Ridley Inc.
TSX : RCL

February 11, 2015 23:59 ET

Ridley Inc. Reports Financial Results for Fiscal 2015 Second Quarter

MANKATO, MINNESOTA--(Marketwired - Feb. 11, 2015) - Ridley Inc. (TSX:RCL) today reported its financial results for the three and six months ended December 31, 2014. All currency amounts are stated in U.S. dollars unless otherwise noted.

For the three months ended December 31, 2014, Ridley's adjusted earnings before interest and taxes ("adjusted EBIT") were $15.3 million compared to $11.5 million last year, an increase of 33.0% over last year. Adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") were $17.2 million compared to $13.4 million last year, an increase of 28.5% over last year. Consolidated net income (after income taxes) for the quarter was $10.5 million ($0.82 per share) compared to $7.3 million ($0.57 per share) last year, an increase of 43.6% over last year.

Consolidated revenue increased by $11.7 million (7.7%) to $164.3 million in the second quarter compared to last year, mainly the result of an 8.9% increase in sales volume. Gross profit increased by 17.3% to $28.0 million in the second quarter from $23.9 million last year reflecting increased sales volume and moderately higher average unit margins resulting from an improved product mix. Operating income increased by $2.6 million or 23.0% to $13.7 million in the second quarter of fiscal 2015.

Ridley's U.S. Feed Operations (USFO) reported a $1.4 million (35.5%) increase in operating income for the period on sales growth in most species segments. Ridley Block Operations (RBO) reported a $0.3 million (4.6%) increase in operating income over last year, mainly from strong sales growth in the beef cattle sector. Ridley Feed Ingredients (RFI) reported a $0.9 million (80.0%) increase in operating income over last year from sales volume growth and improved product mix. Ridley's share of net income from its interest in the Canadian operations of Masterfeeds LP in the second quarter improved by $1.2 million (350.0%) over last year on strong sales growth and $0.7 million in proceeds from insurance claims.

Ridley's results in the second quarter of fiscal 2015 reflect a favourable economic environment for livestock and poultry producers and solid internal performance.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis dated as at February 11, 2015 and the accompanying interim consolidated financial statements for the three and six months ended December 31, 2014 have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) which incorporate International Financial Reporting Standards (IFRS).

RESULTS OF OPERATIONS

The following summary is presented to assist in understanding the second quarter and year-to-date results of fiscal 2015.

Summary of Results of Operations Three Months Ended Six Months Ended
December 31 December 31
($000, except per share data) 2014 2013 2014 2013
Revenue 164,251 152,535 306,548 286,456
Gross profit 27,989 23,869 48,138 41,640
Operating income 13,738 11,169 20,845 16,341
Net income before exceptions 10,466 7,288 15,129 10,227
Exceptions, net of income taxes(i) - - - 131
Net income for the period 10,466 7,288 15,129 10,358
Net income per share, basic and diluted 0.82 0.57 1.18 0.81
Adjusted EBIT(ii)(iv) 15,331 11,523 22,839 16,460
Adjusted EBITDA(iii)(iv) 17,156 13,350 26,479 20,019
  1. Exceptions - In the preceding summary data, net income is reported before exceptions. There were no exceptions in the second quarter or year-to-date of fiscal 2015. Exceptions last year were comprised of $0.3 million, net of income taxes, from the gain on the sale of a previously closed facility in Indiana, and $0.1 million, net of income taxes, for the asset impairment loss accrued for closure of a facility in Pennsylvania.
  2. Adjusted EBIT - Operating income and share of income of associate before exceptions.
  3. Adjusted EBITDA - Operating income and share of income of associate before depreciation, amortization and exceptions.
  4. EBIT and EBITDA do not have a standardized meaning prescribed by GAAP and, therefore, are not readily comparable to similar measures presented by other companies. However, management believes that these measures provide investors with useful supplemental information.

Consolidated Second Quarter Results

For the three months ended December 31, 2014, consolidated revenue was $164.3 million compared to $152.5 million in 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. The increase in revenue of $11.7 million (7.7%) in the second quarter was the result of an 8.9% increase in overall tonnage volumes partly offset by a decrease in average unit prices reflecting generally lower feed ingredient prices from last year.

Consolidated gross profit in the second quarter of fiscal 2015 was $28.0 million compared to $23.9 million in the same period last year. Gross profit is a key measure of the performance of Ridley's business and generally reflects the margin of net sales revenue over ingredient cost, less manufacturing expenses. The major driver of the 17.3% increase in gross profit in the second quarter this year was the increase in overall tonnage volumes combined with higher unit margins due to a more favourable product mix. For much of last year and continuing in the current year-to-date, livestock and poultry producers have benefited from the combination of high prices for their meat, milk and egg products and lower trending costs for corn and other commodities. In this positive economic environment for producers, demand has been sustained for higher value-added animal nutrition products.

Direct production costs and manufacturing overheads, which are included in gross profits, increased by 9.5% in the second quarter over last year, largely in line with increased tonnage volumes as reflected in labor and utilities expenses as well as performance-related incentive accruals.

Operating expenses, which include administration, sales and marketing, technical services, and research and development costs, were $14.3 million in the second quarter compared to $12.7 million last year. The increase of $1.6 million (12.2%) in operating expenses this quarter is primarily related to performance-related incentive accruals.

Operating income is defined as net income before share of income of associate, finance expense, finance income and income tax expense. Operating income increased by $2.6 million or 23.0% to $13.7 million in the second quarter of fiscal 2015.
Ridley owns a non-controlling interest in Masterfeeds LP ("Masterfeeds"), an animal nutrition business in Canada formed as a limited partnership with Ag Processing Inc. Ridley's share of the earnings of Masterfeeds is reported as share of net income of associate, which in the second quarter of fiscal 2015 was $1.6 million including $0.7 million received in insurance proceeds related to fire damage at a Masterfeeds facility in Humboldt, Saskatchewan in 2013.

Adjusted EBIT is comprised of operating income and share of net income of associate before exceptions. For the three months ended December 31, 2014, adjusted EBIT was $15.3 million compared to $11.5 million for the same period last year. The increase in adjusted EBIT of $3.8 million (33.0%) reflects the $2.6 million increase in operating income in the second quarter and the $1.2 million increase in share of net income of Masterfeeds. Adjusted EBITDA is comprised of operating income and share of net income of associate before depreciation, amortization and exceptions. For the second quarter of fiscal 2015, adjusted EBITDA was $17.2 million compared to $13.4 million for the same period last year, an increase of $3.8 million (28.5%) over last year.

Net income (net of income tax expense) for the second quarter of fiscal 2015 was $10.5 million ($0.82 per share) compared to $7.3 million ($0.57 per share) in the same period last year. Income tax expense in the second quarter averaged 30.6% of income before taxes compared to 35.4% last year. The lower rate of income tax in the second quarter this year was due to a refinement in the method of calculating the deferred tax liability related to Ridley's investment in Masterfeeds. This adjustment in the calculation of the deferred tax liability had the effect of reducing income tax expense in the second quarter by $0.7 million.

Consolidated Six Months Results

For the six months ended December 31, 2014, consolidated revenue was $306.5 million compared to $286.5 million in the same period last year. The increase in revenue of $20.1 million (7.0%) was the result of an 8.7% increase in overall tonnage volume partly offset by a decrease in average unit prices reflecting generally lower feed ingredient prices from last year.
Consolidated gross profit for the six months ended December 31, 2014 was $48.1 million compared to $41.6 million last year. The increase in gross profits of $6.5 million (15.6%) was largely the result of the increase in overall tonnage volume and higher average unit margins due to a more favourable product mix.

Direct production costs and manufacturing overheads, which are included in gross profits, increased by 8.4% in the first six months of fiscal 2015 in line with the increase in tonnage volume as reflected in labor, incentive accruals and utilities expenses.

Operating expenses, which include administration, sales and marketing, technical services, and research and development costs, were $27.3 million in the six months ended December 31, 2014, a $2.0 million (7.9%) increase over last year. The increase in operating expenses was primarily related to accruals for performance-related incentives. Earnings exceptions last year, which are also included in operating expenses and were related to the closure and sale of two manufacturing facilities in fiscal 2014, had the effect of reducing operating expenses last year by $0.2 million.

Operating income increased by $4.5 million (27.6%) to $20.8 million in the first six months of fiscal 2015.

Ridley's share of the income of its associate, Masterfeeds, for the first six months of this year was $2.0 million, of which $0.7 million was insurance proceeds related to a fire at a Masterfeeds facility in 2013.

Adjusted EBIT for the first half of fiscal 2015 increased to $22.8 million from $16.5 million last year. The increase in EBIT of $6.4 million (38.8%) was comprised of the $4.5 million increase in operating income this year, and the $1.7 million increase in Ridley's share of the income of its associate, Masterfeeds. Adjusted EBITDA was $26.5 million compared to $20.0 million for the same period last year, an increase of $6.5 million (32.3%).

Net income for the six months ended December 31, 2014 was $15.1 million (earnings per share of $1.18) compared to $10.4 million (earnings per share of $0.81) in the same period last year. Income tax expense for the year-to-date reflects a $0.7 million adjustment that resulted from refinement in the method of calculating the deferred income tax liability related to the investment in Masterfeeds.

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. Accumulated other comprehensive income is comprised entirely of unrealized gains and losses on the translation of the financial statements of related entities with foreign functional currency to U.S. dollar reporting currency.

Comprehensive income for the second quarter of fiscal 2015 was $9.6 million which was comprised of net income of $10.5 million, as reported above, less unrealized losses of $0.8 million on the translation of the financial statements of related entities with foreign functional currency to U.S. dollar reporting currency. Comprehensive income for the six months ended December 31, 2014 was $13.1 million, which was comprised of net income of $15.1 million, as reported above, less unrealized losses of $2.1 million on the translation of the financial statements of related entities with foreign functional currency to U.S. dollar reporting currency.

Reconciliation of Non-GAAP Financial Measures

Ridley reports its financial results according to IFRS that have been incorporated into the CPA Canada Handbook. However, Ridley has included in this management discussion and analysis certain non-IFRS financial measures and ratios that it 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.

Starting in the second quarter of fiscal 2015, Ridley includes the share of net income or loss of associate in its presentation of adjusted EBITDA, a non-IFRS measure, to reflect the material and continuing contribution of Masterfeeds to Ridley's performance.

The following table presents a reconciliation of adjusted EBIT and adjusted EBITDA to net income, the most closely comparable GAAP measure to adjusted EBIT and adjusted EBITDA:

Reconciliation of Adjusted EBIT and Three Months Ended Six Months Ended
Adjusted EBITDA to Net Income December 31 December 31
($000) 2014 2013 2014 2013
Net income for the period 10,466 7,288 15,129 10,358
Income tax expense 4,619 3,998 7,182 5,847
Share of net income of associate (1,593 ) (354 ) (1,994 ) (336 )
Finance expense 279 266 581 532
Finance income (33 ) (29 ) (53 ) (60 )
Operating income 13,738 11,169 20,845 16,341
Share of net income of associate 1,593 354 1,994 336
Gain on sale of facilities - - - (420 )
Asset impairment loss - - - 203
Adjusted EBIT 15,331 11,523 22,839 16,460
Depreciation of property, plant and equipment 1,561 1,594 3,117 3,092
Amortization of intangible assets 264 233 523 467
Adjusted EBITDA 17,156 13,350 26,479 20,019

SEGMENT RESULTS

The following is a summary of consolidated operating income (loss) of the reporting segments of the Company's operations for the second quarter and six months year-to-date of fiscal 2015 and 2014. "Corporate" in this presentation includes the consolidating elimination of intersegment sales.

Operating Income (Loss) Three Months Ended Six Months Ended
December 31 December 31
($000) 2014 2013 2014 2013
U.S. Feed Operations (USFO) 5,373 3,966 8,447 6,372
Ridley Feed Ingredients (RFI) 1,951 1,084 3,317 1,459
Ridley Block Operations (RBO) 7,277 6,954 10,787 10,169
Corporate (863 ) (835 ) (1,706 ) (1,659 )
Consolidated operating income 13,738 11,169 20,845 16,341

U.S. Feed Operations (USFO)

The USFO segment consists of twenty full-line production facilities, operating in the United States as Hubbard Feeds. USFO plants derive most of their business from 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 increased by 8.0% in the second quarter of fiscal 2015 compared to last year and by 7.2% for the six months year-to-date. Volume this year has benefited significantly from strong producer economics in the beef, dairy and swine sectors and solid sales management performance.

Gross profits in the second quarter this year were $14.3 million compared to $11.7 million in the same period last year. The $2.6 million increase in gross profits reflects increased sales volumes. For the year-to-date, gross profits were higher by $3.5 million over last year.

Operating expenses increased by $1.1 million in the second quarter this year, mainly the result of increased performance-related incentive accruals. For similar reasons, year-to-date operating expenses increased by $1.5 million.

Operating income for the second quarter of fiscal 2015 was $5.4 million, an increase of $1.4 million over last year. Year-to-date operating income was $8.4 million compared to $6.4 million for the same period last year.

Ridley Feed Ingredients (RFI)

The RFI segment manufactures 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 production facility in Mendota, Illinois.

Revenue in the second quarter of fiscal 2015 increased by $4.2 million or 13.9% over the same period last year as a result of sales growth in redistributed feed ingredients and value-added manufactured products. Year-to-date revenues increased by 17.9% reflecting strong producer economics in most sectors of livestock and poultry production.

Gross profit increased by $1.0 million in the second quarter over last year, mainly the result of increased sales volume and improved unit margins. Gross profit of $5.7 million for the six months year-to-date increased $2.0 million from last year.

Operating expenses increased over last year by $0.1 million in the second quarter and by $0.1 million for the six months year-to-date.

Operating income for the second quarter was $2.0 million, an increase of $0.9 million over last year reflecting the increase in gross profit for the period. Year-to-date operating income was $3.3 million compared to $1.5 million last year.

Ridley Block Operations (RBO)

The RBO segment manufactures and markets a complete range of block supplements, including low moisture, pressed, compressed, composite and poured blocks, minerals, and dried molasses from eight U.S. facilities.

RBO's tonnage volume in the second quarter of fiscal 2015 increased by 11.7% over last year on strong sales volumes driven by a favourable economic environment in the beef sector. For similar reasons, year-to-date volume increased by 9.2%.

Gross profits in the second quarter increased by $0.6 million or 5.9% over last year reflecting increased sales volumes. Direct production costs and manufacturing overheads, which are included in gross profits, increased by 17.7% in the second quarter, mainly due to higher tonnage volumes in the period, as reflected in labor costs, utilities, and an increase in workers compensation costs for that period. For the six months year-to-date, gross profits increased by $1.0 million (6.2%) over last year, generally in line with increased sales volumes.

Operating expenses in the second quarter of fiscal 2015 increased by $0.3 million from last year, mainly the result of higher performance-related incentive accruals. For similar reasons, operating expenses for the six months year-to-date increased by $0.4 million.

Operating income in the second quarter increased by $0.3 million over last year and by $0.6 million for the six months year-to-date.

LIQUIDITY AND CAPITAL RESOURCES

Ridley's net working capital and debt-to-equity positions are summarized below.

Balances as of:
($000)
December 31
2014
September 30
2014
June 30
2014
March 31
2014
December 31
2013
Net working capital(i) 27,882 35,256 34,730 36,078 36,200
Bank obligations 2,432 15,584 18,328 - 4,753
Net debt (cash surplus)(ii) 1,950 16,311 19,003 (4,051 ) 5,152
Equity 129,447 119,830 116,387 138,073 131,004
Debt to capitalization ratio(iii) 1.8 % 11.5 % 13.6 % - % 3.5 %
  1. Net working capital is defined as current assets (excluding cash) less current liabilities (excluding outstanding cheques in excess of bank balances, short-term debt, and the current portion of long-term debt).
  2. Net debt (cash surplus) is defined as bank obligations and outstanding cheques in excess of bank balances less cash and short-term deposits.
  3. Capitalization is defined as bank obligations plus equity.

Net working capital balances decreased by $7.4 million in the three months between September 30, 2014 and December 31, 2014. Accounts payable and accrued liabilities balances increased by $7.2 million from the prior period due to timing of payments to suppliers. Working capital increased by an additional $3.2 million due to the seasonal increase in advances from customers who prepay their feed accounts, which are normally highest in the second quarter and are then drawn down over the remainder of the year. Accounts receivable were higher by $2.7 million from the prior quarter on seasonally increased revenues.

Compared to the same point in time a year ago, net working capital balances decreased by $8.3 million, mainly the result of higher accounts payable balances due to timing of payments to suppliers.

Net debt of $2.0 million as at December 31, 2014 was comprised of a $2.4 million balance in revolving credit and $0.7 million in outstanding cheques less $1.2 million of cash and short-term deposits. The Company's borrowing limit under its loan agreement with U.S. Bank was unchanged at $50.0 million as at December 31, 2014.

Outstanding Share Data

The Company's share capital consists of an unlimited number of common shares authorized with no par value. On December 11, 2014, the Company received approval from The Toronto Stock Exchange (the "TSX") to initiate a normal course issuer bid ("NCIB") 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 15, 2015. As at February 11, 2015, the Company had not repurchased any shares under the current NCIB. The number of shares outstanding as at December 31, 2014 and as at February 11, 2015 was 12,789,978.

Capital Expenditures

Capital expenditures on property, plant and equipment, and intangible assets (software) in the second quarter of fiscal 2015 were $4.6 million, compared to $2.3 million in the same period a year ago. Increased capital expenditures this year reflect two facility expansion projects currently in progress. RBO is constructing a new $8.0 million feed supplement block manufacturing facility adjacent to its existing facility in Flemingsburg. RFI has commenced construction of a $4.5 million addition to its facility in Mendota. Both projects are expected to be completed in fiscal 2016. Total capital expenditures year-to-date were $7.0 million compared to $3.7 million last year.

Investment in Masterfeeds LP

Masterfeeds is a Canadian-based animal nutrition business formed as a limited partnership by Ridley and Ag Processing Inc. Ridley owns a non-controlling equity interest in Masterfeeds, reported as an investment in associate, which was $17.9 million as at December 31, 2014. In fiscal 2013 and 2014 Ridley reported the results of its former Canadian operations as net income from discontinued operations.

On December 18, 2013 a fire at the Humboldt, Saskatchewan feed plant owned and operated by Masterfeeds caused significant damage to the building and equipment forcing the facility to close while repairs are made. The cost of repairs is expected to be substantially covered by insurance. Production at the facility has resumed on a limited basis and is expected to be fully operational by the spring of 2015.

CASH FLOW

For the second quarter of fiscal 2015, cash generated from operations net of investing activities was $14.4 million compared to $9.5 million in the same three-month period last year. The increase of $4.9 million is the result of an increase in cash from operating activities of $6.4 million and a $1.1 million cash distribution from Masterfeeds, offset by a $2.4 million increase in capital expenditures primarily related to expansion projects at the Company's Mendota, Illinois and Flemingsburg, Kentucky facilities. For the six months year-to-date, cash generated from operations net of investing activities increased to $17.1 million compared to $10.8 million last year.

The following is a summary of cash generated or utilized by business operations, net of capital expenditures on property, plant and equipment and intangible assets.

Summary of Cash Flows Net of Investing Activities Three Months Ended Six Months Ended
December 31 December 31
($000) 2014 2013 2014 2013
Net income 10,466 7,288 15,129 10,358
Depreciation and amortization 1,825 1,827 3,640 3,559
Other items not affecting cash(i) (2,119 ) (677 ) (2,353 ) (953 )
Net change in non-cash working capital balances(ii) 7,978 2,894 7,199 (159 )
Net post-employment benefit expense (contributions)(iii) 212 653 (35 ) 1,305
Net cash from operating activities 18,362 11,985 23,580 14,110
Capital expenditures, including other intangibles (4,636 ) (2,252 ) (6,974 ) (3,739 )
Net proceeds on property disposals 23 5 23 760
Increase in loans receivable, net (432 ) (273 ) (594 ) (334 )
Distributions from associate 1,068 - 1,068 -
Cash flows net of investing activities 14,385 9,465 17,103 10,797
  1. Other items not affecting cash include deferred income taxes, asset impairment losses or reversals, gains or losses on sales of property, plant and equipment and facilities, share of income of associate, and other non-cash expenses.
  2. Net change in non-cash working capital balances and other balances related to operations.
  3. Post-employment benefit expense net of employer contributions to post-employment benefit plans.

SELECTED QUARTERLY FINANCIAL INFORMATION

($000, except per share data) Fiscal
Year
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Revenue(i) 2015 142,297 164,251
2014 133,921 152,535 147,581 134,654
2013 143,061 157,065 144,571 130,053
Net income before discontinued 2015 4,663 10,466
operations and exceptions(ii) 2014 2,853 7,304 7,972 2,252
net of income taxes 2013 5,135 5,689 5,539 1,561
Net income per share before discontinued 2015 0.36 0.82
operations and exceptions(ii) 2014 0.22 0.57 0.62 0.18
net of income taxes 2013 0.40 0.45 0.43 0.12
Net income(iii) 2015 4,663 10,466
2014 3,070 7,288 7,968 2,343
2013 5,073 6,370 5,413 1,647
Net income per share 2015 0.36 0.82
2014 0.24 0.57 0.62 0.19
2013 0.40 0.50 0.42 0.12
  1. Revenue in fiscal 2013 and 2014 has been restated to exclude discontinued operations comprised of the Company's Canadian feed operations, which were substantially contributed to Masterfeeds LP in November 2012.
  2. Exceptions include asset impairment losses and recoveries, gains and losses on the sale of facilities, and other costs.
  3. Net income in fiscal 2013 and 2014 reflects the Company's adoption of amendments to IAS 19.

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.

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 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 Management's Discussion and Analysis 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

The major external drivers of Ridley's animal nutrition business are the prevailing economic conditions for producers of meat, milk and egg products, as well as market dynamics for feed ingredients purchased by producers or used as raw materials in the production of feed products, and weather related factors that affect the availability and quality of pastures and forages for livestock. The current economic environment has been generally favourable for livestock and poultry producers. Market prices for meat, milk and egg products are currently high by historical standards. Most feed grains and basic ingredient prices are currently lower relative to last year, which is beneficial for producers' cost of production. However, there are considerable challenges in anticipating the future direction of economic conditions for livestock and poultry producers. The potential for volatility in feed ingredient prices will remain an important driver for Ridley's results in 2015. In the face of external uncertainties, Ridley continues to improve its cost competitiveness and customer service through initiatives to improve operating efficiencies, implementation of lean manufacturing techniques and focus on meeting the demand for value-added animal nutrition products.

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 www.sedar.com. Visit our website at www.ridleyinc.com.

CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of U.S. dollars) (unaudited)
Note December 31
2014
June 30
2014
December 31
2013
ASSETS
Current assets
Cash 1,173 1,115 2,312
Accounts receivable 30,398 22,238 30,181
Inventories 7 40,557 43,225 39,557
Income taxes recoverable 65 225 -
Prepaid and other current assets 1,403 1,478 1,579
Current portion of loans receivable 929 296 707
Total current assets 74,525 68,577 74,336
Non-current assets
Loans receivable 85 124 46
Assets-held-for-sale 9 200 200 200
Property, plant and equipment 68,721 64,902 64,354
Deferred income tax asset 6,998 7,386 7,623
Investment in associate 10 17,853 18,401 17,347
Intangible assets 7,508 8,020 8,259
Goodwill 38,928 38,928 38,928
Total non-current assets 140,293 137,961 136,757
TOTAL ASSETS 214,818 206,538 211,093
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities
Outstanding cheques in excess of bank balances 691 1,790 2,711
Accounts payable and accrued liabilities 39,447 31,745 31,207
Advances from customers 3,556 987 2,949
Income taxes payable 2,467 - 1,668
Short-term debt 2,432 18,328 -
Total current liabilities 48,593 52,850 38,535
Non-current liabilities
Long-term debt - - 4,753
Deferred income tax liability 15,901 16,077 16,863
Other accrued liabilities 1,273 1,584 1,523
Post-employment benefit obligations 19,604 19,640 18,415
Total non-current liabilities 36,778 37,301 41,554
Total liabilities 85,371 90,151 80,089
Shareholders' equity
Share capital 12 53,159 53,159 53,159
Retained earnings 78,558 63,429 77,255
Accumulated other comprehensive income (loss) (2,270 ) (201 ) 590
Total shareholders' equity 129,447 116,387 131,004
TOTAL LIABILITIES and SHAREHOLDERS' EQUITY 214,818 206,538 211,093

Refer to accompanying notes to the interim consolidated financial statements. Certain prior period figures have been reclassified to conform to presentation in the current period - See Note 17.

Approved by the Board of Directors

(signed) "B. P. Martin" (signed) "W. Harden"
B.P. Martin, Director W. Harden, Director
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Expressed in thousands of U.S. dollars) (unaudited)
Three Months Ended
December 31
Six Months Ended
December 31
Note 2014 2013 2014 2013
Revenue 164,251 152,535 306,548 286,456
Cost of sales 7 136,262 128,666 258,410 244,816
Gross profit 27,989 23,869 48,138 41,640
Operating (income) expenses
Technical services, selling and administrative 14,351 12,722 27,223 25,377
Other income (247 ) (174 ) (178 ) (99 )
Gain on sale of facilities 9 - - - (420 )
Research and development 147 152 248 238
Asset impairment 9 - - - 203
Net operating expenses 14,251 12,700 27,293 25,299
Operating income 13,738 11,169 20,845 16,341
Share of net income of associate 10 1,593 354 1,994 336
Finance expense (279 ) (266 ) (581 ) (532 )
Finance income 33 29 53 60
Income before income taxes 15,085 11,286 22,311 16,205
Income tax expense 11 4,619 3,998 7,182 5,847
Net income for the period 10,466 7,288 15,129 10,358
Retained earnings, beginning of period 68,092 69,967 63,429 66,897
Net income for the period 10,466 7,288 15,129 10,358
Retained earnings, end of period 78,558 77,255 78,558 77,255
Net income per share, basic and diluted 0.82 0.57 1.18 0.81

Refer to accompanying notes to the interim consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Expressed in thousands of U.S. dollars) (unaudited)
Three Months Ended
December 31
Six Months Ended
December 31
2014 2013 2014 2013
Net income for the period 10,466 7,288 15,129 10,358
Items that may be reclassified to net income:
Unrealized loss on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency (849 ) (800 ) (2,069 ) (278 )
Other comprehensive loss for the period (849 ) (800 ) (2,069 ) (278 )
Comprehensive income for the period 9,617 6,488 13,060 10,080
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in thousands of U.S. dollars) (unaudited)
Note Share
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
Equity
Balance at June 30, 2013 53,159 66,897 868 120,924
Change in currency translation - - (278 ) (278 )
Net income for the period - 10,358 - 10,358
Balance at December 31, 2013 12 53,159 77,255 590 131,004
Note Share
capital
Retained
earnings
Accumulated
other
comprehensive income (loss)
Total
Equity
Balance at June 30, 2014 53,159 63,429 (201 ) 116,387
Change in currency translation - - (2,069 ) (2,069 )
Net income for the period - 15,129 - 15,129
Balance at December 31, 2014 12 53,159 78,558 (2,270 ) 129,447

Accumulated other comprehensive income (loss) is comprised entirely of the unrealized loss on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency.

Refer to accompanying notes to the interim consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of U.S. dollars) (unaudited)
Three Months Ended
December 31
Six Months Ended
December 31
Note 2014 2013 2014 2013
Cash flow from operating activities
Net income for the period 10,466 7,288 15,129 10,358
Add (deduct) items not affecting cash:
Depreciation of property, plant and equipment 1,561 1,594 3,117 3,092
Deferred income taxes (527 ) (335 ) (375 ) (431 )
Asset impairment loss 9 - - - 203
Share of net income of associate 10 (1,593 ) (354 ) (1,994 ) (336 )
(Gain) loss on sale of property, plant and equipment (5 ) 5 4 18
Gain on sale of facilities 9 - - - (420 )
Amortization of intangible assets 264 233 523 467
Post-employment benefit expense 745 655 1,489 1,310
Other items not affecting cash (32 ) (195 ) - (175 )
10,879 8,891 17,893 14,086
Net change in non-cash working capital and other balances related to operations:
Accounts receivable (2,657 ) (4,024 ) (8,148 ) (4,860 )
Inventories 7 (399 ) 1,221 2,668 2,421
Prepaid and other current assets 233 356 75 (738 )
Accounts payable and accrued liabilities 7,366 868 7,420 1,049
Advances from customers 3,192 2,258 2,569 2,282
Income taxes payable and recoverable 281 2,417 2,627 (125 )
8,016 3,096 7,211 29
Contributions to post-employment benefit plans (533 ) (2 ) (1,524 ) (5 )
Net cash from operating activities 18,362 11,985 23,580 14,110
Cash flow from investing activities
Proceeds on disposal of property, plant and equipment and facilities 23 5 23 760
Purchase of property, plant and equipment (4,636 ) (2,233 ) (6,963 ) (3,689 )
Purchase of intangible assets - (19 ) (11 ) (50 )
Increase in loans receivable, net (432 ) (273 ) (594 ) (334 )
Distributions from associate 10 1,068 - 1,068 -
Net cash for investing activities (3,977 ) (2,520 ) (6,477 ) (3,313 )
Cash flow from financing activities
Repayment of short- and long-term debt (13,158 ) (10,627 ) (17,768 ) (12,653 )
Proceeds from short- and long-term debt - - 1,860 5,367
Net cash for financing activities (13,158 ) (10,627 ) (15,908 ) (7,286 )
Effect of exchange rate changes on cash (18 ) (6 ) (38 ) (5 )
Increase (decrease) in cash and cash equivalents 1,209 (1,168 ) 1,157 3,506
Cash and cash equivalents - beginning of period (727 ) 769 (675 ) (3,905 )
Cash and cash equivalents - end of period 482 (399 ) 482 (399 )
Cash and cash equivalents are comprised of:
Cash 1,173 2,312 1,173 2,312
Outstanding cheques in excess of bank balances (691 ) (2,711 ) (691 ) (2,711 )
482 (399 ) 482 (399 )

Refer to accompanying notes to the interim consolidated financial statements. Certain prior period figures have been reclassified to conform to presentation in the current period - See Note 17.

Contact Information

  • RIDLEY Inc.
    Steve VanRoekel
    President & CEO
    (507) 388-9400

    RIDLEY Inc.
    Gordon Hildebrand
    Chief Financial Officer
    (507) 388-9400
    www.ridleyinc.com