Chief Executive Officer
At Green Plains, we continue to focus on growing long-term value for our shareholders. The Company was founded on three core principles and they remain the same today: risk management, operational excellence and providing a safe work environment for our employees. We believe they are timeless in nature, but we also understand that the environment we operate in never stops changing. That being said, we believe these principles provide the ideal framework for responding to today’s faster, increasingly-competitive global commodity marketplace. The manner and speed with which our principles are applied will be adapted to fit the times.
Expanding Our Vision:
The strategy that we have communicated to you for growth along the value chain was initially envisioned and created with the merger of Green Plains and VBV in October 2008. The growth that we have experienced over the last six years includes:
We have not only been acquisitive, but have focused on organic growth opportunities, including adding technologies like corn oil extraction and fine grind, which improved efficiencies and added profits within our value chain. We enhanced our marketing and distribution segment by adding merchant activities around our commodity flows, and we acquired a 70,000 head-of-cattle feedlot to launch a new adjacent business. The significant growth of our value chain, aligned with solid commodity market conditions, empowered Green Plains to realize the best financial results in its history for 2014.
Our 2014 Financial Highlights:
We reported net income of nearly $160 million for the year, or $3.96 per diluted share. This was a 268% increase in net income and a $2.70 improvement in diluted earnings per share over 2013.
The substantial increase in our financial results was led by a strong performance in our ethanol production segment, which generated $267 million of operating income before depreciation and amortization, or 28 cents per gallon produced for the full year of 2014, which was a record full-year performance for this segment. Going back to 2009, Green Plains has averaged 18 cents per gallon in operating income before depreciation and amortization on 4 billion gallons produced, totaling approximately $711 million in total.
Our non-ethanol operating segments of marketing and distribution, corn oil production and agribusiness also turned in a record performance for 2014, reporting operating income of approximately $104 million. Altogether, the Company generated earnings before interest, income taxes, depreciation and amortization, or EBITDA, of $351 million for 2014, which is over 1.2 times more than the $157 million earned for 2013.
In total, our operating income has grown from $39 million in 2009 to $286 million in 2014.
2014 was a transformative year that will enable us to take the next significant step in our growth strategy. As we have always preached, give us a good market and we can transform the Company. The margins during the last 18 months allowed the Company to start the process. We made great strides in beginning to recapitalize the Company through our record earnings, debt repayments (including the conversion of $90 million of 5.75% notes into equity), and the term loan B credit structure that was implemented.
We ended the year with a strong balance sheet. The Company had $455 million in total cash and a net term debt position of $7.6 million. Our goal of zero net debt by the end of 2015 is very attainable. Why is this important? The cyclicality of our business adds a level of volatility we cannot control, and if we needed to, we could pay our term debt down and manage through any downturn. While this is not the case today, the market understands the strength of our position and we hope to use this financial leverage to reduce the overall volatility of our stock price movements. Our overall goal is to reduce our beta and expand our multiple and this is a good starting point. We expanded our borrowing capacity to fund our growing working capital needs in the marketing and distribution and agribusiness segments and we returned $8.9 million in dividends to shareholders in 2014. We believe we are well-positioned to move the Company forward at an accelerated pace.
For several years, we have been expanding and refining our growth strategy. We often think about how to grow the Company utilizing our competitive strengths. Our growth has come from both acquisitions and pursuing the organic opportunities in our platform that was mentioned previously in this letter.
We will continue to pursue organic opportunities such as the announced initiative of adding more ethanol production capacity and grain storage capacity at our existing plants. We believe we can add approximately 100 million gallons of ethanol production for under $0.75 per gallon through a series of brownfield expansion projects. We have embarked on a strategy to go after those extra -gallons in 2015. In the right market, this should be highly accretive to our shareholders.
We want to continue to expand our ethanol production capacities through acquisitions as well. There is really no one in the industry that can say they have true scale. Single plant owners have some of the same opportunities as a multi-plant platform at certain times. Our platform affords greater capabilities to reduce certain costs or spread them over a larger base. This is where the opportunity lies within ethanol production. The amount of fragmented single plant owners remains large and there should continue to be consolidation opportunities in the future. We believe that world ethanol demand will continue to grow faster than ethanol supply. This was demonstrated in 2014 as the ethanol Green Plains produced for export represented nearly 8.5% of the total U.S. ethanol exported to a number of countries around the world. Exports for 2015 have started off on a positive note, and we believe that ethanol exports should continue to be a strength for the U.S. ethanol industry. We are also developing export opportunities for other products like the livestock feed and industrial-grade corn oil we produce, as demand for these value-added commodities is increasing globally. We are often thought of as a fuel producer, but the evolution of our industry has highlighted our ability to produce high quality protein for animal feed. The world remains protein short, and with the changing diets globally, distillers grains have been cemented as a permanent staple in many of the base animal protein diets globally, especially in China.
We certainly appreciate the earnings power of the ethanol platform, as illustrated in 2014, but are expanding on our vision of using our supply chain to capitalize on other opportunities available in the agriculture and energy industries. We believe that adding other adjacent businesses or products can reduce the volatility in our earnings, which results in lowering our beta and improving our public -market valuation.
One such example of expanding our vision is the recently- announced submission of a confidential draft registration statement for a proposed underwritten IPO of a downstream publicly-traded partnership. Green Plains Partners LP is the name of the newly-formed partnership and it is intended that the initial assets of the partnership will consist of Green Plains’ downstream ethanol transportation and storage assets located in 12 states throughout the Midwest and Southeast United States. While completion of the proposed IPO is subject to a number of factors, including market conditions, we believe a successful initial public offering of Green Plains Partners would add another currency to fund growth of our downstream services and products.
As we grow, we will also look for additional opportunities to strengthen our balance sheet, including paying down debt, and look to return capital to shareholders either through increased dividends and/or utilizing the share repurchase program authorized by the Board of Directors in 2014.
The management team at Green Plains is appreciative of our employees and directors and wants to thank them for their hard work, dependability and first-rate performance. We also want to thank you, our shareholders, for your continued trust of us. We continue to be good stewards of the capital that you have invested in Green Plains. We believe that we have endless opportunities to take advantage of, and our Board of Directors, management team and employees remain committed to building on the solid foundation that gives you the confidence to stay committed to our strategy and growth story.
President and Chief Executive Officer
This Annual Report contains “forward-looking statements” within the meaning of the federal securities laws. See the discussion under “Cautionary Information Regarding Forward-Looking Statements” in our 2014 Form 10-K for matters to be considered in this regard.