To Our Shareholders:
Green Plains took another significant step forward in 2015 as we launched a new master limited partnership, Green Plains Partners LP. The partnership’s initial public offering was completed on July 1, 2015, and its common units are traded on Nasdaq under the ticker GPP. Green Plains owns a 62.5 percent limited partner interest, 2.0 percent general partner interest and all of the incentive distribution rights in the partnership. We sold 11.5 million common units, representing limited partner interests, to the public for $15 per common unit. The partnership received net proceeds of approximately $158 million from the offering, $155 million of which was distributed to Green Plains. In turn, we transferred our ethanol storage and transportation assets to the partnership.
Expanding Our Vision
We view this transaction as strategic and critical to the growth of our downstream business. Access to the master limited partnership equity market will enable us to finance the growth of our downstream storage and transportation operations efficiently and at more favorable terms. Completing the initial public offering was a major accomplishment for the company and its shareholders. We firmly believe this structure will benefit both Green Plains Inc. and Green Plains Partners and allow us to accelerate our future growth plans.
President and CEO
2015 Financial Highlights
We reported net income of $7.1 million for the year, or $0.18 per diluted share. This was down from 2014’s net income of $159.5 million, or $3.96 per diluted share. The decline in our financial results from the year before was driven by a weaker ethanol margin environment, compounded by lower energy prices and higher U.S. ethanol production. For 2015, we generated approximately $128 million of EBITDA, or earnings before interest, income taxes, depreciation and amortization.
We achieved a number of milestones in 2015. We were successful driving our yield to 2.85 gallons of ethanol from each of the 332 million bushels of corn processed during the year. The higher yields improved our bottom line, which can be attributed to our ongoing investment and efforts to continually enhance our production processes, both mechanically and enzymatically. We also attained record yields for corn oil production, averaging 0.75 pounds per bushel of corn.
We continue to look for opportunities to differentiate Green Plains from other ethanol producers in the industry. For example, we believe we are one of the only ethanol producers that can produce every export specification for fuel markets around the world. We feel this is an important distinction as flexibility is key to accessing global demand for ethanol, which continues to grow alongside domestic demand.
We expanded our production capacity by nearly 200 million gallons per year in the fourth quarter of 2015. We added 160 million gallons per year by acquiring two ethanol plants – one in Hopewell, Virginia and another Hereford, Texas. We also added 35 million gallons per year across several of our existing plants. With these additions, our ethanol production capacity has reached 1.2 billion gallons per year, processing over 12 million tons of corn annually. Furthermore, we have the capacity to produce 3.4 million tons of distillers grains and nearly 280 million pounds of corn oil, both of which are vital co-products that continue to have substantial demand on their own in global animal feed and fuel markets.
Our balance sheet is stronger than ever. We ended the year with $412 million in total cash. During the second quarter, we successfully increased our senior secured credit facility by $120 million, bringing all of our ethanol plant debt under one term loan B structure, which lowered our future debt service to approximately 2 cents per gallon. This will provide us tremendous flexibility during times when the ethanol margin environment is weak.
For the second year in a row, we increased our quarterly cash dividend for Green Plains’ shareholders. The dividend was increased 50 percent to 12 cents per share, and over the course of 2015, we returned $15.2 million in dividends to our shareholders.
We continue to look for opportunities to differentiate Green Plains from other ethanol producers in the industry.
Growing Markets, Growing Company
For years, we have believed that ethanol has a permanent place in the U.S. fuel supply and have seen ethanol establish itself as the preferred octane booster and oxygenate enhancer worldwide. Foreign countries are increasingly establishing renewable fuel mandates or targets to reduce air pollution. U.S. produced ethanol remains the most economical fuel additive that improves the octane rating and cleaner-burning properties of gasoline. In 2015, 850 million gallons were exported to approximately 70 countries. We currently believe exports could grow in 2016. At Green Plains, we want to capture as much of that growth as possible. Last year, export sales accounted for 20 percent of our ethanol production, affirming our decision to invest in our plants so we are capable of producing ethanol for any fuel market in the world.
We also see global expansion opportunities for ethanol’s co-products and are continually exploring new markets or innovative uses for the distillers grains and corn oil we produce. Distillers grains are a significant source of livestock feed supply in the U.S. and foreign markets. Today, the ethanol industry as a whole produces more than 45 million tons of quality, high-protein feed for the cattle, poultry and swine industries.
Our strategy for growth has not changed. We intend to remain acquisitive in our ethanol production segment as we believe scale has not yet been achieved by any single industry player. Incremental ethanol production capacity or downstream fuel storage and transportation capabilities will, in turn, grow the partnership. We will also pursue the growth of our other businesses when the right opportunity presents itself, with additional grain storage, other commodity processing products or cattle feedlots. We believe the company is well-positioned for horizontal growth and will look at owning or investing processing capacity for other agriculture and energy. For these reasons, we have been disciplined about maintaining a significant amount of available cash so we can move quickly to capitalize on growth prospects that will be beneficial to our shareholders.
Consistent, Predictable Earnings
Since 2009, we have generated $1.1 billion of EBITDA while producing 5 billion gallons of ethanol, with an average EBITDA margin of 22 cents per gallon. In 2016, we are intensifying our efforts to deliver more consistent, predictable earnings and cash flow. We believe that adding adjacent businesses or products can reduce the volatility in our earnings, lowering our beta and improving our public market valuation. This stability can also come through further development of Green Plains Partners since the growth of the partnership benefits Green Plains Inc. shareholders, as a 64.5 percent owner of the partnership.
I am proud of our employees who make safety and operational excellence part of their day, every day. Safety remains central to our core values. Not only do we recognize our role in providing every employee a safe work environment, we also expect our employees to be disciplined with our established safety protocols, no exceptions. Our hands-on, interactive safety training that we implemented in 2015 has resulted in a significant reduction of recordable worker injuries. Since last year, we have cut the percentage of injury claims by 37 percent and reduced our average workers compensation per employee by 64 percent.
On behalf of the management team at Green Plains, I thank you for your continued support and trust in us. I would also like to thank our employees and directors for their efforts in making Green Plains the company that it is today. We remain committed, as always, to develop this business with a keen eye on growing long-term shareholder value for you.
President and CEO
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 2015 Form 10-K for matters to be considered in this regard.