2016 marks our 8th consecutive year of profitability
To Our Shareholders
2016 marks our 8th consecutive year of profitability. It was also a year Green Plains made significant investments in our business. We invested over $500 million, expanding our ethanol production capacity and adding a new adjacent business, Fleischmann’s Vinegar Company.
The Fleischmann’s acquisition is consistent with our strategy of moving into adjacent businesses that leverage our core capabilities between distribution, transportation, logistics, production and risk management. The primary raw material in vinegar production is food grade ethanol. This business will also broaden our reach into food ingredient markets, building our higher-margin production capabilities and adding value to our end products.
The value proposition we continue to pursue for our shareholders is the same — reduce volatility over the long-term to give you a stable and predictable earnings stream. We believe this investment is an important step towards that objective with a non-cyclical market that allows the company to maintain consistent margins in volatile commodity environments backed by a history of stability.
We reported net income of $10.7 million for the year, or $0.28 per diluted share. This was up from 2015’s net income of $7.1 million, or $0.18 per diluted share. The improvement can be attributed to a stronger energy climate in 2016 and Green Plains’ record production of 1.1 billion gallons of ethanol, 21% more than we produced in 2015. For 2016, we generated approximately $174.4 million of EBITDA, or earnings before interest, income taxes, depreciation and amortization.
We also achieved a number of other milestones in 2016. We were successful increasing our yield to 2.86 gallons of ethanol from each of the 401.1 million bushels of corn processed during the year. The higher yield means we lowered our corn usage by 1.5 million bushels compared with the 2.85 yield achieved in 2015.
We expanded our production capacity by nearly 260 million gallons per year in 2016. Most of this increase came by acquiring three ethanol plants — Madison, Illinois; Mount Vernon, Indiana and York, Nebraska. We also added production capacity at several of our existing plants. With these additions, our ethanol production capacity has reached nearly 1.5 billion gallons per year, processing over 14 million tons of corn annually. Furthermore, we have the capacity to produce 4.1 million tons of distillers grains and nearly 340 million pounds of corn oil, both of which are vital co-products that continue to have substantial demand in global animal feed, food and fuel markets.
Our liquidity remains strong with $356 million in cash on the balance sheet as of December 31, 2016, along with $121 million available under our revolving credit agreements. During 2016, we returned $18.4 million in dividends to our shareholders and repurchased $6.0 million of Green Plains shares.
For several years, we have talked about reaching scale in the ethanol industry. Two years ago, at the start of 2015, Green Plains had a little over one billion gallons of ethanol production. Earlier that year, we told investors we wanted to be a 2+ billion-gallon production company. Today, we are a 1.5-billion-gallon production company, approaching scale with our current platform. Having almost 10 percent of the ethanol industry’s domestic production capability positions Green Plains as a leader in the ethanol industry and provides added benefits in all of the commodities that are a part of our supply chain.
Our growth to reaching scale is enhanced by our master limited partnership, Green Plains Partners LP. The partnership provides us with a lower cost of capital that enables us to be more competitive as an acquirer of ethanol production assets. In fact, the partnership provided approximately 38% of the funding for the three ethanol plants acquired in September 2016, giving us an advantage over other potential acquirers for these types of assets.
We are also focused on downstream distribution that supports our business. In June 2016, we formed a joint venture with Jefferson Gulf Coast Energy Partners, a subsidiary of Fortress Transportation and Infrastructure Investors LLC to construct and operate an intermodal export and import fuels terminal at Jefferson’s existing Beaumont, Texas terminal. This project is on schedule to begin exporting ethanol in the third quarter of 2017. The terminal is also capable of managing multiple other products for import and export, including liquid hydrocarbons, vegetable oils and other non-liquid commodities. Once commercial development is complete, Green Plains will offer its interest in the joint venture to Green Plains Partners.
This terminal will be a key asset going forward. We are seeing greater demand growth for the products we produce around the world. Ethanol exports out of the U.S. increased 25% in 2016 over 2015. Last year, export sales accounted for 13% of our ethanol production, affirming our decision to launch the joint venture with Jefferson.
We continue to evaluate opportunities to grow our new food and ingredients business. We believe opportunities exist for ongoing consolidation in a relatively fragmented global vinegar market. Moreover, we believe this supports our expansion into developing markets off the Fleischmann’s Vinegar platform, specifically in food, pharmaceuticals, food preservation and agriculture.
While we are still very much a growth company, we are mindful of the growth avenues we pursue. We have increased ethanol production by 350% since the beginning of 2009 with our platform of 17 ethanol plants. We would still like to add production capacity; however, we also want to continue diversifying our revenue and income streams to provide more consistent and predictable earnings and cash flow. These opportunities could be realized in related commodity-processing products that utilize our experience and expertise in commodity and risk management.
We continually evaluate and reexamine all aspects of our business as operational excellence is still a key part of our core competencies. A good example of this is the development and implementation of our customer relationship management (“CRM”) system. This program was brought about to bring us closer to farmers and interact directly with the primary source of corn in the U.S. Our goal is to achieve 65% origination from the farmer in 2017, an increase of eight percentage points from 2016.
Steady Grows the Bottom Line
Since the beginning of 2009 to the end of 2016, we have generated $1.3 billion of EBITDA and produced over 6 billion gallons of ethanol with an average EBITDA margin of 21 cents per gallon. With a much bigger platform, we believe we are well-positioned for 2017 and beyond. We plan to intensify our efforts to deliver more consistent, predictable earnings and cash flow. This can be done adding adjacent businesses like Fleischmann’s Vinegar, which can reduce earnings volatility and improve our public market valuation.
All of this growth would not have been accomplished without the support of our 1,294 employees. That is nearly 1,000 more employees than we had at the beginning of 2009. As we think about Green Plains today, we are not your average ethanol producer anymore, but a Fortune 1000 diversified commodity processor.
Over the last five years, our total return performance has averaged 24.6% on an annualized basis, including the reinvestment of dividends, which we began paying in August of 2013. Our focus is to continue to drive growth across the top line, bottom line and to you our shareholders.
Our growth has led us to a new location in Omaha. We now call 1811 Aksarben Drive our new home and are excited to be in this new neighborhood with other vibrant and growing companies in Omaha’s Aksarben area. The management team and directors of Green Plains appreciate your continued support and confidence, taking a longer-term view in valuing our company. We believe the company is well-positioned to serve both the agriculture and energy industries for years to come.
President and Chief Executive Officer