MANKATO, MINNESOTA and WINNIPEG, MANITOBA, Nov. 2, 2009 (Marketwire) --
MANKATO, MINNESOTA and WINNIPEG, MANITOBA -- (Marketwire) -- 11/02/09 -- Ridley Inc. (TSX: RCL) today reported its financial results for the first quarter of fiscal 2010, the three months ended September 30, 2009. All currency amounts are stated in U.S. dollars unless otherwise noted.
For the first three months of fiscal 2010, Ridley earned $1.1 million after income taxes (8 cents per share) compared to $2.9 million (21 cents per share) last year. Earnings before interest, taxes and amortization (EBITA (i)) for the first quarter of fiscal 2010 were $4.4 million compared to $7.0 million last year.
"These results reflect, for the third consecutive quarter, reduced market demand for animal feed products resulting from poor economic conditions for many livestock and poultry segments across Canada and the United States", said Steve VanRoekel, President and CEO of Ridley Inc. "While the current downturn has been severe, we recognize that meat, milk and egg production moves in cycles of profit and loss. We expect that ongoing herd and flock size reductions will eventually restore producer profitability and strengthen demand for animal feed products", added VanRoekel.
The external drivers of Ridley's commercial feed business are strongly influenced by the economic dynamics of the North American livestock and poultry production industry. Ridley recorded exceptional results last year as gross profit margins benefited from favourable ingredient positions in generally rising and volatile commodity markets. This year, raw material costs have eased, feed prices have followed those costs downward and there are fewer gains to be realized in ingredient positions. Lower gross profits this year were partly mitigated by significant overhead cost reductions that were initiated in the last half of the prior year, which contributed to operating expenses that were lower this year by $2.8 million compared to last year.
Volumes were lower in each of Ridley's divisions with the most significant effect concentrated in the traditional feed businesses of Ridley Feed Operations (RFO) in Canada and the United States. Earnings in the more specialized divisions of Ridley Nutrition Solutions (RNS) and Ridley Feed Ingredients (RFI) were down due to lower volumes and less favourable ingredient positions.
In the first quarter of this year, Ridley initiated two important new business development projects. Construction work began this summer on a major expansion of manufacturing and warehouse space at RFI's vitamin-mineral premix facility in Mendota, Illinois. Ridley also acquired the manufacturing equipment and product brands of Golden Lyk LLC, a manufacturer of innovative forms of livestock feed blocks that will expand the RNS product offering to existing customers in the upper Midwestern states.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management Discussion and Analysis as of November 9, 2009 is based on the accompanying financial statements prepared using Canadian Generally Accepted Accounting Principles ("GAAP"). All amounts are in U.S. dollars unless otherwise stated.
First Quarter Results
Ridley's performance in the first quarter of fiscal 2010 continues to be adversely affected by reduced sales tonnage volumes across each of the operating divisions. Ridley Feed Operations (RFO), which markets complete feeds, supplements and premixes to core cattle, swine and poultry production markets in the United States and Canada accounted for most of the decline in volume. Demand for livestock feed continues to be significantly affected by poor livestock and poultry producer economics, largely a result of relatively high feed prices and weak demand for meat and milk products and reduced food exports from North America. Ridley Nutrition Solutions (RNS) and Ridley Feed Ingredients (RFI) also recorded lower operating income this quarter compared to last year, partly as a result of the difficult livestock economy, but also due to the absence of gains from favourable inventory positions that enhanced income last year when raw material prices were increasing significantly. The negative impact of poor market conditions on Ridley's final results was lessened by overhead cost reductions initiated in the latter half of last year.
The following summary data is presented to assist in understanding the fiscal 2010 first quarter results:
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Three months ended
Summary of Results September 30
($ million except for EPS) 2009 2008
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Revenue $135.7 $169.3
Gross profit 17.4 23.1
Operating income 2.3 5.2
Net earnings before exceptions 1.1 2.7
Exceptions, net of income taxes (noted below (ii)) - 0.2
Net earnings (loss) 1.1 2.9
Diluted earnings (loss) per share (EPS) $ 0.08 $ 0.21
EBITA (i) 4.4 7.0
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(i) EBITA - Operating income before amortization and exceptions. EBITA does
not have a standardized meaning prescribed by Canadian GAAP and,
therefore, is not readily comparable to similar measures presented by
other companies. However, management believes that this measure
provides investors with useful supplemental information.
(ii) Exceptions - In the preceding summary data, net earnings from
continuing operations were reported before exceptions. Those
exceptions, which are mainly unusual or non-recurring items, are
summarized below, net of income taxes:
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Three months ended
Exceptions (Net of Income Taxes) September 30
($ million) 2009 2008
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Gain on sale of facilities - 0.2
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Total Exceptions - 0.2
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Consolidated First Quarter Results
Revenue in the first quarter of fiscal 2010 ($135.7 million) declined by 19.8% compared to the first quarter of 2009 ($169.3 million). A comparison of revenue on a dollar basis is not necessarily indicative of the strength of Ridley's business because revenue can be influenced by fluctuating commodity prices. The revenue decline in the first quarter of 2010 was substantially due to lower volumes as measured in tons of feed products sold and lower raw material prices. In the first quarter of fiscal 2009, total sales volumes were 8.1% lower than the prior year period. All operating divisions of Ridley reported declining tonnage volumes in the first quarter, but most of the decline occurred in the traditional U.S. markets of the RFO segment. Softer demand for feed products continues to reflect the ongoing market uncertainty, lower farm gate prices to livestock and poultry producers, relatively high feed ingredient prices and declines in the size of cattle and swine herds and poultry flocks.
Consolidated gross profit in the first quarter of fiscal 2010 was $17.4 million compared to $23.1 million in the same period of fiscal 2009. Gross profits were lower in each of the reporting segments reflecting lower volumes across most product markets and reduced unit margins compared to last year when feed ingredient prices were at historically high levels and favourable inventory positions contributed to unit margins.
Operating expenses include selling, general and administrative expenses, amortization of property, plant and equipment, asset impairments and goodwill impairment. Operating expenses in the first quarter were $15.1 million compared to $17.9 million last year. Included in operating expenses last year were a $0.3 million gain on the sale of redundant property and $0.8 million in legal and advisory expenses related to the strategic review process and business restructuring expenses in the Canadian operations. Selling and administration expenses were lower in the first quarter this year as a result of overhead cost reductions initiated last year. At the end of September, 2009 the Company employed 952 in full time equivalent positions, a reduction of 81 positions from last year.
Operating income in the first quarter of 2010 was $2.3 million compared to $5.2 million in the prior year. Lower operating income in fiscal 2010 was the result of the 24.5% decline in gross profits, reflecting the decline in feed demand in the troubled livestock economy, and lower unit margins following a softening of raw materials prices from a year ago. The decline in operating income in the first quarter of this year was partly mitigated by reduced overhead expenses obtained from reductions in staffing levels and discretionary expenditures.
Ridley's EBITA is comprised of operating income before amortization and unusual items which include the gain on sale of facilities in fiscal 2009. There were no unusual items of material significance in the first quarter of 2010. Following from the $2.9 decline in operating income from last year, EBITA in the first quarter of fiscal 2010 fell to $4.4 million from $7.0 million in the prior year.
Net earnings after taxes for the first quarter of fiscal 2010 were $1.1 million (earnings per share of $0.08) compared with net earnings after taxes of $2.9 million (earnings per share of $0.21) in the same period of fiscal 2009.
Comprehensive income is the change in Ridley's net assets that result from transactions, events and circumstances from sources other than investments by and/or distributions to Ridley's shareholders. Other comprehensive income (OCI) is comprised entirely of unrealized gains and losses on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency. Ridley recorded comprehensive income in the first quarter of fiscal 2010 of $2.5 million comprised of net income of $1.1 million as reported above and unrealized gains of $1.3 million on translation to U.S. currency of financial statements of Canadian entities. In the first quarter of the prior year, Ridley had unrealized losses of $1.0 million on the translation of Canadian results to U.S. currency.
Reconciliation of Non-GAAP Financial Measures
The Company reports its financial results according to Canadian GAAP. However, included in this management discussion and analysis are certain non-GAAP financial measures and ratios which the Company's management believes provide useful information in measuring the financial performance and financial condition of the Company. These measures and ratios do not have a standardized meaning prescribed by Canadian GAAP and, therefore, may not be comparable to similar measures presented by other public companies, nor should they be construed as an alternative to other financial measures described by Canadian GAAP. Operating income is defined as net earnings before finance costs, interest income and provision for income taxes. Earnings before interest, taxes and amortization (EBITA) are defined as operating income before gain on sale of facilities.
The following table is a reconciliation of EBITA to net earnings, the most closely comparable GAAP measure to EBITA:
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Earnings before interest, taxes and amortization Three months ended
(EBITA) September 30
($ million) 2009 2008
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Net earnings/(loss) $1.1 $2.9
Provision for income taxes 1.1 1.8
Interest income (0.1) (0.1)
Finance costs 0.2 0.6
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Operating income 2.3 5.2
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Amortization of property, plant and equipment 2.1 2.1
Other amortization 0.0 0.0
Gain on sale of facilities - (0.3)
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Earnings before interest, taxes and
amortization (EBITA) $4.4 $7.0
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SEGMENT RESULTS
The following is a summary of operating income (loss) of Ridley's reporting
segments.
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Three months ended
Operating Income (Loss) (iii) September 30
($ million) 2009 2008
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Ridley Feed Operations (RFO) $(0.3) $0.9
Ridley Feed Ingredients (RFI) 1.5 2.9
Ridley Nutrition Solutions (RNS) 1.9 3.2
Corporate (0.8) (1.9)
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Consolidated Operating Income $2.3 $5.2
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(iii) Operating income is earnings before interest and taxes.
Ridley Feed Operations (RFO)
The Ridley Feed Operations (RFO) segment consists of full-line feed production facilities operating in the United States and Canada, producing and marketing products for the core animal nutrition market. Overall sales volumes of the RFO segment were lower by 8.0% in the first quarter of fiscal 2010 compared to last year. The downturn in RFO volumes is reflective of continuing difficult economic conditions for livestock and poultry producers in both Canada and the United States. Canadian feed operations, which account for 35% of RFO sales tonnage, saw a 7.0% reduction in volumes for the quarter, while the U.S. operations of RFO recorded an 8.5% reduction in volumes.
Lower commodity prices in the first quarter of 2010 translated into lower sales revenues for RFO as feed prices are generally set at a fixed margin above feed ingredient costs. Sales revenues of the RFO segment were 23.5% lower in the first quarter of 2010 compared to last year. Average RFO revenue per ton was 17.5% lower in the first quarter of 2010. About two-thirds of the decline in RFO revenues was due to reduced unit prices while the remaining reduction in revenue was due to lower tonnage volumes.
RFO gross profits in the first quarter this year were 20.8% lower than the same period last year due to a 15.5% reduction in unit margins combined with an 8.0% decline in sales volumes. Approximately half of the decline in gross profit for the quarter was due to lower average unit margins in Canadian feed operations. The Canadian livestock industry in particular has struggled from high feedgrain costs and low hog and cattle prices. Current economic conditions have been aggravated by impediments to international trade in Canadian livestock and meat products resulting from a high Canadian dollar and U.S. country-of-origin labelling restrictions.
Lower operating expenses in RFO this year were achieved from cost reduction initiatives taken in the prior year which reduced staffing levels and discretionary expenditures in sales, marketing and administrative functions. Operating expenses in the prior year included a gain of $0.3 million on the sale of redundant properties in Lacombe, Alberta. As a result of reduced gross profits from a poor livestock economy, partly offset by reduced operating expenses, the RFO Division recorded an operating loss of $0.3 million in the first quarter of 2010 compared to income of $0.9 million in the prior year.
Ridley Feed Ingredients (RFI)
The Ridley Feed Ingredients (RFI) segment consists of feed-grade vitamin and trace mineral premixes, small packaged specialty products, medicated and non-medicated feed additives and micro feed ingredients produced and distributed through a specialized facility in Illinois. RFI's revenues in the first quarter of fiscal 2010 declined by 14.3% from the same period last year. Most of the decline in RFI revenue resulted from the softening of raw material prices that were abnormally high last year and reduced inter-divisional demand for feed ingredients from the RFO and RNS Divisions within the Company. Commodity prices have since softened and with less opportunity for gains from ingredient positions as in the prior year, RFI's unit margins declined from last year. Consequently, RFI's gross profit $2.3 million in the first quarter of this year was 36.6% lower than last year. However, the effect of good ingredient positions on RFI income last year was significant. Compared to the same period of the year before last (fiscal 2008), which preceded last year's volatile increases in commodity prices, RFI's gross profit in fiscal 2010 was an improvement of 14.4% . RFI's overhead expenses in the first quarter this year were marginally higher than last year due to increased salary costs. Lower operating income this year reflects the reduction of some of the cost advantages that RFI obtained from good inventory positions last year.
Ridley Nutrition Solutions (RNS)
Ridley Nutrition Solutions (RNS) includes feed supplement block operations and Ridley's equine nutrition business. RNS volumes in the first quarter of fiscal 2010 were lower by 13.4% from a year ago. Continuing uncertainty in the general economy and reduced profitability for beef and dairy operators has dampened demand for feed supplement blocks in key Midwestern U.S. markets. Generally abundant forage for cattle in most regions outside of California and South-eastern Texas also limited the need for normal feed supplementation in the summer months of 2009.
As a result of lower volumes, RNS revenues in the first quarter of 2010 decreased by 16.7% from a year ago. Average unit selling prices were moderately lower this year due to lower raw material costs. RNS gross profits this year were 24.9% lower than last year due to lower tonnage volume and a reduction in average unit margins per ton. Last year, RNS realized higher unit margins from good ingredient positions in a volatile commodity market. Commodity prices have softened this year and there are fewer cost advantages available from inventory positions. However, unit margins in the first quarter this year remain higher than the year before last as the RNS product mix has improved towards higher value-added products.
RNS operating expenses in the first quarter this year were moderately lower than last year from a reduction in administrative overhead. RNS operating income this year of $1.9 million declined from last year due to slower volume in a difficult beef and dairy economy and the absence of gains from favourable inventory positions that contributed to operating income last year.
Corporate
Corporate expenses include certain corporate management, board of directors' and other public company expenses, as well as legal expenses related to the BSE class action lawsuits. In the first quarter of fiscal 2010, corporate expenses were 57.9% lower than the same period last year. Corporate expenses last year included higher professional fees related to the Company's strategic review process initiated in the fourth quarter of fiscal 2008. Professional fees related to the BSE class action lawsuits were also lower this year following completion of a settlement agreement with the plaintiffs. Reduced employment expenses and employee travel from cost reduction initiatives contributed to lower corporate overhead this year.
Liquidity/Capital Resources/Cash Flow
Ridley's working capital and debt to equity positions are summarized below:
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September June March December September
30 30 31 31 30
Balances ($000) as of: 2009 2009 2009 2008 2008
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Working capital (i) $ 50,764 $ 47,500 $ 54,450 $ 55,043 $ 59,501
Debt (ii) 15,654 10,606 17,534 24,107 36,216
Equity 151,478 149,013 155,461 152,775 155,418
Debt to equity ratio 10.3% 7.1% 11.3% 15.8% 23.3%
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(i) Working capital is defined as current assets less current liabilities,
including claim settlement provisions and cash balances.
(ii) Debt is defined as bank obligations and capital leases.
The following is a summary of cash generated or utilized by business operations, net of capital expenditures on plant and equipment, excluding business acquisitions.
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Three months ended
Summary of Changes in Cash Available September 30
($ million) 2009 2008
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Cash flow from operating activities $2.7 $4.3
Net increase in non-cash working capital balances (4.6) (15.4)
Decrease (increase) in loans receivable, net 0.1 (0.0)
Proceeds on disposal of property, plant and equipment 0.3 0.5
Capital expenditures, excluding business acquisitions (2.5) (2.5)
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Increase (decrease) in cash available (4.1) (13.2)
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For the three months of the first quarter of fiscal 2010, cash flows from operations net of capital expenditures were negative $4.1 million compared to negative $13.2 million in the same three-month period last year. Cash flows last year were significantly affected by the substantial rise in raw material costs and the accumulation of raw materials in expectation of volatile markets which increased inventory and accounts receivable balances. As commodity prices weakened later in the year, both inventories and accounts receivable were drawn down to more normal levels.
Capital Expenditures
In the first quarter of 2010, RNS purchased manufacturing equipment and certain intellectual property rights from Golden Lyk, LLC and its parent company, Denco, LLC that were used in the production of compressed feed blocks.
