Throughout our 137-year history, Darling Ingredients’ success has been shaped by a passion for innovation, an entrepreneurial drive and a legacy of sustainability. These tenets carried through fiscal 2018 as we made strong advancement against our world of growth strategy to create a sustainable portfolio of value-added and specialty ingredients. We completed multiple construction projects, facility expansions and bolt-on acquisitions that accelerate our unique global position to meet the growing demand for sustainable food, feed and fuel ingredients. The fourth quarter, in particular, truly showed the diversity and consistency of our global ingredients platform and the potential that Diamond Green Diesel (“DGD”), our 50/50 joint venture with Valero Energy Corporation, has to supercharge Darling’s future. Overall, our teams executed well in fiscal 2018, navigating through challenging pricing markets, macroeconomic headwinds in South American markets, trade disruptions and a slow recovery from our extended downtime for DGD’s expansion and turnaround phase during the third quarter.

For 2018, we grew our global raw material volumes by 3.3 percent year-over-year and delivered annual adjusted EBITDA of $431.4 million without the benefit of the Blenders Tax Credit (“BTC”). We remain optimistic that Congress will provide a legislative vehicle to renew and extend the BTC during 2019 retroactive to 2018. On a comparative basis, fiscal 2018 earnings were flat, due in part to strategic actions taken to mitigate macroeconomic headwinds and underperforming assets along with weaker foreign exchange currencies and a stagnant protein market with a significantly lower fat market. It should be noted that 2018 earnings would have been approximately $90 million higher had the BTC been in effect during the year. This is a combination of DGD and our fuel segment bio diesel plants.

Additional key financial highlights in 2018 included:

• Refinancing our 4.75 percent senior Euro-notes to 3.625 percent, lowering interest cost and extending terms through 2026;
• Investing $108 million in growth acquisitions with no net borrowings;
• Lowering total debt to EBITDA ratio to 3.13 per bank covenant; and
• Fully deleveraging Diamond Green Diesel while at the same time expanding production capacity by 70 percent.

Growth Capital and Strategic Actions Strengthen Portfolio

We took several strategic actions to refine, strengthen and grow our global portfolio. We focused on opportunities to optimize our platform, strengthen our financial position and leverage and grow our scale. Our strong free cash flow allowed us to deploy $322 million of maintenance and growth capital with an additional $108 million of strategic acquisitions to build upon our core business and develop products, markets and capabilities to capitalize on high demand markets for premium specialty ingredients. During the year, we executed four bolt-on acquisitions and commissioned seven new and expanded plants. Of note, EnviroFlight, our JV with Intrexon, is the first commercial size Black Soldier Fly Protein Facility in the U.S., and phase one production commenced in the fourth quarter.

In 2019, we expect to invest approximately $300 million in maintenance and growth capital for several strategic projects while maintaining capital discipline across the company. These projects include eight additional facilities currently under construction, including four new plants to meet growing demand for Peptan, our specialty collagen product.

From a portfolio refinement standpoint, we responded to persistent macro headwinds from Argentina’s struggling economy with the closure of our Argentina gelatin facility while successfully realigning our Rousselot network and optimizing our gelatin and collagen platform. Additionally, the sale of our industrial residuals business, afforded us greater focus on our core growth platforms.

Super Diamond Supercharging Our Renewable Energy Solution

In the fourth quarter, Diamond Green Diesel once again displayed its market-leading potential. The facility resumed production at its expanded capacity of 275 million gallons per year and delivered record fourth quarter EBITDA of $110 million on 73 million gallons of renewable diesel production. Operating margins excelled at $1.67 per gallon for the quarter and averaged $1.19 per gallon for the full year.

For 2019, we anticipate operating at or above nameplate capacity. And, we expect full year margins to be in the $1.25 to $1.40 per gallon range. Diamond Green Diesel continues to capitalize on the premium Low Carbon Fuel Standard (“LCFS”) global markets, and the JV generated partner dividends of $40 million for the quarter and a total of $65 million for fiscal 2018.

The Darling and Valero partnership has never been stronger. Each partner brings uniquely valuable expertise that when combined creates unrivaled market leadership, collaborative innovation and specialization to amplify DGD to the next level. We are incredibly pleased that both boards approved the construction of our phase three Super Diamond expansion. Permitting is nearing approval for the groundbreaking of the parallel independent plant to bring an additional 400 million gallons per year of renewable diesel plus 50 to 60 million gallons of renewable naphtha for the green gasoline markets. The estimated cost of the facility is approximately $1.1 billion, and we have already entered the construction phase, with anticipated startup in the latter half of 2021.

Anchored in Sustainability Stewardship

We serve our growing global customers, our partners and our employees through a values-based approach, while being keenly aware of our corporate sustainability stewardship. Daily, we demonstrate our commitment to drive meaningful progress towards a cleaner, safer and sustainable environment. We have also committed to enhancing our corporate social responsibility (“CSR”) disclosure. In 2018, our Sustainability Committee elected to elevate our reporting by adopting the Sustainability Accounting Standards Board (“SASB”) framework as a structure for our CSR reporting. Going forward, we will report on Darling’s impact on our three key pillars:

• clean air and water
• safe food and feed
• communities and workplaces

We also enhanced our online sustainability disclosure with robust KPI updates as well as success stories that highlight our commitment to social responsibility. Toward this end, we are showcasing specific updates on our website, such as our latest video animation highlighting our biofuel story on Diamond Green Diesel.

Our corporate governance is anchored at the board level through vigilant and proactive oversight of financial, compliance and reputational risks. And, our recent appointment of Nicole Ringenberg as a Director aligns well with our governance strategy. Boasting a 32-year career with Monsanto, Nicole brings unique and strategic insights related to sustainable agricultural solutions, global operations and a strong emphasis on Asia, corporate finance and advancing diversity across the workforce. Overall, we are taking a holistic approach to environmental, social and governance accountability, and we look forward to providing more updates on our ongoing sustainability efforts across the company.

In summary, Darling Ingredients is backed by its financial strength, rooted in sustainable practices and focused on long-term value creation. We are excited about the strength of our business, our future market positions and our near-term and long-term growth opportunities. As always, we appreciate the passion and professionalism of our entire team, the sound guidance of our board of directors and the support and contributions of our shareholders, business associates, suppliers and customers.

Randall C. Stuewe
Chairman and Chief Executive Officer