Ridley Inc. Reports Financial Results for Fiscal 2014 First Quarter
(firmenpresse) - MANKATO, MINNESOTA -- (Marketwired) -- 11/05/13 -- Ridley Inc. (TSX: RCL) today reported its financial results for the first quarter of fiscal 2014, the three months ended September 30, 2013. All currency amounts are stated in U.S. dollars unless otherwise noted.
For the three months ended September 30, 2013, Ridley's earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations were $6.8 million compared to $9.7 million last year. Net income from continuing operations (net of income tax expense) for the period was $3.1 million ($0.24 per share) compared to $5.1 million ($0.40 per share) last year. Consolidated net income (after income taxes) for the quarter was also $3.1 million ($0.24 per share) compared to $5.1 million ($0.40 per share) last year.
Ridley's first quarter fiscal 2014 earnings were largely a reflection of a return to more normal tonnage volumes compared to the same period last year when the severe drought across much of the U.S. reduced forage availability and increased demand for feed supplementation. Ridley's overall tonnage volumes were thus lower by 5.0% in the first quarter this year, sales revenue of $133.9 million was lower by 6.4%, and gross profit of $17.8 million was lower by 9.3%. Most of the volume decline relative to last year was concentrated in the beef cattle sector; however, tonnage volume in all other animal species showed growth in the first quarter this year over last year. While earnings in the first quarter of fiscal 2014 were overshadowed by Ridley's strong performance last year, net income of $3.1 million this year was, except for last year, the highest on record for any first quarter in the Company's history.
Net operating expenses, which include selling, administration, technical services, and research and development of continuing operations, increased by 8.8% in the first quarter on increased employee expenses and increased bad debt expense relative to last year.
U.S. Feed Operations (USFO) reported a $0.9 million decrease in operating income for the first quarter this year, largely due to the drought last year but also higher operating expenses. Ridley Block Operations (RBO) reported a $1.6 million decrease in operating income from last year, again largely due to the return to more normal conditions. Ridley Feed Ingredients (RFI) reported operating income of $0.4 million in the first quarter this year, a decrease of $0.3 million from last year, mainly the effect of lower raw material prices and increased overhead costs. Ridley's share of its joint venture interest in Canada, Masterfeeds LP, reported near breakeven in the three months ended September 30, 2013 reflecting similar market conditions in Canada as in the United States; however, the integration of business operations has progressed as expected.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis dated as at November 5, 2013 and the accompanying interim consolidated financial statements for the three months ended September 30, 2013 have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) which incorporate International Financial Reporting Standards (IFRS).
First Quarter Results
The following summary data is presented to assist in understanding the fiscal 2014 first quarter results.
Consolidated First Quarter Results
Revenue from continuing operations was $133.9 million in the first quarter of fiscal 2014, a decrease of 6.4% over the same period last year. Lower revenues were the result of a 5.0% decline in volumes relative to last year when sales of feed supplements were strongly influenced by the severe drought, which has since abated. While most of the volume decline relative to last year was concentrated in the beef cattle sector, tonnage volume in other animal species less impacted by forage availability, including dairy cattle, swine and poultry, showed growth in the first quarter this year over last year. Raw material prices were also generally lower this year than the same period last year, which had the effect of reducing average unit selling prices for the Company's feed products.
Consolidated gross profit from continuing operations in the first quarter of fiscal 2014 was $17.8 million compared to $19.6 million in the same period last year. Most of the $1.8 million decrease in gross profit was concentrated in the RBO division where sales in the prior year were strongly supported by demand for feed supplementation resulting from drought conditions. Lower volumes and reduced ingredient gains from last year were largely offset by improved unit margins in feed supplements this year that followed from improvement in the availability of commodities and key feed ingredients, which had been negatively affected by drought last year.
Operating expenses, which include technical services, selling, administration expenses and research and development, in continuing operations were $12.5 million in the first quarter of fiscal 2014 compared to $11.5 million last year. Earnings exceptions in the first quarter this year, which are also included in operating expenses, were $0.4 million (pre-tax) for the gain on the sale of the site of the former Castleton, Indiana facility and $0.2 million (pre-tax) for the asset impairment loss from the closure of the Chambersburg, Pennsylvania facility. Excluding exceptions, the increase of $1.2 million in operating expenses of continuing operations over last year reflects increased employee expenses and higher bad debts expense relative to last year when the Company recorded a $0.3 million credit for recovery of a previously written off account.
Net income from continuing operations, net of income tax expense, for the first quarter of fiscal 2014 was $3.1 million ($0.24 per share) compared to $5.1 million ($0.40 per share) in the same period of fiscal 2013.
EBITDA is comprised of operating income of continuing operations before depreciation, amortization and exceptions. For the three months ended September 30, 2013, EBITDA was $6.8 million compared to $9.7 million for the same period last year. The decrease of $2.9 million in EBITDA is mainly comprised of the $1.8 million decrease in gross profit combined with the $1.2 million increase in overhead expenses. As noted above, exceptions this year relating to the sale of property and closure of a facility were a net gain of $0.2 million. There were no earnings exceptions in the prior year.
Discontinued operations are comprised of the Company's feed manufacturing business in Canada, previously reported as the Canadian Feed Operations (CFO) segment, which was merged into a limited partnership with Masterfeeds Inc. in the second quarter of fiscal 2013. Prior period results of CFO have been re-presented here as discontinued operations. Net loss from discontinued operations in the first quarter of fiscal 2014 was nil compared to $0.1 million last year.
The Company owns a non-controlling interest in the limited partnership, Masterfeeds LP. Starting with the second quarter of fiscal 2013, the Company's share of the earnings of Masterfeeds LP is reported as share of net income or loss of associate, which in the first quarter of fiscal 2014 was near breakeven.
Including income from discontinued operations, the Company reported net income after taxes for the three months ended September 2013 of $3.1 million ($0.24 per share) compared to $5.1 million ($0.40 per share) in the same period last year.
The accompanying interim financial statements reflect the Company's adoption of IAS 19 "Employee Benefits" which significantly changed the recognition and measurement of defined benefit pension and post-retirement expense, and the disclosure of all employee benefits. Implementation of this standard in the Company's interim consolidated financial statements required restatement of the fiscal 2013 comparative numbers. In summary, the effects of IAS 19 on previously reported financial statements for the three months ended September 30, 2012 were: (1) reclassification of $1.5 million from retained earnings to accumulated other comprehensive income, and (2) a reduction of net income by $0.2 million ($0.01 per share). The accompanying notes to the financial statements more fully explain the reporting changes caused by IAS19r and the retrospective effect on the Company's previously reported results for fiscal 2013.
The following table is a reconciliation of EBITDA to net income, the most closely comparable GAAP measure to EBITDA:
Ridley reports its financial results according to IFRS that have been incorporated into the Handbook of Canadian Institute of Chartered Accounts (CICA). However, Ridley has included in its management discussion and analysis certain non-IFRS financial measures and ratios that its management believes provide useful information in measuring the financial performance and financial condition of Ridley. These measures and ratios do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other public companies, nor should they be construed as an alternative to other financial measures described by IFRS.
Operating income is defined as net income before finance expense, finance income, income tax expense, share of net income or loss of associate and net income or loss from discontinued operations. Earnings before interest, taxes, depreciation and amortization (EBITDA) is defined as operating income of continuing operations before depreciation and amortization, gain or loss on sale of facilities and asset impairment loss.
Comprehensive Income
Comprehensive income (loss) is the change in net assets that results from transactions, events and circumstances from sources other than investments by and/or distributions to shareholders. Other comprehensive income (OCI) is comprised of unrealized gains and losses on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency and the transition adjustment between retained earnings and accumulated other comprehensive income related to the adoption of IAS19r. Comprehensive income in the first quarter of fiscal 2014 was $3.6 million, which was comprised of net income of $3.1 million, as reported above, plus unrealized gains of $0.5 million on the translation of the financial statements of related entities with foreign functional currency to U.S. currency.
SEGMENT RESULTS
In the second quarter of fiscal 2013, the Company modified its reporting segments to eliminate the Canadian Feed Operations (CFO) segment following the sale of substantially all of the net assets of its Canadian operations to Masterfeeds LP. The following is a summary of operating income (loss) of the reporting segments of the Company's continuing operations for the first quarter of fiscal 2013 and 2014. "Corporate" in this presentation includes the consolidating elimination of intersegment sales and the total assets and property, plant & equipment associated with discontinued operations.
U.S. Feed Operations (USFO)
The U.S. Feed Operations (USFO) segment consists of twenty-one full-line production facilities, operating in the United States as Hubbard Feeds, producing and marketing products for the core animal nutrition market. USFO plants derive most of their business by manufacturing and marketing a broad range of complete feeds, supplements and premixes to meat, milk and egg producers, and owners of equine and companion animals located mostly in the Midwestern United States.
Subsequent to the end of the first quarter, Ridley ceased feed manufacturing operations at its Chambersburg, Pennsylvania facility. Customer volume previously served by Chambersburg has been consolidated with the Company's equine-dedicated feed facility in Versailles, Kentucky.
Tonnage volume was lower by 6.1% in the first quarter of fiscal 2014 compared to last year. Volume last year reflected a significant increase in demand for feed due to the severe drought throughout much of the United States. Lower volumes this year followed from the return to a more normal level of demand for feed.
Gross profits in the first quarter this year were $10.3 million compared to $10.5 million in the same period last year. Lower volumes and reduced ingredient gains from last year were largely offset by improved unit margins in feed supplements this year that followed from improvement in the availability of commodities and key feed ingredients, which had been negatively affected by drought last year.
Operating expenses were higher in the first quarter this year by $0.6 million. The increase in operating expenses this year partly reflects the allocation of head office administrative costs previously absorbed by discontinued operations and partly higher employee expenses. Additionally, operating expenses last year reflected a $0.3 million recovery of a previous bad debt write-off. Operating expenses this year included a $0.4 million gain on the sale of the site of the Castleton, Indiana feed manufacturing facility. Also in the first quarter, USFO discontinued feed manufacturing operations at its Chambersburg, Pennsylvania facility, which resulted in a $0.2 million asset impairment loss.
Operating income for the first quarter of fiscal 2014 was $2.4 million, a decrease of $0.9 million from last year.
Ridley Feed Ingredients (RFI)
The Ridley Feed Ingredients (RFI) segment produces and distributes vitamin and trace mineral premixes, small packaged specialty products, medicated and non-medicated feed additives and micro feed ingredients to customers throughout North America from its facility in Mendota, Illinois.
Revenue in the first quarter of fiscal 2014, including intersegment sales, decreased by 3.1% from the same period last year as a result of lower volumes from last year in sales of feed ingredients, particularly feed- grade vitamins and amino acids. However, volumes of higher value-added manufactured products such as vitamin-mineral premixes and micro-premixes increased over last year resulting in an overall increase in unit margins. Variations in weather conditions, such as drought, have a less direct influence on RFI's business.
Gross profit of $1.5 million in the first quarter this year was lower by $0.1 million or 4.5% below last year mainly the result of declining market prices of feed ingredients and increased manufacturing overhead costs. Operating expenses in the first quarter increased over the prior year by $0.2 million on generally higher administrative costs. Operating income for the three months ended September 30, 2013 was $0.4 million, a decrease of $0.3 million from last year.
Ridley Block Operations (RBO)
The Ridley Block Operations (RBO) segment manufactures a complete range of block supplements, including low moisture, pressed, compressed, composite and poured blocks, loose minerals and dried molasses from eight U.S. facilities.
RBO's tonnage volume in the first quarter of fiscal 2014 declined by 16.9% from fiscal 2013 as a result of a return to more normal conditions following severe drought last year. Volume this year is comparable to volume at the start of the preceding year of fiscal 2012 when market conditions were generally favourable to feed supplementation. Volume this year also reflects the contribution of pressed blocks and dried molasses from Stockade Brands, which RBO acquired at the end of the second quarter of fiscal 2013.
Gross profits of $6.0 million in the first quarter this year were lower by $1.5 million from last year primarily reflecting reduced volumes of low moisture blocks relative to last year when demand was sustained by severe drought in the beef cattle growing regions of the United States. Operating expenses in the first quarter of fiscal 2014 were not materially changed from last year; reduced marketing expenses were largely offset by the allocation of head office administrative costs previously absorbed by discontinued operations. Operating income in the first three months of fiscal 2014 was $3.2 million compared to $4.8 million in the same period last year.
Liquidity/Capital Resources/Cash Flow
Ridley's net working capital and debt-to-equity positions are summarized below.
Net working capital balances increased by $3.3 million in the three months between June 30, 2013 and September 30, 2013. Annual payments for insurance and the timing of income tax payments accounted for most of the increase. Inventories were lower by $1.2 million, mainly the result of more efficient turnover rates of raw materials. Compared to the same point in time a year ago, working capital balances were lower by $11.6 million, which is largely accounted for by the inclusion last year of approximately $12.5 million of working capital accounts in Canadian Feed Operations prior to its sale to Masterfeeds LP.
The following is a summary of cash generated or utilized by business operations, net of capital expenditures on plant and equipment and other intangibles, excluding business acquisitions.
For the first quarter of fiscal 2014, cash available from operations net of capital expenditures and business acquisitions and disposals increased by $1.3 million compared to a decrease of $3.1 million in the same three-month period last year. Cash flows last year were negatively affected by delays in the implementation of business systems that resulted in the accumulation of higher accounts receivable and accounts payable balances while inventories were higher last year due to rising raw material prices.
The Company's borrowing capacity under its loan agreement with U.S. Bank National Association was unchanged at $50.0 million as at September 30, 2013.
Capital Expenditures
Capital expenditures on property, plant and equipment, and intangible assets (software) in the first quarter of fiscal 2014 were $1.5 million, compared to $3.0 million in the same period a year ago. Lower capital expenditures this year reflect discontinuation of Canadian Feed Operations.
Investment in Masterfeeds LP
On November 30, 2012 the Company and Masterfeeds Inc., a wholly-owned subsidiary of Ag Processing Inc., completed the merger of their respective livestock and poultry feed and nutrition businesses in Canada into a new limited partnership called Masterfeeds LP. Each of Masterfeeds Inc. and Ridley Inc. contributed all of their respective Canadian feed operating assets and liabilities in exchange for relative unit holdings in Masterfeeds LP. Ridley retains a non-controlling equity interest in Masterfeeds LP.
Starting in the second quarter of fiscal 2013, results of the Company's Canadian operations up to November 30, 2012 are reported as net income (loss) from discontinued operations. Pre-tax earnings from the Company's investment in Masterfeeds LP are reported as share of net income or loss of associate under the equity method of accounting, which in the first quarter of fiscal 2014 was near breakeven. The Company's investment in Masterfeeds LP is reported as an investment in associate, which as at September 30, 2013 was $17.6 million. As a limited partnership, Masterfeeds LP is not subject to income taxes - any taxable income is allocated between the respective partners.
Outstanding Share Data
Ridley's share capital consists of an unlimited number of common shares, with no par value. On December 13, 2012 Ridley received approval from the Toronto Stock Exchange (the "TSX") to initiate a normal course issuer bid for the Company's shares through the facilities of the TSX. The shares repurchase program permits the Company to purchase for cancellation up to 639,499 of its common shares over the twelve month period ending December 14, 2013. As at September 30, 2013 the Company had repurchased no shares under the current normal course issuer bid. The number of shares outstanding as at September 30, 2013 and as at November 5, 2013 was 12,789,978.
Seasonality and Commodity Variability
The Company experiences seasonal variations in revenue. Historically, revenue is strongest in the second and third fiscal quarters when colder weather from October to March typically increases demand for beef cattle feed. Other product lines are only marginally affected by seasonal conditions. Certain of the raw materials comprising the Company's products incorporate commodity-based products and the by-products of commodity processing. Fluctuating commodity prices may therefore influence revenues and associated cost of sales as the Company's selling prices are adjusted to reflect current raw materials markets.
Selected Quarterly Financial Information
Internal Control Over Financial Reporting
The Chief Executive Officer and Chief Financial Officer have each signed form "52-109F2 - Certification of Interim Filings" and filed it with the appropriate securities regulators in Canada in compliance with National Instrument 52-109: Certification of Disclosure in Issuers' Annual and Interim Filings issued by the Canadian Securities Administrators. There has been no change in Ridley's internal controls over financial reporting or disclosure controls and procedures that occurred during the most recent interim period that has materially affected, or is reasonably likely to materially affect, Ridley's internal control over financial reporting.
Forward-Looking Information
This report contains "forward-looking" information. The forward-looking information includes statements concerning the proposed transaction described herein, Ridley's outlook for the future, as well as other statements of beliefs, plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. Forward-looking information and statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, contemplated or implied by, such statements. These risks and uncertainties include the risk that the proposed transaction described herein will not be completed, the ability to make effective acquisitions and successfully integrate newly acquired businesses into existing operations, the availability and prices of raw materials and supplies, livestock disease, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital, the cost of compliance with environmental and health standards and other regulatory requirements affecting Ridley's business, adverse results from ongoing litigation, and actions of domestic and foreign governments. Other risks are outlined in the Risk Management section of the MD&A included in Ridley's Annual Report. Unless otherwise required by applicable securities law, Ridley disclaims any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. Ridley cautions readers not to place undue reliance upon forward-looking statements.
OUTLOOK
Ridley's business is sensitive to any changes in the economic environment for livestock and poultry producers and animal populations. Generally, most sectors of livestock and poultry production in North America are operating profitably at the current time. The drought in much of the Midwestern United States, which was severe at the start of Ridley's previous fiscal year, has since abated and is not a driver for feed volumes and prices in the current fiscal year. In much of Ridley's trading area in the Midwest there is an abundance of forage supplies for livestock producers and improved grain crops. Seasonal weather conditions will be an important determinant of tonnage volumes for the beef cattle sector heading into the winter months of Ridley's second and third fiscal quarters. Ridley's full product range for a diversity of animal species, including beef and dairy cattle, swine, equine and poultry, will help to provide resilience against uncertain producer economics.
Grain prices have decreased significantly in recent months, which will be beneficial to the economic prospects of producers and a positive influence for the rebuilding of herd populations. However, lower commodity prices in the coming year would be a negative factor for Ridley's unit margins. Market prices for feed ingredients, which generally move in tandem with commodities, directly impact the value of Ridley's raw materials inventories and the margin between ingredient cost and market driven prices realized on the sale of finished feed products. Consequently, the potential for continuing volatility in feed ingredient prices and the abundance of livestock forage in much of the Midwest will be amongst the more significant drivers of Ridley's results in fiscal 2014.
Ridley Inc., headquartered in Mankato, Minnesota, is one of North America's leading commercial animal nutrition companies. Ridley employs approximately 700 people in the manufacture, sales and marketing of a full range of animal nutrition products under highly regarded trade names. Ridley's common shares are listed on The Toronto Stock Exchange (trading symbol: RCL). Additional information, including the notes to the interim financial statements and Ridley's Annual Information Form (AIF), are available at . Visit our website at .
Refer to accompanying notes to the interim consolidated financial statements. Certain prior year figures have been restated as required by IAS 19r - See Note 5.
Refer to accompanying notes to the interim consolidated financial statements. Certain prior year figures have been restated as required by IAS 19r - See Note 5.
Accumulated other comprehensive income is comprised of the unrealized loss on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency and the transition adjustment between retained earnings and accumulated other comprehensive income related to the adoption of IAS19r (see Note 5).
Refer to accompanying notes to the interim consolidated financial statements. Certain prior year figures have been restated as required by IAS 19r - See Note 5.
Refer to accompanying notes to the interim consolidated financial statements. Certain prior year figures have been restated as required by IAS 19r - See Note 5.
Contacts:
Ridley Inc.
Steve VanRoekel
President and CEO
(507) 388-9400
Ridley Inc.
Gordon Hildebrand
Chief Financial Officer
(507) 388-9577
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