Ridley Inc. Reports Financial Results for Fiscal 2012 First Quarter
(firmenpresse) - MANKATO, MINNESOTA and WINNIPEG, MANITOBA -- (Marketwire) -- 10/26/11 -- Ridley Inc. (TSX: RCL) today reported its financial results for the first quarter of fiscal 2012, the three months ended September 30, 2011. All currency amounts are stated in U.S. dollars unless otherwise noted.
For the first three months of fiscal 2012, Ridley's earnings before interest, taxes, depreciation and amortization (EBITDA (i)) were $3.8 million compared to $4.7 million last year. Net profit after income taxes (NPAT) was $0.7 million (6 cents per share) compared to $1.6 million (13 cents per share) last year.
Ridley's tonnage volumes were 2.5% higher in the first quarter of fiscal 2012 while gross profits increased by 3.7% to $0.6 million. Sales revenues of $156.5 million were 22.7% higher than last year but much of this increase was the effect of higher raw material prices. Although average unit margins in this year have been pressured by a volatile, lower-trending commodity market, the increase in Ridley's gross profits in the first three months of fiscal 2012 reflects the continuing strategic shift from lower margin to higher value added products.
"We are encouraged by the increase in tonnage volume in the first quarter this year. Top-line growth and more stable raw material prices will be fundamental to results this year," said Steve VanRoekel, President and CEO of Ridley Inc. "The gain in gross profits this quarter was negated by higher operating expenses, but much of those increases related to exceptional items in the period, such as our investment in major consulting engagements to implement lean manufacturing concepts throughout the organization," added VanRoekel.
Operating expenses increased by $1.8 million in the period, and consequently, operating income in the first quarter of fiscal 2012 decreased to $1.5 million from $2.8 million in the same period last year. Operating expenses in the quarter included such items as a $0.3 million loss on the sale of a redundant property, a $0.2 million foreign currency exchange loss, a swing in bad debts expense from an unusual credit balance last year, and an increase in consulting fees related to lean manufacturing initiatives.
Ridley Block Operations produced strong results in the first quarter of fiscal 2012 on increased volumes of feed supplement blocks in an improved beef cattle production environment relative to last year. Canadian Feed Operations struggled with competitive pressures that reduced volumes and margins, while higher operating expenses in the segment resulted in a $1.1 million operating loss. Results in U.S. Feed Operations and Ridley Feed Ingredients were lower from last year on higher operating expenses that offset improvements in gross profits.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This management's discussion and analysis dated as of October 26, 2011 and the accompanying interim consolidated financial statements for the three months ended September 30, 2011 have been prepared to reflect the adoption of International Financial Reporting Standards ("IFRS") by the Company, with effect from July 1, 2010. Periods prior to July 1, 2010 have not been restated. Note 21 to the interim consolidated financial statements for the three months ended September 30, 2011 contains a detailed description of the Company's conversion to IFRS, including a line-by-line reconciliation of its consolidated financial statements previously prepared under Canadian GAAP to those prepared under IFRS for the three months ended September 30, 2010 and for the year ended June 30, 2011. Although the adoption of IFRS resulted in adjustments to Ridley's financial statements, it did not materially impact the underlying cash flows or profitability of the Company's operations.
For the financial year 2012, the Company has modified its reporting segments. Prior to fiscal 2012 Ridley Feed Operations (RFO) was comprised of Ridley's traditional Canadian and U.S. feed businesses. The RFO segment has now been divided into two reporting segments: Canadian Feed Operations (CFO) and U.S. Feed Operations (USFO). Prior to fiscal 2012, Ridley Nutrition Solutions (RNS) was a combination of Ridley's feed supplement block business and McCauley Bros., a premium horse feed business. Starting in fiscal 2012 the McCauley equine business is reported within the results of U.S. Feed Operations while the block business of RNS is renamed Ridley Block Operations (RBO). The Ridley Feed Ingredients (RFI) reporting segment, which produces vitamin and trace mineral premixes, feed additives and micro feed ingredients, is unchanged from prior years.
First Quarter Results
The following summary data is presented to assist in understanding the fiscal 2012 first quarter results:
Consolidated First Quarter Results
Revenue of $156.5 million in the first quarter of fiscal 2012 was higher by $29.0 million from the same period last year. A comparison of revenue is not necessarily indicative of the strength of Ridley's business because revenue is influenced by fluctuating commodity prices. Total sales volume, as measured in tons of feed products sold, was 2.5% higher than the prior year. The increase in volume was concentrated in the RBO and USFO segments which have benefited from improvements in the demand for feed supplementation in the beef and dairy sectors. Persistent drought in the south-central U.S. has prompted an increase in sales of feed supplement blocks suited to open range cattle. Although the beef cattle population has declined for several years, tighter stocks have meant significantly improved cattle prices enabling cow/calf producers to operate profitably during the quarter.
Consolidated gross profit in the first quarter of fiscal 2012 was $16.0 million compared to $15.5 million in the same period of fiscal 2011. RBO's gross profits increased by $0.9 million in the period on stronger volumes, but this gain was mostly offset by reduced gross profits in the CFO segment where lower volumes combined with competitive pressures on margins and increased production costs to yield a $0.7 million decrease in gross profits. USFO's gross profit in the first quarter of fiscal 2012 increased by $0.3 million on improved volumes that offset lower unit margins from volatile raw materials markets. RFI improved gross profits by $0.1 million over last year by improved unit margins and reduced production costs that were only partially offset by reduced volumes.
Operating expenses, which include selling, marketing and administration expenses, as well as depreciation of property, plant and equipment, were $14.5 million in the first quarter of fiscal 2012 compared to $12.7 million last year. Selling and marketing expenses were higher by $0.6 million in the first quarter mainly due to increased customer promotions. Administration expenses were higher by $0.6 million in the period due to exceptional items such as the reallocation of certain managerial salaries from manufacturing overhead and consulting fees related to implementation of lean manufacturing initiatives. The loss on sale of facilities of $0.3 million in the first quarter of fiscal 2012 relates to the disposal of previously closed facilities in Syracuse, Indiana and Manitou, Manitoba.
EBITDA is comprised of operating income before depreciation, amortization and exceptions. For the three months ended September 30, 2011 EBITDA was $3.8 million compared to $4.7 million for the same period last year. Exceptions in the first quarter of fiscal 2012 were comprised of the $0.2 million loss net of income taxes on the sale of a redundant facility. There were no material exceptions in the first quarter of the prior year.
Net earnings after taxes for the first quarter of fiscal 2012 were $0.7 million (earnings per share of $0.06) compared to $1.6 million (earnings per share of $0.13) in the same period of fiscal 2011.
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 entirely of unrealized gains and losses on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency. Comprehensive income (loss) in the first quarter of fiscal 2012 was a loss of $1.2 million which was comprised of net income of $0.7 million, as reported above, plus unrealized losses of $1.9 million on the translation of the financial statements of Canadian entities to U.S. currency.
International Financial Reporting Standards
The Canadian Accounting Standards Board (AcSB) requires all public companies to adopt International Financial Reporting Standards (IFRS) for interim and annual financial statements for fiscal years beginning on or after January 1, 2011. The Company has commenced reporting its financial results in accordance with IFRS for the year ended June 30, 2012 and its quarterly unaudited interim results starting with the quarter ending September 30, 2011. The notes accompanying the interim financial statements provide comparative data on an IFRS basis, including an opening balance sheet as at July 1, 2010.
Differences between Canadian GAAP and IFRS in the method for the determination of impairment of assets resulted in the Company realizing an impairment of certain assets in its conversion to IFRS. The impairment amount of $12.7 million is reflected as a decrease in property, plant and equipment in the opening transition balance sheet as at July 1, 2010. IFRS and Canadian GAAP also differ on the recognition of actuarial gains/losses associated with long-term employee obligations such as defined benefit pensions and post-retirement medical benefits. Canadian GAAP allows for deferral and subsequent amortization of actuarial gains/losses while IFRS recognize gains/losses immediately through comprehensive income. The opening transition entries include an increase in liabilities of $11.4 million associated with long-term employee benefits. Deferred tax benefits of $8.3 million are recorded under IFRS for the income tax effects of the aforementioned transition entries. Combined, these changes realized from the conversion to IFRS resulted in a net reduction to equity of $15.8 million in the opening transition balance sheet as at July 1, 2010.
The Company elected to reclassify all cumulative translation differences as of January 1, 2010 from a separate component of equity to retained earnings. The effect of this reclassification was a reduction in the balance sheet account of accumulated other comprehensive income, and an increase in retained earnings, of $11.2 million.
The Company has performed an evaluation of is financial information systems and the financial reporting impact of divergences identified to date and concluded that transition to IFRS did not require material modifications to information and reporting systems. The Company concluded its internal controls over financial reporting, disclosure controls and procedures are appropriately designed and properly functioning for an IFRS reporting environment. The design includes new controls over the transition accounting.
Reconciliation of Non-IFRS Financial Measures
The Company reports its financial results according to IFRS. However, included in this management discussion and analysis are certain non-IFRS financial measures and ratios which the Company's management believes provide useful information in measuring the financial performance and financial condition of the Company. 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.
The following table is a reconciliation of EBITDA to net earnings, the most closely comparable IFRS measure to EBITDA. For purposes of this table, operating income is defined as net earnings before finance costs, interest income and provision for income taxes. EBITDA is defined as operating income before depreciation, amortization and exceptions.
SEGMENT RESULTS
The following is a summary of operating income (loss) of Ridley's reporting segments.
Canadian Feed Operations (CFO)
The Canadian Feed Operations (CFO) segment consists of eight full-line production facilities operating in Canada, producing and marketing products for the core animal nutrition market. CFO 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 Prairie Provinces and Ontario. Tonnage volume was lower by 6.0% in the first quarter of fiscal 2012 compared to last year. Complete feed products account for approximately 70% of CFO's total volumes and, as a result, most of the decline in volumes was concentrated in products in which margins are subject to greater competitive pressure. Lower volumes in the first quarter of fiscal 2012 were mainly in the swine sector which has experienced a more difficult economic environment due to high feeding costs and reduced exports.
CFO gross profits in the first quarter this year were $1.9 million compared to $2.5 million in the same period last year. Reduced volumes, greater competitive pressures on margins and increased labour costs were the primary drivers of the $0.7 million decline in gross profits in the first quarter from last year. Operating expenses in the first quarter of fiscal 2012 were higher by $0.7 million as a result of higher selling and promotion expenses, and increased consulting fees related to lean manufacturing initiatives. Higher operating expenses were also the effect of a foreign exchange loss ($0.1 million) in the first quarter of F2012 and a $0.1 million credit to bad debts expense recorded in the prior year.
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 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. Tonnage volume was higher by 3.1% in the first quarter of fiscal 2012 compared to last year. The increase in volumes in the first quarter of 2012 reflects a stronger performance in sales of higher value added supplements in the beef and dairy sectors.
Gross profits in the first quarter this year were $7.5 million compared to $7.2 million in the same period last year. Unit margins were slight lower in fiscal 2012 as a consequence of lower trending feed ingredient markets. Manufacturing costs were held below last year due to more efficient operations. USFO operating expenses in the first quarter of fiscal 2012 were higher by $0.7 million as a result of higher selling and promotion expenses, as well as increased consulting fees related to lean manufacturing initiatives.
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 2012, including intersegment sales, increased by 5.6% from the same period last year, as a result of higher raw material prices. Tonnage volume was lower primarily as result of the discontinuance of a toll-mill product. Average unit margins in the first quarter were above last year. Variable production costs were lower in fiscal 2012 as plant staffing levels were adjusted to lower volumes. Lower manufacturing expenses enabled RFI to generate a 7.0% increase in gross profits in the first quarter of fiscal 2012 over the same period last year. RFI's operating expenses were higher by $0.2 million in the quarter on reallocations from corporate overhead and an increase in consulting fees related to lean manufacturing initiatives.
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 and loose bagged minerals from seven U.S. based facilities. Tonnage volume in the first quarter of fiscal 2012 was higher by 22.2% relative to last year as a result of a more favourable beef cattle economy, growth in private label sales, drought in the south-central U.S. and an early start in the feed supplementation season. Gross profits in the first quarter this year were 20.3% higher than last year mainly due to growth in tonnage volumes, partly offset by higher production costs to meet volume demand. The $0.4 million increase in operating expenses in the first quarter of fiscal 2012 was mainly the result of a $0.3 million loss (before income taxes) on the sale of the previously closed facility in Syracuse, Indiana.
Liquidity/Capital Resources/Cash Flow
Ridley's working capital and debt to equity positions are summarized below:
Net debt of $2.4 million as at September 30, 2011 was comprised of long term debt of $0.5 million and a $2.2 million balance in revolving credit, less $0.3 million of cash and short term deposits. For the three months year-to-date the Company funded all capital expenditures from operating cash flows.
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 2012, cash flows from operations net of capital expenditures were a deficit of $4.8 million compared to a deficit of $0.5 million in the same three-month period last year. Net non-cash working capital balances increased by $3.7 million in the three months ended September 30, 2011. The $1.2 million increase in accounts receivable and $2.8 million increase in inventories are reflective of higher raw material prices this quarter. Cash flows in the first quarter of each fiscal year are normally reduced by the seasonal increase in sales volumes which increases working capital requirements.
Capital Expenditures
Capital expenditures in the first quarter of fiscal 2011 were $2.1 million, unchanged from the same period a year ago. Capital expenditures in the first three months of fiscal 2012 were mainly on a variety of routine equipment, facility upgrades and continuing automation projects.
Outstanding Share Data
Ridley's share capital consists of an unlimited number of common shares, with no par value. On December 13, 2010 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 640,339 of its common shares over the twelve month period ending December 14, 2011. As at September 30, 2011 the Company had repurchased for cancellation 16,800 shares at an average purchase cost of C$9.20 per share excluding commissions under the normal course issuer bid. The number of shares outstanding as at September 30, 2011 and as at October 26, 2011 was 12,789,978. The current normal course issuer bid to repurchase Ridley shares through the Toronto Stock Exchange will remain in place until December 14, 2011.
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 increases demand for beef 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 (i)
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 Multilateral 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 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 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
At the present time, most sectors of livestock and poultry production in North America, with the notable exception of the U.S. broiler industry, are operating profitably because of improved prices for meat, milk and eggs. But producer profitability remains in a precarious position because of record high feed ingredient prices. High feed ingredient prices have negated much of the incentive to rebuild herd and flock numbers. In parallel with the producer economy, the volatility of feed ingredient prices will be one of the more significant drivers for Ridley's results in fiscal 2012. Ridley's USFO and CFO reporting segments will be sensitive to any reversal in the economic environment for producers and any continuing reductions or consolidations in herd or flock populations. Drought in the major cattle growing region of south-central U.S. states has prompted increased demand for feed supplementation, but continuation of drought conditions may prompt further culling of cattle herds, which would negatively impact RBO's block business. Ridley's growing lifestyle markets and higher-value added products tend to be more stable in market demand.
In the face of these external uncertainties, the Company continues to improve its cost competitiveness through a number of initiatives to improve operating efficiencies including the implementation of additional robotic handling equipment, streamlining of business processes using lean manufacturing techniques and better utilization of information technology in logistics and customer service.
Ridley Inc., headquartered in Mankato, Minnesota and Winnipeg, Manitoba, is one of North America's leading commercial animal nutrition companies. Ridley employs more than 900 people in the United States and Canada 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 .
Contacts:
RIDLEY Inc.
Steve VanRoekel
President and CEO
(507) 388-9412
RIDLEY Inc.
Gordon Hildebrand
Chief Financial Officer
(507) 388-9577
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