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

Ladies and gentlemen, welcome to the Annual Meeting of Ceres Global. Please note the meeting will be recorded. I would like to introduce Carlos Paz, President and CEO of Ceres Global, Mr. Paz, the floor is yours.

Good morning, ladies and gentlemen. Welcome. I am Carlos Paz, President and CEO of Ceres Global. As you are aware, for the fifth year in a row, this is a virtual meeting. Ceres Global has decided that this virtual format allows us to reach the greatest number of our shareholders in the most convenient way possible. We thank you for joining us. Before turning the meeting over to the Chairman for the formal business of this Annual Meeting of Shareholders, Holly will provide you with the following cautionary statement regarding forward-looking information.

In the course of today's meeting, representatives of Ceres Global may in our remarks or in response to questions, make certain statements which are forward-looking statements and provide certain information, which is forward-looking information. Forward-looking statements and forward-looking information are prospective. Forward-looking statements and forward-looking information are neither promises nor guarantees but are subject to risks and uncertainties that may cause the actual results, performance or achievements of Ceres Global or developments in Ceres Global's business or its industry to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Undue reliance should not be placed on forward-looking statements and forward-looking information. A more detailed discussion of these and important risk factors can be found in our most recent annual information form and Management's Discussion and Analysis for the 12-month period ended June 30, 2024, both of which are available under our corporate profile on SEDAR+ at www.sedarplus.com. Thank you. I will now turn the meeting over to James Vanasek, Chair of the Board.

Thank you, Holly. Good morning, ladies and gentlemen. Welcome to the 2024 Annual Meeting of Shareholders of Ceres Global. I'm James Vanasek, Chairman of the Board of Directors of Ceres Global. Before proceeding with the business of the meeting, I'd like to take this opportunity to introduce the directors and officers of Ceres: Carlos Paz, President and Chief Executive Officer and Director; our fellow directors, Harvey Joel, Harold Wolkin and David Rotenberg; Blake Amundson, Vice President and Chief Financial Officer; Tom Coyle, Interim Chief Compliance Officer; James Mowbray, Vice President and Director of Operations; and Holly Dammer, Vice President of Human Resources. We have 3 matters of business to conduct today: one, to present the audited financial statements of Ceres Global for the financial year ended June 30, 2024, and the auditor's report; two, to elect directors; and three, to appoint Baker Tilly WM LLP as auditors of Ceres Global. Once the formal business of the meeting has been completed, Ceres Global management will provide a presentation that will be -- and will be available to answer questions from shareholders. I will now call the meeting to order. I'll preside as Chair of this meeting, and I ask that Holly Dammer act as Secretary of the meeting. Unless there is an objection, I shall appoint TSX Trust to act as scrutineer for the meeting through its representatives, Emma McKenzie and Matthew Britt. The Secretary has advised me that notice calling this meeting, together with the form of proxy and management information circular and the financial statements of Ceres Global for the financial year ended June 30, 2024, and auditor's report have been provided to each director of Ceres Global, the auditors of Ceres Global and each intermediary and registered shareholder of common shares of Ceres Global of record as of October 7, 2024, the record date for this meeting. Additional copies of these materials are also available under our corporate file -- corporate profile on SEDAR+ at www.sedarplus.com. The scrutineers have provided me with the preliminary report, which will be updated in a final report after the meeting regarding shareholder attendance. The scrutineers report that there are present at this meeting in person or by proxy, shareholders holding 20,813,221 common shares of Ceres Global. Accordingly, I declare that the requisite quorum of shareholders is present, and I declare that the meeting is duly and properly constituted for the transaction of business. I direct that confirmation of mailing of the notice of meeting received by TSX Trust and the scrutineers' complete report on attendance be annexed to the minutes of this meeting. There are several matters that must be dealt with during the formal part of the meeting. In order to expedite these matters, I've requested that certain persons make and second the formal motions, and I call on these persons at the appropriate time. Given the virtual format of today's meeting, we request that registered shareholders and duly appointed proxy holders who have specific comments or questions on a formal item of business make such written submissions now by clicking on the Ask a Question icon, typing in and submitting their question. Please clearly identify the applicable item of formal business to which your comment or question relates. During the course of this meeting, at the appropriate time, such questions will be addressed. Following the formal meeting, we will have a question-and-answer session. If you have any questions not specifically related to an item of formal business to be discussed at today's meeting, please feel free to submit those questions at any time during the meeting, and we will do our best to ensure that such questions are addressed at the conclusion of the meeting. We will do our best to answer all questions. But if for any reason, we're unable to do so during the meeting, we will endeavor to follow up after the meeting if you have provided your contact information with your question. Given that this is a virtual meeting, voting will be conducted by online ballot for all matters. If as a registered shareholder or a duly appointed proxy holder and if you're using your control number to log into the meeting and you accept the terms and conditions, then you will be provided with an opportunity to vote by online ballot. If you've already voted by proxy and you vote again during the online ballot -- during the meeting, your online vote during the meeting will revoke your previously submitted proxy. If you've already voted by proxy and do not wish to revoke your previously submitted proxy, do not vote again during the online ballot. The polls will be open for all items of business to be voted on at the same time. This will allow you to vote on each item immediately or if you prefer, you may wait until the conclusion of the discussion on each item prior to casting your vote. Once the polls have been opened, the items of business to be voted on and your available voting options will be visible on the voting panel on your screen. To submit a vote, please click on the voting choice displayed on your screen. Once discussion is concluded on all items of business, the polls will close. I now declare the polls open for all items of business. The first item of business is the presentation of Ceres Global's consolidated financial statements for the year ended June 30, 2024, and the auditor's report, both of which have been previously provided to shareholders of the corporation. Unless there is an objection, I'll dispense with the reading of the auditor's report to the meeting. Hearing none, we will now proceed with the election of directors. The number of directors to be elected at the meeting is 5. I'll ask someone to nominate each of the nominees listed in the management information circular delivered with the notice of this meeting.

I nominate those persons specified in the management information circular delivered with the notice of meeting, namely Carlos Paz, Harvey Joel, Harold Wolkin, James Vanasek and David Rotenberg to serve as directors of Ceres Global, to hold office until the next Annual Meeting of the Shareholders or until their successors are duly elected or appointed in accordance with the articles and bylaws of the corporation.

Ms. Dammer, have any nominations, questions or comments come in from shareholders specifically on this item?

Mr. Chairman, I confirm that we have not received any nomination, questions or comments from shareholders specifically relating to the election of directors.

Hearing none, I now declare the nominations closed. In order for each of the nominees to be elected, he must obtain a majority of votes cast at this meeting. The election of directors will be conducted by online ballot. a noted, if you previously submitted a completed proxy and you vote again during the online ballot during the meeting, your online vote during the meeting will revoke your previously submitted proxy. If you've already voted by proxy and do not wish to revoke your previously submitted proxy, please do not vote again during the online ballot.

I would ask that all registered shareholders and duly appointed proxy holders complete the online ballot now by selecting the applicable voting options on the voting panel displayed on their screens. Please complete the online ballot by selecting the applicable voting options on the voting panel displayed on your screens. [Voting]

We will now proceed with the appointment and remuneration of the auditors of Ceres Global. May I have a motion that Baker Tilly WM LLP be appointed as auditors of Ceres Global until the next Annual Meeting of Shareholders or until a successor is appointed and that the Board of Directors are authorized to fix the auditor's remuneration.

I so move.

May I have the motion seconded?

I second the motion.

Ms. Dammer, have any questions or comments come in from shareholders specifically on this item?

Mr. Chairman, I confirm that we have not received any questions or comments from shareholders specifically relating to the appointment and remuneration of auditors.

Hearing none, the appointment of auditors will be conducted by online ballot. As noted, if you previously submitted a completed proxy and you vote again during the online ballot during the meeting, your online vote during the meeting will revoke your previously submitted proxy. If you've already voted by proxy and do not wish to revoke your previously submitted proxy, please do not vote again during the online ballot.

I would ask that all registered shareholders and duly appointed proxy holders complete the online ballot now by selecting the applicable voting options on the voting panel displayed on their screens. Please complete the online ballot now by selecting the applicable voting options on the voting panel displayed on your screens. [Voting]

Ms. Dammer, has any other formal business come in from shareholders that may be properly brought before this meeting?

Mr. Chairman, I confirm that we have not received any questions or comments from shareholders specifically relating to other formal business.

As there's no further business, I now declare the polls closed. The final report of voting results will be made available following the meeting under our corporate profile on SEDAR+ at www.sedarplus.com. This concludes the formal business brought before the meeting. I wish to thank you for attending and now declare this meeting terminated. Before we go on to our question-and-answer session, I would like to make a couple of comments with regard to the corporation. First off, I would like to thank Carlos and the management team for steering the company through the last 2 years. Particularly since January 1, it has not been a great trading environment for Ceres. And the team has showed through its financial results that the corporation has done a good job building its grain merchandising business to be able to produce good solid financial results regardless of trading environment. I also would like to thank our suppliers and customers. In the commodities that we deal with, they have many choices with whom to sell and purchase from, and we thank you for your business, and we'll continue to value those relationships going forward. I also would like to thank our joint venture partners, Steel Reef on the energy side, Berthold and Farmers Grain on the grain origination side. With close collaboration with these parties, we're able to build long-standing relationships with our farmer customers and able to provide programs such as regenerative ag that will be providing strong profits for the corporation going forward. And finally, I'd just like to thank all of Ceres' employees. Every time I go out to a site and talk to an employee, I'm always impressed by the dedication that they have towards our company. Some of these employees work very long hours in inhospitable conditions, cold, rain, bad weather, and as a shareholder, I really appreciate the effort that they put forth to provide the work that they do for the corporation. I also want to thank them for doing so safely because nothing is more important to me and to our company than making sure that every employee goes home safe. So with that, I'd like to now turn it over to Carlos for a short presentation.

Thank you, Jim. And good morning again, and thank you for attending this meeting. I certainly hope this presentation gives you an overview of Ceres, especially after the success achieved in 2024. Everything in Ceres starts and it's aligned with our vision in which Ceres is an enabler to our end customers to achieve great things in the respective sectors they operate, which are food, agriculture and energy. This should be clear to every employee, customer, partner and investor in Ceres. I hope it resonates as I go through the presentation. Holly already went through the forward-looking statements. Where is Ceres today is the result of hard work of a committed team. We have built a company that holds a unique position in the industry. We are a key partner with global customers while also working closely with local farmer partners. Our unique solutions create value for all players in the global food supply chain. Our job is connecting farmers and suppliers to customers globally. We are a leading provider of innovative solutions in the global grain supply network. We are strategically located with integrated full-service operating platform. We consider ourselves a pioneer in regenerative agriculture initiatives. The successful execution of our strategy has led to solid growth in financials and market position. And we have an experienced management team focused on driving growth. At a glance, we have about 160 employees. We supply over 270 customers. We have 11 company-owned locations. We participate in 4 joint ventures. Our storage capacity of Ceres internally is over 1 million metric tons, and we turn this space about 3 times a year. Our gross margins last year were in excess of $57 million. This is our Ceres strategic framework to achieve our vision in which we enable our customers to achieve great things. As a team, we've done a lot of work to put this slide together, which essentially tells the story of our strategic framework that allows Ceres to deliver on its mission of enabling our customers to do great things in the food, ag and energy sectors. We have 4 strategic drivers or pillars of our strategy. First, everything starts with the customer to understand them better and how we can help enable them to achieve their goals and aspirations. Second, we have to spend a growing direct origination creatively to provide solutions to these customers. As a result, we need to lead in our core commodities with merchandise to be meaningful to these customers. Lastly, we need to be world-class operators to our facilities, meaning operating safely and efficiently. We strive for operational excellence on what we do. For this strategic framework to succeed, we need to attract and develop and retain industry-leading talent. That is our support. And we also know we need to be supported to trade with precision while managing risk. But interconnected with all of this is the fuel that keeps everything going, which is our culture and values. Everyone in Ceres wants to own the outcome and everyone is held to a higher standard. Let's describe our business today. Our prime focus is on our merchandising and trading of core ag commodities of durum, spring wheat and oats, which delivered the majority of our gross profit. We complement that through trading noncore commodities that allows us to leverage our trading networks and increase the capacity utilization of our infrastructure. These 2 segments contribute to 85% of our earnings. On our ag processing, we have a unique position and expertise in soybean processing, reason why we made the initial investment and expansion in the Jordan crush plant, which has proven to be a great and profitable decision. Non-ag supply chain complements our grain business in our strategic terminal, Northgate, by lowering fixed costs and increasing revenues. I will further describe each of these segments as we move along in this presentation. We lever our strategic position in the global milling markets. We operate in a large market that is estimated to grow at a compound annual growth rate of 7.5% and reach $1.3 trillion by 2030. In other words, we operate in an attractive space from a macro level. Driving this growth is the global increase of the consumption of bread and flour products and the growth of all grain and all food products. Grain consumption is also growing through innovation, such as the introduction of formulation of lower carb and gluten-free diets, also the demand for organic grains, which is one of our complementary ag products. Ceres' focus is on durum, spring wheat and oats to serve the milling market located mainly in North America, Europe and North Africa. This segment has similar growth drivers. However, we are also acting on a strong opportunity to grow market share through the increased demand for regenerative source grain. Our edge in serving this market is that we're nimble. We can create supply chain solutions that serve the unique needs of our customers and help them succeed with their own end customers. This slide does a great job explaining where we play and why. Our facilities are located where the core products are growing. You can see the growth expanding our footprint in these strategic areas of oats, durum and spring wheat, which essentially are the Northern U.S. Plains and the Western Canadian Prairies. We are unique that way. We have a meaningful footprint in both sides of the U.S. and Canadian borders. We are a strategic supplier with a stable volume and opportunity to grow. We are top 3 by volume, serving U.S. and select international customers in oats, durum and spring wheat. We have access to terminal assets to store and provide supply chain solutions for 1 million customers located in the Eastern U.S. and the Western U.S. We have strategically located assets to serve our Mexican customers, which is our fastest-growing segment. We have access to deepwater ports in Duluth, Minnesota, and Houston, Texas, via third parties to serve our European and North African customers. Key to our ability to succeed with our customer is our infrastructure, which consist of interior elevators and terminal assets in strategic locations for the markets we serve. Our key focus over the past few years has been on increasing utilization and rationalizing assets to optimize customer service and reduce internal costs. Here, we're proud to showcase on the left, our facility in Northgate, Saskatchewan, which is a flagship facility for grain, energy and industrial products terminal. In the top right, we have our 2 facilities located in the twin cities in Savage, Minnesota, and Malt One located in Minneapolis, Minnesota. They are both large grain terminals and regular for delivery in the spring wheat and oat markets. And on the bottom right, it's our flagship deepwater port in Duluth, Minnesota, where we make our majority of exports to serve our customers in Europe and North Africa. We have a core competency in commodity trading that gives us the ability to generate returns in all market conditions. This is based on an ability to manage risk, market timing built over the years of trading experience and deep knowledge of the crops we merchandise and also of our customers' requirements. We also work directly with farmers and through the right procurement create optimized pricing and customized supply agreements to generate premium value for our trading and to service our end customers. We are positioned to grow as a solution-based grain marketer. Partnering with the strategic suppliers and farmer partners in areas of stable production and competitive rail access, this is critical. We deliver superior values to customers as a lean execution-focused company. Our infrastructure, trading expertise and direct origination abilities position Ceres to create significant opportunities. Together, this makes us a solution-based grain provider that has built a strong relationship with our customers and generates premium pricing for what we do. This expertise has enabled us to build long-term relationship with the world's largest millers. We are developing deep long-standing collaborative relationships with Trimex, the largest miller in Mexico, with whom we have developed an exclusivity agreement for the regenerative ag source, spring wheat. Trimex could have picked any supplier to partner, but decided to partner with Ceres for the value we bring not only to their operations, but most importantly, for their internal aspirations. We also announced a regenerative ag partnership with Miller Milling this past year, one of the largest wheat millers in the U.S. We have a long-standing relationship with PepsiCo or Quaker Oats, a customer that values sustainability, and there is plenty of room for collaboration and growth with them in the future. These collaborative relationships with key customers allows us to partner and continue to explore mutual solutions and enable them to achieve their goals, but also their aspirations. A significant growth opportunity for Ceres is meeting the growing demand for regenerative agriculture growing grain. Regenerative agriculture introduces sustainable practice such as non-tillage, the use of cover crops and for us, which is very important, is the efficient use of fertilizer applications to lower greenhouse gas emissions. It is good for the environment, but also something that customers are requesting for their grain products. Flour millers and bakers are striving to adopt green practices to meet consumer demand and corporate climate goals. Ceres' programs enable transparency in the grain supply chains from origin to destination. Growers receive premiums to adopt these regenerative practices. As an example, Grupo Bimbo, one of the world's largest bakers, has stated as a goal that 100% of its products will be made with regenerative-grown grain by 2050. Bimbo is a key customer for a few of our milling customers. We are a key enabler, helping our miller customers meet regenerative agriculture requirements by working directly with farmers through Ceres' programs. We have built a comprehensive offering to meet regen ag demand that operates under the OREGEN brand. This increased visibility will allow us to capture more share as a regen ag enabler and build this value-added business. Ceres OREGEN branding builds recognition as the program expands to trade partnerships, building a robust offering through technology partnerships with Regrow and Lavie Bio. We've made tremendous progress in short 2 years. Our enrolled acres grew by 6x this year, which is fantastic growth. And we expanded regen ag programs to Grupo Trimex, again, the largest miller in Mexico with an exclusivity agreement and Miller Milling, one of the largest miller in the U.S. Our second business segment is our ag processing with our Jordan Mills soy crush plant in Manitoba, which has proven to be a successful business. This success is primarily driven by our team's proactive local soybean procurement and increasing operational efficiencies at the Jordan crush plant. We saw record soybean crush volumes and margins in 2024 at this location. Great job, everybody. Our third business segment is the non-ag supply chain services, which enhances the utilization of our key asset in Northeast Saskatchewan. This business consists of natural gas liquids, which are mainly the transport of propane and butane. We've expanded a direct pipeline connected to our partner, Steel Reef, fractionation facility in North Portal, Saskatchewan, increased and more efficient NGL loading capacity positioned to satisfy the expanded increased demand in the U.S. We also have industrial products, which is mainly transload lumber that provides additional outlet for Northern Saskatchewan producers, generating steady growth. We have a fertilizer business, enabling Koch Industries to entry to Western Canadian fertilizer consumption. And we have a chemical transload business that continue to experience incremental growth with the ability to expand storage capacity. This is a very helpful visual of the Northgate terminal, which is large-scale facility able to handle multiple commodities and products. With this strategic location close to the U.S. border and extensive infrastructure of rail connected to the BNSF, storage and transloading, it continues to have a strong growth capacity. Given the large area and a strategic location, there is plenty of room for expansion. Canola crush, wheat milling, wind energy are potential projects that could certainly evolve at this facility. By executing on our vision, via our strategic framework, has resulted in solid financial results, which are trending in the right direction, as you can see. The trend is positive with non-negative years on adjusted net income during the past 5 years and achieving the second best result in corporate history last year. Just wanted to remind and highlight our strategic framework on how we execute our vision. We have 4 key drivers of our strategy. We have to enable the strategic customer relationships. We have to be creative in how we expand and grow direct origination. We need to lead in the core commodities we merchandise. We need to be world-class operating our facilities in a safe and efficient manner. These drivers need to be supported by the best talent in the industry and by trading with precision while managing risk. However, nothing takes place unless we embrace our culture and values in order to delivering our strategy to accomplish our mission everyday and at all levels of the organization. This is the management team of experts that executes on this strategy with critical and diverse backgrounds and robust and relevant experience. I am mostly proud of this team has been promoted within the company, very much aligned with the strategy of retaining key talent. And we are supported by an experienced and knowledgeable Board of Directors for strategic direction and governance. And this is how we become a trusted provider in the global supply chain. I want to thank you. And now we're going to open the call for questions.

All right, Mr. Paz, we have a few questions, and the first one is going to be directed to you from [ Timmy Aloysius ]. The question is, what are the anticipated regulatory changes in the industry? And how is Ceres positioning itself to adapt to these changes?

Thank you, and it's a great question given the current environment, especially in the U.S. With the new administration, we anticipate plenty of changes. But to be honest, nobody knows exactly what truly is going to take place until those potential laws go into effect. More than likely, yes, there will be increased tariffs. That is one of the potential things that will take place. And we, as a company, has good positioning for that. We have a lot of storage capacity. If you have tariffs coming into the U.S., China will retaliate and more than likely impose tariffs for imports. China is the largest commodity player in the world. And more than likely, they will put tariffs in soybeans. The inability for the U.S. to export soybeans, which is one of the major exports out of the U.S., will create lower prices potentially and a glut of products in the U.S. Some of these products will need outlets. And given our extensive storage capacity, we should be able to accommodate that. This is one example of some of the potential changes in policy. There is more, and I think we don't want to do too much ahead of it until we know what they are. In our positioning, we're keeping nimble positions depending on what the outcome of these policies are. But again, we have to wait and see how they evolve. We are very much a U.S.-driven company, a North American-driven company. Thus, we should be able to trade most of our products with the current customers. I don't believe the North American trade agreement will have any changes until 2026. There could be some changes there, which we'll anticipate. But given the fact that the U.S. might be at a trade war with China, I would also think that North America could become a stronghold for the U.S., North American trading. So I believe we, as a company, given the network of partners in Europe and North Africa as well for exports, we are well positioned for these potential changes. Next question, please.

Next question is for you, Mr. Paz. It's from [ Timmy Aloysius ]. And the question is, what role does technology play in improving operational efficiency and what investments are being made in this area?

I think the role of technology continues to evolve. We're making plenty of investments on it. I think probably the most critical one for a company is to be able to operate with a technological setup that they have. As we all know, plenty of companies and individuals get hacked on a daily basis. So being precise for us, we've been doing our homework and make sure all of our systems are secure so we can operate. One of the most important thing is to take advantage of the internal data that we have and now we can make better strategic decisions and be more nimble around that. We're making investments and understanding our internal and external data to be able to accommodate the needs of our customers and accommodate our internal needs. We want to understand faster what quality are we handling? What are our customer requirements? How fast can we produce something at our plants. All of this requires investment in technology. We're doing those. We're making our facilities more efficient to be able to unload trucks or railcars in a faster way and to be able to transact in a faster way. But I think security is #1 priority and then operational efficiencies around technology are a second priority for us, all important to continue to execute on our strategy. Next question, please.

The next question is for Mr. Vanasek. It's also from [ Timmy Aloysius ] and here is the question. Given the current stock price of Ceres Global Ag, what do you think public investors are missing compared to the valuations of similar businesses? For example, are there specific aspects of Ceres Global Ag's operations or financial health that you believe are undervalued or misunderstood by the market?

Thank you for the question. Carlos, if you could pull up the slide that showed the adjusted net income for people, that would be great. I think there's a couple of parts to answering that question. First of all, Ceres has 2 shareholders, which hold 70% of the shares. So there really isn't a lot of active float out there with the company. Most of the time, only a few thousand shares a day trade. So I think that's one of the reasons. Second, we are a tiny company in this industry, particularly in comparison to people like Bunge or Cargill. And so I think we get lost a little bit in the shuffle with those large companies and people don't even realize that Ceres is a strong player in these smaller markets of oats, durum and spring wheat. Third, I think this slide tells the story quite clearly. Over the last 10 years, Ceres has most of the time, operated under a cloud of either a lawsuit, investigation, write-off of the crush project. So our financial results have been buried under a bunch of legal expenses and other things. And although we try in our annual and quarterly reports to break out those items and to make it as clear as possible what the underlying business can produce on a merchandising and trading operation, those results get buried. And I think this slide that Carlos had prepared shows exactly the story that the market isn't really seeing, in that Ceres core business has been turned around and is producing solid profits. And now that, that overhang has been removed over the last 18 months or so, you're seeing the bottom line numbers reflect that. And finally, with that overhang of kind of bad news that's been looming over the company, the market just wasn't very interested in Ceres nor did it make sense for us to try and tell our story because of the complex nature of it. Going forward, one of the independent directors, Harold Wolkin, will be taking charge of that and working with management to get the Ceres story out because I think it's a very strong story and a compelling story. And we'll share that with the marketplace, which hopefully will draw some more interest in our shares. And hopefully, we'll see more people -- more buying and more selling of Ceres shares going forward with a consequent raise in the stock price. And then I think if our team keeps performing well and keeps producing good results, that should drive the stock price up.

Thank you. There are no further questions at this time.

Ladies and gentlemen, thank you for attending today's meeting. You may now disconnect.