Population growth is driving demand in many of the world's emerging agricultural markets. Yet, crop yields in these markets are considerably less than in the U.S. Helping to narrow this spread is a significant opportunity for AGCO.

Corn Yields. United States Vs. Rest of World

improving distribution

Reach further. Stay closer. Our network of more than 3,100 independent dealers and distributors ensures that our global reach extends around the world and provides a local link to our customers. In addition to making our products available, dealers provide critical support for after-market parts and service. During 2013, we continued to strengthen our dealer network.


In North America, we are focused on streamlining and consolidating dealerships around a distribution strategy for each local selling area. Today, our North American distribution is two-pronged. The first prong is our legacy Massey Ferguson dealerships, which offer a full line of wheeled tractor, harvesting, seeding and tillage products that serve customers ranging from small, lifestyle farmers to large corporate enterprises. The other prong is our Challenger dealerships that target large professional farming operations. The Challenger network offers sprayers, tracked and wheeled tractors, harvesting, seeding and tillage products primarily through the Caterpillar dealer network.

Retail finance solutions are an important part of our customer support proposition. AGCO Finance offers loan and lease financing to farmers for equipment purchases. In 2013, we extended our finance services into Central Europe, initially to customers in the Czech Republic, Slovakia, Romania and Bulgaria. Our plans call for extending finance solutions throughout the region in the future, including the Baltic and Balkan countries.

Precision technologies are a key link to higher farm productivity. Enter our aptly named Fuse Technologies — a strategy to connect farm equipment into a seamless solution to optimize performance and efficiency — and an example of how our R&D investment is transforming the farm and its operations.

investing in technology and new products

The farm is getting smarter. Using wireless data communications, our innovative solutions are delivering seamless connectivity across farm assets. We have significantly increased our technology investment to launch Fuse Technologies, a strategic approach to precision farming with the potential to enhance agricultural productivity and profitability. In addition, we delivered our first product fitted with a Tier 4 Final AGCO Power engine in 2013. Our leading AGCO Power Selective Catalytic Reduction (SCR)-based technology produces cleaner emissions, efficient operation and uncompromised performance.

Fuse Technologies provides seamless connectivity across a farm enterprise and through every phase of the crop cycle. An open approach enables farmers to connect with their third-party service providers and Farm Management Information System (FMIS) platforms. This ensures mobile and stationary equipment is in the right place at the right time and running at optimum efficiency.


Harvest and storage are critical phases in the grain value chain where unnecessary crop losses occur, especially in developing markets. GSI offers solutions for storage to curb grain losses and enhance protein production businesses.

growing the gsi platform

Turning loss into gain – that's the GSI opportunity. GSI handling, conditioning, storage and protein production solutions help grain producers reduce post-harvest loss and protein producers better manage their business. Storage and handling equipment is required in every phase of the grain processing cycle. This means storage capabilities in excess of 100 percent of harvest capacity are frequently necessary. Initiatives are underway around the world to help customers ensure that the grain they grow gets to market.

Brazil is a leading global grain producer that has made significant strides in production, but its post-harvest handling, conditioning and storage have not kept pace. Today, Brazil has the capacity to store only 75 percent of its harvest. To address this challenge, the Brazilian government has introduced a $12 billion, multi-year financing program to promote increased investment in grain storage. Even with this support, it is estimated that the storage gap may require up to 10 years to close

Because of GSI's exceptional grain storage solutions, farmers are better able to control the price at which they sell their crops. Proper storage means that farmers can wait for optimal market conditions before selling their grain. Optimal market conditions translate into optimal profitability for farmers, which enables them to reinvest more in their business.

Swine and poultry production practices — including genetics, nutrition, health, housing, feeding and environmental control — vary around the world. U.S. productivity, for example, exceeds that of China by more than 50 percent. Feed handling and storage is a factor. As swine and poultry production in developing markets consolidates, GSI can provide modernized equipment and practices to help suboptimal operations increase their productivity.

GLOBAL OPPORTUNITY

Vast amounts of arable land, but investment in farm equipment significantly lags that of developed markets.

The world's tenth-largest economy, second-largest soybean producer and a robust sugarcane industry.

A fifth of the world's people and a significant amount of the world's uncultivated land.

Higher incomes and protein-oriented diets are on the rise, creating more pressure on grain supplies for animal feed stock.

Growth markets are AGCO markets. We're focused on getting the most relevant products and technologies to where they can make the most difference: regions that have rapidly increasing demand and a need to exponentially improve productivity.

leveraging a global presence

More people. More food. More farm productivity. It's a simple but compelling growth opportunity. We're leveraging our global presence to turn this potential into reality, especially in developing markets. Here, professional farm machinery is key to boosting agricultural productivity and reducing post-harvest waste. Though specific needs vary from market to market, our common approach is to partner fully with every customer through every phase of the farming process.

Core brands distributed: Challenger, Fendt, GSI, Massey Ferguson

Main crops: Wheat, hay, corn, canola, soybeans, cotton, dairy and livestock

2013 Performance: Net sales were $2.76 billion, up approximately 6.7 percent compared to 2012. Sales were strongest in the row crop segment, with the most significant increases in sprayers, high-horsepower tractors, grain storage equipment and implements. Increased net sales, a favorable sales mix and margin improvement initiatives all contributed to growth of $66.0 million in income from operations.

Core brands distributed: Challenger, GSI, Massey Ferguson, Valtra

Main crops: Soybeans, sugarcane, corn, coffee

2013 Performance: Net sales were $2.04 billion, a 9.9 percent increase over 2012. Sales were higher in both Brazil and Argentina, with growth mainly in high-horsepower tractors, sprayers and grain storage equipment. Income from operations increased $51.1 million compared to 2012, due to higher sales volumes and the benefit of cost-reduction initiatives.

Core brands distributed: Challenger, Fendt, GSI, Massey Ferguson, Valtra

Main crops: Wheat, barley, corn, oil seeds, dairy and livestock

2013 Performance: Net sales were $5.48 billion, an increase of 8.0 percent from 2012. Improved production capacity at the Fendt facility in Germany generated most of the increase. Higher sales in France and Germany were partially offset by declines in Central and Eastern Europe. EAME's income from operations increased $83.3 million compared to 2012 as a result of higher net sales and improved production efficiency, partially offset by higher engineering expenses.

Core brands distributed: Challenger, Fendt, GSI, Massey Ferguson, Valtra

Main crops: Cereal grains, rice, palm oil, corn, sugarcane, dairy and livestock

2013 Performance: Net sales were $507.9 million, 13.3 percent higher compared to the same period in 2012. Growth in China, East Asia and Australia produced most of the increase. Income from operations declined by $9.7 million from 2012 due to manufacturing startup costs and market development expenses in China offsetting higher net sales.

Trending up by keeping costs down. That's the idea behind our initiatives to drive higher margins through global purchasing excellence, an improved product development platform and continuous manufacturing improvements. The goal: a higher return on invested capital for our shareholders.

ADJUSTED OPERATING
MARGIN*

*See reconciliation in the table below.

Reducing costs and optimizing working capital

Higher margins. Higher returns. High priority. We're committed to achieving operating margin growth in order to drive higher returns on invested capital for our shareholders. Top-line sales growth — primarily achieved through emerging market opportunities and improved products and distribution — is one factor in our margin equation. The other involves a relentless focus on cost reduction and improved productivity, which we are realizing on numerous fronts.

Supply Chain Excellence

With a material spend that comprises approximately 75 percent of sales, supply chain improvements can make a significant impact on cost structures. Our Global Purchasing Excellence program, which moved the purchasing function from the factory level to a global commodities team, is successfully making better-informed buying decisions at lower costs. Another initiative that involves best-country sourcing is gaining traction and targets a 15 to 20 percent cost savings on components and parts sourced from suppliers around the world.


New Product Development

In 2014, our new mid-range tractor platform will begin to deliver a new family of mid-sized tractors based on a modular, more flexible manufacturing platform. This approach leverages common architecture; makes more effective use of our R&D investment; requires fewer parts; reduces material costs; and ultimately leads to better brand differentiation. For our customers, this approach delivers better value through more consistent quality and technological innovation. With initial manufacturing sites in place, this family of products will roll out over a three-year period. Longer term, we plan to incorporate this approach across additional product lines.


Manufacturing Optimization

The AGCO Production System (APS) is designed to help reduce delivery lead times and costs, while improving product quality. As part of APS, we have completed the rollout of Six Sigma and Lean in our manufacturing facilities. In addition, APS enables the sharing of best practices across our sites and engages employees in process improvements.


Facility Investments

Our growth investments include a three-year expansion of our tractor and sprayer assembly facility in Jackson, Minnesota, to increase capacity by 20 percent and improve process efficiency. In Hesston, Kansas, we completed a project that provides the most advanced coating application center in the North American agricultural machine industry.

Our plant in Santa Rosa, Brazil, also received a new painting system based on nanotechnology, and we opened a new factory in Argentina, where we will develop a base of local suppliers, dealers and AGCO staff during the next five years. Finally, our Massey Ferguson brand opened a dedicated cab production facility in Beauvais, France, which increases production space by 25 percent and houses a sales training center. Each of these investments underscores our commitment to boost productivity and efficiency through improved processes and distribution.