Dear shareholders & friends
Being responsive to our customers’ needs is a cornerstone of our company, but we know it takes more than that to properly serve our customers. We must anticipate their needs and be resourceful in finding solutions, even to issues they’ve not yet fully identified.
Our strong commitment to the values described in our Statement of Principles is the foundation of the enduring relationships we enjoy with our key stakeholders. It also serves as a guide as we pursue growth opportunities. We work hard to collectively apply our ingenuity to continually enhance the value and improve the service we provide to our customers. Ultimately, we pursue purposeful, sustainable growth which we are pleased to report we achieved in 2011.
Led by record earnings in both the Grain and Plant Nutrient groups, and our second best year in Ethanol, we recorded our best ever financial performance in 2011 with $5.09 in diluted earnings per share and net income of $95.1 million on $4.6 billion in revenue. We are pleased that our net income has grown at a compounded annual growth rate (CAGR) of 21.2 percent during the course of the past five years. Additionally, we recorded our best EBITDA of $212.3 million, a 30.5 percent increase from the record set just one year before.
In the first half of 2011 we were able to capitalize on unusually strong basis appreciation in grain and price appreciation in plant nutrients. We especially benefited from the unusually strong escalation in the wheat basis during the second quarter. This is likely a one-time event, which we have discussed in the past.
Because of the connectivity we have with grain producers, we believe we are in a good position to continue benefiting from the increase in global demand in the grain and plant nutrient markets. We believe we are in the right place at the right time in terms of our position in agriculture. Additionally, the modest growth in the domestic economy is incrementally benefiting our rail leasing operations as we’ve seen utilization rates increase from an average of 73.6 percent in 2010 to 84.6 percent in 2011.
We are dedicated to incrementally growing our operating capacity which will allow us to have even greater participation in the agricultural space. During the past five years we’ve expanded our grain capacity by 27 percent, as well as our fertilizer liquid capacity by 85 percent and dry capacity by 10 percent.
In 2011 alone, we invested $15.5 million to add grain storage capacity and improve customer service at six grain locations. The Grain & Milling Annual currently ranks us as the seventh largest U.S. grain company by capacity, up three slots in three years.
With a minimal presence in Nebraska just two years ago, we are now merchandising and handling grain at nine locations. As we announced in October, we expect to be ready for the 2012 harvest with a new, 3.8 million bushel elevator with shuttle-train capabilities in Anselmo, Nebraska. This elevator fits well with our strategy to bring grain merchandising, originations, and risk management services to customers in a larger geographic region.
The contributions that come from solid relationships continue to provide us with consistent returns. For example, in 2011 Lansing Trade Group (LTG) posted a record year. Additionally, we have forged strong relationships with our valued partners in the three ethanol limited liability companies in which we are managers as well as investors. These ethanol operations achieved strong results in 2011 partially though improving their efficiencies and adding corn oil, E-85 and CO2 to their product mix.
We also enhanced our crop protection product offering in Florida through the acquisition of Immokalee Farmers Supply in October and in January of this year completed the acquisition of New Eezy Gro, Inc., a specialty agriculture and industrial products manufacturer in Ohio. These purchases are consistent with our stated strategy of growing our plant nutrient business through an expanded footprint and product offering to serve more customers.
As we’ve built our operational capacity to grow we knew we also needed the organizational structure in place to support that growth. At the first of this year we named Harold (Hal) Reed as the new Chief Operating Officer for the company. Hal has been with the company for 32 years and previously served as the President of the former Grain & Ethanol Group.
Hal’s appointment prompted other key moves within our organization. Dennis (Denny) Addis will now serve as President of the Grain Group; Neill McKinstray is now the President of the Ethanol Group; and William (Bill) Wolf will now serve as the President of the Plant Nutrient Group.
We’ve made a tremendous investment in our physical assets during the year, but the real value we offer our customers and our shareholders comes from our most important asset—our people. It is the dedication and commitment of each of our nearly 3,000 employees that has made, and continues to make, this company what it is and positions us well for future growth and success as we maximize on the current favorable environment in agriculture.
Along that vein, I am most proud of our improved safety performance. For the second consecutive year we set a new record low for accident frequency. In 2011, we reduced our employee injury rate by 10 percent, thus achieving a reduction of 33 percent in the past two years. Our safety performance, however, is not just a statistical success. We continue to focus on our personal responsibility to keep ourselves, and those around us, safe. Focusing on safety fundamentals such as our behavior transfers to a variety of other operational practices and beliefs which positively impact our overall corporate culture and processes.
Improving our processes isn’t anything new at The Andersons. While we’ve always prided ourselves on our ingenuity and resourcefulness, we are now applying more rigor and discipline to improve and innovate in a more systematic, measurable way. We piloted our approach to process improvement, which we are calling The Andersons Operating System, at one of our professional turf operations this year and experienced results beyond our expectations. It’s not just about cost efficiency, it’s about building processes and systems that empower our workforce and support our customer relationships.
We are embarking on a multi-million dollar engagement to connect employees, customers, and information to support the company’s relationships, growth and performance for years to come. Working with several information technology companies, we will be designing and implementing an enterprise-wide systems solution during the next few years. We know this is a significant undertaking but believe we have the right partners and employees in place to position us well for successful implementation.
As stewards of your investment, we are pleased our financial results have enabled us to significantly increase our dividend during the past three years by 76 percent. Even during a time when so many other companies are being negatively impacted by overall economic conditions, we were able to increase our dividend by 36 percent in the first quarter of 2012.
We acknowledge that the financial volatility in the global economy and the volatility in the agricultural markets will likely continue for some time. Yet, we believe our strong working capital position, our reasonable leverage and the support of our financial partners positions our company well for the future.
With genuine thanks for your continued support of our company and our people,
Mike Anderson
Chairman and CEO
The Andersons, Inc.