Feronia Inc. ("Feronia" or the "Company") (TSX VENTURE:FRN) today released its
unaudited financial results for the quarter ended March 31, 2013. All amounts in
this release are expressed in US dollars unless otherwise indicated.
Q1 2013 Highlights and Developments
-- Revenue of $1.2 million (Q1 2012: $1.9 million) from the sale of 1,517
tonnes of Crude Palm Oil ("CPO") (Q1 2012: 1,920 tonnes) at an average
net price of $674 per tonne (Q1 2012: $875 per tonne)
-- Replanted 442 hectares ("ha") of oil palm (Q1 2012: 264 ha)
-- Produced 1,764 tonnes of CPO (Q1 2012: 2,009) from 9,550 tonnes of fruit
(Q1 2012: 10,975 tonnes)
-- Increase in oil extraction rate ("OER") to 18.47% (Q1 2012: 18.31%)
-- Fresh fruit bunch ("FFB") yield of 1.60 tonnes per ha (Q1 2012: 1.74
tonnes per ha)
-- Average CPO Free Fatty Acid ("FFA") content of 2.17% (Q1 2012: 2.3%)
-- Construction of Yaligimba CPO mill progressing with testing underway.
First CPO production expected by the end of June 2013
-- 1,785 km of operational roads (Q1 2012: 1,680 km)
-- First sales of rice grown by the Company made in Q1 2013 to local
customers
-- Net loss attributable to Feronia was $(2.6m) or $(0.01) per share,
compared to a loss of $(2.4m) or $(0.02) per share in Q1 2012
-- Completed non-brokered private placement led by strategic investor
African Agriculture Fund for aggregate gross proceeds of Cdn$14.5
million, including approximately Cdn$2.4 million from existing
qualifying shareholders of the Company.
Subsequent Events
-- 1,757 ha of oil palm had been replanted in the year to date as at May
22, 2013
-- Rice planted in October 2012 and harvested in April 2013 demonstrated
commercial yields
-- Q1 2013 production shortfall recovered since quarter end
-- Appointment of new Managing Director of Palm Oil division
Bill Dry, CEO of Feronia Inc. commented: "Whilst the low volumes of CPO we
currently produce and soft global CPO pricing continue to have an impact on
Feronia in the short term, the future value of the Company will come from its
new plantings. The addition of the African Agriculture Fund as a significant
investor in Feronia is a major endorsement of our long-term vision from one of
the continent's most sophisticated investors who are an active supporter of
management's efforts to achieve our business objectives and create value for
shareholders."
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 operations at Plantations et
Huileries du Congo ("PHC") as at and for the three months ending March 31, 2013:
Total
Three months ended Mar. 31, (as at and for the three
2013 months
ended Mar. 31)
Lokutu Yaligimba(1) Boteka 2013(1) 2012(1) 2011
--------------------------- --------------------------
Production
Fruit Production
(tonnes) 7,618 - 1,932 9,550(1) 10,975(1) 11,952
Oil Produced (tonnes) 1,392 - 372 1,764(1) 2,009(1) 2,064
Oil Extraction Rate
(%) 18.27 - 19.25 18.47(1) 18.31(1) 17.27
PKO Produced
(tonnes)(2) 92 - - 92 143 -
FFB yield/hectare 1.72 - 1.26 1.60 1.74 0.94
FFB yield/hectare
(like-for-like)(3) 1.72 - 1.26 1.60 1.74 1.34
Average FFA (%)(4) 2.32 - 1.62 2.17 2.30 2.28
Notes:
1. Yaligimba did not contribute to Fresh Fruit Bunches ("FFB") or Crude
Palm Oil ("CPO") production in either Q1 2013 or Q1 2012.
2. "PKO" means Palm Kernel Oil.
3. FFB Yield/Ha basis excludes Yaligimba production for 2011.
4. "FFA" means Free Fatty Acid.
The following tables show key data relating to PHC's assets and infrastructure
as at March 31, 2013.
As at March 31, 2013 Total as at March 31
Lokutu Yaligimba(1) Boteka 2013(1) 2012(1) 2011
--------------------------- ----------------------------
Plantations
(Hectares)
Immature
Year 0 100 256 66 422 264 165
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 1,328
--------------------------- ----------------------------
3,274 2,568 1,641 7,483 4,114 3,233
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 7,694 6,325 3,173 17,192 14,327 15,986
Notes:
1. Yaligimba did not contribute to FFB or CPO production in either Q1 2013
or Q1 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 March 31, 2013 Total as at March 31
Lokutu Yaligimba(1) Boteka 2013(1) 2012(1) 2011
------------------------------ --------------------------
Palm Nurseries
Total Hectares 27 20 6 53 40 25
Seedlings 474,754 452,500 144,675 1,071,929 753,698 400,428
Hectares
plantable from
seedlings 2,373 2,262 723 5,358 3,768 2,002
Palm Oil Mills
No. of Palm Oil
Mills / Oil 1 / CPO Under
Produced & PKO Construction 1 / CPO 2 2 2
Palm Oil Mill
Capacity Under
(tonnes/hour) 15 Construction 10 25 25 25
As at March 31, 2013 Total as at March 31
Lokutu Yaligimba(1) Boteka 2013(1) 2012(1) 2011
------------------------------ --------------------------
Infrastructure
Operational Roads
(Km) 621 815 349 1,785 1,680 1,569
Employees - - - 3,564 3,662 3,812
Houses 1,988 1,226 630 3,844 3,856 3,855
Schools 60 30 13 103 98 96
Hospitals 2 1 1 4 4 4
Dispensaries 7 3 4 14 14 14
Health Centres 2 1 1 4 4 4
The Company also owns the Yaligimba Research Station, one of Africa's
pre-eminent oil palm seed research and breeding operations. The Yaligimba
Research Station supplies PHC with all of the oil palm seeds required for its
replanting programme and undertakes research into increasing oil palm yields and
optimal fertilizer regimes. The seeds provided by the Yaligimba Research Station
are resistant to fusarium Wilt, a soil-born fungal disease that is prevalent in
Africa. The Yaligimba Research Station also sells both fusarium wilt resistant
and non-resistant seed varieties to third party customers.
Recent developments in the oil palm operations
As previously reported, harvesting at the Yaligimba plantation was suspended at
the beginning of Q1 2012 once the short-term strategy to barge fruit from the
Yaligimba plantation to the Lokutu plantation was proven to be uneconomical and
will recommence upon completion of the Yaligimba palm oil mill. As a result,
Yaligimba did not contribute to Fresh Fruit Bunches ("FFB") or Crude Palm Oil
("CPO") production in either Q1 2013 or Q1 2012.
The total number of producing hectares (excluding Yaligimba) at March 31, 2013
was 5,952 ha (March 31, 2012: 6,310 ha). The year-on-year reduction of 358 ha is
a result of 651 ha of palms over 25 years old being removed and 293 ha of young
palms coming into production.
The total tonnage of fruit production was 9,550 tonnes for the three months
ended March 31, 2013, 13% lower than the 10,975 tonnes produced during the
corresponding period in 2012. The lower level of production is due to less
density of fruit at the Lokutu plantation resulting from a proportion of trees
being in a male flowering phase during Q1 2013. This phase, which arises
periodically, has since passed and the shortfall experienced in Q1 2013 has
subsequently been made up.
Replanting of oil palms commenced in March 2013 in line with rainfall patterns,
with 442 ha planted by March 31, 2013 (Q1 2012: 264 ha) representing the
replanting of approximately 71,000 trees (Q1 2012: approximately 42,000 trees).
Year-to-date as at May 22, 2013 the Company had replanted 1,757 ha representing
the replanting of approximately 281,000 trees. The size of Feronia's workforce
has been and will be a key factor in delivering on its objective to replant
5,000 ha representing approximately 800,000 trees this year.
The oil produced by the Company is of a high quality with the average Free Fatty
Acid ("FFA") content of oil sold at 2.17% (Q1 2012: 2.3%).
At March 31, 2013, the Company employed 3,564 staff in its palm oil operations
(March 31, 2012: 3,701), more than would typically be required for a palm oil
business with production at Feronia's current levels. However, the Company
recognises the considerable amount of knowledge and skill held within its
workforce and believes it is a tremendous asset. While a large proportion of the
workforce is currently utilised in Feronia's replanting program, a sufficient
portion of the workforce has the skillset to be re-allocated to harvesting
operations as the Company's producing hectares increase.
The Company also has in place a Management Training Programme to develop
management capabilities and skills across four areas - agronomy, finance,
technical (engineering) and personnel. The Company believes this is essential to
ensure the development of skills through the organisation and is a key part of
the Company's succession planning. The two year programme is open to Congolese
nationals under 33 years of age with relevant qualifications and experience with
successful applicants required to pass a technical examination and interview.
Participants are also subject to ongoing assessment. The 2013 programme, which
starts in June 2013, has an intake of 10 people.
At Yaligimba, completion of the CPO mill by the Company's contractor continues
apace and testing of some modules is underway and the charging of equipment with
lubricants and hydraulic fluids has commenced. The company expects the mill to
produce its first CPO by the end of June 2013. Once the new palm oil mill is
operational, the Company will have access to an additional 3,757 ha of producing
palms. The Yaligimba plantation is expected to achieve operating results similar
to Lokutu on a per hectare basis.
The Yaligimba palm oil mill will have an initial processing capacity of 30
tonnes per hour of FFB, with the potential to increase to 60 tonnes per hour in
a phase 2 expansion. The Yaligimba palm oil mill's commissioning will mean that
the Company will have installed processing capacity of 55 tonnes per hour across
its entire operations; sufficient to process 230,000 tonnes of FFB per annum. It
is anticipated that under the current planting program and internal forecasts
for yield improvement, there will be no requirement for additional processing
capacity, other than the phase 2 expansion at Yaligimba, until 2020.
In April 2013, Benedict Rich joined the Company as Managing Director of PHC. Mr.
Rich has extensive experience managing plantation operations in emerging markets
and has also been responsible for various aspects of research and development
programs in both tea and oil palm. He is ISO qualified and has a keen interest
and understanding of sustainability and the environment in the palm oil
industry, having helped develop the industry's environmental, social and
sustainability standards.
Arable Farming Operations
Key Metrics:
Arable As at and for the three months ended Mar. 31
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) 90 365
Recent developments in the arable farming operations
In October 2012, the most recent trial planting of 500 ha of rice was completed.
The Company planted NERICA-4(R) (New Rice for Africa-4), an upland rice variety
suited to African soil and weather conditions. Harvest of this crop commenced in
mid-February 2013 with mechanized harvesting supplemented through local casual
labour.
Results from the trial planting were positive with in-field yields of around 4
tonnes of paddy rice per ha. Mechanized harvesting achieved an average yield of
3.1 tonnes of paddy rice per ha over the first 46 ha harvested in February 2013
and 2.5 tonnes per ha from the subsequent 77 ha harvested mechanically by the
end of March 2013. The harvest was completed in April 2013 and 685 tonnes of dry
paddy rice was harvested from 395 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. The Company had ordered a second combine harvester to support the
harvest but, due to shipping delays unrelated to the DRC, it did not arrive in
time to participate in the beginning of the harvest.
As previously reported in April 2013, following quality tests and qualifying as
an approved supplier to Heineken N.V., the Company commenced selling rice grown
on its farm to Bralima, Heineken's wholly-owned DRC subsidiary. Bralima has
agreed to purchase 1,100 tonnes of rice during 2013.
The Company also commenced selling rice into the local food market through sales
to Ets Kuku, a food wholesaler. The premium grade rice, containing 5% or less
broken grains, is being supplied on a weekly basis in 25kg, Feronia-branded
polypropylene sacks.
Fulfillment of both contracts is expected to be made from existing stocks of
rice accumulated from the Company's trial plantings which were harvested, dried
and subsequently milled by the Company, and from current and expected future
harvests. The Company expects that minimal capital expenditures will be required
for fulfillment of said contracts.
The Company now has in place a pricing structure whereby the price it charges
for rice is determined by the quality of the product sold, specifically, the
percentage of broken grains. The prices that the Company is achieving are
consistent with earlier estimates and at a significant premium to global rice
prices. The Company anticipates selling to additional counterparties over the
course of time.
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 3,757 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, excluding costs associated with the
Company's replanting program.
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 in 2013 are as follows:
i. finish construction and commission the palm oil mill at the Yaligimba
plantation, thereby enabling the Company to harvest and process fruit
grown at that location;
ii. re-plant up to 5,000 ha across its oil palm plantations; and
iii. 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 March 31, 2013 available on www.sedar.com for a full discussion on
the Agriculture Law.
Financial Discussion - Three months ended March 31, 2013
Revenue and Gross Margin
(Expressed in thousands of US
dollars) First quarter ended March 31,
----------------------------------------------------------------------------
2013 2012 $ Change % Change
----------------------------------------------------------------------------
Palm Oil 1,137 1,807 (670) (37)%
Other 75 127 (52) (41)%
----------------------------------------------------------------------------
Revenues 1,212 1,934 (722) (37)%
Cost of Sales 984 1,279 (295) (23)%
----------------------------------------------------------------------------
Gross Margin PHC 228 655 (427) (65)%
Gross Margin PHC % 19% 34%
----------------------------------------------------------------------------
Arable operating expense 431 967 (536) (55)%
----------------------------------------------------------------------------
Gross margin is a non-GAAP financial measure. See "Non-GAAP Financial Measures"
below.
The following table provides a summary of palm fruit production and CPO:
Three months ended Mar. 31
2013 2012 % Change
Fruit production (tonnes) 9,550 10,975 (13%)
Oil produced (tonnes) 1,764 2,009 (12.2%)
Oil extraction rate 18.5% 18.3%
The reduced fruit and oil production during Q1 2013 is due to a lower density of
fruit at the Lokutu plantation during the quarter resulting from trees being in
a male flowering phase in Q1 2013. This phase has since passed and the shortfall
in FFB production has subsequently been recovered.
Selling, General and Administrative Costs
(Expressed in thousands of US
dollars) First quarter ended March 31,
----------------------------------------------------------------------------
2013 2012 $ Change % Change
----------------------------------------------------------------------------
Selling, general and admin 2,410 2,751 (341) (12)%
Other (gains) and losses 13 (16) 29 (181)%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating costs 2,427 2,735 (308) (11)%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling, general and administrative costs for Q1 2013 were $341,000 lower than
in Q1 2012 due to:
-- Professional fees in Q1 2013 were $241,000 lower than in Q1 2012,
primarily due to audit and accounting fees of $250,000 incurred in Q1
2012 which related to the restatement of certain of the Company's
interim financial statements for the year ended December 31, 2011.
-- Share based payments in Q1 2013 were $138,000 lower than in Q1 2012 due
to the full vesting, during 2012, of options granted in 2010 and 2011.
Cash used in operating activities
(Expressed in thousands of US
dollars) First quarter ended March 31,
----------------------------------------------------------------------------
2013 2012 $ Change % Change
----------------------------------------------------------------------------
Cash used in operating activities 4,229 1,414 2,815 199%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash used in operating activities in Q1 2013 was $4,229,000 compared to
$1,414,000 in Q1 2012.
Cash Flows and Liquidity
The cash balance at March 31, 2013 was $7,191,000, compared to $1,260,000 as at
December 31, 2012. The increase in cash balance of $5,931,000 was a result of a
net loss (excluding non-cash items) of $2,438,000, capital expenditures of
$2,858,000 and an increase in working capital of $1,791,000 offset by the issue
of shares for cash of $13,018,000.
For Q1 2013, working capital movements resulted in cash outflows of $1,791,000
(cash inflows of $1,167,000 for the first quarter ended March 31, 2012), driven
by decreases in inventory of $414,000, receivables of $49,000, prepaid expenses
of $419,000 and an increase in payables of $909,000.
Investing activities resulted in cash outflows of $2,956,000 for first quarter
ended March 31, 2013 (cash outflows of $2,840,000 in the first quarter ended
March 31, 2012).
Cash inflows from financing activities were $13,018,000 for the first quarter
ended March 31, 2013 (zero for the first quarter ended March 31, 2012). A
further $1,375,000 relating to the same financing activities was received by the
Company in early April, 2013.
Liquidity and Capital Resources
As at March 31, 2013, the Company had cash totalling $7,191,000. 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.
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 as at the
date of this MD&A relate to the construction and completion of the new oil palm
mill at Yaligimba (estimated to be $500,000), with expected completion in Q2
2013.
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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Feronia Inc.
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
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