TORONTO, ONTARIO--(Marketwired - Aug. 28, 2013) - Feronia Inc. ("Feronia" or the "Company") (TSX VENTURE:FRN) today released its unaudited financial results for the three and six months ended June 30, 2013. All amounts in this release are expressed in US dollars unless otherwise indicated.
Q2 2013 Highlights and Developments
- Record quarterly Fresh Fruit Bunch ("FFB") and Crude Palm Oil ("CPO") production since Feronia completed the acquisition and commenced the turnaround of the operation
- Produced 2,913 tonnes of CPO (Q2 2012: 2,139) from 15,544 tonnes of fruit (Q2 2012: 11,943 tonnes)
- Increase in FFB yield to 2.61 tonnes per hectare ("ha") (Q2 2012: 1.89 tonnes per ha)
- Increase in oil extraction rate to 18.74% (Q2 2012: 17.91%)
- Replanted 2,030 ha of oil palm (Q2 2012: 1,531 ha)
- Total revenue of $2.18 million (Q2 2012: $2.02 million) made up of:
- Oil palm plantation revenue of $1.90 million (Q2 2012: $2.02 million) from 2,236 tonnes of CPO at an average net price of $778 per tonne (Q2 2012: 1,767 tonnes at $990 per tonne)
- First revenue from arable farming operations of $0.28 million from sale of rice into local market
- Gross profit of $124,000 and operating loss of $(2.59 million), compared to gross loss of $(227,000) and operating loss of $(2.29 million) for Q2 2012
- Net loss attributable to Feronia of $(1.99 million) or $(0.01) per share, compared to net income of $19,000 or $0.00 per share in Q2 2012
- Progress made in demonstrating commercially viable rice yields
- Appointment of new Managing Director of Palm Oil division
Subsequent Events
- 3,473 ha of oil palm had been replanted in the year to date as at August 19, 2013
- Appointment of new Chief Financial Officer
- All major construction work completed at Yaligimba palm oil mill. Final testing underway and oil production expected imminently
Bill Dry, CEO of Feronia commented: "Our palm oil business continues to progress well and the improvements we are making on the ground are reflected in the record levels of FFB harvest, CPO production and replanting achieved in the quarter. Having completed all major construction relating to the mill at Yaligimba, we are undertaking final testing and expect to commence oil production imminently.
"In our arable business, we have made progress in demonstrating commercial yields and we have made our first sales of rice into the local market. Both of these achievements are significant milestones."
About Feronia Inc.
- Feronia operates large-scale commercial oil palm plantations and has commenced an arable farming operation in the Democratic Republic of the Congo (the "DRC").
- The Company, through its subsidiaries, holds concessions on land which is owned by the DRC government and on which its oil palm plantation and farming operations take place.
- The Company uses modern agricultural practices to operate and develop its oil palm plantations and arable farming. Feronia believes in the immense agricultural potential of the DRC for high-quality edible oils, oil derivatives and foodstuffs given the suitability of its climate and soil and the availability of a skilled workforce.
- The Company's management team is comprised of experienced business administrators and senior agriculturalists with extensive experience in managing both plantations and large-scale mechanized farming operations in emerging markets.
- Feronia is committed to sustainable agriculture, environmental protection and providing jobs and economic growth for local communities.
- For more information please see www.feronia.com
Operational Summary and Key Metrics by Division
Palm Oil Operations
The following table shows key data relating to the operations of Plantations et Huileries du Congo S.c.A.R.L ("PHC"), as at and for the six months ending June 30, 2013:
| Six months ended June 30, 2013 | Total | ||||||||
| (as at and for the six months ended June 30) |
|||||||||
| Lokutu | Yaligimba(1) | Boteka | 2013(1) | 2012(1) | 2011 | ||||
| Production | |||||||||
| Fruit Production (tonnes) | 20,950 | - | 4,144 | 25,094(1) | 22,918(1) | 24,754 | |||
| Oil Produced (tonnes) | 3,887 | - | 790 | 4,677(1) | 4,148(1) | 4,295 | |||
| Oil Extraction Rate (%) | 18.55 | - | 19.06 | 18.63(1) | 18.10(1) | 17.35 | |||
| PKO Produced (tonnes)(2) | 201 | - | - | 201 | 265 | - | |||
| FFB yield/hectare | 4.74 | - | 2.70 | 4.22 | 3.63 | 1.94 | |||
| FFB yield/hectare (like-for-like)(3) | 4.74 | - | 2.70 | 4.22 | 3.63 | 2.61 | |||
| CPO yield/hectare | 0.88 | - | 0.52 | 0.79 | 0.66 | 0.34 | |||
| CPO yield/hectare (like-for-like)(4) | 0.88 | - | 0.52 | 0.79 | 0.66 | 0.47 | |||
Notes:
| (1) | Yaligimba did not contribute to Fresh Fruit Bunches ("FFB") or Crude Palm Oil ("CPO") production in either H1 2013 or H1 2012. |
| (2) | "PKO" means Palm Kernel Oil. |
| (3) | FFB Yield/Ha like-for-like basis excludes Yaligimba production for 2011. |
| (4) | CPO Yield/Ha like-for-like basis excludes Yaligimba production for 2011. |
The following tables show key data relating to PHC's assets and infrastructure as at June 30, 2013.
| As at June 30, 2013 | Total as at June 30 | ||||||||||
| Lokutu | Yaligimba(1) | Boteka | 2013(1) | 2012(1) | 2011 | ||||||
| Plantations (Hectares) | |||||||||||
| Immature | |||||||||||
| Year 0 | 922 | 1,119 | 411 | 2,452 | 1,795 | 1,039 | |||||
| Year 1 | 1,707 | 1,447 | 770 | 3,924 | 2,110 | 1,027 | |||||
| Year 2 | 1,065 | 545 | 500 | 2,110 | 1,027 | 713 | |||||
| Year 3 | 402 | 320 | 305 | 1,027 | 713 | 1,443 | |||||
| 4,096 | 3,431 | 1,986 | 9,513 | 5,645 | 4,222 | ||||||
| Producing | |||||||||||
| 4 - 7 Years | 1,136 | 1,275 | 738 | 3,149 | 2,469 | 1,026 | |||||
| 8 - 18 Years | 376 | 561 | 578 | 1,515 | 2,273 | 3,552 | |||||
| 19 - 25 Years | 2,908 | 1,921 | 216 | 5,045 | 5,471 | 5,008 | |||||
| Over 25 Years | - | - | - | - | - | 3,167 | |||||
| 4,420 | 3,757 | 1,532 | 9,709(2) | 10,213(2) | 12,753(2) | ||||||
| Total Planted | 8,516 | 7,188 | 3,518 | 19,222 | 15,858 | 16,975 | |||||
Notes:
| (1) | Yaligimba did not contribute to FFB or CPO production in either H1 2013 or H1 2012. |
| (2) | During the years ended December 31, 2010 and 2011, the Company classified palms aged 4 to 30 years as mature and producing. Going forward, management has elected to classify palms aged 4 to 25 years as mature and producing, resulting in a reduction in the number of producing hectares. In the normal course, management expects to replant palms at age 25 and believes this new classification criteria facilitates comparisons to other plantation operations. |
| As at June 30, 2013 | Total as at June 30 | ||||||||||
| Lokutu | Yaligimba(1) | Boteka | 2013(1) | 2012(1) | 2011 | ||||||
| Palm Nurseries | |||||||||||
| Total Hectares | 26 | 20 | 6.4 | 52.4 | 36.4 | 22.4 | |||||
| Seedlings | 421,103 | 397,460 | 103,134 | 921,697 | 885,113 | 524,912 | |||||
| Hectares plantable from seedlings | 2,105 | 1,987 | 515 | 4,607 | 4,425 | 2,916 | |||||
| Palm Oil Mills | |||||||||||
| No. of Palm Oil Mills / Oil Produced | 1 / CPO & PKO | Under Construction | 1 / CPO | 2 | 2 | 2 | |||||
| Palm Oil Mill Capacity (tonnes/hour) | 15 | Under Construction | 10 | 25 | 25 | 25 | |||||
| As at June 30, 2013 | Total as at June 30 | ||||||||||
| Lokutu | Yaligimba(1) | Boteka | 2013(1) | 2012(1) | 2011 | ||||||
| Infrastructure | |||||||||||
| Operational Roads (Km) | 671 | 643 | 352 | 1,666 | 1,410 | 1,239 | |||||
| Employees | - | - | - | 3,510 | 3,559 | 3,718 | |||||
| Houses | 1,988 | 1,095 | 733 | 3,816 | 3,803 | 3,919 | |||||
| Schools | 60 | 21 | 9 | 90 | 86 | 82 | |||||
| Hospitals | 2 | 1 | 1 | 4 | 4 | 4 | |||||
| Dispensaries | 7 | 3 | 4 | 14 | 14 | 14 | |||||
| Health Centres | 2 | 1 | 1 | 4 | 4 | 4 | |||||
Key Developments
- Total fruit production for Q2 2013 was 15,544 tonnes, 30% higher than Q2 2012.
- Palm oil production for Q2 2013 was 2,913 tonnes, 36.2% higher than Q2 2012.
- Replanting of oil palms for Q2 2013 was 2,030 ha, 32.6% higher than Q2 2012.
- Record quarterly Fresh Fruit Bunch ("FFB"), Crude Palm Oil ("CPO") production and hectares planted since Feronia completed the acquisition of PHC in 2009 and commenced the turnaround of the operation
- All major construction work now completed at Yaligimba palm oil mill. Final testing underway and oil production expected imminently.
- Appointment of new Managing Director of PHC in April 2013.
Arable Farming Operations
Key Metrics:
| Arable | As at and for the six months ended June 30 | |
| 2013 | 2012 | |
| Land Available (ha) | 10,000 | 10,000 |
| Land Cleared (ha) | 2,000 | 2,000 |
| Land Prepared (ha) | 1,700 | 1,700 |
| Land Planted (ha) | 0 | 505 |
Key Developments
- Commenced selling rice grown on its farm to Bralima, Heineken's wholly-owned DRC subsidiary and local food wholesaler Ets Kuku.
- As at June 30, 2013, the Company's Arable Farming operation sold 350 tonnes of rice to Bralima and 8.75 tonnes to Ets Kuku which resulted in it recording its first revenues of $279,000.
- Rice planted in October 2012 and harvested in February, March and April 2013 demonstrated in-field yields of approximately 4 tonnes of paddy rice per ha. 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.
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. CPO production at the new palm oil mill at Yaligimba is expected to commence imminently and will provide the Company with access to an additional 3,757 ha of mature oil palms for the production of CPO, an increase of 62.1% from the area currently accessible.
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.
In summary, the key objectives of the Company for 2013 are as follows:
- commence production of CPO at Yaligimba thereby enabling the Company to harvest and process fruit grown at that location;
- re-plant up to 5,000 ha across its oil palm plantations (3,473 ha replanted as at August 19, 2013); and
- prudently advance its arable farming operation.
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 months ended June 30, 2013 available on www.sedar.com for a full discussion on the Agriculture Law.
Financial Discussion - Three and six months ended June 30, 2013
Revenue and Gross Margin
| (Expressed in thousands of US $) | Three months ended June 30 | Six months ended June 30 | ||||||||||||
| 2013 | 2012 | % Change | 2013 | 2012 | % Change | |||||||||
| Revenues | ||||||||||||||
| Oil Palm Plantations | 1,903 | 2,025 | -6 | % | 3,115 | 3,959 | -21 | % | ||||||
| Arable Farming | 279 | 0 | n/a | 279 | 0 | n/a | ||||||||
| 2,182 | 2,025 | 8 | % | 3,394 | 3,959 | -14 | % | |||||||
| Cost of sales | ||||||||||||||
| Oil Palm Plantations | 1,418 | 1,622 | -13 | % | 2,402 | 2,931 | -18 | % | ||||||
| Arable Farming | 640 | 630 | 2 | % | 1,071 | 1,631 | -34 | % | ||||||
| 2,058 | 2,252 | -9 | % | 3,473 | 4,562 | -24 | % | |||||||
| Gross Profit(Loss) | ||||||||||||||
| Oil Palm Plantations | 485 | 403 | 20 | % | 713 | 1,028 | -31 | % | ||||||
| Arable Farming | (361 | ) | (630 | ) | 43 | % | (792 | ) | (1,631 | ) | 51 | % | ||
| 124 | (227 | ) | n/a | (79 | ) | (603 | ) | 87 | % | |||||
| Gross Margin(1) | ||||||||||||||
| Oil Palm Plantations | 25 | % | 20 | % | 23 | % | 26 | % | ||||||
Notes
| (1) | Gross margin is a non-GAAP financial measure. See "Non-GAAP Financial Measures" below. |
Total revenues for Q2 2013 were $2,182,000, an 8% increase on Q1 2012 revenues of $2,025,000 and arose because of:
- The commencement of arable farming revenue in Q2 2013 totalling $279,000 (Q2 2012: $0); and
- Oil palm plantation revenue in Q2 2013 being 6% lower than in Q2 2012 at $1,903,000 (Q2 2012: $2,025,000). This reduction is a result of the average net sale price of CPO of $778 per tonne during Q2 2013 being 21% lower than for the same period in 2012 (Q2 2012: $990). The effect of this was partially offset by the volume of oil sold in Q2 2013 of 2,236 tonnes being a 27% increase on the 1,767 tonnes sold in Q2 2012.
Total revenue for the six months ended June 30, 2013 was $3,394,000, a 14% reduction from the same period in 2012 (H1 2012: $3,959,000) and arose because of:
- The commencement of arable farming revenue during the period; and
- Oil plantation revenues in H1 2013 being 21% lower than in H1 2012 at $3,115,000 (H1 2012: $3,959,000). This reduction is a result of the average net sale price of CPO of $736 per tonne during H1 2013 being 21% lower than for the same period in 2012 (H1 2012: $931). The effect of this was partially offset by the volume of oil sold in H1 2013 of 3,753 tonnes being a 2% increase on the 3,686 tonnes sold in H1 2012.
The following table provides a summary of palm fruit production and CPO:
| Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2013 | 2012 | % Change | 2013 | 2012 | % Change | |||||||
| Fruit production (tonnes) | 15,544 | 11,943 | 30.2 | % | 25,094 | 22,918 | 9.5 | % | ||||
| Oil produced (tonnes) | 2,913 | 2,139 | 36.2 | % | 4,677 | 4,148 | 12.8 | % | ||||
| Oil extraction rate | 18.74 | % | 17.91 | % | - | 18.64 | % | 18.10 | % | - | ||
| Producing Hectares(1) | 5,952 | 6,310 | -5.7 | % | 5,952 | 6,310 | -5.7 | % | ||||
| FFB yield/hectare (tonnes)(2) | 2.61 | 1.89 | - | 4.22 | 3.63 | - | ||||||
| CPO yield/hectare (tonnes) | 0.49 | 0.34 | - | 0.79 | 0.66 | - | ||||||
Notes
| (1) | Excludes producing hectares at Yaligimba. |
| (2) | FFB Yield/Ha basis excludes Yaligimba production for 2011. |
Cash Used in Operating Activities
| (Expressed in thousands of US $) | Six months ended June 30 | |||
| 2013 | 2012 | % change | ||
| Cash used in operating activities | 9,196 | 2,095 | 339 | % |
Cash used in operating activities for the six months ended June 30, 2013 was $9,196,000 (H1 2012: $2,095,000).
Selling, General and Administrative Costs
| (Expressed in thousands of US dollars) | Three months ended June 30, | Six months ended June 30, | |||||||
| 2013 | 2012 | % Change | 2013 | 2012 | % Change | ||||
| Selling, general and admin | 2,635 | 2,015 | 31 | % | 5,045 | 4,702 | 7 | % | |
| Other losses | 81 | 48 | 69 | % | 95 | 33 | 188 | % | |
Selling, general and administrative costs for Q2 2013 of $2,635,000 (Q2 2012: $2,015,000) were $620,000 higher than in Q2 2012, an increase of 31%. The increase was predominantly a result of:
- One-time retirement benefit costs in Q2 2013 being $550,000 higher than in Q2 2012; and
- Material and transport costs in Q2 2013 being $96,000 higher than in Q2 2012.
Selling, general and administrative costs for the six months ended June 30, 2013 of $5,045,000 were $343,000 higher than in the same period in 2012, a 7% increase (H1 2012: $4,702,000). The increase was predominantly a result of:
- One-time retirement benefit costs in H1 2013 being $580,000 higher than in H1 2012; and
- Partially offset by consultancy, professional fees and share based payments being $421,000 lower than the same period in 2012 and the release of a provision in Q1 2013 which was no longer required.
CASHFLOWS AND LIQUIDITY
The cash balance at June 30, 2013 was $2,425,000 compared to $1,260,000 as at December 31, 2012. The increase in the cash balance of $1,165,000 was a result of a net cash loss from operations of $5,377,000, capital expenditure of $4,098,000 and an increase in working capital of $3,819,000 offset by the issue of shares for cash of $14,393,000.
The cash outflow attributable to the increase in working capital during the six months to June 30, 2013 of $3,819,000 (H1 2012: $2,481,000) comprised of an increase in accounts receivable of $944,000, an increase in inventory of $452,000, a decrease in accounts payable of $2,538,000 and a decrease in prepayments of $115,000.
Cash inflows from financing activities during Q2 2013 were $1,375,000 (Q2 2012: $40,000) which relates to financing activities undertaken near the end of the previous quarter. Financing activities for the six months to June 30, 2013 totalled $14,393,000 (H1 2012: $40,000).
Investing activities resulted in cash outflows of $4,098,000 for the six months ended June 30, 2013 (H1 2012: $5,699,000).
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 2013, the Company had cash totalling $2,425,000. The Company intends to use these funds to meet funding requirements associated with the growth and development of its business. This includes the rehabilitation of roads and other infrastructure on oil palm estates, new planting on oil palm estates, purchase of farm machinery and equipment, purchase of grain storage and processing plant, planting of crops, acquisition of IT hardware and software and further development of business systems. Over the next twelve months, the Company plans to 1) maximize returns from existing plantings while investing in new plantings and the required processing capacity; 2) commission the new palm oil mill at Yaligimba; 3) incur expenditure to maintain the Company's oil palm plantations, including the ongoing cost of new plantations as planned; 4) incur fertilizer, maintenance, harvesting, transport and processing costs; 5) prove commercial yields at its arable farming division before further expansion; and 6) incur general corporate and operating expenses.
The Company recorded net cash outflows in operations and investing activities for the 2012 calendar year and it is possible that this will continue for an additional few years as the Company continues to make significant investments in equipment and infrastructure activities necessary to commercialize its products. Feronia's actual funding requirements will vary based on the factors noted above and its relationships with lead customers and strategic partners.
As part of the first tranche of a non-brokered private placement with Golden Oil Holdings Limited completed on January 15, 2013, the Company issued 42,028,000 Common Shares for aggregate gross proceeds of CDN$5,043,360 ($5,116,007) at a purchase price of CDN$0.12 per share. In the second tranche completed on March 21, 2013, the Company issued 58,800,774 Common Shares to Golden Oil Holdings Limited for aggregate gross proceeds of CDN$7,056,093 ($6,883,993) at a purchase price of CDN$0.12 per share. Pursuant to the second tranche, the Company also issued 20,281,455 common shares to certain other qualifying shareholders of the Company for aggregate gross proceeds of CDN$2,433,774 ($2,392,857).
The proceeds are being used by the Company for working capital and capital expenditure purposes.
Continuing operations of Feronia are dependent upon its ability to continue to raise adequate financing and to commence profitable operations in the future. There can be no assurance that the Company will be able to continue raising adequate financing or commence profitable operations in the future. See "Risks and Uncertainties" below.
Major outstanding anticipated capital expenditure cash requirements (other than expenditures for oil palm rehabilitation and planting) as at the date of this MD&A relate to work undertaken to complete the new oil palm mill at Yaligimba (estimated to be $450,000), which will be paid in Q3 2013 rather than Q2 2013 as previously reported.
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.
Risks and Uncertainties
The Company is subject to various business, financial and operational risks that could materially adversely affect the Company's future business, operations and financial condition and could cause such future business, operations and financial condition to differ materially from the forward-looking statements and information contained in this MD&A. For a more comprehensive discussion of the risks faced by the Company, please refer to the Company's annual management's discussion and analysis for the year ended December 31, 2012, available at www.sedar.com.
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" and "will". 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.
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.
Contact Information:
Ravi Sood
Executive Chairman
(416) 907-2026
Ravi.Sood@feronia.com
Feronia Inc.
Bill Dry
CEO
+44 (0) 7887 525 046
Bill.Dry@feronia.com
www.feronia.com