Feronia Inc. Reports 2012 Results
(firmenpresse) - TORONTO, ONTARIO -- (Marketwired) -- 04/30/13 -- Feronia Inc. ("Feronia" or the "Company") (TSX VENTURE: FRN) today released its audited financial results for the year ended December 31, 2012. All amounts in this release are expressed in US dollars unless otherwise indicated.
2012 Highlights
Subsequent Events
Bill Dry, CEO of Feronia Inc. commented: "Much has been achieved during the year across our business. In palm oil, our replanting program continues apace with almost 4,000 hectares planted during the year. This is a key value driver for Feronia and was, we believe, the largest such program in Africa in 2012. Replanting over 600,000 trees is no small undertaking and achieving this is a testament to the hard work and dedication of our staff. Furthermore, we have already re-planted 422 ha in the first two weeks of the planting season in March 2013 and have confidence our 2013 target of 5,000 hectares is achievable.
"Our arable business has also made good progress with the completion of our rice drying and processing facilities meaning we have been able to commence processing and selling our own crop in to the local market. This is hugely pleasing as the level of demand we are experiencing and the prices we are achieving support our earlier assumptions. We intend to continue planting trial crops during 2013 to further test commercial viability and scalability."
About Feronia Inc.
Cautionary Notes
Except for statements of historical fact contained herein, the information in this press release constitutes "forward-looking information" within the meaning of Canadian securities law. Such forward-looking information may be identified by words such as "anticipates", "plans", "proposes", "estimates", "intends", "expects", "believes", "may", "will" and include without limitation, statements regarding proposed capital expenditure; the Company's plan of operations; and plans regarding sowing rice and replanting oil palms. There can be no assurance that such statements will prove to be accurate; actual results and future events could differ materially from such statements. Factors that could cause actual results to differ materially include, among others: risks related to foreign operations (including various political, economic and other risks and uncertainties), the interpretation and implementation of the Agriculture Law, termination or non-renewal of concession rights or expropriation of property rights, political instability and bureaucracy, limited operating history, lack of profitability, lack of infrastructure in the DRC, high inflation rates, limited availability of debt financing in the DRC, fluctuations in currency exchange rates, competition from other businesses, reliance on various factors (including local labour, importation of machinery and other key items and business relationships), the Company's reliance on one major customer, lower productivity at the Company's plantations and arable farming operations, risks related to the agricultural industry (including adverse weather conditions, shifting weather patterns, and crop failure due to infestations), a shift in commodity trends and demands, vulnerability to fluctuations in the world market, the lack of availability of qualified management personnel and stock market volatility. Most of these factors are outside the control of the Company. Investors are cautioned not to put undue reliance on forward-looking information. Except as otherwise required by applicable securities statutes or regulation, the Company expressly disclaims any intent or obligation to update publicly forward-looking information, whether as a result of new information, future events or otherwise.
Notes:
Recent developments in the oil palm operations
As at December 31, 2012, Plantations et Huileries du Congo (PHC), being the main operating unit of Feronia, had concessions of 107,892 ha located in the provinces of Equateur and Orientale in the DRC. In 2012, PHC accounted for 100% of Feronia's revenues.
As at December 31, 2012, the assets and operations of PHC consisted of the following:
As previously noted, in the first quarter of 2012 the Company ceased transporting fruit by barge from Yaligimba to the palm oil mill at Lokutu due to escalating costs and the deterioration in quality resulting from transportation. The total number of producing hectares consequently decreased by 38.2% to 6,310 ha and the total tonnage of fruit production decreased by 17.2% year-on-year. On a like for like basis, excluding Yaligimba, fruit production decreased by 9.93% and 6.75% for the three and 12 months ended December 31, 2012, respectively, compared to the corresponding periods in 2011.
This reduction is primarily a result of the following factors:
Management believes that these improved practices are in the long-term interest of better profitability but have affected gross margin in the short term.
The oil produced by the Company is of a high quality with the average Free Fatty Acid ("FFA") content of oil sold at 2.35% (2011: 3.90%). The higher level of FFA in 2011 arose from the deterioration of fruit transported from Yaligimba to Lokutu for processing and was a key factor in the decision to cease that practice.
At December 31, 2012, the Company employed 3,541 staff in its palm oil operations (December 31, 2011: 3,669), more than would normally be required for a palm oil business with production at Feronia's current levels. However, the Company recognises the considerable amount of knowledge and skill held within its workforce and believes it is a tremendous asset. While a large proportion of the workforce is currently utilised in Feronia's replanting program, a sufficient portion of the workforce has the skillset to be re-allocated to harvesting operations as the Company's producing hectarage increases.
The Company also has in place a Management Training Programme to develop management capabilities and skills across four areas - agronomy, finance, technical (engineering) and personnel. The Company believes this is essential to ensure the development of skills through the organisation and is a key part of the Company's succession planning.
New plantings of oil palms commenced in March 2012 in line with rainfall patterns, with 1,138 ha planted in the fourth quarter of 2012 and a total of 3,924 ha of oil palms planted in 2012 (2011: 2,110 ha), representing the replanting of approximately 627,000 trees (2011: approximately 337,000 trees). Fertiliser has been applied to palms aged between 4 and 15 years, with 2,469 ha completed by the end of the fourth quarter of 2012. The size of Feronia's workforce has been and will be a key factor in delivering on its objective to replant 5,000 ha each year going forward. Re-planting of oil palm in 2013 commenced in mid-March and, as at March 31, 2013, 422 ha had been completed.
At Yaligimba, the Company's contractor is well advanced on the installation of the CPO mill. Essential work still needs completing, which has been slowed by the onset of the wet season but completion is expected in the near term. Once the new palm oil mill is operational, the Company will have access to an additional 3,903 ha of producing palms. It is expected that the Yaligimba plantation will achieve operating results similar to Lokutu on a per hectare basis.
The Yaligimba palm oil mill will have an initial processing capacity of 30 tonnes per hour of FFB, with the potential to increase to 60 tonnes per hour in a phase 2 expansion. The Yaligimba palm oil mill's commissioning will mean that the Company will have installed processing capacity of 55 tonnes per hour across its entire operations. It is anticipated that under the current planting program and internal forecasts for yield improvement, there will be no requirement for additional processing capacity, other than the phase 2 expansion at Yaligimba, until around 2020.
In April 2013, Benedict Rich joined the Company as Managing Director of PHC. Mr. Rich has extensive experience managing plantation operations in emerging markets and has also been responsible for various aspects of research and development programs in both tea and oil palm. He is ISO qualified and has a keen interest and understanding of sustainability and the environment in the palm oil industry, having helped develop the industry's environmental, social and sustainability standards.
Recent developments in the arable operations
As previously noted, the Company's first commercial rice crop of 1,200 ha was sown in October and November 2011 but, due to various reasons including delays in the importation of appropriate equipment and poor rainfall, the crop produced only minimal yields.
In February 2012, 305 ha of rice were planted. Rainfall was adequate and the harvest completed in August 2012. The harvest yielded 525 tonnes of paddy rice at 1.7 tonnes per hectare. The realised yield was negatively impacted by significant losses due to mechanical failures suffered by the Company's combine harvesters.
In March 2012, 60 ha of edible beans were sown and, in April 2012, a further 140 ha as part of the Company's strategy of smaller scale, proof-of-yield plantings. These crops were harvested in September 2012, although the yields were negligible. This was due to the locally sourced seed stock proving to be of poor quality with inconsistent growth which prohibited mechanised harvesting. The Company has elected to trial hybrid seeds from an international supplier for its next planting.
In June 2012, the Company commissioned a review of the arable operation by a firm of independent Brazilian agronomists, including an assessment of the in-ground rice and bean crops. The results of the review, which included a number of recommendations being considered by management, confirm the high potential for large-scale food production in the Bas Congo region of the DRC.
In October 2012, 500 ha of rice were planted. The Company planted NERICA-4® (New Rice for Africa-4), an upland rice variety suited to African soil and weather conditions. Harvest of this crop commenced in mid-February 2013 with mechanized harvesting supplemented through local casual labour.
Results from the trial planting have been very positive with in-field yields believed to be around 4 tonnes of paddy rice per ha. Mechanized harvesting achieved an average yield of 3.1 tonnes of paddy rice per ha over the first 46 ha harvested in February 2013 and 2.5 tonnes per ha from the subsequent 77 ha harvested mechanically by the end of March 2013. Yield per ha declined as the harvest progressed due to in-field losses caused by the protracted harvest period and insufficient harvesting machinery to complete the harvest in the optimum time period. The Company had ordered a second combine harvester to support the harvest but, due to shipping delays unrelated to the DRC, it did not arrive in time to participate in the beginning of the harvest.
In November 2012, the Company's rice mill was completed and commissioned. It is the only large-scale rice mill in the region and allows the Company to process its own crop and that produced by other local small-holder farmers. Earlier in the year, civil works and the drying facilities were completed. Storage of dried paddy rice is currently undertaken using a grain bag storage system which is an acceptable interim solution for storing current volumes and allows the Company to continue to dry and mill crop.
In April 2013, following quality tests and qualifying as an approved supplier to Heineken N.V., the Company commenced selling rice grown on its farm to Bralima, Heineken's wholly-owned DRC subsidiary. Bralima has agreed to purchase 1,100 tonnes of rice during 2013. The Company has also started supplying rice to supermarket chain Ets Kuku which has received an initial shipment of eight tonnes and requires 23 tonnes per month going forward. Fulfillment of both contracts will be made from existing stocks of rice accumulated from the Company's trial plantings, which were harvested, dried and subsequently milled at the Company's rice mill, and from current and expected future harvests. The Company expects that minimal capital expenditures will be required for fulfillment of such contracts.
The Company now has in place a pricing structure whereby the price charged for rice is determined by the quality of the product sold, specifically, the percentage of broken grains. The prices the Company is achieving are consistent with earlier estimates and at a significant premium to global rice prices. The Company anticipates selling to additional counterparties over the course of time.
Outlook
The Company's strategy for its oil palm plantations business continues to be to maximize returns from existing plantings while investing in new plantings and the required processing capacity. Commissioning of the new palm oil mill at Yaligimba is expected to provide the Company with immediate access to an additional 3,903 ha of mature oil palms for the production of CPO, an increase of 62.1% from the area currently accessible. Once the Yaligimba palm oil mill is completed, there are no major capital expenditures currently anticipated in the Company's oil palm plantations business, excluding costs associated with the Company's replanting program.
The Company has made progress in establishing commercially viable rice yields at its arable operation, has established a pricing formula and is making sales to high quality local counterparties. This furthers our confidence in the favorable dynamics of the local rice market. The Company is currently evaluating how to prudently expand its arable farming operation in light of these recent positive developments.
As previously disclosed by the Company, on December 24, 2011, the government of the DRC promulgated a new law, "Loi Portant Principes Fondamentaux Relatifs a L'Agriculture" (the "Agriculture Law"), for the stated purposes of developing and modernizing the country's agricultural sector. Feronia continues to seek clarification on the implications of this legislation from local counsel and government in the DRC. If the Agriculture Law is interpreted by the DRC government to apply to the existing concession rights held by the Company and the Agriculture Law is not amended, it could have a material and substantial adverse effect on the value of its business and its share price. In such case, Feronia may be required to sell or otherwise dispose of a sufficient interest in its operating subsidiaries so as to ensure that it meets local ownership requirements. There is no assurance that such a sale or disposition would be completed at fair market value or otherwise on acceptable terms to Feronia. Please refer to the Company's Management Discussion and Analysis for the three and 12 months ended December 31, 2012 available on for a full discussion on the Agriculture Law.
Revenues for Q4 2012 were $1,029,000, a 66% decrease on Q4 2011 revenues of $3,011,000. Revenues for the year ended December 31, 2012 were $7,130,000, a 4% decrease on the same period in 2011 (year ended December 31, 2011: $7,449,000).
The lower level of revenue in Q4 2012 when compared to Q4 2011 was due to two main factors:
Revenues for the year ended December 31, 2012 were also impacted by an 7.9% reduction in the average selling price per tonne of CPO during the year to $906 per tonne, compared with $984 for 2011. This reduction reflects:
However, the Company sold 6,993 tonnes of CPO in the year ended December 31, 2012, a 3.8% increase on the 6,737 tonnes of CPO sold in 2011.
Selling, general and administrative costs decreased by $1,727,000 for Q4 2012 and $1,852,000 for the year ended December 31, 2012 when compared to the corresponding periods of 2011. These decreases are mainly due to:
Cash Flows and Liquidity
The cash balance at December 31, 2012 was $1,260,000, compared to $13,521,000 as at December 31, 2011. The decrease in cash balance of $12,261,000 was a result of net loss (excluding non-cash items) of $9,900,000 and capital expenditures of $13,647,000 partially offset by an increase in working capital of $3,986,000 and the issue of shares for cash of $6,964,000.
For the year ended December 31, 2012, working capital movements resulted in cash inflows of $3,986,000 (cash outflows of $4,787,000 for the year ended December 31, 2011), driven by decreases in inventory of $4,522,000, receivables of $1,116,000 and prepaid expenses of $3,273,000 offset by decreases in payables of $138,000.
Investing activities resulted in cash outflows of $13,647,000 for the year ended December 31, 2012 (cash outflows of $9,601,000 in the year ended December 31, 2011).
Cash inflows from financing activities were $6,964,000 for the year ended December 31, 2012 (cash inflows of $27,566,000 in the year ended December 31, 2011).
Non-GAAP Financial Measures
Gross margin is not a financial measure recognized by IFRS and does not have a standardized meaning prescribed by IFRS. The Company's method of calculating gross margin may differ from other methods used. Gross margin is presented in this MD&A as additional information regarding the Company's financial performance. Gross margin has been calculated by deducting cost of sales from revenue.
Neither the TSX Venture Exchange nor its regulation services provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Contacts:
Feronia Inc.
Ravi Sood
Executive Chairman
(416) 907-2026
Feronia Inc.
Bill Dry
CEO
44 (0) 7887 525 046
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Datum: 30.04.2013 - 12:30 Uhr
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