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    CRP   CA1567701091

CERES GLOBAL AG CORP.

(CRP)
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Ceres Global : FY21 Management Discussion and Analysis

09/10/2021 | 10:02am EDT

MANAGEMENT'S DISCUSSION AND ANALYSIS

Table of Contents

1. FINANCIAL AND OPERATING SUMMARY ................................................................................................

4

2. QUARTERLY FINANCIAL DATA .................................................................................................................

9

3. LIQUIDITY & CASH FLOW ......................................................................................................................

10

4. CAPITAL RESOURCES .............................................................................................................................

12

5. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES ......................................................

13

6. OUTLOOK...............................................................................................................................................

14

7. OTHER....................................................................................................................................................

16

8. NON‐IFRS FINANCIAL MEASURES AND RECONCILIATIONS ..................................................................

18

9. KEY ASSUMPTIONS & ADVISORIES FORWARD‐LOOKING STATEMETNS ..............................................

20

This Management's Discussion and Analysis ("MD&A") dated September 9, 2021 should be read in conjunction with the audited Consolidated Financial Statements for the year ended June 30, 2021 of Ceres Global Ag Corp. ("Ceres", the "Corporation", "we", "our", and "us"), and the Corporation's audited Consolidated Financial Statements for the year ended June 30, 2020 (the "Annual Consolidated Financial Statements"). Additional information about Ceres filed with Canadian securities regulatory authorities, including the quarterly financial statements and MD&A, and the annual information form, is available online at www.sedar.com.

Basis of Presentation

Unless otherwise noted, all financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. Unless otherwise indicated, dollar amounts are expressed in United States dollars ("$" and "USD") and references to "CAD" and "C$" are to Canadian dollars.

Non‐IFRS Financial Measures

This MD&A contains references to certain financial measures, including some that do not have any standardized meaning prescribed by IFRS. These measures include "EBITDA" (Earnings before interest, income tax, depreciation and amortization), and "Return on shareholders' equity, none of which have a standardized meaning under IFRS. See "Non‐IFRS Financial Measures and Reconciliations."

1

Risks and Forward‐Looking Information

The Corporation's financial and operational performance is potentially affected by a number of factors, including, but not limited to, the factors described in "Key Assumptions & Advisories".

This annual MD&A contains forward‐looking information based on the Corporation's current expectations, estimates, projections, and assumptions. This information is subject to a number of risks and uncertainties, including those discussed in this MD&A and the Corporation's other disclosure documents, many of which are beyond the Corporation's control. Users of this information are cautioned that actual results may differ materially. See "Key Assumptions & Advisories" for information on material risk factors and assumptions underlying the Corporation's forward‐looking information.

Who We Are

Through its network of commodity logistics centers and team of industry experts, Ceres merchandises high‐quality North American agricultural commodities and value‐added products and provides reliable supply chain logistics services to agricultural, energy, and industrial customers worldwide.

Ceres is headquartered in Golden Valley, MN and together with its wholly owned affiliates operates 13 facilities across Saskatchewan, Manitoba, Ontario, and Minnesota. These facilities throughout North America have an aggregate grain and oilseed storage capacity of approximately 31 million bushels.

Ceres also has a 50% interest in Savage Riverport, LLC, a joint venture with Consolidated Grain and Barge Co., a 50% interest in Farmers Grain, LLC, a joint venture with Farmer's Cooperative Grain and Seed Association, a 50% interest in Gateway Energy Terminal, an unincorporated joint operation with Steel Reef Infrastructure Corp., a 25% interest in Stewart Southern Railway Inc., a short‐line railway located in southeast Saskatchewan with a range of 130 kilometers, and a 17% interest in Canterra Seed Holdings Ltd., a Canadian‐based seed development company.

Grain Segment

The Corporation's Grain segment is engaged in the procurement, storage, handling, trading, and merchandising of commodity and specialty grains and oilseeds such as hard red spring wheat, durum wheat, oats, barley, rye, canola, and pulses through its 10 grain storage and handling facilities in Saskatchewan, Manitoba, Ontario, and Minnesota. These facilities are strategically located, either close to where Ceres' core products are grown and sourced, or, at key supply chain locations to effectively serve customers and markets. Eight of Ceres' grain storage facilities are located on major rail lines across North America, two are located at deep‐water ports on the Great Lakes allowing access to vessels, and another facility is located on the Minnesota River with capacity to load barges for shipment down the Mississippi River to export terminals in New Orleans. These facilities combine to provide Ceres with efficient access to export and import flows of our core grains and oilseeds to North America and global markets. Approximately 25 million bushels of the Corporation's facilities are "regular" for delivery for both spring wheat against the Minneapolis Grain Exchange futures contract and oats against the Chicago Board of Trade futures contract. In addition, spring wheat and oats sourced by the Corporation out of Canada are eligible for delivery against respective futures contracts.

Supply Chain Services Segment

The Supply Chain Services segment provides logistics services, storage, and transloading for non‐ agricultural commodities and industrial products. Ceres efficiently manages its supply chains and assets

2

to ensure the optimization of storage and handling capacity and transportation costs and that high quality and value adding products are delivered to key customers and markets served.

One of Ceres' key Supply Chain Services assets is its terminal at Northgate, Saskatchewan ("Northgate"). Northgate sits on approximately 1,300 acres of land, and is designed to utilize two rail loops, each capable of handling unit trains of up to 120 railcars and two ladder tracks capable of handling up to 65 railcars. Northgate is an approximately $75 million state‐of‐the‐art grain, oil, natural gas liquids and fertilizer terminal and is connected to the Burlington Northern Santa Fe Railway (the "BNSF"). The Corporation intends to further build out its infrastructure to support handling of other industrial products and equipment.

Ceres commenced its initial grain operations at Northgate in October 2014 and its grain elevator was fully operational in May 2016. As part of it grain operations, Ceres contracts grain and oilseed purchases from Western Canadian producers that are delivered by truck and unloaded at Northgate. Ceres has the option of storing the grain on‐site, loading it into outbound railcars to end‐users, or shipping to the Corporations' other facilities to take advantage of the value and strategic location of its current asset base.

In June 2019, Ceres established Gateway Energy Terminal, a 50/50 unincorporated joint operation with Steel Reef Infrastructure Corp. located at Northgate ("Gateway"). Gateway began operations on July 1, 2019 and handles the transloading of hydrocarbons at Northgate on an exclusive basis. Ceres' existing hydrocarbon transload contracts were transferred to Gateway as of July 1, 2019. Gateway's operations at Northgate provide a direct link for hydrocarbons to enter the US market.

In November 2015, Ceres entered into an agreement with Koch Fertilizer Canada, ULC for the storage and handling of dry fertilizer products at Northgate's state‐of‐the‐art, 26,000‐ton fertilizer storage terminal. The fertilizer is loaded out by Ceres into trucks and distributed to Canadian retailers. The fertilizer operation commenced on April 30, 2017.

The Corporation continues to expand products transloaded at the Northgate facility including but not limited to barite, bentonite, solvents, drilling pipe, lumber, oriented strand board, and magnesium chloride.

Seed and Processing Segment

The Corporation's Seed and Processing segment was created through the acquisition of Delmar Commodities Ltd. ("Delmar") and consists of a soybean crush facility located in a strong soybean producing region with low‐cost origination driven by export economics, a specialty crops blending/birdfeed production and sales business, and a seed production and distribution business focused on western Canada under the trade name "Ceres Global Seeds". This segment's operations are primarily located in Manitoba, Canada.

Delmar has entered into long‐term agreements with Sevita International Corporation ("Sevita") for the production and distribution of soybean seed in Western Canada, and with Horizon Seeds Canada Inc. ("Horizon") for the distribution of corn seed in Western Canada. Partnering with these highly specialized seed companies will enable Ceres to diversify its agriculture‐related businesses in regions that it knows and understands well, and to continue delivering high‐quality products and superior value to its seed dealer and grower network.

3

1. FINANCIAL AND OPERATING SUMMARY

For the year ended June 30, 2021 and June 30, 2020

Year ended

June 30,

(in thousands of USD except per share)

2021

2020

2019

Revenues

$

748,204

$

581,713

$

438,396

Gross profit (loss)

$

24,918

$

27,318

$

14,320

Income (loss) from operations

$

8,865

$

9,615

$

1,289

Net income (loss)

$

12,044

$

4,337

$

(16,871)

Weighted average common shares outstanding

30,772,845

30,041,801

27,934,991

Diluted weighted average common

shares outstanding

32,719,775

31,822,571

27,934,991

Income (loss) per share - Basic

$

0.39

$

0.14

$

(0.60)

Income (loss) per share - Diluted

$

0.37

$

0.14

$

(0.60)

EBITDA (1)

$

14,845

$

16,883

$

(4,061)

As at:

Total assets

$

338,590

$

254,987

$

212,964

Total bank indebtedness, current

$

80,760

$

31,702

$

33,694

Term loan (2)

$

28,877

$

29,721

$

19,608

Shareholders' equity

$

156,918

$

144,989

$

130,764

Return on shareholders' equity (1)

7.7%

3.0%

(12.9)%

  1. Non‐IFRS measures. See Non‐IFRS Financial Measures and Reconciliations section.
  2. Includes current portion of term loan.

HIGHLIGHTS FOR THE YEAR ENDED June 30, 2021

  • Revenue grew 28.6%, primarily due to an increase of 14.4 million bushels handled and higher commodity prices compared to the prior year;
  • Gross Profit of $24.9 million was ahead of target but below a record year in fiscal year 2020. All commodities performed well and finished the year strong driven by a disciplined approach to risk management that guided us profitably through a challenging weather driven market
  • Net income of $12.0 million, increased $7.7 million compared to the year ended June 30, 2020. During the fourth quarter of fiscal year 2021, Ceres' subsidiary Riverland Ag Corp., brought a previously unrecognized deferred tax asset on to its balance sheet, resulting in a $9.7 million income tax recovery. For more information regarding the recognition of the deferred tax asset refer to the income tax section of the Financial Summary below;
  • Established Farmers Grain, LLC ("Farmers Grain"), a joint venture with Farmer's Cooperative Grain and Seed Association of Thief River Falls, MN and broke ground on a project to add 1.2 million bushels of storage and unit train loading capabilities, and is expected to be completed by the 2022 harvest. This grain merchandising joint venture will allow Ceres to increase its grower origination footprint in the region to better connect the Corporation's farmer partners to its end user customers;

4

  • On June 11, 2021, the Corporation entered in to a five‐year senior secured $50 million term debt credit facility with the Bank of Montreal that includes a that includes a $30 million term loan draw that was used to retire the Bixby Loan (as defined below) along with an additional $20 million delayed draw committed term loan that will be used to fund future growth projects and initiatives. The interest on the new agreement is 250 basis points lower than our prior agreement and will significantly reduce borrowing costs going forward;
  • The 50% crush plant expansion at Jordan Mills was substantially completed as of June 30, 2021 and will be fully operational in July 2021.

Overall Performance

The Corporation's net income was $12.0 million for the year ended June 30, 2021, compared to net income of $4.3 million for the year ended June 30, 2020. Due to the Corporation's continued improvement in profitable results and outlook, the Company recognized a $9.7 million tax gain on previously unrecognized deferred tax assets that drove the improvement in results over the prior year.

Income from operations of $8.9 million was ahead of target but below prior year's record results of $9.6 million. Gross margins were above target across all core product lines driven by increasing bushels handled and a disciplined approach to risk management during a challenging weather driven market. Operating costs were higher due to the purchase of the Nicklen Facility along with a full year ownership of Delmar but were in line with prior year across all other operating locations. General and administrative costs were lower and benefited from lower employee costs and travel expenses that were partially offset by higher legal costs during the year.

The Corporation's higher stock price resulted in a $685 thousand expense on revaluation of stock appreciation rights compared to a gain in the prior year resulting in a difference of $1.0 million year over year. Prior year results included a $917 thousand one‐time revaluation gain on a contingent consideration from the acquisition of Nature's Organic Grist, LLC. The increase in net income was driven by the recognition of a deferred tax asset of $9.7 million, offset by a reduction of $750 thousand in income from operations.

Revenues and Gross Profit

Total revenue increased by $166.5 million, primarily due to an increase of 14.4 million grain bushels handled and merchandised during the year, as well as increased commodity prices compared to the prior year. The Corporation handled and traded 106.9 million bushels of grain and oilseeds during the year ended June 30, 2021 compared to 92.5 million bushels for the year ended June 30, 2020. In agriculture commodity markets, cost of sales generally follow increases or decreases in gross revenues. Ceres' Management believes it is more important to focus on changes in gross profits and volume handled rather than changes in revenue dollars.

5

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Ceres Global Ag Corp. published this content on 10 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 September 2021 14:01:06 UTC.


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Financials (USD)
Sales 2021 748 M - -
Net income 2021 12,0 M - -
Net Debt 2021 108 M - -
P/E ratio 2021 12,2x
Yield 2021 -
Capitalization 123 M 123 M -
EV / Sales 2020 0,22x
EV / Sales 2021 0,30x
Nbr of Employees 193
Free-Float 98,8%
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Robert Day President, Chief Executive Officer & Director
Jacob Bierley Chief Financial Officer & Vice President
Douglas E. Speers Chairman
Pat Gathman Vice President-Operations
Sarah Peterson Blomquist VP-Human Resources & Corporate Administration
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