Feronia Inc. ("Feronia" or the "Company") (TSX VENTURE:FRN) today released its
unaudited financial results for the three and six months ended June 30, 2012.
All amounts in this release are expressed in US dollars unless otherwise
indicated.
Q2 2012 Highlights
-- Replanted 1,531 hectares of oil palm (2,282 ha year-to-date as of July
31, 2012).
-- Achieved a fresh fruit bunch ("FFB") yield of 1.89 tonnes per ha for the
quarter (not annualized or seasonally adjusted) compared to 1.44 tonnes
per ha in Q2 2011.
-- Produced 2,139 tonnes of Crude Palm Oil ("CPO"). CPO production on a
like for like basis has increased by 8% compared to Q2 2011.
-- Produced 122 tonnes of Palm Kernel Oil ("PKO").
-- Revenue up 25% to $2,024,000 from $1,614,000 in Q2 2011.
-- Progressed completion of the Yaligimba plantation palm oil mill.
-- Completed harvest of rice at arable operation.
-- Net income attributable to Feronia was $19,000 or $0.00 per share,
compared to $2,035,000 or $0.01 per share in Q2 2011.
-- Cash balance at June 30, 2012 of $5,767,000.
-- Recently closed two tranches of brokered private placement of
convertible debenture units and common shares for gross proceeds of $7.7
million as part of previously announced $10 million financing
initiative.
Bill Dry, CEO stated: "The key value driver in our palm oil business is our new
plantings. During the quarter we continued to make great progress in our
replanting programme, one of the largest ever undertaken in Africa. We have also
made significant progress in completion of the new palm oil mill at Yaligimba
plantation. We expect to produce palm oil in the fourth quarter of this year."
"At the arable farming operation, we harvested an estimated 1.7 tonnes per ha of
paddy rice, a major improvement over the nominal yields achieved in the
Company's first planting, but still well below our short-term objectives.
Independent agronomic consultants have completed a review of our arable
operations encompassing local conditions, inputs and equipment used, and
processes and procedures followed. The Company is currently reviewing a series
of recommendations provided by the consultants to improve the performance of the
operation," added Mr. Dry.
Operational Summary and Key Metrics by Division
Palm Oil Operations
Key Metrics:
Six months ended June 30, 2012
Total Total Total
(as at (as at (as at
June 30, June 30, June 30,
Lokutu Yaligimba Boteka 2012) 2011) 2010)
------------------------------------------------------------
Immature
Hectares 2,442 1,912 1,291 5,645 4,107 2,484
Producing
Hectares 4,809 3,903(1) 1,501 10,213(2) 12,753 13,338
Fruit Production
(tonnes) 19,007 - 3,911 22,918 24,754 16,660
Oil Produced
(tonnes) 3,429 - 719 4,148 4,295 2,757
Oil Extraction
Rate 18.04% - 18.37% 18.10% 17.35% 16.55%
PKO Produced
(tonnes) 265 - - 265 - -
FFB Yield/ha(3) 3.95 - 2.61 3.63(4) 1.94 1.25
Notes:
(1) The producing hectares at the Yaligimba plantation are not currently
being harvested and as a result are not contributing to FFB or CPO
production.
(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.
(3) FFB yield/ha is for current quarter only and is not annualized or
seasonally adjusted. Annual FFB yield/ha will reflect seasonal factors,
with the highest production typically around May and the lowest
production around October.
Key Developments:
-- On a like for like basis, excluding Yaligimba, fruit production
increased by 11% and 4% for the three and six months ended June 30,
2012, respectively, compared to the corresponding periods in 2011.
-- Planted 2,282 ha of oil palms as at July 31, 2012.
-- Application of fertiliser completed on 2,079 ha of palms aged 4 to 16
years.
-- Civil contractors are currently working under supervision of a Malaysian
mill supplier to complete the civil works prior to machinery
installation.
Arable Farm Operations
Key Metrics:
Six months ended June 30, Six months ended June 30,
Arable 2012 2011
----------------------------------------------------------------------------
Land Available (ha) 10,000 10,000
Land Cleared (ha) 2,000 -
Land Prepared (ha) 1,700 200
Land Planted (ha) 505(1) -
Note:
(1) A total of 305 ha of rice were planted in the first quarter of 2012 and
200 ha of beans were planted in the first and second quarter of 2012.
Key Developments:
-- Rice was harvested from the 305 ha planted in the first quarter of 2012,
achieving an estimated paddy yield of 1.7 tonnes per ha.
-- In June 2012, the Company commissioned a review of the arable operation
by a firm of independent Brazilian agronomists, including an assessment
of the in-ground rice and bean crops. The results of the review, which
included a number of recommendations being considered by management,
confirm the high potential for large-scale food production in the Bas
Congo region of the DRC.
-- Work on the arable storage, drying and processing facilities is well
advanced with the first stage of storage and drying commissioned in
January 2012 and the second stage due to be commissioned in October
2012. The rice milling and processing facility is anticipated to be
completed in the fourth quarter of 2012.
Outlook
The Company's strategy for its oil palm plantations business continues to be to
maximize returns from existing plantings while investing in new plantings and
the required processing capacity. Commissioning of the new palm oil mill at
Yaligimba is expected to provide the Company with immediate access to an
additional 3,903 ha of mature oil palms for the production of CPO, an increase
of 62.1% from the area currently accessible. Once the Yaligimba palm oil mill is
completed, there are no major capital expenditures currently anticipated in the
Company's oil palm plantations business for the next several years, excluding
fertiliser costs associated with immature palms.
The Company's primary objective with respect to its arable farming business for
the remainder of 2012 is to prove commercially viable yields at its operation in
Bas Congo, DRC. The Company does not intend to expand the arable farming
operation until commercially compelling yields have been achieved on a scale of
up to 2,000 hectares. Once such yields have been achieved, the Company will
consider expanding the scale of the planting programme. With excess processing
capacity in place, such an expansion can occur relatively quickly and with
minimal capital expenditure outside of costs associated with land clearing and
preparation.
In summary, the key objectives of the Company in 2012 remain as follows:
(i) commissioning the palm oil mill at the Yaligimba plantation, thereby
enabling the Company to harvest and process fruit grown at that location;
(ii) completing up to 5,000 ha of re-planting across its oil palm plantations; and
(iii) proving commercial yields at its arable farming division.
"Feronia's oil palm business continues to show excellent progress in its
long-term value driver, new plantings, and in the critical short-term value
driver of yield maximization from legacy plantings," said Ravi Sood, Executive
Chairman. "The arable operations continue to make progress with improved yields
and the processing facilities nearing completion. We have also received further
third party validation of the long-term opportunity and advice on improving
operating performance. The Company has recently raised $7.7 million on its
previously announced $10 million financing initiative, strengthening our
liquidity position and providing for further development of the business,"
concluded Mr. Sood.
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. Certain agribusinesses in the
DRC have raised concerns that the Agriculture Law may impede existing and new
foreign investment in the agricultural sector. Feronia will continue 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.
RESULTS OF OPERATIONS - Three and six months ended June 30, 2012
Revenue and Gross Margin
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in
thousands of US Three months ended June
dollars) 30, Six months ended June 30,
----------------------------------------------------------------------------
2012 2011 % Change 2012 2011 % Change
----------------------------------------------------------------------------
Palm Oil $ 1,933 $ 1,569 23% $ 3,740 $ 2,924 28%
Other 91 45 102% 218 169 29%
----------------------------------------------------------------------------
Revenues $ 2,024 $ 1,614 25% $ 3,958 $ 3,093 28%
Cost of Sales 1,498 788 90% 2,653 1,757 51%
----------------------------------------------------------------------------
Gross Margin PHC(1) $ 526 $ 826 (36)% $ 1,305 $ 1,336 (2)%
Gross Margin PHC %(1) 26% 51% n/a 33% 43% n/a
----------------------------------------------------------------------------
Arable operating
expense 475(2) 234(2) 103% 1,288(2) 405(2) 218%
----------------------------------------------------------------------------
Notes:
(1) Gross margin is a non-GAAP financial measure. See "Non-GAAP Financial
Measures" below.
(2) No revenue was generated by the Company's arable farming operation
during these periods.
The following table provides a summary of palm fruit production and CPO:
Three months ended June 30, Six months ended June 30,
2012 2011 % Change 2012 2011 % Change
Fruit production
(tonnes) 11,943 12,802 (7)% 22,918 24,754 (7)%
Oil produced (tonnes) 2,139 2,231 (4)% 4,148 4,295 (3)%
Oil extraction rate 17.91% 17.43% 18.10% 17.35%
Cash generated by (used in)
operating activities
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in
thousands of
US dollars) Three months ended June 30, Six months ended June 30,
----------------------------------------------------------------------------
2012 2011 % Change 2012 2011 % Change
----------------------------------------------------------------------------
Cash generated
by (used in)
operating
activities $ (681) $ (3,033) (78)% $(2,095) $ (4,676) (55)%
----------------------------------------------------------------------------
Operating Costs
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in
thousands of US
dollars) Three months ended June 30, Six months ended June 30,
----------------------------------------------------------------------------
2012 2011 % Change 2011 2011 % Change
----------------------------------------------------------------------------
Selling, general and
administrative $2,293 $2,698 (15)% $5,322 $5,576 (5)%
Other gains and
losses 48 (56) (186)% 33 (53) (162)%
----------------------------------------------------------------------------
Operating costs $2,341 $2,642 (11)% $5,355 $5,523 (3)%
----------------------------------------------------------------------------
Operating costs for the second quarter of 2012 were $2,341,000, a decrease of
$301,000, or 11% compared to the second quarter of 2011 and decreased by
$168,000 or 3% for the six months ended June 30, 2012 compared to the six months
ended June 30, 2011. The decrease resulted from the following:
-- Decreases in professional fees of $593,000 in the second quarter of 2012
and $648,000 in the six months ended June 30, 2012 compared to the same
periods in 2011 were primarily due to a reduction in audit and
accounting fees. The reduction relates to additional costs incurred for
the year-end audit, IFRS transition and work on equity offering in the
first six months 2011.
-- This is offset by an increase in amortization cost of $211,000 in the
second quarter of 2012 and $424,000 in the six months ended June 30,
2012 compared to the same periods in 2011, due to increased investment
in plant and equipment during 2011 and 2012.
Cash Flows and Liquidity
The cash balance was $5,767,000 as at June 30, 2012, compared to $13,521,000 as
at December 31, 2011. The decrease in cash balance of $7,754,000 was a result of
net loss (excluding non-cash items) of $4,577,000 and capital expenditure of
$5,698,000, partially offset by an increase in working capital of $2,481,000 and
the issue of shares for cash of $40,000.
For the first six months of 2012, working capital movements resulted in cash
inflows of $2,481,000 (cash outflows of $603,000 for the first six months of
2011), driven by increases in payables of $643,000 and decreases in inventory of
$234,000, receivables of $688,000 and prepaid expenses of $916,000.
Investing activities resulted in cash outflows of $5,698,000 for the first six
months of 2012 (cash outflows of $3,841,000 in the first six months of 2011).
Cash inflows from financing activities were $40,000 in the first six months of
2012 (cash inflows of $27,493,000 in the first six months of 2011).
Major outstanding anticipated cash requirements are related to:
(i) the completion and construction of the new oil palm mill at Yaligimba
(approximately $5,000,000), with expected completion in the fourth
quarter of 2012;
(ii) the completion of the rice mill to service Feronia Arable
(approximately $150,000), with expected completion in the fourth
quarter of 2012; and
(iii) the completion of the storage and drying facilities to service the
arable operations (approximately $100,000) with expected completion in
the third quarter of 2012.
Non-Executive Director Compensation
Due to various factors including the dilution that shareholders of the Company
would suffer at current levels, the board of directors has determined for the
foreseeable future to compensate non-executive directors and committee members
in cash instead of stock options. The anticipated annual fees are expected to be
approximately $175,000 which are in line with a relative comparator group. The
Company continuously reviews its compensation policies with a view of minimizing
the impact to shareholders and increasing the alignment of all parties with the
share price.
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 press release as additional information regarding the Company's financial
performance. Gross margin has been calculated by deducting cost of sales from
revenue.
About Feronia Inc.
Feronia operates large-scale commercial oil palm plantations and has commenced
an arable farming operation in 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 administrative
executives 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.
Cautionary Notes
Except for statements of historical fact contained herein, the information in
this press release constitutes "forward-looking information" within the meaning
of Canadian securities law. Such forward-looking information may be identified
by words such as "anticipates", "plans", "proposes", "estimates", "intends",
"expects", "believes", "may", "will" and include without limitation, statements
regarding proposed capital expenditure; the Company's plan of operations and
comparative advantages; plans regarding sowing rice and replanting oil palms;
improvements in harvesting and collection; and positive trends regarding OERs.
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 two
refining factories and 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.
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