Ceres Global Ag Corp. (CRP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Ceres Global Anything's fourth quarter and fiscal 2021 year-end results earnings call. [Operator Instructions] I would like to remind everyone that today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks and uncertainties related to these forward-looking statements, please refer to the company's management discussion and analysis, which is available on SEDAR and on the company's website. I would now like to turn the call over to Mr. Robert Day, CEO of Ceres Global Ag. Please go ahead, Mr. Day.

Thank you, Nas. Good morning, everyone. Thank you for joining us this morning. It's great to have everyone here today. We had a very strong fourth quarter and a solid fiscal year overall. Starting with the quarter, while the overall result might be overshadowed by a large tax gain, it was our second best pretax quarter of all time. We realized year-over-year increases in revenue, gross profit and net income. In our grain segment, the team did a great job navigating highly volatile markets. Low soil moisture early in the planting season, followed by the beginning of a drought in the northern U.S. Plains and Canadian prairies pointed to low yields and much smaller crops than normal. Throughout the growing season, the market was very reactive to weather forecast, while prices trended higher across all products, especially near the end of the quarter. The team did a great job recognizing risks to supply and prices and in securing product for key customers. Results for the quarter were led by core grains and canola merchandising as inventories and space and open [indiscernible] contracts increased in value. Soybean crush also had a positive quarter due to well-timed purchases of soybeans and sales of oil and meal. Our seed business performed well as sales were strong and minimal excess seed inventories were generated for sale into the generic commodity market. In our Supply Chain Services segment, industrial product and fertilizer volumes remained strong, again, benefiting from pent-up demand for oriented strand board in the U.S. homebuilding sector. Natural gas liquid volumes through Gateway Energy Terminal were lower than the same time a year ago due to lower volumes leaving the region. And lastly, our specialty crop blending business performed well, continuing to benefit from record levels of bird feed sales in Canada and the Northeast U.S. For the fiscal year, we handled and traded approximately 107 million bushels of grain and oilseeds, 14 million more than the year before. We achieved our second best year from a pretax perspective and our best year on an after-tax basis, maintaining the positive trajectory of improved financial results that began several years ago. Because of those results and the profitable execution of our strategy and positive outlook, we were able to increase U.S. deferred tax assets on our balance sheet to their full value, recognizing $9.7 million in income. Importantly, we strengthened our presence in crucial geographies on both sides of the U.S. and Canadian border. We benefited from the acquisition of the Nicklen Siding grain elevator of Ridgedale, Saskatchewan from last summer and Farmers Grain, LLC, a joint venture forum with Farmer's Cooperative Grain and Seed Association in Thief River Falls, Minnesota. Also during the year, we embarked on an expansion project at our soybean crush plant in Jordan, Manitoba. The expansion, which was completed subsequent to year-end and below budget, increases the plant's soybean crush capacity by 50%. I will speak more about our growth projects, including plans to build a $350 million integrated canola processing facility in Northgate, Saskatchewan later in the call. But first, I'd like to turn the call over to Jay for additional detail on the quarter and year-end results. Jay?

Thank you, Bob, and good morning, everyone. I will be discussing our financial results for the fourth quarter as well as provide an update on our balance sheet and liquidity. Before I get started, just as a reminder that all dollar amounts expressed in today's calls are in U.S. dollars, unless otherwise stated. As Bob alluded to earlier, we finished the year with a strong fourth quarter. Revenue for the quarter was up 11.6% to $196.9 million, and gross profit increased 25.2% to $8.8 million. The gross profit improvement was driven by higher soybean processing margins as well as an increased trading and merchandising margins on wheat and durum during the quarter. Net income for the quarter was $11.7 million compared to $527,000 in Q4 of last year. In addition to the improvement in gross profit, the increase in net income was largely driven by the income tax gain of $9.7 million from our subsidiary, Riverland Ag Corp., bringing a previously unrecognized deferred tax asset onto its balance sheet during the quarter. This also brought our full year net income to $12 million, up from $4.3 million last year. This $7.7 million increase in net income was attributable to the $9.7 million recognition of the deferred tax asset, but was partially offset by higher operating expenses from our Nicklen Siding purchase that impacted gross profit, along with higher stock price that resulted in a $685,000 revaluation loss on our stock appreciation rates. I should also note that the prior year was also positively impacted by a onetime and one-off $917,000 revaluation on a contingent consideration from the acquisition of Nature's Organic Grist. For the year, revenue increased by $166.5 to $748.2 million, primarily due to the increase of 14.4 million grain bushels handled and merchandised during the year as well as higher commodity prices compared to the prior year. For the year, Ceres handled and traded 106.9 million bushels of grain and oilseeds compared to 92.5 million bushels the year before. Our gross profit for the year was $24.9 million, which was down $2.4 million from the year before, slightly lower grain trading and merchandising margins and higher operating expenses from the Nicklen Siding purchase was mostly offset by seed and processing margins and gross profits that were well above last year's results. Interest expense for the year decreased to $5.2 million compared to $5.9 million in the prior year. While the average daily borrowings on a revolving line of credit were higher year-over-year due to higher commodity prices on our inventory and working capital, the average interest rates on our borrowings decreased as the LIBOR rates were significantly lower in 2021. In addition, during the renewal of our revolving credit facility in February and the new term loan in June were at lower and more competitive rates, helping drive lower interest cost compared to the prior year. At year-end, we had working capital of $39 million, and we had $19 million available on our revolving credit facility. This concludes my review of our financials. For additional details on our financial results, please revert to our MD&A. I'll now turn it back to Bob for comments on our outlook. Bob?

Thank you, Jay. Already more than 2 months into fiscal year 2022, we continue to see the benefits from years of hard work. In our news release this morning, we provided guidance indicating that based on disciplined market analysis and thoughtful acquisition of products for key customers, we're expecting first quarter will be a record quarter with respect to EBITDA and pretax profits. Meanwhile, we believe that fiscal year 2022 will be unlike most years as crops were severely affected by drought, supplies are low, prices are high and volatility is likely to be more extreme than normal. The good news is Ceres has the talent today to navigate through markets like this, and we are prepared for what's to come. While I'm excited about our strong start to fiscal year 2022, I'm even more excited about the transformational growth Ceres is undergoing. The expansion at Farmer's Grain, LLC in Thief River Falls is on track for completion in the fall of 2022, which will add storage capacity and unit train loading capabilities. As I mentioned earlier in the call, the expansion of our soybean crush plant in Jordan, Manitoba is now complete. And it will start to meaningfully bear fruit once harvest begins in October. This expansion is especially exciting, given the fast-growing demand from food, feed and renewable fuel markets for soybean oil and meal and the impact that it has on margins and profits. Specifically, the demand for soybean crush is being driven in part by U.S. refiners ramping up their production of renewable fuels, spurred by federal and state financial incentives. The development of the renewable fuel industry and demand for vegetable oil feedstocks is one of our motivations to move forward on the previously announced project to build a canola processing facility at our industrial campus in Northgate, Saskatchewan. Northgate with its direct connection to the BNSF railroad from Canada, makes it a uniquely advantaged location to serve U.S. fuel, food and feed demand. With capacity to process approximately 1 million metric tons of canola, this plant will have the size and scale needed to meaningfully supply key customers and transform Ceres as we know it today. We recently engaged Ascendant Partners as an advisor to raise equity for the project, and we are making progress as we engage with interested parties. We will have updates about the canola crush project and other projects in the near future. On that note, I'd like to open up the call for questions.

[Operator Instructions] there are no questions at this time. Mr. Day, you may proceed.

Okay. Thank you, everyone, for joining today. I would like to remind everyone that we have our Annual General Meeting, which we will do remotely in November, and we look forward to reconnecting with everyone at that time. Thank you very much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.