CERES GLOBAL AG CORP. ANNOUNCES
RESULTS FOR THE THIRD QUARTER ENDED DECEMBER 31, 2012
TORONTO, ON, (February 13, 2013) – Ceres Global Ag Corp. (“Ceres” or the “Corporation”) announces its results for the third quarter ended December 31, 2012:
The following points summarize the financial results for the fiscal quarter ended December 31, 2012, and certain figures reporting the financial position as at that date, for Ceres on a consolidated basis and for its operating subsidiary Riverland Ag. Figures for 2011 are for the quarter ended December 31, 2011:
- Consolidated and Riverland Ag revenues were $84.6 million (quarter ended September 30, 2012: $35.1 million; quarter ended December 31, 2011: $22.6 million).
- Gross profit:
- Consolidated and Riverland Ag gross profit was a loss of $2.4 million (quarter ended September 30, 2012: profit of $1.1 million; quarter ended December 31, 2011: profit of $4.9 million).
- Consolidated EBITDA was a loss of $5.3 million (quarter ended September 30, 2012: profit of $0.08 million; quarter ended December 31, 2011: profit of $1.2 million).
- Riverland Ag EBITDA was a loss of $2.8 million (quarter ended September 30, 2012: $0.7 million; quarter ended December 31, 2011: profit of $4.5 million).
- Net income (loss):
- Consolidated net loss was ($7.1 million) (2011: net loss of ($1.7 million)), representing basic and fully diluted loss per share of ($0.50) (2011: basic and diluted loss per share of ($0.11)).
- Riverland Ag’s net loss was ($4.8 million) (2011: net income of $1.7 million), representing basic and fully diluted loss per share of ($0.34) (2011: basic and fully diluted earnings per share of $0.11).
- Cash and portfolio investment assets (consolidated):
- As at December 31, 2012, cash and portfolio investments totalled $29.8 million, representing $2.08 per common share (March 31, 2012: $39.6 million, $2.72 per share).
- Shareholders’ equity per common share (consolidated):
- As at December 31, 2012, consolidated shareholders’ equity per common share was $9.89 (September 30, 2012: $10.29; June 30, 2012: $10.61; March 31, 2012: $10.69; December 31, 2011: 10.83).
The major factors contributing to the loss in Q3, and to the comparative decline in earnings from Q3 last year and Q2 in this current fiscal year, were:
- Strategic Delivery of Inventory:
- A loss of $2.4 million as a result of a strategic decision to deliver a significant amount of inventory in the quarter against December 2012 futures contracts. During this quarter, carrying charges continued to be depressed. After determining that the demand for terminal load out inventories was satisfied, Riverland Management determined the best market for these inventories was the futures delivery market. Because some of these inventories had been marked to market at levels higher than parity, a $2.4 million loss was incurred. These inventories are off balance sheet, but remain in Riverland’s facilities and are earning full storage income;
- Early Debt Repayment Penalty:
- A $2.5 million early repayment penalty related to paying off the balance of Riverland Ag’s long-term debt in Q3;
- Canadian Dollar:
- A loss of $0.4 million on currency hedging transactions in Q3 compared, to a gain on currency hedging transactions in of $1.75 million in Q2 and a gain of $0.5 million for the quarter ended December 31, 2011; and,
- Reduced carrying income compared to last year.
As at December 31, 2012, the Corporation’s net book value per share was $9.89, down from $10.29 as at the prior quarter-end. The decrease during the quarter is attributable to the consolidated net loss of $7.1 million, partially offset by a currency translation gain of $1.3 million related to the un-hedged portion of Ceres’ investment in the net assets of Riverland Ag. The currency translation gain in Q3 was caused by the decline in this quarter of 1.19% in the value of the Canadian dollar against the U.S. dollar.
Although Riverland Ag’s financial results for the quarter fell short of expectations, they are largely the result of one-time charges arising from strategic operating decisions made in the quarter. Management believed that Riverland Ag’s large terminal inventory position in certain grains was not generating sufficient futures carrying charges to justify rolling inventories forward. One of the specific features and advantages of Riverland Ag’s grain storage space is that much of it ‘qualifies for delivery’ against contracts on a number of major grain exchanges. After determining that the delivery market represented the best market for certain grains, Riverland Ag delivered a significant amount of inventory against the December 2012 contracts, as Riverland Ag management concluded its financial results would benefit both from lower interest costs and full storage income for the inventory delivered plus the potential for higher carry income on Riverland Ag’s owned inventory going forward. Subsequent to this move, Riverland Ag began receiving storage income on its delivered stocks and carrying charges widened, which is providing the opportunity to roll forward at higher returns than existed in past quarters.
Largely as a result of the large grain deliveries made during this quarter, Riverland Ag’s credit needs changed significantly. As a result, management decided to pay off Riverland Ag’s longterm debt in favour of its operating line of credit, which bears interest at a substantially lower interest rate. The early repayment gave rise to a $2.5 million early repayment penalty. It is expected that this amount will be recovered over the next 18 months due to the lower cost of borrowing against the operating facility.
As mentioned in our press release and MD&A from last quarter, the transition to an open market in Canada for wheat and barley has been slower than originally expected, as farmers have been reluctant to move wheat off the farm at the levels originally anticipated. As of January 2013, some industry analysts indicate that over 50% of the 2012 Canadian wheat crop is still on farm waiting to be moved to market. As also mentioned in the previous quarter’s earnings release, we continue to expect more movement of grain in the 4th quarter, which will restore utilization at Riverland Ag’s facilities. Early planting indications are that seeded acres will rise in Canada for spring wheat, which should encourage farmer sales to make room for the 2013 crop. We continue to believe that the flow of Canadian grain to the United States will increase over the next few quarters. As one of the largest independent grain companies, with over 50 million bushels of storage located in the Upper Lakes and Mississippi River area strategically close to the Canadian border, Riverland Ag continues to be in a unique position to benefit from the structural changes occurring in the North American cereal grain market.
Ceres’ 25% investment in Stewart Southern Railway (“SSR”), located in the southeastern area of Saskatchewan, continued its rapid growth during the quarter as Crescent Point Energy continued to increase oil shipments on the line. For the quarter ended December 31, 2012, SSR reported net earnings of $1.05 million, resulting in Ceres generating $0.26 million of equity earnings during the quarter, consistent with the previous quarter. This represents a return of approximately 36% over the last six months. During the quarter, with work underway to increase the capacity of Crescent Point Energy’s terminal, the daily volume of oil shipments averaged slightly higher than the 15,500 bpd in the previous quarter. The expansion to a capacity of 40,000 bpd was completed at the end of the quarter. Oil shipments reached approximately 30,000 bpd by the end of December and are expected to increase over the next calendar year. Shipments of agricultural commodities continued on pace with the last quarter.
On February 5, 2013, Ceres issued a press release outlining the Northgate, Saskatchewan commodity logistics hub (“Northgate”). It was the experience gained with the SSR and Riverland Ag that led management to acquire a significant acreage of strategically important land that underpins this commodity logistics hub. As this project is developed, we expect Northgate to become a strong addition to our Commodity Logistics Division, which, in turn, will represent an ever-greater portion of our business and provide greater diversification to Ceres shareholders.
Ceres’ 25% investment in Canterra Seeds Holdings Ltd. is showing favourable results and signs of improvement for the quarter, reporting net income of $2 million (compared to net income of $1.1 million for the quarter ended December 31, 2011) driven by increased canola seed sales. Ceres’s 25% share of that net income was $0.5 million for the quarter. While this quarter is typically when the majority of sales and profitability is achieved, it has been a strong improvement over the past year.
The interim condensed consolidated financial statements for the quarter and nine-month period ended December 31, 2012 and the notes related thereto, and the Interim Management’s Discussion and Analysis are available under Ceres’ profile on www.sedar.com and have been posted on the company’s web site at www.ceresglobalagcorp.com. Unless otherwise indicated, all amounts are reported in Canadian dollars.
“While pleased with the exceptional earnings growth at the SSR and excited about the potential of our Northgate commodity logistics hub, we continue to be disappointed with the operating results at Riverland Ag,” said Michael Detlefsen, President of Ceres. “Despite the one-time hit taken on the December 2012 futures contracts, we are pleased that our strategic use of Riverland Ag’s delivery position has led to stronger carries and lower interest costs, and the early pay-down of our term debt facility will further reduce future financing charges,” he said, adding, “but this is clearly not enough; working closely with the Riverland management team, we have launched a comprehensive, internal review of the Riverland businesses and expect to make some key strategic decisions over the coming months.”
Jason Gould, Chief Financial Officer of Ceres, said: “Maintaining our strong cash position has allowed us to take advantage of opportunities such as Northgate, and we continue to look for other commodity logistics investment opportunities.” Mr. Gould added: “With strong demand for grain handling and storage assets raising the prices of these assets, we feel that investing our excess cash in our Commodity Logistics Division will generate stronger returns.”
Non-IFRS Financial Measures
EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) is not a standardized financial measure prescribed by IFRS; however, management believes that most of its shareholders, creditors, other stakeholders and investment analysts benefit from using this performance measure in analyzing Ceres’ results. Ceres also uses this measure internally to monitor the Corporation’s performance.
In calculating EBITDA, Ceres excludes its share of the net income (loss) from investments in associates and the loss on sale or impairment of property, plant and equipment. Ceres may calculate EBITDA differently than other companies; therefore, Ceres’ EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that EBITDA should not be construed as an alternative to net income or loss, or to other standardized financial measures determined in accordance with IFRS, and is not intended to represent cash flows or results of operations in accordance with IFRS.
About Ceres Global Ag Corp.
Ceres Global Ag Corp. owns 100% of Riverland Ag Corp., owns a 25% interest in Stewart Southern Railway Inc., and has significant capital available to invest in these and related businesses. Riverland Ag Corp. is an agricultural grain storage and handling and supply chain business operating 14 grain storage facilities in Minnesota, North Dakota, Wyoming, New York, Wisconsin and Ontario having aggregate storage capacity of approximately 50 million bushels. Stewart Southern Railway Inc. is a short line rail company that operates in Southeastern Saskatchewan as our commodities logistics division. Ceres common shares trade on the Toronto Stock Exchange under the symbol “CRP”.
For further information, contact:
Chief Financial Officer
Cautionary Notice: This news release contains “forward-looking information” within the meaning of applicable Canadian securities legislation and United States securities laws. Forward-looking information may include, but is not limited to, statements regarding future operations and results, anticipated business prospects and financial performance of Ceres and its subsidiaries, expectations or projections about the future, strategies and goals for growth, expected and future cash flows, costs, planned capital expenditures, anticipated capital projects, construction and completion dates, operating and financial results, critical accounting estimates and the expected financial and operational consequences of future commitments. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, “believes” or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might”, or “will be taken”, “occur”, or “be achieved”. Forward-looking information is based on the opinions and estimates of management at the date the information is made, and is based on a number of assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Key assumptions upon which such forward-looking information is based are listed in the “Forward-Looking Information” section of the interim MD&A for the quarter and nine-month period ended December 31, 2012. Many such assumptions are based on factors and events that are not within the control of Ceres and there is no assurance they will prove to be correct. Factors that could cause actual results to vary materially from results anticipated by such forward-looking information include, among others, risks related to weather, politics and governments, changes in environmental and other laws and regulations, competitive factors in agricultural, food processing and feed sectors, construction and completion of capital projects, labour, equipment and material costs, access to capital markets, interest and currency exchange rates, technological developments, global and local economic conditions, the ability of Ceres to successfully implement strategic initiatives and whether such strategic initiatives will yield the expected benefits, the operating performance of the Corporation’s assets, the availability and price of commodities and regulatory environment, processes and decisions. Although Ceres has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results that are not anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Ceres undertakes no obligation to update forward-looking information if circumstances or management’s estimates or opinions should change, except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking information.