portfolio effect Offsetting cycle value buyers Diversified by car fleet and end markets Growing network of railcar repair facilities Supplier of primary nutrients; strong asset network Manufacturer and distributor of specialty nutrients Diversified product offerings Growing lawn and contract manufacturing fertilizer ~550M Bushels Traded ~475M Gallons ~23,000 Railcar Fleet 2M+ Tons 8

9 Strong Geographic Footprint SK C A N A D A MN WI MI NY CA UT NE IA MO IL IN OH MD TX MS TN AL SC NC Puerto Rico Grain Group Ethanol Group Plant Nutrient Group Rail Group 9

10 Q2 18 Headlines Strongest first half in 5 years driven by value of capacity, volatility, and growth in our Foods segment. Lansing Trade Group is performing well. Plant optimization and better DDG values led to record production; strong E85 sales continued Continued strength in lawn and contract manufacturing and better primary nutrient volume could not offset continued margin pressure in nutrients Higher utilization and more cars on lease; car sale income lower due mainly to loss on scrapping idle railcars; repair business rebounded 10

11 Key Financial Data $ In millions except per share data, long-term debt-to-equity Q2 18 Q2 17 VPY YTD 18 YTD 17 VPY Sales and merchandising revenues $ $ $ (82.3) $ 1,547.1 $1,845.7 $ (298.6) Gross profit (10.1) Operating and general expenses (9.6) (27.0) Equity in earnings of affiliates Income (loss) before income taxes 29.2 (19.1) (24.6) 51.5 Adjusted income before income taxes Net income (loss) attributable to The Andersons, Inc (26.7) (29.7) 49.5 Adjusted net income attributable to The Andersons, Inc Diluted earnings (loss) per share (EPS) 0.76 (0.94) (1.05) 1.75 Adjusted diluted earnings per share (EPS) Depreciation and amortization EBITDA Adjusted EBITDA Effective tax rate 26.6% (40.1%) 66.7% 27.7% (20.8%) 48.5% Corporate unallocated net expenses 1 $ 2.8 $ 10.6 $ (7.8) $ 11.7 $ 25.6 $ (13.9) Long-term debt $ $ $ 81.5 Long-term debt-to-equity ratio Includes net pretax impact of $6.7 for Q2 17 and $13.6 for YTD 17 from the former Retail business segment 11

12 ($000) Pretax Income Q2 17 Adjusted Pretax Income to Q2 18 Reported Pretax Income $35,000 $30,000 $25,000 $2,948 $1,465 ($1,051) $7,826 $29,271 $20,000 $22,999 ($4,916) $15,000 $10,000 $5,000 $0 1,2 2 1 Q2 '17 Adjusted Grain Ethanol Plant Nutrient Rail Other Q2 '18 Reported 1 Excludes net income attributable to the noncontrolling interests of $64 in Q2 17 and $116 in Q Excludes Plant Nutrient Group goodwill impairment charge of $42,000 12

13 ($000) Pretax Income YTD 17 Adjusted Pretax Income to YTD 18 Reported Pretax Income $30,000 $25,000 $7,991 $1,588 $13,963 $27,261 $20,000 ($6,631) $15,000 $17,375 $10,000 ($7,025) $5,000 $0 YTD '17 1,2 Grain Ethanol 2 Plant Nutrient Rail Other 1 YTD '18 Adjusted Reported 1 Excludes net income attributable to the noncontrolling interests of $10 in YTD 17 and $398 in YTD Excludes Plant Nutrient Group goodwill impairment charge of $42,000 13

14 Grain Group Overview Footprint: 32 Grain Facilities Base Grain Merchant & Services C A N A D A Leverages storage and handling capabilities to create value Provides value-added services to farmers, including full suite of bestin-class risk management and pricing tools Affiliate Investments Grain Facility Food Grade Facility 14

15 Grain Group Production Metrics ~550M Bushels ~140M Bushels 1.3M Tons 50-60M Bushels 50M Bushels ~500k Acres Total Grain Traded Total Space Capacity DDG Marketed Risk Management Products Food Grain Supply Crops Insured Champaign, IL Dunkirk, IN Melfort, SK Toledo, OH Top 10 U.S. Grain Merchant 15

16 Grain Group Q2 18 Highlights $41 Adj. Pretax Income ($M) Base Grain results improved on better merchandising results, continued strong income from storage space $14 ($16) $24 $10 Lansing Trade Group again posted much stronger performance 4 1 1, Q1 Q2 Q3 Q4 1 Excludes gains of $17.1 in 2014 and $23.1 in 2015 from partial redemptions of our investment in Lansing Trade Group. 2 Excludes goodwill impairment charges of $ Excludes asset impairment charges of $ Includes asset impairment charge of $1.6. Unaudited in $M Q2 18 Q2 17 VPY YTD 18 YTD 17 VPY Revenues $365.9 $488.4 ($122.5) $642.8 $967.0 ($324.2) Gross Profit $34.7 $30.4 $4.3 $60.8 $54.1 $6.7 Base Grain Pretax Income $4.5 $4.1 $0.4 $2.8 $0.6 $2.2 Affiliates Pretax Income $5.5 $2.8 $2.6 $7.0 $1.3 $5.7 Total Pretax Income $9.9 $6.9 $3.0 $9.8 $1.9 $7.9 EBITDA $17.9 $14.2 $3.7 $24.9 $16.3 $ revenues are $185 lower for the quarter and $349 lower year to date as the result of new accounting rules effective January 1,

17 In millions Millions of Bushels Grain Group Grain Storage Capacity/Adjusted Pretax Income Per Bushel Core Grain Average Storage Capacity Target Range Excess wheat basis appreciation Adj. Pre-tax Income per Bushel Excess Wheat Basis $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 ($0.10) 1 Excludes the impact of goodwill impairment charges of $ Excludes the impact of asset impairment charges of $ Adjusted pretax income per bushel Grain Inventory U.S. Harvested Acres 1 In million Q2 16 Q2 17 Q2 18 Bushels owned Bushels stored for others Total bushels inventory estimate Corn Soybeans Wheat 1 Source: Pro Exporter Network as of 9/10/ projection 17

18 Grain Group Strategic Growth Strengthen Share & Presence in Eastern Corn Belt Drive Income through Trading & Risk Management Solutions Aggressively Grow Food Ingredients & Specialty Grains Drive origination through disciplined processes, talent and leadership, accountability Enhance existing facilities Active pipeline of acquisition targets in Eastern Corn Belt Create value for customers Disciplined approach driven by understanding farm economics to market opportunities Fee structure incents ANDE to help customers secure selling prices above benchmarks Expand portfolio of products Link growers to food manufacturers Identify, pursue and close accretive acquisitions 18

19 Near- and Long-term Goals Grow grain market share by 20M bushels, driving additional gross profit of ~$2M Grow market value-added products from 13% to 14%+ of total gross profit Generate Annual EBITDA of $70M to $75M 15% total trade flow growth, driving additional 40M bushels and ~$4M gross profit (beyond the initial $20M/$2M) Grow market value-added products to ~20% of total gross profit Generate Annual EBITDA of $85M to $95M Executing on Growth Initiatives to Improve Earnings Capacity 19

20 Ethanol Group Overview Strategically Located Ethanol Plants Albion, MI Clymers, IN KS IA OH IN MI Greenville, OH Denison, IA ELEMENT LLC Coming Q Top 10 U.S. Ethanol Producer 20

21 The Andersons and ICM Form ELEMENT, LLC The Andersons and ICM Have a Long History and Are a Formidable Team 21

22 ELEMENT, LLC Project Summary 70 million gallons per year ethanol capacity $175 million joint investment The Andersons will provide grain origination; ethanol, RIN and carbon credit marketing; and risk management and other support services Next Steps and Timeline Construction began March 2018 Initial production expected to commence in Q Facility is expected to be fully operational by December 2019 ICM will provide plant construction, engineering, manufacturing, operations and management services Significantly enhanced margins ($0.10 to $0.25 per gallon) ELEMENT site in Colwich, Kansas, August 31,

23 ELEMENT, LLC Technology Innovations Improved ethanol and corn oil production and yield ICM s technologies will help ELEMENT make these advancements Production of low carbon intensity ethanol, generating carbon credits Production of cellulosic ethanol, generating cellulosic RINs Production of higher value feed products Significant energy usage reduction in both natural gas and electricity 23

24 Ethanol Group Investments Investment The Andersons Albion Ethanol The Andersons Clymers Ethanol The Andersons Marathon Ethanol The Andersons Denison Ethanol Date Capacity (MGY) Ownership Aug % Apr % Feb % May % Key Benefits Stable service fee income Strategic partnership with the largest end user of ethanol in the U.S. Diversified geographic footprint Negotiation leverage to drive production costs lower Technology vetting opportunities Improved benchmarking and market intelligence Production Capacity Attributable to ANDE: ~230MGY 24

25 Ethanol Group Q2 18 Highlights Pretax income up about 30 percent on solid plant execution and better DDG values Group set a quarterly production record and posted continued strong E-85 sales $92 Pretax Income Attributable to The Andersons, Inc. ($M) $29 $25 $19 $ Q1 Q2 Q3 Q4 Unaudited in $M Q2 18 Q2 17 VPY YTD 18 YTD 17 VPY Revenues $200.9 $187.8 $13.1 $373.8 $342.0 $31.8 Equity in Earnings of Affiliates $4.3 $3.5 $0.8 $5.9 $2.9 $3.0 Consolidated Operations and Services Fees $1.7 $1.1 $0.6 $1.7 $3.5 ($1.8) Pretax Income $6.0 $4.6 $1.4 $7.6 $6.4 $1.2 Attributable to Noncontrolling Interest ($0.1) ($0.1) $ - ($0.4) $ - ($0.4) Pretax Income Attributable to The Andersons, Inc. $6.1 $4.7 $1.4 $8.0 $6.4 $1.6 25

26 Ethanol Group Strategic Growth Fine-tune Plant Productivity and Efficiency Develop Higher Value Coproducts Increase Gallons Under Management Employ technology to efficiently produce ethanol and high value coproducts Run facilities to maximize margin per bushel Manage risk with unique collection of cross-industry expertise Develop higher-protein DDGs Produce cellulosic ethanol from corn kernel fiber Grow E85 volume by 20 percent per year Double current corn oil product value by refining to food-grade quality Continue disciplined and strategic approach to footprint expansion Invest in targets that meet specific technology, feedstock, coproduct value and demand criteria 26

27 Near- and Long-term Goals Lower controllable costs by $0.01/gallon Add high-protein DDGs production at 1 to 2 plants Increase gallons under management from ~475M to 550M+ Product cellulosic ethanol from corn kernel fiber Add high-protein DDGs production at all plants Increase gallons under management to 660M+ Executing on Growth Initiatives to Improve Earnings Capacity 27

28 Plant Nutrient Group Overview Plant Nutrient Foundation with a Valueadded Focus Natural adjacency to the Grain business, leveraging grower relationships and intelligence and a drive to bring growers value sustainability Founded in wholesale distribution of basic row crop fertilizer (NPK) Significant expansion of specialty nutrient capabilities Creates value for Farmers and Shareholders Delivers sustainable and precision agriculture solutions Specialty nutrients helps maximize yields and minimize environmental impact Improves economics for growers NE MN WI MI IA IL OH IN Wholesale Fertilizer Facility AL NC Farm Center Facility Lawn Facility Cob Facility Puerto Rico 28

29 Plant Nutrient Group Background Tons Sold (000s) 2 2.2M tons sold is about 4.5% of total ~50M ton fertilizer market Our market share is 15% to 18% 1 in our core areas Maintaining our market share Volumes steady, lower margins Wholesale entitlement radius 100 miles, retail 30 miles Q2 '16 Q2 '17 Q2 '18 Primary Nutrients Specialty Nutrients Other Tons Committed to Growth of Specialty Nutrients 1 Based on Company estimates. 2 Primary nutrients = nitrogen, phosphorous, potassium (including those sold by farm centers); specialty nutrients = low-salt liquid starter fertilizers, and micro-nutrient (including those sold by farm centers) and lawn fertilizers; other tons = cob products. 29

30 Plant Nutrient Group Q2 18 Highlights Primary and specialty nutrients volumes recovered from delayed planting; margins suffered $25 Adj. Pretax Income ($M) $14 $15 $14 $16 Lawn and contract manufacturing businesses turned in another excellent quarter Q1 Q2 Q3 Q4 1 Excludes goodwill impairment charges of $9.7 and one-time acquisition costs of $ Excludes goodwill impairment charges of $59.1. Unaudited Tons in 000 s, $M Q2 18 Q2 17 VPY YTD 18 YTD 17 VPY Primary Nutrients Tons Specialty Nutrients Tons Other Tons (3) (10) Revenues $303.1 $264.7 $38.4 $438.7 $411.3 $27.4 Gross Profit $37.2 $39.9 ($2.7) $59.4 $65.7 ($6.3) Gross Profit Margin 12.3% 15.1% (2.8%) 13.5% 16.0% (2.5%) Reported Pretax Income (loss) $15.1 ($25.8) $40.9 $16.2 ($19.2) $35.4 Adjusted Pretax Income $15.1 $16.2 ($1.1) $16.2 $22.8 ($6.6) Adjusted EBITDA $23.5 $24.7 ($1.2) $32.8 $39.9 ($7.1) 30

31 Physical Product Flow: Factory to Field 75% of Supply Moves through Distributors Like ANDE Manufacturers Storage (Distribution) Retailers, Dealers and Co-ops Farmers Wholesale Distribution Capacity is Critical to Ag Supply Chain 31

32 Plant Nutrient Group Strategic Growth Selectively Grow Primary NPK Business Grow, Invest in and Develop Specialty Products Expand Technology and Product Development in Turf Pursue organic growth opportunities Collaborate with suppliers Standardize transportation Ensure risk-mitigated supply agreements in place Deploy SAP Reduce production costs Develop environmentally and agronomically sound products Leverage Grain and Plant Nutrient market intelligence Leverage operating efficiencies Launch new turf and commercial agriculture products Standardize processes Utilize our knowledge of Regulatory compliance issues 32

33 Near- and Long-term Goals Implement new IT system successfully Align organizational structure for productivity and future growth Continue to expand in valueadded businesses EBITDA of $60M - $65M Build best-in-class sales organization Continue to establish strategic alliances with customers and suppliers Develop new products that are sustainable and environmentally friendly Grow specialty tons by 3% to 5% per year EBITDA of $80M - $85M Executing on Growth Initiatives to Improve Earnings Capacity 33

34 Rail Group Overview Key Metrics Railcar Fleet by Commodity 2 ~23,000 Railcars Grain/Grain Products Fertilizer/Minerals 11% 28% 89.5% Average Utilization Rate 1 Sand/Sand Products Plastics 10% 10% ~20,600 Cars on Lease 2 Wood & Forestry/Paper Ethanol & Gasoline 7% 7% 20 Railcar Repair Facilities 2 Chemicals 5% Metals & Products 5% ~150 Commodities Handled Aggregates & Limestone Other 4% 13% 1 Average of Q As of 6/30/18. 34

35 Rail Group Diverse Fleet ANDE Focus Railcar Percent of North American Fleet 1 Expanded from ag-related cars (grain and fertilizer covered hopper) to broad range of car types Industry / ANDE Fleet 2 Have only ~1% of railcars in the pressured crude oil and coal markets Covered Hopper 32% / 67% Tank Car 22% / 14% Gondola 15% / 7% Open-Top Hopper 10% / 4% Limited exposure to intermodal/flat car market Focused on improving the average remaining life of the fleet Boxcar 8% / 6% Flat Car 5% / 2% Intermodal Platform 4% / NA Auto Rack 4% / NA We Are an Active Player in Most Primary Car Types 1 Source: SFG Research and Company estimates. 2 As of 6/30/18 35

36 Rail Repair Network Strategically located and geographically diverse network Danville, IL will open Q4 18 High-quality repairs Broad range of capabilities (from simple repairs to remanufacturing) Growing tank car capabilities CA UT IA IL IN OH MO MS NY SC MD Serves both ANDE fleet and third-party shippers and railroads TX Income growing steadily Repair Facility Tank Car Repair Capable 36

37 Rail Group Q2 18 Highlights Lease income lower as expected on higher maintenance expense; utilization improved, more cars on lease Income from car sales comparable to prior year before scrapping idle cars Repair business sets quarterly record for Pretax Income ($M) Q1 Q2 Q3 Q4 revenue and pretax income 1 Includes asset impairment charge of $4.7. Unaudited in $M Q2 18 Q2 17 VPY YTD 18 YTD 17 VPY $31 $51 $32 $25 $5 1 Revenues $41.4 $38.1 $3.3 $91.9 $78.5 $13.4 Gross Profit $13.6 $12.7 $0.9 $26.1 $25.0 $1.1 Gross Profit Margin 32.9% 33.3% (0.4%) 28.4% 31.8% (3.4%) Lease Income (loss) $2.1 $2.9 ($0.8) $4.2 $3.5 $0.7 Railcar Sales Income ($3.0) $1.4 ($4.4) ($0.7) $5.0 ($5.7) Service and Other Income $1.8 $1.6 $0.2 $1.4 $3.4 ($2.0) Pretax Income $0.9 $5.9 ($5.0) $4.9 $11.9 ($7.0) EBITDA $10.8 $13.6 ($2.8) $24.3 $26.7 ($2.4) 37

38 Rail Group Strategic Growth Grow Railcar Fleet in a Disciplined Manner Expand Railcar Repair Network Replace railcars as they age out with midlife railcars Maintain our diversified railcar and customer portfolios Grow railcar fleet in selective car types Address tank car fleet impacted by retrofit regulations Continue growth of full service facilities and small mobile locations Maintain focus on improving safety, efficiency and volume Increase volume throughout network with new sales staff 38

39 Near- and Long-term Goals Grow railcar fleet from 23,000+ to 24,000 25,000 cars Increase repair facilities from 19 to 22 Generate Annual EBITDA of $65M to $70M Grow railcar fleet to 28,000 30,000 cars Increase repair facilities to EBITDA of $85M - $95M Executing on Growth Initiatives to Improve Earnings Capacity 39

40 2018 Outlook Expect near-term earnings volatility as margins widen in front of a very good harvest. We expect the good operating environment to continue well into 2019 Near-term margins soft; cautious about impact of tariffs on export markets; DDG values to continue well above 2017 levels Primary and specialty nutrients margins remain challenged; lawn and contract manufacturing to continue to perform well Continued gradual increase in utilization and cars on lease; comparable Repair results 40

41 Company Strategic Growth Invest to Grow Our Core Businesses and Product Lines Ensure Proper Talent Management to Support a High Performance Culture Emphasize Greater Sales Force Effectiveness to Deepen Relationships Focus on Accountability to Deliver Results Expand highervalue, highermargin offerings Grow portfolio through acquisitions Employ new technology in ethanol production Grow Rail assets Invest in ag startups through Maumee Ventures Continue robust talent management process Link talent management to group and company strategies Continue to improve individual development planning Reenergize our customer-facing sales force in Grain and Plant Nutrient Recruit external talent to bolster skills in all four groups Leverage use of new digital tools Personal Safety Partner of Choice People Productivity Profitable Growth 41

42 Strategic Execution Is Underway REFOCUSED Investing in performance improvement in core businesses New leadership, perspective and higher accountability Hired new CFO and presidents for Plant Nutrient and Rail Greater emphasis on talent management and productivity to achieve operational excellence REORGANIZING Optimizing portfolio Sale of four TN grain elevators is latest of several moves Improving productivity $20M run-rate cost savings goal achieved in two years, and one year early Announced additional cost savings goal of $7.5M to be reached by year-end 2018 REENERGIZED Leveraging core capabilities and expand into value-added, high margin offerings Originations excellence Risk management tools Specialty nutrients Lawn and contract manufacturing Investing in systems and tools SAP in Plant Nutrient Procurement 42

43 Near- and Long-term Goals Achieve run-rate cost savings of $20M by end of 2018 from 2015 base Achieved in Q4 2017; announced additional $7.5M goal for remainder of 2018 Further integrate technology platforms across organization Drive continued, steady financial performance improvement in 2018 Drive shareholder value with greater focus on disciplined, strategic growth Grow value-added products to ~20% of gross profit in Grain and more than 50% in Plant Nutrient, respectively Grow EBITDA to $300M+ Committed to Delivering Shareholder Value 43

44 EBITDA by Segment Target 2017 EBITDA E EBITDA 1 Rail 31% 24% to 27% Grain 29% 27% to 30% Plant Nutrient 26% 21% to 24% Ethanol 14% 22% to 25% EBITDA and Cashflow Generation Remains Healthy for All Four Groups 1 Excludes corporate expenses and Retail segment closed in June

45 Appendix 45

46 Definitions EBITDA: Earnings before interest, taxes, depreciation and amortization; a non-gaap measure. A primary measure of period-over-period comparisons, and we believe they are meaningful measures for investors to compare our results from period to period Base Grain: Grain operations owned and operated by The Andersons (does not include affiliates) Ethanol Margin Hedging: From time to time we establish hedge positions with futures and derivative contracts that lock in prices for sales of ethanol and purchases of corn and natural gas with the intent of securing portions of our future sales margins Bushels Owned: Bushels delivered to an Andersons elevator or storage facility rented by The Andersons for which title to the grain is transferred to The Andersons Bushels Stored for Others: Bushels stored by The Andersons for the owner of the grain for which the company charges a storage fee Railcar Fleet Utilization: Percentage of railcars in leased service divided by total railcars controlled by company Primary Nutrients: Nitrogen, phosphorous, potassium (including those sold by farm centers) Specialty Nutrients: Low-salt liquid starter fertilizers, micro-nutrients, lawn fertilizers (including those sold by farm centers) Other Tons: Corn-cob products 46

47 Historical Performance ($M) Gross Profit Adj. EBITDA 1 Adj. Pretax Income 1 Capital Investments 2 $238 $365 $397 $376 $346 $319 $220 $175 $144 $154 $118 $111 $106 $141 $157 $124 $76 $49 $42 $ Non-GAAP measure. See reconciliation tables in Appendix. 2 Investments in PP&E and net investments in Rail Group assets as disclosed in statement of cashflows. 47

48 Reconciliation to EBITDA and Adjusted EBITDA $ in millions Grain Ethanol Plant Nutrient Rail Other Total Six Months Ended June 30, 2018 Income (loss) before income taxes (11.7) 26.9 Income (loss) attributable to the noncontrolling interests - (0.4) (0.4) Income (loss) before income taxes attributable to The Andersons, Inc (11.7) 27.3 Interest expense 6.9 (0.3) Deprecation and amortization Earnings before interest, taxes, depreciation and amortization (EBTIDA) (5.4) Income (loss) before income taxes attributable to The Andersons, Inc. for each Group is defined as net sales and merchandising revenues plus identifiable other income less all identifiable operating expenses, including interest expense for carrying working capital and long-term assets and is reported net of the noncontrolling interest share of income (loss). 48

49 Reconciliation to EBITDA and Adjusted EBITDA $ in millions Grain Ethanol Plant Nutrient Rail Other Total Six Months Ended June 30, 2017 Income (loss) before income taxes (19.2) 11.9 (25.6) (24.6) Income (loss) attributable to the noncontrolling interests Income (loss) before income taxes attributable to The Andersons, Inc (19.2) 11.9 (25.6) (24.6) Interest expense (0.1) 12.1 Deprecation and amortization Goodwill impairment Earnings before interest, taxes, depreciation and amortization (EBTIDA) (19.9) Income (loss) before income taxes attributable to The Andersons, Inc. for each Group is defined as net sales and merchandising revenues plus identifiable other income less all identifiable operating expenses, including interest expense for carrying working capital and long-term assets and is reported net of the noncontrolling interest share of income (loss). 49

50 Reconciliation to EBITDA and Adjusted EBITDA $ in millions Grain Ethanol Year Ended December 31, 2017 Plant Nutrient Rail Retail Other Total Income (loss) before income taxes (45.1) 24.8 (7.3) (24.7) (20.5) Income (loss) attributable to the noncontrolling interests Income (loss) before income taxes attributable to The Andersons, Inc (45.1) 24.8 (7.3) (24.7) (20.6) Interest expense 8.3 (0.1) (0.4) 21.6 Deprecation and amortization Earnings before interest, taxes, depreciation and amortization (EBTIDA) (12.0) 54.9 (6.9) (13.3) 87.4 Adjusting items impacting EBITDA: Goodwill impairment Asset impairment Total adjusting items Adjusted EBITDA (6.9) (13.3) Income (loss) before income taxes attributable to The Andersons, Inc. for each Group is defined as net sales and merchandising revenues plus identifiable other income less all identifiable operating expenses, including interest expense for carrying working capital and long-term assets and is reported net of the noncontrolling interest share of income (loss). 50

51 Reconciliation to EBITDA and Adjusted EBITDA $ in millions Grain Ethanol Plant Nutrient Rail Retail Other Total Year Ended December 31, 2016 Income (loss) before income taxes (15.7) (8.8) (28.3) 21.4 Income (loss) attributable to the noncontrolling interests Income (loss) before income taxes attributable to The Andersons, Inc. 1 (15.7) (8.8) (28.3) 18.5 Interest expense (0.3) 21.1 Deprecation and amortization Earnings before interest, taxes, depreciation and amortization (EBTIDA) (5.9) (19.6) Adjusting items impacting EBITDA: Total adjusting items Adjusted EBITDA (5.9) (19.6) Income (loss) before income taxes attributable to The Andersons, Inc. for each Group is defined as net sales and merchandising revenues plus identifiable other income less all identifiable operating expenses, including interest expense for carrying working capital and long-term assets and is reported net of the noncontrolling interest share of income (loss). 51

52 Reconciliation to EBITDA and Adjusted EBITDA $ in millions Grain Ethanol Year Ended December 31, 2015 Plant Nutrient Rail Retail Other Total Income (loss) before income taxes (9.5) (0.5) (82.7) (11.6) Income (loss) attributable to the noncontrolling interests Income (loss) before income taxes attributable to The Andersons, Inc. 1 (9.5) (0.5) (82.7) (13.4) Interest expense (0.4) 20.1 Deprecation and amortization Earnings before interest, taxes, depreciation and amortization (EBTIDA) (75.9) 85.2 Adjusting items impacting EBITDA: Goodwill impairment Pension adjustment Partial redemption of investment in Lansing Trade Group (23.1) (23.1) One-time acquisition costs Total adjusting items Adjusted EBITDA (24.5) Income (loss) before income taxes attributable to The Andersons, Inc. for each Group is defined as net sales and merchandising revenues plus identifiable other income less all identifiable operating expenses, including interest expense for carrying working capital and long-term assets and is reported net of the noncontrolling interest share of income (loss). 52

53 Reconciliation to EBITDA and Adjusted EBITDA $ in millions Grain Ethanol Year Ended December 31, 2014 Plant Nutrient Rail Retail Other Total Income (loss) before income taxes (0.6) (34.5) Income (loss) attributable to the noncontrolling interests Income (loss) before income taxes attributable to The Andersons, Inc (0.6) (34.5) Interest expense (0.5) 21.8 Deprecation and amortization Earnings before interest, taxes, depreciation and amortization (EBTIDA) (30.8) Adjusting items impacting EBITDA: Partial redemption of investment in Lansing Trading Group (17.1) (17.1) Total adjusting items (17.1) (17.1) Adjusted EBITDA (30.8) Income (loss) before income taxes attributable to The Andersons, Inc. for each Group is defined as net sales and merchandising revenues plus identifiable other income less all identifiable operating expenses, including interest expense for carrying working capital and long-term assets and is reported net of the noncontrolling interest share of income (loss). 53

54 Company Achieves $20 Million Cost Savings and Productivity Goal Early Examples of Run-rate Adjustments Achieved $20M of run-rate cost and productivity savings by year-end 2017 Announced new, $7.5M goal to achieve by year-end replaces 2015 as the new baseline year Savings to date include more than $6M in labor savings, net of two years of merit increases Gross Profit or Expense Type Raw material purchasing and optimization improvements Plant Nutrient Group Reset business acquisitions in Texas and Tennessee eliminate, consolidate, centralize Grain Group Savings ($M) ~ $3M ~ $3M Chemical and denaturant optimization Ethanol Group ~ $2M Changes to retiree healthcare plan ~ $1.5M Productivity Enhancements and Investments Lead to Leaner Operation 54

55 Implemented Leverage and Liquidity Strategy Long-term Debt to Equity < 1:1 for Grain, Ethanol and Plant Nutrient < 3:1 for Rail ($M) 6/30/18 6/30/17 Cash $ 59 $ 19 Other Current Assets Non-Current Assets 1,239 1,160 No more than 20% of longterm debt maturing in any single year Working capital >$175M Net Debt to Adjusted EBITDA expected to remain < 4.0x Total Assets $ 2,118 $ 1,911 Current Liabilities, excluding Current Portion of Long-Term Debt $ 643 $ 494 Non-Current Liabilities Long-Term Debt, including Current Portion Equity Total Liabilities & Equity $ 2,118 $ 1,911 Long-term Debt / Equity To Ensure Financial Flexibility 55

56 M&A Strategy S T R A T E G I C F I L T E R S Fits Strategically; Core Or Adjacent Addresses Validated Customer Needs Strengthens Geographic Footprint Increases Scale Provides Differentiation: Enables Ability to Move Up Value Chain F I N A N C I A L C R I T E R I A Accretive to EPS within Two Years ROIC Above Cost of Capital by Year 3 (risk-adjusted) Payback Period on Longlived Assets < 10 Years Disciplined, Focused and Strategic Approach 56

57 Capital Allocation Framework Uses of Cash: 2013 to 2017 $810M 9% 6% INVEST IN ORGANIC GROWTH Invest in adjacencies to increase penetration of existing service offerings and expand footprint 22% 63% PURSUE STRATEGIC ACQUISITIONS Seek strategic, bolt-on targets Selectively use minority partner capital Capital Investments Acquisitions and Investments Dividends Share Repurchases 2 1 RETURN CASH TO SHAREHOLDERS 20+ years of consecutive dividend payout, totaling more than $75M over the past five years 1 Acquisitions of businesses, purchases of investments (including investments in affiliates) and distributions to noncontrolling interests, net of proceeds from return on investments in affiliates, as disclosed in the statement of cash flows. 2 Purchases of treasury stock, offset by proceeds from sale of treasury shares to employees and directors and excess tax benefit from share-based payment arrangements, as disclosed in the statement of cash flows. 57

58 Grain Group Ref: Variable Storage Rates (VSR) Background: Variable Storage Rates (VSR) were proposed by the CME Group and approved by the Commodity Futures Trading Commission in 2009 The VSR allows the maximum charge that a facility that is registered as regular for delivery can charge for storage The amount of variance in the maximum storage charge depends on spread relationships determined in the futures market VSR is designed to improve cash-futures convergence at futures contract expiration The basic idea of VSR is to trigger higher storage rates that allow wider spreads when spreads are near financial full carry and trigger lower storage rates when spreads are narrow or inverted For The Andersons: Variable Storage Rates (VSR) can improve storage income, as our elevators in Maumee, OH are registered as regular for delivery points During the second quarter of 2016 the max storage charge for outstanding wheat shipping certificates was $ per bushel per day a tick was triggered near the end of Q Beginning July 19, 2016, the max storage charge increased to $ per bushel per day The Andersons primarily handles corn, soybeans and wheat, and typically dedicates 20 to 35 million bushels of our available space to wheat Each tick up or down in the VSR raises or lowers storage $0.001 per bushel per day and can potentially impact future earnings by $2 to $3 million per quarter Source: For more details see the CME Group s website at: 58

59 Key Benefits Grain JV s Leverage Reach and Provide Earnings Diversification Merchandising physical commodities including grains, feed ingredients, energy products, and freight within N.A. and internationally Leading Canadian provider of risk management, advanced agronomy, food grade beans and grain marketing services Earnings diversification Geographic extension to adjacent markets with trade flow opportunities Geographic diversification Aligned to Grain and Plant Nutrient businesses 33% Ownership 50/50 Joint Ownership with Lansing 59

60 USDA Supply/Demand Source: USDA 8/10/18 60

61 U.S. Corn Condition Rated Good-to-Excellent Condition rating change from 2017 September 2, % 75% Gold states = ahead of 2017 rating Grey states = behind 2017 rating 67% August 26, % 72% 65% 81% 44% 72% 74% 75% 29% 50% 72% 79% 75% 74% 65% 36% September 3, % 62% Source: USDA crop progress report 9/4/18 61

62 U.S. Soybeans Condition Rated Good-to-Excellent Condition rating change from 2017 September 2, % 69% Gold states = ahead of 2017 rating Grey states = behind 2017 rating 66% August 26, % 81% 72% 73% 76% 65% 72% 80% 66% 49% 43% 61% 73% 77% 59% September 3, % 70% 61% Source: USDA crop progress report 9/4/18 62

63 U.S. Grain Storage Capacity U.S. Off Farm Storage Capacity 1 In millions of bushels Illinois 1,500 Iowa 1,470 Nebraska 930 Texas 640 ANDE Storage Capacity In millions of bushels State ANDE 2 ANDE % of Total Illinois % Iowa % Nebraska % Texas % Indiana 540 Indiana % Ohio 455 Ohio % Michigan Tennessee Michigan % Tennessee % Total % 4 Total US commercial (off-farm) storage capacity of 11,240 million bushels, and 13,450 million on-farm storage 1 Source: USDA 1/12/18 Grain Storage Capacity 2 As of 8/31/18; includes temporary pile storage 3 Doesn t include 0.6 million bushel in Canada 4 ANDE percent of total U.S. off-farm storage capacity 63

64 (B) of bushels U.S. Storage Capacity/Supply Impact (B) of bushels Crop Year '18E Supply Capacity Utilization 2 91% 97% 93% 98% 94% 86% 79% 91% 94% 93% 102% 100% Carry-out Grains Are Harvested Once and Needed throughout Each Year; Total Supply Growing Faster than Capacity '06-'07 '07-'08 '08-'09 '09-'10 '10-'11 '11-'12 '12-'13 '13-'14 '14-'15 '15-'16 '16-'17 17-'18 Industry Has Grown Into New On-farm Storage Capacity Off-Farm On-Farm U.S. Grain Storage Will Continue to Have Value Based on Strong Market Demand Source: PRX (The ProExporter Network) as of 8/10/18, USDA 1/12/18 Grain Storage Capacity, USDA Supply & Demand 8/10/18. 1 Total supply = corn, soybeans, wheat. 2 Storage capacity utilization = Total supply/total storage capacity. 64

65 Sources of Octane Extremely high RVP Limited to 1% of the blend 101 Banned in 26 states. No liability protection for producers Not covered by OEM warranties 95 Premium Gasoline Regular Gasoline Sub-octane Butane Benzene Toluene Xylene MTBE Ethanol Methanol Ethanol Demand Driven by Economic, Clean Source of Octane Source: U.S Department of Energy, National Renewable Energy Lab 65

66 Ethanol Group Overview of Ethanol Production Capacity 2018 Forecast Contribution Margin Per Gallon of Ethanol Produced Ethanol is a low cost, clean burning, high octane, renewable fuel product E85, Distillers Dried Grains (DDGs), Corn Oil and CO 2 Ethanol E85 Flex Fuel 475M Gal. 50M+ Gal. CO 2 Corn Oil DDGs Ethanol MARGIN Depreciation Fixed Variable Gas & Electric Corn We market the CO 2 produced as part of the process at 3 out of our 4 plants DDGs 1.3M Tons Our ethanol customers are primarily refiners and fuel blenders Corn Oil 100M+ lbs. Revenue Streams Input Costs 66

67 U.S. Ethanol Exports U.S. Ethanol Exports (MGY) Ethanol Exports by Destination (MGY) 2 June ,607 Other, 81 1,367 China, 53 1, ,046 UAE, 29 Mexico, 13 Philippines, 44 Colombia, 26 Peru, 28 India, 70 Brazil, Canada, 159 S. Korea, 44 Nigeria, E 2018 YTD 933M 2017 YTD 693M Exports Growth Expected to Continue Sources: 1 Pro Exporter Network 7/20/18; 2 EIA. 67

68 Ethanol Group Production Ethanol Gallons Produced E-85 Gallons Shipped DDG Tons Shipped Corn Oil Pounds Shipped in millions in millions in thousands in millions Q2 FY Q2 FY Q2 FY Q2 FY Charts include activity at nonconsolidated ethanol plants 68

69 Life Cycle of Nutrients Spring Pre-Planting Spring & Summer Growing Season Fall Post Harvest Mar Apr May Jun Jul Aug Sept Oct Pre-Season: Agronomy Testing Base load of Nitrogen, Phosphorus and Potassium (NPK) Application Micro-Nutrient Application Spring & Summer Growing Season: Planting: Starter, Low Salt Side Dressing: Nitrogen supports yields Protecting: Pesticides Emergence Tassel & Ear Initiation Pollination Tasseling Silking Maturity Post-Season: Agronomy Testing Base load of Phosphorous and Potassium Application Micro-Nutrient Applications: Zinc and Manganese 69

70 Nutrient Demand Crop nutrient (N,P,K) use is highest for Corn Nitrogen Phosphorous K Potassium 44% 41% 43% 17% 15% 14% 19% 2% 5% 5% 5% 6% Corn Wheat Soybeans Cotton Corn Wheat Soybeans Cotton Corn Wheat Soybeans Cotton Strong corn acreage supports NPK demand 70

71 2018 U.S. Farm Income Expected to Remain Very Low $ billion F 2018F Net Farm Income Net Cash Income Average since 2000: $75B $91B Over the Cycle, Farmer Income Is a Key Driver Source: USDA as of 7/18/

72 Rail Group Top 10 Player - 50, , , , , ,000 Background Top 25 Private Railcar Owners ~1.6M U.S. railcars 65% private owners 35% railroad owned More nimble than larger players, providing speed and flexibility More cars than smaller players to provide us with scale advantage Greenbrier Management Services TTX GATX (N.A. Fleet) Trinity Industries Leasing Union Tank Car Wells Fargo Rail CIT Group/Capital Finance (N.A. Fleet) SMBC Rail Services Procor The Andersons ECN Capital ExxonMobil ADM Transportation American Railcar Industries Midwest Railcar Chicago Freight Car Leasing Dow Chemical Equistar Chemicals Greenbrier Leasing Progress Rail Leasing Cargill Georgia Power Halliburton Energy Services David J. Joseph Union Carbide 121, , , ,061 88,347 52,000 30,558 23,578 17,500 14,824 14,050 12,635 12,091 10,594 10,048 9,719 9,000 7,920 7,551 6,715 6,455 5,822 5,272 Lessor Manufacturer Shipper 272, ,681 Well Positioned in Industry with Strong Customer Service Focus Source: AAR Reporting Mark as of April

73 Rail Tank Car Regulation Tank cars constructed after October 1, 2015 are required to meet new DOT Specification 117 design of performance criteria for use in an High-Hazard Flammable Trains (HHFTs) Existing tank cars must be retrofitted in accordance with the DOT-prescribed retrofit design or performance standard for use in HHFTs Retrofits must be completed based on a mandated schedule. The retrofit timeline focuses on two risk factors: the packing group and differing types of DOT-111 and CPC-1231 tank car A retrofit reporting requirement is triggered if consignees owning or leasing tank cars covered under this rulemaking do not meet the initial retrofit milestone DOT 117 Specification 73

74 Rail Group Earnings Power $ in millions YE 2014 YE 2015 YE 2016 YE 2017 Q Average # of Assets 22,199 23,017 23,057 23,314 23,035 Sources of Income Generates lease income from long-lived assets Maximizes value by remarketing assets opportunistically Provides repair services embedded in leases and to third parties Beg. $ on Bal. Sheet $240.6 $297.7 $338.1 $327.2 $462.3 Average % Utilization 89.5% 92.4% 87.8% 85.0% 89.5% Lease Income $ in millions FY 2014 FY 2015 FY 2016 FY 2017 YTD 2018 Lease Income $13.6 $31.5 $13.2 $8.9 $4.2 Railcar Sales Income $ in millions FY 2014 FY 2015 FY 2016 FY 2017 YTD 2018 Asset Sale Income $15.8 $13.3 $11.0 $11.0 ($0.7) Service & Other Income $ in millions FY 2014 FY 2015 FY 2016 FY 2017 YTD 2018 Rail Services & Other $2.0 $5.9 $8.2 $4.9 $1.4 Total Rail $ in millions FY 2014 FY 2015 FY 2016 FY 2017 YTD 2018 Revenue $149.0 $170.8 $163.7 $172.1 $91.9 Gross Profit $59.8 $67.7 $55.9 $52.5 $26.1 Gross Profit % 40.1% 39.6% 34.1% 30.5% 28.4% Pretax Income $31.4 $50.7 $32.4 $24.8 $4.9 74