Committed To Sustainability

FERONIA INC. REPORTS FIRST QUARTER 2012 RESULTS

30-05-2012

TORONTO, ONTARIO--(Marketwire - May 30, 2012) - Feronia Inc. ("Feronia" or the "Company") (TSX VENTURE:FRN) today released its unaudited financial results for the three months ended March 31, 2012. All amounts in this release are expressed in US dollars unless otherwise indicated.

Q1 2012 Highlights

  • Produced 2,009 tonnes of Crude Palm Oil ("CPO")
  • Replanted 264 hectares of oil palm (1,370 ha year-to-date as of May 27, 2012)
  • Achieved a fresh fruit bunch ("FFB") yield of 1.74 tonnes per ha for the quarter (not annualized or seasonally adjusted) compared to 0.94 tonnes per ha in Q1 2011
  • Completed first stage of civil work for Yaligimba plantation palm oil mill
  • Commenced sales of Palm Kernel Oil
  • Planted 305 ha of rice and 60 ha of edible beans (a total of 200 ha of edible beans were planted by the end of April 2012)
  • Revenue up 31% to $1,934,000 from $1,478,000 in Q1 2011
  • Achieved gross margin of 40% at the Company's palm oil operations compared to 35% in Q1 2011
  • Net Income (loss) attributable to Feronia was ($2,403,000) or $(0.02) per share, compared to ($7,158,000) or ($0.07) per share in Q1 2011
  • Cash balance at March 31, 2012 of $9,310,000

Bill Dry, CEO stated "In the first quarter of 2012 Feronia continued to invest in creating long-term value at its oil palm plantations while focusing on maximizing yields and cash flow from existing plantings. We resumed our re-planting initiative on schedule in March and have planted 1,370 ha of oil palms year-to-date as of May 27, 2012. We have also commenced a programme of fertilising palms aged 4 to 16 years. Most of these palms have never had the benefit of fertiliser application. We expect that over time, the investment in fertiliser use will have a significant positive effect on yields and provide a high return on our investment. We have completed preliminary civil works for our new palm oil mill at Yaligimba and technicians from Malaysia are due on site in June 2012 to assist in the construction and commissioning phase."

"The focus at our arable farming operations continues to be on proving compelling commercial yields for rice and edible beans. During the first quarter, we planted 305 ha of rice and 60 ha of edible beans with an additional 140 ha of edible beans planted in April. We expect to harvest both of these crops in June of this year" added Dry.

Operational Summary and Key Metrics by Division  
   
Palm Oil Operations  
   
Key Metrics:  
   
  First quarter ended March 31, 2012  
  Lokutu   Yaligimba   Boteka   Total   Total   Total  
(as at

March 31, 2012)
  (as at

March 31, 2011)
  (as at

March 31,

2010)
 
Immature Hectares 1,679   1,415   1,020   4,114   3,233   2,156  
Producing Hectares 4,809   3,903(1 ) 1,501   10,213 (2 ) 12,753   13,338  
Fruit Production (tonnes) 9,223   -   1,752   10,975   11,952   6,795  
Oil Produced (tonnes) 1,688   -   321   2,009   2,064   1,113  
Oil Extraction Rate 18.30 % -   18.32 % 18.31 % 17.27 % 16.38 %
PKO Produced (tonnes) 143   -   -   143   -   -  
FFB Yield/ha(3) 1.92   -   1.17   1.74 (4 ) 0.94   0.51  
     
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. Management has elected to now classify only palms aged 4 to 25 years as mature and producing which resulted in a reduction of the total 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.
     
     
  4. Represents a weighted average of FFB yield/ha for the Lokutu and Boteka plantations.

The Company previously transported fruit by barge from the Yaligimba plantation to the palm oil mill at the Lokutu mill for processing into CPO. Due to escalating costs associated with such transport and the deterioration in palm oil quality resulting from such transportation, it became uneconomical to continue and the operation was suspended in the first quarter of 2012. Once the new palm oil mill at the Yaligimba plantation is operational (currently scheduled for the fourth quarter of 2012), the Company will have access to an additional 3,903 ha of producing palms, which will be an increase of 62.1% over the area currently being harvested. It is expected that the Yaligimba plantation will achieve operating results similar to the Lokutu plantation on a per hectare basis. See "Cautionary Notes" below. With the suspension of barging operations at the Yaligimba plantation, the total number of contributing producing hectares decreased by 38.2% to 6,310 ha and the total tonnage of fruit production decreased by 8% on a year-over-year basis.

Recent developments with respect to the oil palm operations include the following:

  1. first application of fertiliser to palms aged between 4 and 16 years, with 508 ha covered as at the end of the first quarter of 2012;



  2. 264 ha of oil palms replanted in the quarter ended March 31, 2012 and 1,370 ha of oil palms replanted year-to-date as of May 27, 2012; and



  3. first stage of civil work for the new palm oil mill at the Yaligimba plantation completed. Technicians from Malaysia are scheduled to arrive on site in June 2012 for preparation of the mill building and associated equipment. Supplies of cement and steel reinforcement materials have been delivered to site to proceed with the second stage of civil work.



Arable Farm Operations
 
Key Metrics:
 
Arable First quarter ended March 31, 2012   First quarter ended March 31, 2011
Land Available (ha) 10,000   10,000
Land Cleared (ha) 2,000   -
Land Prepared (ha) 1,700   200
Land Planted (ha) 365(1)   -
     
Note :    
  1. A total of 305 ha of rice was planted in the first quarter of 2012 and 60 ha of beans were planted in the first quarter of 2012 as part of a 200 ha planting of beans that was completed in April 2012.

Recent Developments:

  • 305 ha of rice planted in February 2012
  • 200 ha of edible beans planted by April 2012
  • Second stage drying and storage equipment arrived in March 2012
  • Technicians for the installation and commissioning of the second stage drying and storage facility arrived on site in the last week of May 2012 with commissioning scheduled to commence in July 2012

In February 2012, 305 ha of rice were planted. The Company expects to harvest this crop in early June 2012.

In March 2012, 60 ha of edible beans were sown and in April 2012, a further 140 ha of edible beans were sown for a total of 200 ha as part of the Company's strategy of smaller scale, proof-of-yield plantings. These will build on the Company's knowledge of local conditions in preparation for future large-scale planting.

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 processing facility anticipated to be completed in the third quarter of 2012. Imports of fertiliser and equipment were in place on the farm before the current planting season commenced. Technicians for the installation and commissioning of the second phase drying facility arrived on site in the last week of May 2012 with commissioning scheduled to commence in July 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. In the first quarter of 2012, the Company applied fertiliser to 508 ha of palms aged between 4 and 16 years, re-planted 264 ha of oil palms (1,370 ha year-to-date as of May 27, 2012), and made further progress towards the completion of the new palm oil mill at Yaligimba. In the coming quarters, the Company will remain focused on increasing yields through improved harvesting and collection practices and the application of fertiliser, replanting oil palms, and completing the Yaligimba mill. 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 commercial yields for rice and beans at its operation in Bas Congo, DRC. To this end the Company planted 305 ha of rice in the first quarter of 2012 and completed the planting of 200 ha of beans in the second quarter of 2012. The rice and bean crops are scheduled to be harvested and yields calculated during the second quarter of 2012. In the fourth quarter of 2012, the Company intends to plant a further crop of rice for harvest in the first quarter of 2013.

The Company has the infrastructure in place for drying, storing, and processing crops produced on 4,000 to 6,000 hectares, depending on yields achieved. 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 to land clearing and preparation.

In summary, the key objectives of the Company in 2012 remain as follows:

  1. commissioning the palm oil mill at the Yaligimba plantation, thereby enabling the Company to harvest and process fruit grown at that location;
  2. completing up to 5,000 ha of re-planting across its oil palm plantations; and
  3. proving commercial yields of rice and beans at its arable farming division.

"In the coming quarters Feronia expects to complete several key investments. In the second quarter the Company expects to complete the construction and commissioning of the processing facilities for its arable farming operation. In the fourth quarter, the Company expects to complete the construction and commissioning of the new palm oil mill at the Yaligimba plantation. Completion of each of these facilities will constitute a major milestone for the Company. It is well positioned to leverage this significant capital investment to grow for the next many years." stated Ravi Sood, Executive Chairman.

Financial Discussion - Quarter Ended March 31, 2012



Revenue and Gross Margin
                   
(Expressed in thousands of US dollars) First quarter ended March 31,  
                     
  2012     2011(1)     $

Change
  %

Change
 
                           
                           
Palm Oil $ 1,807     $ 1,355     $ 452   33 %
Other   127       123       4   3 %
                           
Revenues   1,934       1,478       456   31 %
Cost of Sales   1,155       968       187   19 %
                           
Gross Margin (2) PHC $ 779     $ 510       269   53 %
                           
Gross Margin(2) PHC %   40 %     35 %            
                           
Arable operating expense   813 (3 )     171(3 )     642   375 %
                           
Note :    
  1. Certain figures for the first quarter ended March 31, 2011 have been restated and reflect adjustments as discussed in note 2 of the condensed consolidated interim financial statements.
     
     
  2. See section below entitled "Non-GAAP Financial Measures".
     
     
  3. 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:

  First quarter ended Mar 31  
  2012   2011   $

Change
  %

Change
 
Palm Fruit Production                
Total Tonnes 10,975   11,952   (977 ) (8 ) %
Crude Palm Oil (CPO)                
Total Tonnes 2,009   2,064   (55 ) (3 ) %
Oil Extraction rate 18.3 % 17.3 % N/A   6 %
                 
Cash used in operating activities                    
(Expressed in thousands of US dollars) First quarter ended March 31,  
                     
  2012     2011(1)     $

Change
  %

Change
 
                           
Cash used in operating activities $ (1,414 )   $ (1,676 )   $ 262   16 %
Note :    
  1. Certain figures for the first quarter ended March 31, 2011 have been restated and reflect adjustments as discussed in note 2 of the condensed consolidated interim financial statements.
     
Operating Costs                    
(Expressed in thousands of US dollars) First quarter ended March 31,  
                     
  2012     2011(1)   $

Change
    %

Change
 
                           
Selling, general and administrative $ 3,029     $ 2,878     151     5 %
Other gains and losses   (16 )     3     (19 )   (619 )%
                           
Operating costs $ 3,013     $ 2,881   $ 132     5 %
Note:    
  1. Certain figures for the first quarter ended March 31, 2011 have been restated and reflect adjustments as discussed in note 2 of the condensed consolidated interim financial statements.

Operating costs for the first quarter of 2012 were $3,013,000, an increase of $132,000, or 5%, compared to the first quarter of 2011. The increase was a result of an increase in selling, general and administrative expenses of $151,000 due to the following:

  • Increase in amortization of $225,000 due to increased investment in plant and equipment during 2011 and in the first quarter of 2012 with amortization charged in the year of acquisition.
  • Reduction in recruitment costs with $103,000 incurred in the first quarter of 2011 compared to a minimal amount in first quarter of 2012.

Cash Flows and Liquidity

The cash balance was $9,310,000 as at March 31, 2012, compared to $13,521,000 as at December 31, 2011. The decrease in cash balance of $4,211,000 was a result of net loss (excluding non-cash items) of $2,582,000, increase in working capital of $1,167,000 and capital expenditure of $2,796,000.

For the first quarter of 2012, working capital requirements resulted in cash inflows of $1,167,000 compared to cash inflows of $542,000 for the first quarter of 2011. First quarter 2012 net cash inflows of $1,167,000 were driven by increases in payables of $906,000 and decreases in inventory of $37,000 and receivables of $531,000 offset by an increase in prepaid expenses of $307,000. Working capital inflows of $542,000 for the first quarter of 2011 were driven by lower prepaid expenses of $473,000 and increases in payables of $681,00 offset by an increase in inventory of $541,000 and receivables of $71,000.

Investing activities resulted in cash outflows of $2,797,000 for the first quarter of 2012, compared to cash outflows of $1,655,000 in the first quarter of 2011, due to capital spending for manufacturing equipment in order to build production capacity.

Major outstanding anticipated cash requirements are related to:

  1. the completion and construction of the new oil palm mill at Yaligimba (approximately $6,500,000; expected completion in the fourth quarter of 2012);
  2. the completion of the rice mill to service Feronia Arable (approximately $300,000; expected completion in the third quarter of 2012); and
  3. the completion of the storage and drying facilities to service the arable operations (approximately $800,000; expected completion in the third quarter of 2012).

Adjustments to 2011 Quarterly Information

* Notice to Readers : As a result of the audit of the financial statements for the year ended December 31, 2011, the Company has determined that certain IFRS-determined information in its interim filings for each of the first three quarters of 2011 will require adjustments to correct for IFRS-related changes in the valuation model for the biological assets of the Company and the reclassification of the warrants as financial liabilities. Further, any adjustments made to such quarterly information may affect the figures presented for the three month period ended December 31, 2011. The condensed consolidated interim financial statements for the period ended March 31, 2012 include adjusted comparative figures for the period ended March 31, 2011 (see note 2 of the financial statements). The Company is currently in the process of determining the required adjustments for the remaining interim periods of 2011 and will update its interim filings for 2011 as soon as practicable. Readers are cautioned not to rely on the unaudited figures presented in the Company's interim filings for 2011.

Non-GAAP Financial Measures

Throughout this press release, references are made to "gross margin". A description of this non-GAAP financial measure and its limitations are discussed in the Company's management's discussion and analysis for the period ended March 31, 2012 under "Non-GAAP Financial Measures".

About Feronia Inc.

Feronia is a large-scale commercial farmland and plantation operator in the DRC. The Company uses modern agricultural practices to operate and develop its oil palm plantations and arable farming business division. Feronia believes in the immense agricultural potential of the DRC for high-quality foodstuffs and edible oils given its ideal climate, excellent soil and highly skilled and experienced workforce. Feronia's management team is comprised of 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 support 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 "Loi Portant Principes Fondamentaux Relatifs A L'Agriculture" (the DRC's agriculture law, as discussed in the Company's management's discussion and analysis for the period ended March 31, 2012), 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.

Neither the TSX Venture Exchange nor its regulation services provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.