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Ceres Global Ag Corp.
33 Yonge Street
Suite 600
Toronto, Ontario
Canada
M5E 1G4
1-800-513-2832
ceresglobalagcorp.com
The Track to GrowthCeres Global Ag Corp. 2013 Annual Report
Ceres Global Ag Corp.
The benefit of Ceres long-term capital
is that we can benefit from short-term
decision making from sellers of assets
where time and strategic attention
can be applied. At Ceres our goal is
to acquire undervalued assets in the
agriculture and related supply chains
and through strategic initiatives such
as adding scale, optimizing the capital
structure bringing in new management
and customers, reposition these assets
so that they can be monetized for a
significant appreciation in value.
Thinking
Short- and Long-haul
Ceres Global Ag is in the business of finding hidden
opportunities, purchasing them inexpensively,
operating or holding them until the right moment,
and harvesting them as productively as possible.
While it can sometimes take time to reap the
benefits of this strategy, we are confident that
patient investors will ultimately be rewarded.
CERES GLOBAL AG CORP. 1
AN ESTABLISHED
PLATFORM
At the core of our business is the
strong belief that there are significant
opportunities for an enterprise that
owns strategically located storage
facilities that can provide additional
services in supply chain management.
Identify opportunities, invest in key areas, and manage to
profitability: this is what has driven Ceres’ investment strategy.
In 2012, this plan to monetize the asset value we’ve
accumulated started to reap rewards. In September 2010,
Riverland Ag acquired a grain handling facility based in Ralston,
Wyoming having storage capacity of 2.3 million bushels.
This year, Riverland Ag sold that facility for $12.4 million,
and established a strategic sourcing relationship with Briess
Industries, North America’s leading producer of specialty malts
and value-added ingredients for the brewing, distilling, food
and pet food industries. Under the agreement, Riverland Ag will
continue to manage the facility on behalf of Briess Industries for
a minimum of three years for a monthly management fee
and contingency payment of between $1.125 million and
$1.5 million in 2016. The majority of the facility’s barley
shipments will be to Briess Industries, with the balance being
sold to the facility’s other existing customers. Briess will assume
the majority of the working capital obligations of the facility
going forward, and will continue to be an important customer
of Riverland Ag’s U.S. Upper Midwest facilities. Ceres will
recognize a gain on the sale of $9.6 million.
Ceres will continue to focus on strategic sourcing transactions
to release the value inherent in our grain storage facilities.
2 CERES GLOBAL AG CORP.
Grain storage and
handling investments
British Columbia
Alberta
Manitoba
Saskatchewan
Washington
Oregon
Idaho
Utah
Nevada
Montana
North Dakota
Minnesota
Ontario
Wyoming
South Dakota
Wisconsin
Quebec
Maine
Vermont
California
Colorado
Nebraska
Iowa
Kansas
Missouri
Arizona
New Mexico
Oklahoma
Arkansas
Texas
Louisiana
Michigan
New York
Illinois
Indiana
Ohio
Pennsylvania
Maryland
West Virginia
Virginia
Kentucky
Tennessee
North Carolina
South Carolina
Mississippi
Alabama
Georgia
Florida
Operational Building Blocks
Service Offerings
Several of our facilities are qualified as
‘regular for delivery’ for certain futures
contracts on the Minneapolis and
Chicago exchanges.
Riverland Ag Grain Storage Facilities
Major Grain-Processing Facilities
• Storage and handling at both terminal
and selected country locations
• Cleaning and grading
• Blending to consistent ingredient profiles
• Supporting client efforts to develop new seed varieties
• Fostering direct interface between clients and producers
• Deploying and managing lease car fleets
• Off balance sheet financing
Strategic moves.
Our investment in rail has
delivered significant returns
both as a grain origination
and oil-by-rail platform.
34
35
1
6
The Stewart Southern Railway in southeastern Saskatchewan
is an 81 mile short line that runs from Regina to Stoughton.
In the short term, we saw this investment primarily as a grain-
origination strategy for Riverland Ag. We also took the longer
view that the value of our investment could be enhanced by
an increase in oil shipments by rail, as Stoughton lies within a
major producing area in Saskatchewan’s Bakken oil play.
In February 2012, this potential was realized when we
started shipping approximately 3,000 barrels of oil a day.
That movement doubled in March and we now are shipping
upwards of 27,000 barrels a day. We also invested in track
expansion, which should enable the railway to significantly
expand the efficiency and capacity of both oil and grain
shipments. Increased rail shipments of oil are being driven
by the rapid expansion of shale oil production in Western
Canada and by the resulting uptake in the use of spare pipeline
capacity; at this point there is little pipeline capacity left and
what remains is very expensive. This has led to significant
regional oversupply of local oil and a heavy discount for
Saskatchewan and North Dakota Bakken oil relative to world
market prices. Currently, the oil-by-rail option is growing as
producers seek to move oil to market and capture some of
the Brent–Bakken pricing differential as well as provide a
competitive option to pipelines to keep that pricing in check.
Oil-by-rail is currently the only economic alternative to
reducing drilling activity, decreasing well output or shutting
in wells. Even so, there is limited rail capacity today, primarily
because of a shortage of oil railcars. We are encouraged by the
fact that rail companies are developing multiple-destination
markets with the capacity to unload trains of 100-plus cars,
bringing greater efficiency to the market and making rail a
competitive, long-term complementary alternative to pipelines.
Ceres will continue to support the SSR business, and we are
looking for further investments in this area.
4 CERES GLOBAL AG CORP.
Richardson
34
Stewart
Southern
Railway
Regina
1
6
35
Tyvan
Filmore
Stoughton
Following
the Flow
Running from Regina to
Stoughton, the SSR lies
within the Bakken oil
formation.
Northgate
Edmonton
Vancouver
Red Deer
Trail
Calgary
Lethbridge
Swift Current
Saskatoon
Regina
Brandon
Minot
Winnipeg
Thunder Bay
Minneapolis
St. Paul
Toronto
Gaining
Traction
Recent track expansion
will enable the SSR to
significantly expand
efficiency and capacity
of both oil and grain
shipments, as well as open
incremental opportunities
for other commodities
into the Canadian Pacific
rail network.
Value down the line.
by adding further
dimension to our core
businesses, we’re on track
to pursue exciting
new directions.
Transload Area
Grain Terminal
Oil Loading Area
Oil Terminal
Customs Building
our investment in the proposed Northgate Hub promises to
generate returns both as an adjunct to our grain operations
and in facilitating rail-based transport of oil from an area
of the province with constrained pipeline access.
located on 1,500 acres of land at Northgate,
saskatchewan, the proposed commodity logistics hub will
include two high-efficiency rail loops, each capable of handling
unit trains of up to 120 railcars. strategically positioned on the
border with North Dakota, this facility creates a gateway to
the burlington Northern santa Fe Network for saskatchewan
and Western canada grain, oil and related commodities.
one loop will be dedicated to a grain handling and shipping
facility, and the other to transloading and shipping oil.
In addition, a logistics centre will unload imported equipment
and materials for saskatchewan’s booming resource economy.
The connection to bNsF railway’s United states network will
give shippers direct access to customers in 28 states, numerous
pacific and gulf ports, and Mexico, along bNsF’s 32,000 mile
network, including over 45 crude-by-rail destinations.
subject to final approvals being received, the proposed
Northgate Hub would ultimately be able handle up to
40 million bushels of grain per year and 70,000 barrels of
oil per day. This will help significantly ease the bottleneck
of getting commodities – especially grain and oil – out of
saskatchewan and will expand the marketing options for
area producers.
6 ceres global ag corp.
Transload Area
Grain Terminal
Oil Loading Area
Oil Terminal
Customs Building
connection
to bNsF rail Network
and U.s. Markets
Northgate
Development
The facility has been
designed to handle up to
40 million bushels of grain
annually and 70,000
barrels of oil per day.
bNsF
railway’s
United states
rail network
The connection will give
shippers direct access
to customers in 28 states,
numerous pacific and
gulf ports, and Mexico
along bNsF’s 32,000
mile network.
1
1. Duluth, Minnesota
2 facilities – 16.3 million bushels of
space – Rail, Truck and Vessel loading
and unloading – Eligible for Delivery for
Minneapolis Wheat and Chicago Oats
2. Malt One, Minneapolis
1 facility – 4.6 million bushels of
space – Rail and Truck – Eligible for
Delivery for Minneapolis Wheat and
Chicago Oats
3. Savage, Minnesota
1 facility – 9.3 million bushels of
space – Rail, Truck and Mississippi
Barge loading – Eligible for Delivery for
Minneapolis Wheat and Chicago Oats
4. Stewart Southern Railway,
Saskatchewan
81 mile Shortline Railway from Regina
to Stoughton, Saskatchewan – Ships
primarily oil and grain
2
4
CERES GLOBAL AG CORP. 9
3
To our
fellow shareholders
Gary Selke
Chairman & CEO
Michael Detlefsen
President
Jason Gould
CFO
Tom Muir
CTO
Craig Reiners
President & CEO Riverland Ag
2013 was another year of mediocre earnings performance at
Ceres, driven primarily by significant operating shortfalls at
Riverland Ag. These were caused primarily by a significant
underlying shift in the business environment, with the Dodd-
Frank legislation causing an exit of financial players from
the grain futures markets, significantly reducing the annual
carrying charges, and the drought, which eliminated the
carry altogether for part of the year as markets inverted.
In response, Ceres initiated a strategic review of the business,
concluded that the transformation of the business model in
a fully-fledged trading company was a ‘bridge too far’ and
hired Barclays Capital to accelerate the harvesting of the
intrinsic value of the Riverland assets.
Encouraged by the sale of the Wyoming facilities in the
4th quarter, we are confident that unlocking the value of our
investments is the right path for Riverland Ag. During the
4th quarter Riverland Ag sold the Wyoming facilities for
$12.4 million to Briess industries and in doing so established
a strategic sourcing relationship with a leading producer of
specialty malts and value added ingredients for the brewing,
distilling, food and pet food industries. With supply/demand
challenges on smaller grains caused by the recent drought and
cropping pattern changes, we are starting to see processing
companies assessing their needs for longer term commitments
to supply involving storage and origination strategies. Under
the agreement, Riverland Ag will continue to manage the
facility on behalf of Briess Industries for a minimum of three
years for a monthly management fee of and a contingency
payment of between $1.1 million and $1.5 million in 2016.
The majority of the facility’s barley shipments will be to Briess
Industries, with the balance being sold to the facility’s other
existing customers. Ceres recognized a gain of approximately
$9.6 million excluding the impact of the contingency payment.
As exemplified by the Wyoming transaction, Riverland Ag is
well positioned to benefit from this strategic shift of processing
companies and is equally well positioned to benefit from
increased North/South flow of grains as a result of the removal
of the Canadian Wheat Board marketing monopoly in Canada.
Over the course of the next 12 to 18 months, Ceres management
and Barclays Capital will work tirelessly to harvest value from
the core Riverland Assets, while Riverland Ag’s management,
under the recently promoted Craig Reiners, stabilizes and then
grows earnings, while reducing their volatility.
On the positive side, earnings grew exponentially at the
Stewart Southern Railway, driven mostly by the oil-by-rail
business, and Ceres announced the expected development
of its Northgate commodity logistics site.
During the year, the SSR benefited from being at the
forefront of the crude oil-by-rail expansion in Canada. SSR will
continue to work with its key customers to continue to grow
10 CERES GLOBAL AG CORP.
Asset Mix
10% Commodities Logistics
20% Cash
70% Grain Storage and Handling
AS WE CONTINUE TO LOOK AHEAD,
OUR LONG-TERM STRATEGY IS TO
MAXIMIZE THE VALUE OF INVESTMENTS
WE’RE MAKING. WE HAVE A TRACK
RECORD OF INVESTING IN THE RIGHT
ASSETS AT THE RIGHT TIME.
operations, and its recent move into rail car storage is making
the SSR an even more compelling option for oil shipments.
Our 25% share in the net earnings of SSR in 2013 totaled
$1.2 million, which represents a 71% return for 2013 on the
original investment, and was driven by strong crude oil-by-rail
shipments that averaged 27,000 bpd in the 4th quarter and
by improving grain shipments. Expansion was completed at
the oil shipping terminal on the SSR, which raised capacity to
45,000 bpd. With expanded drilling activity in the Stoughton
draw area, the SSR will look to add new customers down the
line in such areas as oil services.
During the 4th quarter, Ceres announced our intention to
develop a Logistics Hub on approximately 1,500 acres of land
acquired in Northgate, Saskatchewan. The Northgate Hub
will act as the direct link to the Burlington Northern Santa Fe
Network for Saskatchewan and Western Canada grain, oil
and related commodities. As part of this Logistics Hub, Ceres
has entered into a Memorandum of Understanding with
The Scoular Company, whereby Scoular will own and operate
the grain facility and tie it into its extensive network
through the United States and globally.
Together, the SSR and our Northgate project offer unique
shipping paradigms for the steadily growing commodities being
exported from Saskatchewan and Western Canada, as well as
import oil drilling supplies and animal feed ingredients from
the United States. Recent site preparation is a welcome step
forward and we look forward to this project progressing further.
As we continue to look ahead, our long-term strategy is
to maximize the value of investments we’re making. We have
a track record of investing in the right assets at the right
time. We’ve brought new rigour to risk management. We’ve
embarked on new operational directions to increase the
value of net assets. We continue to look at innovative ways
to integrate those assets into a more cohesive whole, taking
advantage of synergies and economies of scale. Every
decision we make has been guided by a sound, fiscally
responsible management strategy that balances stakeholders’
desire for near-term results with the promise of longer-term
profitability and gains.
Ceres Global Ag is in the business of finding hidden
opportunities, purchasing them inexpensively, operating
or holding them until the right moment, and harvesting them
as productively as possible. While it can sometimes take time
to reap the benefits of this strategy, we are confident that
patient investors will ultimately be rewarded. We are grateful
for the support, diligence and guidance of our Board of
Directors, and for the long-term vision and loyalty of our fellow
shareholders. We look forward to continuing on this exciting
and rewarding journey.
CERES GLOBAL AG CORP. 11
MD&A
Management’s
Discussion and Analysis
For the Fiscal Year Ended March 31, 2013
13 Forward-Looking Information
14 Cautionary Statement as to Non-IFRS Financial Measures
15 Overviews
17 Summary of Selected Annual Financial Information
17 Results of Operations for the Year and the Quarter ended March 31, 2013
19 EBITDA
20 Summary of Selected Quarterly Financial Information
20 Business Review – Riverland AG Investment
22 Business Review – Stewart Southern Railway Investment
22 Financial Position as at March 31, 2013
23 Liquidity and Capital Resources
25 Market Outlook and Business Risks
27 Outstanding Share Data
27 Related Party Transactions
28 Significant Accounting Policies
29 Subsequent Event
29 Controls and Procedures
12 CERES GLOBAL AG CORP.
Management’s Discussion and Analysis
This annual management’s discussion and analysis (“MD&A”) presents management’s discussion and analysis of the consolidated
financial position of Ceres Global Ag Corp. (“Ceres” or the “Corporation”), the consolidated results of its operations, liquidity
and capital resources, business risks and future outlook. This MD&A should be read in conjunction with Ceres’ annual audited
consolidated financial statements for the years ended March 31, 2013 and 2012, which are prepared in accordance with
International Financial Reporting Standards (“IFRS”) and presented on Schedule A attached to this annual report.
Riverland Ag Corp. (“Riverland Ag”) is Ceres’ largest investment, and is a wholly-owned subsidiary of Ceres. In discussing
the results of operations, reference will be made to results on a consolidated basis and to results for Riverland Ag separately.
This MD&A has been prepared as of June 6, 2013. Unless otherwise indicated, dollar amounts are reported in Canadian
dollars (“CAD”).
FORWARD-LOOKING INFORMATION
This annual MD&A contains information that is “forward-looking information”, “forward-looking statements” and “future oriented
financial information” (collectively herein referred to as “forward-looking statements”) within the meaning of applicable securities
laws. The words ‘‘anticipate’’, ‘‘expect’’, ‘‘believe’’, ‘‘may’’, “could”, ‘‘should’’, ‘‘estimate’’, “plan”, ‘‘project’’, “intend”, ‘‘outlook’’,
‘‘forecast’’, “likely”, “probably” or other similar words are used to identify such forward-looking information. Forward-looking
statements in this document are intended to provide Ceres’ shareholders and potential investors with information regarding
Ceres and its subsidiaries, including Management’s assessment of future financial and operational plans and outlook for Ceres
and its subsidiaries. Forward-looking statements in this document may include, among others, statements regarding future
operations and results, anticipated business prospects and financial performance of Ceres and its subsidiaries, expectations or
projections about the future, strategies and goals for growth, expected and future cash flows, costs, planned capital expenditures,
anticipated capital projects, construction and completion dates, operating and financial results, critical accounting estimates
and the expected financial and operational consequences of future commitments.
All forward-looking statements reflect Ceres’ beliefs and assumptions based on information available at the time the statements
were made. Actual results or events may differ from those predicted in these forward-looking statements. All of the Corporation’s
forward-looking statements are qualified by the assumptions that are stated or inherent therein, including the assumptions listed
below. Although Ceres believes these assumptions are reasonable, this list is not exhaustive of factors that may affect any of the
forward-looking statements.
Key assumptions have been made in connection with the forward-looking statements in this annual MD&A. These assumptions
include, but are not limited to, the following:
• expected movement to more integrated North American grain commodity markets created by changes in the powers of the
Canadian Wheat Board;
• continued compliance by Riverland Ag with loan covenants;
• expected increase in the utilization of the Riverland Ag’s facilities;
• the volume and quality of grain held on-farm by producers in North America;
• benefits to be realized by the review of Riverland Ag’s business assets;
• the demand for, and supply of, grains;
• agricultural commodity prices;
• general financial conditions for Western Canadian and American agricultural producers;
CERES GLOBAL AG CORP. 13
• the market share that will be achieved by the Corporation;
• the extent of customer defaults in connection with credit provided by Riverland Ag;
• the ability of Stewart Southern Railway Inc. (“SSR”) to continue its growth trend in grain and oil shipments by rail, without
service disruption;
• Riverland Ag’s ability to maintain existing customer contracts and relationships;
• realizing the benefits from the early repayment of long-term debt;
• that an agreement is reached with the Scoular Company concerning its involvement in the Northgate, Saskatchewan
Commodity Logistics Hub;
• the successful completion of the Northgate Commodities Logistics Hub;
• the effects of competition;
• no further material change in the regulatory environment in Canada;
• the ability to maintain existing financing on acceptable terms; and
• trends concerning currency exchange and interest rates.
The preceding list is not exhaustive of all possible factors. All factors should be considered carefully when making decisions
with respect to Ceres. Factors that could cause actual results or events to differ materially from current expectations include,
among others, risks related to weather, politics and governments, changes in environmental and other laws and regulations,
competitive factors in agricultural, food processing and feed sectors, construction and completion of capital projects, labour,
equipment and material costs, access to capital markets, interest and currency exchange rates, technological developments,
global and local economic conditions, the ability of Ceres to successfully implement strategic initiatives and whether such
strategic initiatives will yield the expected benefits, the operating performance of the Corporation’s assets, the availability and
price of commodities and regulatory environment, processes and decisions. By its nature, forward-looking information is subject
to various risks and uncertainties, including those risks discussed in other sections of this annual MD&A and in other filings and
communications, any of which could cause Ceres’ actual results and experience to differ materially from the anticipated results
or published expectations. Additional information on these and other factors is available in the reports filed by Ceres with
Canadian securities regulators. Readers are cautioned not to place undue reliance on this forward-looking information, which
is given as of the date of this annual MD&A or otherwise, and not to use future-oriented information or financial outlooks for
anything other than their intended purpose. Ceres undertakes no obligation to update publicly or revise any forward-looking
information, whether as a result of new information, future events or otherwise, except as required by law.
CAUTIONARY STATEMENT AS TO NON-IFRS FINANCIAL MEASURES
As supplementary information, Ceres provides a non-IFRS measure that management believes is useful to users of this annual
MD&A to explain Ceres’ financial results. This non-IFRS measure is EBITDA (Earnings before Interest, Taxes, Depreciation and
Amortization), which is not a standardized financial measure prescribed by IFRS. However, management believes that most
shareholders, creditors, other stakeholders and investment analysts benefit from using this performance measure in analyzing
Ceres’ results. Ceres also uses this measure internally to monitor the Corporation’s performance.
In calculating EBITDA, Ceres also excludes its share of the net income (loss) from investments in associates and the gain
or loss on sale or impairment of property, plant and equipment. Ceres may calculate EBITDA differently than other companies;
therefore, Ceres’ EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that
EBITDA should not be construed as an alternative to net income or loss, or to other standardized financial measures determined
in accordance with IFRS, and is not intended to represent cash flows or results of operations in accordance with IFRS.
14 CERES GLOBAL AG CORP.
OVERVIEWS
The following table represents an analysis of the components of Ceres’ equity attributable to shareholders as at March 31, 2013
and reflects the value at which individual items are carried on Ceres’ balance sheet (in millions of dollars, except total equity
attributable per share outstanding):
Cash and cash equivalents (note 1)
Portfolio investments
Other current assets
Investment in SSR (note 2)
Investment in land and capitalized costs representing the future Northgate Commodities Logistics Hub
(“Northgate”) (note 3)
Investment in Riverland Ag (note 4)
Net working capital, net of all debt (note 5)
Fixed assets, at net book value (note 6)
Investment in Canterra Seeds Holdings, Ltd. (“Canterra”) (note 7)
Total investment in Riverland Ag
Less: All (Current) Liabilities
Total Equity Attributable to Shareholders
Total Equity Attributable per share outstanding
$
$
$
18.75
6.49
0.01
2.83
4.98
46.00
66.01
1.52
113.53
(1.70)
144.89
10.11
Notes:
1. Cash and cash equivalents exclude cash held by subsidiaries.
2. SSR is 25 per cent owned by Ceres and is accounted for using the equity method.
3.
The investment in Northgate represents an investment in approximately 1,500 acres of land in Saskatchewan and North Dakota, plus capitalized costs incurred to
ready the site for the development of the logistics hub.
Ceres owns 100 per cent of Riverland Ag and consolidates the accounts of Riverland Ag in the annual financial statements. In this analysis, the investment in Riverland Ag
is accounted for using the equity method.
The net working capital of Riverland Ag represents primarily the owned inventory which is marked to market, less all bank indebtedness. The aggregate of other assets
is substantially offset by the aggregate of other liabilities.
4.
5.
6. Represents approximately 52 million bushels of storage space at an average net book value of $1.26 per bushel.
7. Canterra is 25 per cent owned by Riverland Ag and is accounted for using the equity method.
Ceres
Ceres is an asset management company currently focused in two primary areas:
• Grain Storage and Handling – represented by Riverland Ag, a collection of North American commercial grain storage and
handling assets; and
• Commodity Logistics – represented by SSR, a short-line rail company based in Southeastern Saskatchewan, and Northgate,
the proposed commodities logistics hub.
Riverland Ag
Riverland Ag owns and operates eleven (11) grain storage and handling facilities in the American states of Minnesota, North
Dakota, New York and Wisconsin, and the Canadian province of Ontario. Riverland Ag also manages two facilities in Wyoming
on behalf of its customer-owner.
Riverland Ag is focused on cereal grain storage, customer-specific procurement and “process-ready” cleaning of specialty
grains such as oats, barley, rye and durum wheat. It offers a comprehensive range of services to its customers to help manage
the risks associated with the price, quality, and availability of these critical food grains.
Riverland Ag’s facilities are strategically located, with excellent rail, truck and ship transportation logistics and close proximity
to major grain-processing facilities in the United States. Many of Riverland Ag’s locations are at deep-water ports in the Great
Lakes and along the upper Mississippi River, allowing access for lakers and barges, and enabling the efficient global import
and export of grains.
The majority of Riverland Ag’s facilities are qualified as ‘regular for delivery’ locations for certain futures contracts on the
Minneapolis and Chicago exchanges, allowing Riverland Ag to earn carrying charges against grain stored for delivery to the
exchanges by matching deliverable cash inventories with futures contracts. This delivery mechanism helps to mitigate risk
for Riverland Ag and it is an important component of its credit facilities.
CERES GLOBAL AG CORP. 15
Currently, the majority of Riverland Ag’s storage space is utilized to capture grain arbitrage and merchandising opportunities.
The balance is utilized to service third-party storage contracts with leading food and beverage companies, whereby the third-party
owns the inventory and pays Riverland Ag for storage and elevation. The Corporation is actively exploring working with physical
commodity funds to utilize the Corporation’s facilities as a way of enhancing its revenues. Going forward, Riverland Ag’s strategy
is to balance these revenues sources more equitably.
Riverland Ag is primarily focused on the storage and handling of cereal grains with particular emphasis on wheat, oats, barley
and rye. In the case of wheat and oats, both of these crops have futures markets which it uses to hedge its inventories. For barley
and rye, where no futures markets exist, it primarily stores the grain under contract with end users. Riverland Ag earns revenues
in three primary areas:
• Carrying income, when it hedges its owned inventory positions against the futures markets and earns the difference between
spot and deferred prices;
• Storage revenue, when it is paid for the use of its space by entities that have inventory deposited in Riverland Ag’s delivery
facility or by food and beverage companies; and
• Merchandising gains, when owned inventory positions are sold or marked up in value as a result of movements in the market
values of those grains above the prices at which it was acquired.
Grains purchased by Riverland are primarily bought from third-party grain companies in the United States and Canada, with
certain Riverland locations also procuring directly from farmers. Grains are usually sold to food and beverage companies,
livestock related businesses, as well as delivered into the futures market.
The nature and position of Riverland Ag’s assets allow it to be flexible in different types of grain markets, but typically it has
performed best in an environment of strong production, resulting in surplus grains that need to be stored, combined with a
futures market in contango.
A trend that has existed for a number of years has involved corn and soybeans absorbing acreage farther north, at the expense
of cereal grain production. The result of this situation, both in the near-term and longer-term, will be an ever increasing reliance
on Canada to produce cereal grains. The most dramatic example of this is represented by the production of oats, which until
the 1980s, was a significant crop in the United States. However, America now imports the majority of its food quality oats from
Canada. Consequently, while nearly all of Riverland Ag’s facilities are in the U.S., what occurs in Canada’s cereal grain production
is very relevant to Riverland Ag.
The recent development of the removal of the Canadian Wheat Board’s monopoly on the marketing of Western Canadian
wheat will, over time, make Riverland Ag’s position in the spring wheat delivery market much stronger as the North American
market becomes more integrated. While movements south have been slower than initially forecasted, we expect them to increase
as logistics and customer merchandising improves. Projects such as the proposed grain facility in Northgate by the Scoular Company
will significantly help this movement.
Stewart Southern Railway
Ceres owns a 25 per cent interest in SSR, which is a 132 kilometre (82-mile) short-line railway that extends from Richardson,
Saskatchewan (just southeast of Regina) to Stoughton, Saskatchewan. SSR was purchased from the Canadian Pacific Railway,
with which it has haulage agreements. Historically, SSR only shipped grain and was being challenged by low local production
caused by high levels of precipitation and flooding. Since February 2012, SSR began shipping oil from the Stoughton area for the
first time and monthly volumes have grown steadily. With an expansion completed at the Stoughton oil trans-loading facility at
the end of December 2012, the oil loading capacity has increased to over 45,000 bpd of production to become one of the largest
crude oil by rail loading sites in Western Canada. In addition, SSR has recently been successful in developing a rail car storage
program for shippers, which will help broaden its revenue and earnings profile. As SSR absorbs this large growth, it will look for
increased shipment opportunities in oil and other products.
Northgate, Saskatchewan Commodities Logistics Hub
Ceres owns 1,500 acres of land at Northgate, Saskatchewan and Northgate, North Dakota, where it intends to construct a new
commodity logistics hub including high-efficiency rail loops, capable of handling unit trains of up to 120 railcars. A grain handling
and shipping facility and trans-loading and shipping oil will be the initial focus, followed by a logistics centre that will unload
in-bound equipment and materials for Saskatchewan’s booming resource economy.
The connection to BNSF Railway’s network will give shippers direct access to customers in 28 American states, numerous
Pacific and Gulf ports, and Mexico, along BNSF’s 32,000 mile network, including over 45 crude-by-rail destinations. Access
to many other strategic interior locations and Atlantic ports are also available through BNSF’s rail connections.
16 CERES GLOBAL AG CORP.
Construction is planned to commence in the spring of 2013, subject to receipt of all necessary permits and approvals and
finalization of agreements with project partners, with initial grain and oil shipments expected later in 2013. The facility will be
built over three years, and has been designed ultimately to handle up to 40 million bushels of grain annually and potentially
70,000 barrels of oil per day. More than 100 construction jobs will be created, and about 30 ongoing jobs once the facility
is fully operational.
The Scoular Company (“Scoular”), a major U.S.-based agricultural marketing company, is expected to partner with Ceres
on the project. Subject to the finalization of agreements, Scoular will fund, own and operate the grain handling facility. Ceres’
grain subsidiary, Riverland Ag, will be a major customer of the grain facility, and will work closely with Scoular on the procurement
of certain grains.
SUMMARY OF SELECTED ANNUAL FINANCIAL INFORMATION
The following table summarizes selected annual financial information. Details concerning operating results for 2013 are reported
throughout this MD&A. Further information related to prior quarterly results may be found in the respective interim or annual
financial statements and MD&As.
The following table presents the information in accordance with International Financial Reporting Standards (“IFRS”), in
Canadian dollars, being the presentation and functional currency of the Corporation).
in thousands, except per share data
Total revenues
Gross profit
Net (loss) income
Basic and diluted (loss) earnings per share
Total assets
Total non-current financial liabilities (including current portion)
Distributions or cash dividends declared per common share
2013
223,080
2,040
(11,485)
(0.80)
296,250
–
–
$
$
$
$
$
$
$
2012
184,414
15,955
(3,806)
(0.25)
292,398
47,838
–
$
$
$
$
$
$
$
2011
147,258
18,327
25,697
1.74
310,870
29,596
–
$
$
$
$
$
$
$
RESULTS OF OPERATIONS FOR THE YEAR AND THE QUARTER ENDED MARCH 31, 2013
Revenues and Gross Profit
Through Riverland Ag, Ceres is principally involved in an agricultural commodity-based business, in which changes in selling prices
generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural
commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a minimal impact on gross
profit. Accordingly, management believes it is more important to focus on changes in gross profit than it is to focus on changes
in revenue dollars.
For the year ended March 31, 2013, revenues totalled $223.1 million and gross profit was $2.0 million (2012: revenues
totalled $184.4 million and gross profit was $16.0 million). For the year ended March 31, 2013, gross profit percentage was
0.91 per cent (2012: 8.65 per cent). The decrease in gross profit is attributable to lower carrying income due to tightness
in the supply of grains caused primarily by the drought this past year and slower than anticipated spring wheat movement
from Canada.
For the quarter ended March 31, 2013, revenues were $60.4 million (2012: $37.1 million) and gross profit was $2.0 million
(2012: $0.8 million). For the quarter ended March 31, 2013, the gross profit percentage was 3.23 per cent (2012: 2.03 per cent).
The increase in gross profit percentage for the quarter, compared to the same quarter in the prior year, is attributable to increased
trading margins on bushels sold during this quarter as Riverland Ag continued to liquidate its oats inventory.
In Q4 2013, the gross profit percentage improved compared to Q3 2013 and Q4 2012, due to realized trading gains during the
current quarter. As reported in the previous quarter, earnings from operations and gross profit percentage were still lower in this
quarter compared to past historical levels due to depressed carrying charges in cereal grains.
As noted in the previous quarter, in Q3 2013, Riverland management made a strategic decision to deliver a significant amount
of inventory against December 2012 futures contracts incurring a one-time loss of $2.4 million. With demand for terminal load
out inventories strengthening in Q4 2013, Riverland repurchased much of its inventory that had been delivered in Q3 against
futures contracts at parity and merchandised the inventory in Q4 at basis levels that were above parity making up much of that
one-time loss of $2.4 million in Q3 2013.
CERES GLOBAL AG CORP. 17
General and Administrative Expenses
For the year ended March 31, 2013, general and administrative expenses totalled $10.6 million (2012: $10.9 million).
For the quarter ended March 31, 2013, general and administrative expenses totalled $3.0 million (quarter ended March 31,
2012: $2.4 million). The increase in general and administrative expenses for Q4 2013 primarily represents an increase of
approximately $0.3 million in legal fees in Q4 2013 due to corporate initiatives and responding to a shareholder’s request
for a special shareholders’ meeting.
For the year ended March 31, 2013, general and administrative expenses include Ceres corporate-level costs for management
fees of $3.1 million (2012: $3.4 million) and other expenses of $2.5 million (2012: $2.3 million). The decrease in management
fees is generally consistent with the decrease in average net asset value (or shareholders’ equity) over the year ended March 31,
2013 compared to 2012, on which the management fee is calculated. The increase in other general and administrative expenses
of approximately $0.2 million represents some increases in portfolio and corporate transaction costs and in legal fees, partially
offset by decreases in audit fees and other professional fees.
Finance income (loss)
For the years ended March 31, 2013 and 2012 and the three-month periods then ended, finance income (loss) includes the
following:
3 months
12 months
(in thousands of dollars)
2013
2012
2013
Dividend revenues, net of withholding taxes
Interest and other revenues, net of interest expense
on bonds sold short
Realized loss on sale of investments
Realized gain (loss) on currency-hedging transactions
Realized and unrealized gain on foreign exchange
Change in fair value of investments
$
–
$
–
$
–
$
–
(14.9)
(598.5)
15.1
(1,491.4)
(2,089.7)
$
–
(6.1)
767.4
1.9
1,405.5
2,168.7
20.7
(14.9)
(313.0)
12.9
(4,369.8)
(4,664.1)
$
$
$
2012
21.2
3.6
(5,257.4)
(541.3)
99.8
3,916.9
(1,757.2)
Investment revenues (dividends, interest and other revenues) earned by Ceres on its non-Riverland Ag assets are now insignificant,
and reflect the divestiture commencing in June 2010 and continuing thereafter of a significant number of portfolio investments
to fund the acquisition in that month of Riverland Ag, its future growth in Riverland Ag and other investments including SSR and
the Northgate Logistics Hub. Realized losses on the sale of investments reflect the currently low level of activity in the portfolio
over the past few quarters. Variances in realized and unrealized gains and losses for foreign exchange, currency-hedging and
the remaining portfolio investments reflect fluctuations in the currency and equity markets.
Finance expenses
There is no debt at the Ceres corporate level. Therefore, for the years ended March 31, 2013 and 2012, finance expenses all
relate to Riverland Ag and include interest on short-term and long-term debt plus the amortization of related financing transaction
costs and an early payment penalty on long-term debt. For the three-months ended March 31, 2013, finance expenses included
interest on short-term debt and amortization of related financing transaction costs. For the year ended March 31, 2013, finance
expenses were $11.6 million (2012: $7.1 million). The increase in finance expenses for the year ended March 31, 2013, is the
result of the one-time charge for the early debt repayment penalty of $2.5 million and the related amortization of the remaining
unamortized financing costs of $0.3 million plus the effects of an increase in Riverland Ag’s short-term borrowings during the
year. Short-term borrowings decreased from $79.4 million as at March 31, 2012 to $65.0 million as at June 30, 2012, then
increased to $176.1 million as at September 30, 2012 and to $178.1 million as at December 31, 2012 and finally decreased
to $143.5 million as at March 31, 2013. The changes in short-term borrowings follow primarily the changes in inventory levels
during the year and the repayment of long-term debt during the year ended March 31, 2013. Inventories decreased from
$158.8 million as at March 31, 2012 to $139.8 million as at June 30, 2012, then increased to $249.1 million as at September 30,
2012, decreased to $189.6 million as at December 31, 2012, and decreased further to $164.8 million as at March 31, 2013.
However, on December 17, 2012, the balance of long-term debt was fully repaid (long-term debt as at March 31, 2012 was
$48.3 million, before unamortized financing costs). Funds used to repay long-term debt were provided by the short-term
borrowing facilities.
18 CERES GLOBAL AG CORP.
For the quarter ended March 31, 2013, finance expenses were $1.9 million (2012: $2.1 million). Lower finance expenses for
the quarter are due to realized savings resulting from the use of short-term borrowing facilities, for which Riverland Ag is paying
a lower rate of interest compared to rates related to long-term debt that was paid off in the previous quarter. During the quarter,
company owned inventory quantity declined slightly along with general decline in overall grain prices from December 31, 2012.
EBITDA
The following tables are a reconciliation of EBITDA for Ceres on a consolidated basis and for Riverland Ag for the three-month
period and the year ended March 31, 2013, and a reconciliation of EBITDA for Ceres on a consolidated basis and for Riverland Ag
for the three-month periods ended March 31, 2013 and 2012:
EBITDA (in thousands of dollars)
Periods ended March 31, 2013
Net income (loss) for the period
Add (deduct): finance expenses
income taxes expense (recovery)
depreciation on property, plant
and equipment
EBITDA before gain on sale of property, plant and
Add (deduct):
equipment, and share of net (income) loss in associates
gain on sale of property, plant
and equipment
share of net (income) loss in associates
EBITDA
EBITDA (in thousands of dollars)
Periods ended March 31
Net income (loss) for the period
Add (deduct): finance expenses
income taxes expense (recovery)
depreciation on property, plant
and equipment
EBITDA before gain on sale of property, plant and
Add (deduct):
equipment, and share of net (income) loss in associates
gain on sale of property, plant
and equipment
share of net (income) loss in associates
EBITDA
3 months, 2013
12 months, 2013
Consolidated
Riverland Ag
Consolidated
Riverland Ag
803.7
1,890.8
3,999.8
$
3,849.5
1,890.8
3,999.8
$
(11,485.1)
11,620.2
(2,571.3)
$
(2,395.9)
11,620.2
(2,571.3)
735.5
735.5
2,921.6
7,429.8
10,475.6
485.4
2,921.6
9,574.6
(9,710.4)
(178.7)
(2,459.3)
(9,710.4)
241.8
1,007.0
$
(9,598.3)
(1,231.6)
(10,344.5)
$
(9,598.3)
(33.4)
(57.1)
$
3 months, 2013
3 months, 2012
Consolidated
Riverland Ag
Consolidated
Riverland Ag
803.7
1,890.8
3,999.8
$
3,849.5
1,890.8
3,999.8
$
(414.1)
2,051.0
(1,391.6)
$
(1,378.7)
2,051.0
(1,391.6)
$
$
$
735.5
735.5
7,429.8
10,475.6
(9,710.4)
(178.7)
(2,459.3)
$
(9,710.4)
241.8
1,007.0
$
$
717.5
962.8
146.1
114.5
1,223.4
$
717.5
(1.8)
146.1
125.0
269.3
On a quarter-by-quarter basis, consolidated net loss is affected by the amount of finance income (loss) recognized in the accounts,
which consists primarily of realized losses on the sale of portfolio investments, realized gains and losses on currency-hedging
transactions, realized and unrealized gains and losses on foreign exchange and the unrealized gains and losses in the fair value of
portfolio investments. For the quarter ended March 31, 2013, consolidated net loss includes finance loss of $2.1 million (quarter
ended March 31, 2012: finance income of $2.2 million). Excluding the effect of the finance loss for the quarter ended March 31,
2013, adjusted consolidated EBITDA would have been a loss of $0.4 million (quarter ended March 31, 2012: consolidated
EBITDA would have been a loss of $0.9 million). Fluctuations in this adjusted consolidated EBITDA reflect changes in the equity
and currency markets.
The increase in EBITDA for Riverland Ag for the quarter ended March 31, 2013 over EBITDA for the quarter ended March 31,
2012 is $0.7 million. The increase is attributable primarily to an increase in gross profit from $1.4 million for the quarter ended
March 31, 2012 to $2.0 million for the quarter ended March 31, 2013, which is attributable to the realized gains on grain sales
during the quarter.
CERES GLOBAL AG CORP. 19
SUMMARY OF SELECTED QUARTERLY FINANCIAL INFORMATION
The following table summarizes selected financial information for each of the last eight (8) fiscal quarters ended March 31, 2013:
Reporting dates
3 months
3 months
2013-03-31 2012-12-31 2012-09-30 2012-06-30
3 months
3 months
3 months
2012-03-31
3 months
2011-12-31
3 months
2011-09-30
3 months
2011-06-30
(in thousands, except per share amounts)
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Revenues
Gross profit (loss)
Income (loss) from operations
Net income (loss)
Weighted-average number of common shares
$ 60,429
1,954
$
(1,017)
$
804
$
$ 84,575
(2,407)
$
(5,040)
$
(7,125)
$
$ 35,132
1,066
$
(1,550)
$
(1,133)
$
$ 42,944
1,426
$
(996)
$
(4,031)
$
$ 37,123
755
$
(1,663)
$
(414)
$
$ 22,639
4,865
$
2,526
$
(1,704)
$
$ 35,044
4,147
$
748
$
(2,033)
$
$ 89,609
6,189
$
3,432
$
345
$
for the quarter
14,335
14,336
14,406
14,512
14,640
14,941
15,047
15,174
Basic and fully diluted earnings (loss)
per share
EBITDA, consolidated
EBITDA per share, consolidated
EBITDA, Riverland Ag
EBITDA per share, Riverland Ag
Cash and portfolio investments, net of shorts
and options, as at reporting date
Shareholders’ equity, as at reporting date
Shareholders’ equity per common share,
$
$
$
$
$
0.06
(2,459)
(0.17)
1,007
0.07
$
$
$
$
$
(0.50)
(5,335)
(0.37)
(2,850)
(0.20)
$
$
$
$
$
(0.08)
78
0.01
663
0.05
$
$
$
$
$
(0.28)
(2,627)
(0.18)
1,122
0.08
$
$
$
$
$
(0.02)
1,223
0.08
269
0.02
$
$
$
$
$
(0.11)
1,150
0.08
4,508
0.30
$
$
$
$
$
(0.14)
2
–
3,266
0.22
$
$
$
$
$
0.02
3,536
0.23
4,924
0.35
$ 26,932
$ 144,881
$ 29,764
$ 141,812
$ 33,995
$ 147,734
$ 35,436
$ 153,400
$ 39,607
$ 155,900
$ 45,176
$ 159,615
$ 48,253
$ 165,792
$ 60,855
$ 159,962
as at reporting date
$
10.11
$
9.89
$
10.29
$
10.61
$
10.69
$
10.83
$
11.07
$
10.58
The following comments relate to certain variances reported in some of the line items above:
Revenues: As a commercial commodities storage business, revenues may vary from quarter to quarter. The Corporation has the
flexibility to be opportunistic in its decision to sell, or may make delivery sales in certain markets. The large increase in sales in
Q3 2013 is attributable to large quantities of certain grains delivered on futures contracts in December 2012 and in Q1 2012
were attributable to large amounts of spring wheat being delivered in the market during that quarter. Revenues remained higher
than past quarters during the fourth quarter as Riverland Ag sold large quantities of oats into the cash market.
Gross profit and Income from operations: The drop in gross profit that occurred in the first three quarters of the year ended
March 31, 2013 is the result of reduced carrying income in combination with basis income against a lower inventory level, and
the one-time loss on the strategic deliveries of certain grains against December 2012 futures contracts and the effect of the basis
depreciation on certain inventories.
BUSINESS REVIEW – RIVERLAND AG INVESTMENT
Riverland Ag is principally involved in an agricultural commodity-based business, in which changes in selling prices generally
move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities
that the business deals in will have a relatively equal impact on sales and cost of sales and a minimal impact on gross profit.
Accordingly, management believes it is more important to focus on changes in gross profit than it is to focus on changes in
revenue dollars.
For the year ended March 31, 2013, revenues totalled $223.1 million and gross profit was $2.0 million compared to
$184.4 million in revenues and gross profit of $16.0 million for the year ended March 31, 2012. The gross profit percentage
for the year ended March 31, 2013 was 0.91 per cent compared to 8.65 per cent for 2012.
For the quarter ended March 31, 2013, revenues were $60.4 million (2012: $37.1 million) and gross profit was $2.0 million
(2012: $0.8 million). The gross profit percentage for the quarter ended March 31, 2013 was 3.23 per cent (2012: 2.03 per cent).
The increase in the gross profit percentage for the quarter, compared to the same quarter in the prior year, is attributable
primarily to realized gains on bushels sold during the quarter at basis levels at a premium to their carrying value.
The results for Q4 2013 strengthened due to the one-time gain on the sale of Riverland’s Ralston, Wyoming, facility along
with increased terminal demand for grain from the end-users. While the gross profit decreased throughout the first three quarters,
the increase in Q4 2013 was driven by events in the marketplace that allowed Riverland to realize trading gains on grain sales
at basis levels above the price of acquisition of the grain during the quarter. Results from operations relating to carrying charge
income in Q4 2013 continued to be relatively depressed with continued decreased carrying charges on inventory quantities that
are reduced from December 31, 2012 and March 31, 2012.
20 CERES GLOBAL AG CORP.
Furthermore, the disappointing results from operations in 2013 were primarily driven by the reduced supply of cereal grains
in North America, a drought throughout much of the United States, and minimal selling from Canadian spring wheat producers,
who have left significant quantities of wheat still on the farms. The drought during the 2012 crop year led to lower supplies of
corn, a primary feed ingredient, which significantly increased in price. As a result, commodity markets saw increased prices
across all other commodities as various types of wheat were used as a feed substitute to corn. The higher prices and lower
supplies led to carrying charges being significantly reduced to levels approaching zero, along with strong basis levels for the
physical product.
While the lower carrying income market has been negative for the Corporation from an earnings perspective, it has created
an opportunity for the assets we own. Management believes the same events that led to challenging operations for the year for
Riverland Ag offer future opportunity and potential as a supply chain service provider for food and beverage companies. When
Ceres acquired Riverland Ag, it had over 20 million bushels of oats in store, which effectively acted as a “mayday” supply for the
end users in oats. However, with overall tightness in the oats market supplies, high basis levels and a negative carrying income
environment, the market is no longer rewarding Riverland Ag for having a large oats inventory and the company has continued to
liquidate its oats inventory. At the same time, this lack of supply is compelling these customers to change their strategy by forcing
them to look at their supply chain and build up one to two years of supply in the event of a poor crop in a future year, in order
to maintain stable product availability for their mills. This is similar to what has occurred in the malt barley industry, whereby
eighteen months of supply is routinely kept on hand in store. The challenge for many end users in oats is that they do not own
large scale storage facilities nor do they have the experience to support these types of operations. As a result, we will shift the
service we provide to the oats users from being a primary oats supplier to providing supply chain management services in
the form of warehouse storage space for oats that are owned by the millers.
During the year ended March 31, 2013, Riverland Ag increased its revolving line of credit facility to USD$180 million. As at
March 31, 2013, Riverland Ag owes USD$115 million on this line of credit (March 31, 2012: USD$80 million). This expanded
credit facility provides Riverland Ag with greater liquidity to finance increasing grain inventories and absorb higher grain prices,
and supports Riverland Ag’s growth in the commercial grain storage industry. Furthermore, this increased facility greatly enhances
Riverland Ag’s flexibility in pursuing grain opportunities created by changes to the Canadian Wheat Board’s powers and the
movement to more integrated North American markets. Finally, Riverland Ag used this facility to effectively finance the full
repayment of the long-term debt loans payable, which had a balance of $48.28 million as at March 31, 2012 (before unamortized
financing costs). Consequently, as at March 31, 2013, Riverland Ag is no longer indebted to Great Western Bank for any long-
term loans. In Q4 2013, Riverland Ag began realizing savings resulting from the reduced interest costs related to borrowings
on the amount formerly financed by long-term debt (which carried interest ranging from 5.35 per cent to 6.60 per cent). On the
early repayment of the long-term debt, Riverland Ag paid a penalty of $2.47 million. It is expected that the payback period on this
penalty will be approximately 18 months. With the sale of the Iona, Minnesota facility, coupled with our delivery strategy executed
in Q3 FY 2013 and the sale of the Ralston, Wyoming facility, it was determined our capital needs changed and, as a result, it was
decided to pay off the term debt facility in Q3 and rely on our operating line facility, and benefit from its lower interest rate.
As previously reported, on July 31, 2012 Riverland Ag renewed the revolving line of credit facility for an additional two years.
Commencing thereon, interest is at LIBOR plus 3.75 per cent (formerly at LIBOR plus 4.00 per cent), and certain covenants
were modified.
Management continues to identify growth opportunities, in both upstream and downstream segments. On March 15, 2013,
the Company entered into a strategic sourcing relationship with Briess Industries Inc. (“Briess”). As part of the strategic sourcing
relationship, Briess acquired the Ralston elevator facility and the Powell, Wyoming seed plant for USD$12.4 million. Riverland Ag
will manage the facility on behalf of Briess for a minimum of three years. The majority of the facility’s barley shipments will be to
Briess, with the balance being sold to the facility’s other existing customers. Riverland Ag will receive a monthly management fee
and a contingency payment of between USD$1.125 million and USD$1.5 million in 2016 subject to certain performance targets
being met. Processing of sales to the facilities’ other customers will be to the account of Riverland Ag. Briess assumes the working
capital obligations of the facility, and will continue to be an important customer of Riverland Ag’s U.S. Upper Midwest facilities.
On the sale of the two facilities in Q4 2013, Ceres recognized a gain of $9.6 million.
Furthermore, during the year ended March 31, 2013, as previously reported, Riverland Ag entered into a joint agreement with
Consolidated Grain and Barge Co. (“CGB”), whereby CGB will rent space and utilize the barge shipping capability of our Savage,
Minnesota facility to purchase and ship grain beginning on February 1, 2013. This partnership with CGB validates the position
and strength of our assets. We will continue to look to partner with companies such as CGB for handling agreements, which
will enhance the diversification of the revenue base for Riverland Ag. In addition, management will continue to optimize its mix
of grains to maximize the utilization of its storage space and earnings on grains in storage.
CERES GLOBAL AG CORP. 21
As mentioned in the previous quarter, the transition to an open market in Canada for wheat and barley has been slower than
originally expected, as farmers have been reluctant to move wheat off the farm in the quantities originally anticipated. As of April
2013, industry analysts indicate that approximately 50 per cent of last year’s Canadian wheat crop is still on the farms waiting
to be moved to market. The lack of movement in the 4th quarter of 2013 was attributable to logistical issues that made moving
the grain a challenge, principally due to weather conditions throughout Canada and the northern plains of the United States.
As snowfall and moisture remain in the Canadian prairie region, early planting indications for spring wheat show that the seeded
crop area will be slightly higher than the prior year and on pace with the five-year average. Planting in Canada should force
farmer sales, to clear room for the new crop year’s harvest. Management believes that the flow of Canadian grain to the United
States will increase over the next few quarters. As one of the largest independent grain companies, with over 50 million bushels
of storage located in the Upper Lakes and Mississippi River area strategically close to the Canadian border, Riverland Ag is in
a unique position to benefit from the structural changes occurring in the North American cereal grain market.
BUSINESS REVIEW – STEWART SOUTHERN RAILWAY INVESTMENT
Ceres has a 25 per cent investment in SSR, which is a short-line railway operating in south-eastern Saskatchewan. SSR continued
its strong growth trend during the quarter. For this quarter, SSR earned $1.7 million, resulting in Ceres’ 25 per cent ownership
interest generating $0.4 million of equity earnings during the quarter, which is an increase from the previous quarter of $0.3 million
of equity earnings. Since its acquisition on December 31, 2010, Ceres’ return on its original investment has been 64.16 per cent,
and for the last three quarters, Ceres’ investment in SSR has generated approximately a 59.78 per cent return on its original
investment. This result is remarkable, as oil by rail shipments only began a year ago in February 2012. During the quarter, the
daily volume of oil shipments averaged approximately 27,000 bpd. The expansion of the Crescent Point Energy oil loading
terminal was completed at the end of December 2012 and has a capacity of over 45,000 bpd. At the very end of this quarter,
with the expansion completed, oil shipments were averaging over 27,000 bpd and are likely to increase from there over the next
calendar year. Shipments of agricultural commodities continued on their pace from the last quarter. Also during the quarter, SSR
initiated a rail car storage program that will help broaden its revenue and earnings base. Ceres’ original investment in SSR cost
$1.7 million for its 25 per cent interest.
FINANCIAL POSITION AS AT MARCH 31, 2013
The following is a summary of the portfolio investments and cash on hand as at March 31, 2013 and 2012:
Portfolio investments
Cash
Portfolio investments
2013
2012
$
6,488,254
$ 20,443,836
$ 9,873,064
$ 29,733,963
As at March 31, 2013, the percentage of the fair value of the portfolio invested in public companies was 62.89 per cent of the
total portfolio, and in private companies was 37.11 per cent (2012: public companies: 60.89 per cent of the total portfolio;
private companies: 39.11 per cent). Nonetheless, as at March 31, 2013, 1.17 per cent of shareholders’ equity is represented
by portfolio investments in private companies (2012: 2.47 per cent). As at March 31, 2013, 3.32 per cent of shareholders’ equity
is invested in equity instruments of a publicly traded companies located in Canada (2012: 3.85 per cent).
During the year ended March 31, 2012, Ceres reduced its legacy public portfolio investments by selling certain positions.
Proceeds from the sale of investments were used to fund various strategic investment initiatives and the ongoing Normal Course
Issuer Bid. During the year ended March 31, 2013, minimal holdings were sold for a small loss of approximately $15,000; however,
Ceres made additional investments in existing shareholdings totalling $1.1 million. During the three-month period and the year
ended March 31, 2013, the decrease in fair value of portfolio investments is attributable primarily to losses in value of Ceres’
investment in EcoSynthetix Inc. and Windtronics, LLC.
As part of the Corporation’s strategy to manage its risks and minimize its exposure associated with owning securities
denominated in foreign currencies, the Corporation may commit to certain forward foreign exchange contracts. As at March 31,
2013, the Corporation had a forward foreign exchange contract for USD$30 million, having a term of 34 days (March 31, 2012:
forward foreign exchange contract for USD$32.5 million, term of 31 days).
22 CERES GLOBAL AG CORP.
Effects of changes in the rate of foreign exchange
As at March 31, 2013, for accounting purposes, Ceres’ investment in the net assets of Riverland Ag Corp. is USD$106.6 million.
During the year then ended, the Canadian dollar became weaker against the U.S. dollar by 1.85 per cent. This change is the
cause of the gain on translation of foreign currency accounts of foreign operations in the amount of CAD$2.0 million reported
as other comprehensive gain in the statement of comprehensive income (loss) for the year ended March 31, 2013 (2012: gain
on translation of foreign currency accounts of foreign operations was $2.5 million).
Riverland Ag Corp.’s reporting and functional currency is the U.S. dollar Riverland Ag Corp. has no assets or liabilities
denominated in currencies other than U.S. dollars. Therefore, it is not directly exposed to currency risk in its normal operations.
Currency risk related to the accounts of Riverland Ag Corp. relates primarily to the translation of its U.S. dollar accounts into
Canadian dollars for the purposes of Ceres’ consolidated financial reporting. Adjustments related to the translation of Riverland
Ag Corp.’s U.S. dollar assets and liabilities are included as other comprehensive income (loss) and have no effect on the
determination of Ceres’ consolidated net income for an interim or annual reporting period.
Furthermore, as reported in Note 13(c) of Ceres’ consolidated financial statements for the year ended March 31, 2013
(Financial instruments – management of financial instruments risk, currency risk), and as mentioned above in the portfolio
investments discussion, as at March 31, 2013, Ceres has a forward foreign exchange contract for USD$30 million having a term
of 34 days. Management monitors changes in foreign exchange rates on an ongoing basis and considers appropriate strategies
and actions related to the accounts of Riverland Ag Corp. and to Ceres’ direct exposure to changes in the U.S. dollar, as and when
the need arises.
Other assets and liabilities
As at March 31, 2013, the consolidated balance sheet reflects changes in the assets and liabilities of the Corporation since
March 31, 2012. During the year ended March 31, 2013, total assets increased by approximately $3.8 million, caused primarily
by the following increases (decreases), in millions of dollars:
inventories
• cash and portfolio investments
• trade accounts receivables
•
• other current assets
•
•
• property, plant and equipment
investments in associates
investment property
($ 12.7)
$ 3.6
$ 5.9
$ 7.3
$ 1.2
$ 2.1
($ 3.6)
The decrease in property, plant and equipment reflects (a) additional investment in existing elevator facilities and machinery,
(b) the sale of the Iona, Ralston and Powell facilities, (c) the effects of changes in the exchange rate with the U.S. dollar used
to translate accounts of Riverland Ag to Canadian dollars, and (d) the effects of depreciation expense.
During the year, total liabilities increased by approximately $14.9 million, being an increase of 10.89 per cent in the value
of total liabilities compared to March 31, 2012. Excluding a decrease of $2.63 million in the deferred income tax liability, total
liabilities increased by $17.5 million, or 13.10 per cent. The increase in liabilities reflects primarily the increase of the aggregate
of short-term credit facility liabilities, which increased by $64.0 million, less the repayment of long-term debt of $47.8 million,
for a net increase in balances payable on credit facilities of $16.2 million. This increase in net debt on the credit facilities over
the year mirrors increases in accounts receivable, inventories and other current assets.
LIQUIDITY AND CAPITAL RESOURCES
Following Ceres’ acquisition of Riverland Ag in June 2010, Ceres began an orderly liquidation of its investment portfolio to generate
cash to support the growth of Riverland Ag and invest in other agricultural industry-related businesses. As at March 31, 2013,
Ceres had $20.4 million in cash available for future investment, and approximately $6.5 million invested in minority positions
in several companies (March 31, 2012: $29.7 million of cash and approximately $9.9 million invested in minority positions in
several companies). Ceres continues to monitor market opportunities to liquidate portfolio investments.
The Corporation’s cash requirements include operating costs at the corporate level and funding the growth of Riverland Ag
and the Northgate Commodity logistics Hub project. Cash and portfolio investments, as well as cash flow generated by Riverland
Ag’s operations, are available to support the continued growth of Riverland Ag.
CERES GLOBAL AG CORP. 23
As at March 31, 2013, Riverland Ag has the following short-term credit facilities:
• A syndicated committed facility of up to USD$180 million, under a two-year revolving credit agreement, which is subject
to borrowing base limitations and secured by predominantly all assets of Riverland Ag, including cash but excluding property,
plant and equipment. On July 31, 2012, Riverland Ag renewed this facility for an additional two years. Commencing thereon,
interest is calculated at LIBOR plus 3.75 per cent, calculated and paid monthly and certain covenants were modified. Prior
thereto, borrowings were subject to interest at LIBOR plus 4.00 per cent, calculated and paid monthly. As at March 31, 2013,
the balance payable by Riverland Ag on the committed revolving credit line (excluding the effect of unamortized financing
costs) was USD$115 million (CAD$116.8 million) (March 31, 2012: the balance payable by Riverland Ag was USD$80 million,
then being CAD$79.8 million).
• A repurchase commitment facility under its product financing arrangement with Macquarie Commodities (USA), Inc. (“MCUSA”).
Riverland Ag may periodically enter into sale/repurchase agreements, whereby it receives cash in exchange for selling
inventory to MCUSA and agrees to repurchase the inventory from MCUSA for a fixed price on a future date. Riverland Ag
recognizes these transactions as borrowings and commodity inventory in its accounts, and neither sales nor purchases are
recognized in relation to these transactions. As at March 31, 2013, Riverland Ag had a repurchase liability of USD$26.7 million
(CAD$27.1 million) (March 31, 2012: $nil). As at March 31, 2013, fixed interest rates on the open repurchase commitments
ranged from 3.99 per cent to 4.05 per cent.
As at March 31, 2013 and March 31, 2012, Riverland Ag was in compliance with debt covenants concerning the short-term
credit facilities.
On December 17, 2012, Riverland Ag repaid all of its then outstanding term notes payable due to Great Western Bank (“GWB”).
The amount of principal then repaid was USD$44.6 million (CAD$43.9 million). On repayment, Riverland Ag also paid an early
debt repayment penalty of USD$2.5 million (CAD$2.47 million) and amortized the full amount of the remaining unamortized
financing costs of USD$0.3 million (CAD$0.3 million) related to long-term debt. The debt repayment penalty amount and the
amortization of the long-term debt financing costs are included in finance expenses.
On August 1, 2012, Riverland Ag opened a cash account with GWB and deposited cash of USD$7.6 million, which then
represented the aggregate of principal and interest payments due for a twelve-month period ending July 31, 2013 on Riverland
Ag’s long-term debt. On December 17, 2012, following the repayment of the term loans, GWB released the unused restricted
cash amount to Riverland Ag.
Riverland Ag used its short-term credit facility to finance the full repayment of the long-term debt loans payable. In Q4 2013,
Riverland Ag began realizing savings resulting from the reduced interest costs related to borrowings on the amount formerly
financed by long-term debt (which carried interest at rates ranging from 5.35 per cent to 6.60 per cent). It is expected the
payback period on this penalty will be approximately 18 months.
Except for additional warrants issued by Ceres on the acquisition of Riverland Ag (as discussed in the following paragraph),
there has been no change in the authorized capital of Ceres since March 31, 2008.
On June 11, 2010, and as part of the consideration paid for the acquisition of Riverland Ag, Ceres issued 2,904,889 Common
Shares at their quoted price of $5.99 each for consideration of $17.4 million, and 150,000 Common Share Purchase Warrants
valued at $1.35 each for consideration of $0.2 million. These Common Share Purchase Warrants are exercisable at any time
prior to the third anniversary of the closing date of the Acquisition at an exercise price of $10.40 each. During the years ended
March 31, 2013 and 2012, no Warrants were exercised. As at March 31, 2013 and 2012, no stock options are outstanding.
No stock options were granted during the years ended March 31, 2013 and 2012.
On October 7, 2010, Ceres announced a normal course issuer bid (“the 2010–2011 NCIB”) commencing on October 8, 2010.
For the period from April 1 to October 5, 2011, Ceres purchased 276,021 Shares under the 2010–2011 NCIB for an aggregate
consideration of $2.1 million. The stated capital value of the repurchased Shares was $2.7 million. The excess of the stated
capital value of the repurchased Shares over the cost thereof, being $0.6 million for this period has been allocated to Retained
Earnings during the year ended March 31, 2012.
On October 13, 2011, Ceres announced a normal course issuer bid (“the 2011–2012 NCIB”) commencing on October 17, 2011.
For the period from October 17, 2011 to March 31, 2012, Ceres purchased 373,796 Shares under the 2011–2012 NCIB for an
aggregate consideration of $2.0 million. The stated capital value of these repurchased Shares was $3.6 million. The excess of the
stated capital value of the repurchased Shares over the cost thereof, being $1.6 million, has been allocated to Retained Earnings
during the year ended March 31, 2012.
For the period from April 1, 2012 to October 16, 2012, Ceres purchased 246,600 Shares under the 2011–2012 NCIB for an
aggregate consideration of $1.5 million. The stated capital value of these repurchased Shares was $2.4 million. The excess of the
stated capital value of the repurchased Shares over the cost thereof, being $0.9 million, has been allocated to Retained Earnings
in the year ended March 31, 2013.
24 CERES GLOBAL AG CORP.
The following are the consolidated contractual maturities of all financial liabilities, including interest payments, as at
March 31, 2013:
Bank indebtedness
Repurchase obligations
Accounts payable and
accrued liabilities
Derivatives
Income taxes payable
Management fees payable
Due to Manager
Carrying
amount
Contractual
cash flows
1 year
2 years
3 to
5 years
More than
5 years
$ 116,327,864
27,130,501
$ 116,840,000
27,130,501
$ 116,840,000
27,130,501
$
5,296,033
1,627,645
260,539
250,763
268,565
$ 151,161,910
5,296,033
1,627,645
260,539
250,763
268,565
$ 151,674,046
5,296,033
1,627,645
260,539
250,763
268,565
$ 151,674,046
$
–
–
–
–
–
–
–
–
$
$
–
–
–
–
–
–
–
–
$
$
–
–
–
–
–
–
–
–
Future expected operational cash flows and sufficient current assets are available to fund the settlement of these obligations in
the normal course of business. In addition, the following factors allow for the substantial mitigation of liquidity risk: availability of
portfolio investments traded in active exchanges, the prompt settlement of amounts due from brokers, and the active management
of trade accounts receivable and the lack of concentration risk related thereto. The Corporation’s cash flow management activities
and the continued likelihood of its operations further minimize liquidity risk.
MARKET OUTLOOK AND BUSINESS RISKS
Market Outlook
Riverland Ag Investment
Ceres, in conjunction with Barclays Capital, has completed its strategic review of the assets and operations of Riverland Ag.
The following are the key findings and plans going forward:
• Driven by significant recent changes in U.S. based grain markets, specifically the withdrawal of financial players from the
futures markets and decreasing stocks of grains, Riverland Ag’s model of relying on earning carrying income from grain
markets in contango will not yield satisfactory earnings;
• Going forward, Riverland Ag will develop a more balanced business model incorporating more customer-focused merchandising,
long-term third party storage contracts, more strategic use of its position in the regular for delivery markets of oats and spring
wheat, and limited carrying income participation;
• Certain assets have been identified as being non-core to this strategy or may have higher value to other industry participants
than to Riverland Ag; and
• Divisional management at Riverland Ag will be focused on implementing the operational components of this strategy, while
Ceres management will continue to work with Barclays to unlock the value of these assets.
Despite the drought that occurred in the U.S. Midwest, cereal grain production in North America this past year was very
strong, with the production of wheat increasing in Canada and the United States compared to the prior year. This increased
production coupled with the deregulation of the Canadian wheat market as a result of the removal of the Canadian Wheat
Board’s marketing monopoly creates a more dynamic market for Riverland Ag in which to participate, going forward. Despite this
long-term positive trend for Riverland Ag, the Canadian farmer has not moved the grain that was originally expected over the last
two quarters, with some analysts estimating that 50 per cent of last year’s harvest is still on farm. This grain will have to move
as it makes way for the 2013 crop and Riverland Ag is well positioned to take advantage of this movement.
Canadian oat production, which is Riverland Ag’s primary sourcing area, was consistent with previous years with a wide
range of quality being observed but is facing a similar lack of movement as spring wheat and less favourable crop fundamentals.
Reports from industry analysts indicate that seeded crop area for the upcoming crop year will be relatively consistent with prior
year yet slightly below the five-year average.
As a result of the opening up of the Canadian wheat market and shifts in the oat market, we generally expect the business
to have a more spring wheat focused balance relative to oats. This is driven by an ability to source a much larger spring wheat
market, both in terms of quantity and variability in quality, than existed in the past. In consideration of the combination of the
removal of the Canadian Wheat Board monopoly and the Minneapolis Grain Exchange (“MGEX”) accepting Canadian wheat for
delivery against its contracts, Riverland Ag can now originate and hedge Canadian spring wheat in a market that is approximately
1.5 times larger than it was before the departure of the Canadian Wheat Board. The significant increase in the size of the spring
wheat tributary to the MGEX wheat futures contract should add to its size and flexibility and, going forward, should make it a more
CERES GLOBAL AG CORP. 25
vibrant arena for hedging. In conjunction with the increase in the geographic foot print of Minneapolis spring wheat, a wider
variety of quality will now be available, which should benefit companies with commercial storage.
As mentioned previously, early planting indications for spring wheat show that the seeded crop area will be slightly higher than
the prior year and on pace with the five-year average. In addition, continued planting in Canada should force farmer sales in order
to clear room for the new crop year’s harvest. As one of the largest independent grain companies, with over 50 million bushels
of storage located in the Upper Lakes and Mississippi River area strategically close to the Canadian border, Riverland Ag is in a
unique position to benefit from the structural changes occurring in the North American cereal grain market. Furthermore, with
the removal of the Canadian Wheat Board monopoly, we expect a more integrated North American grain market will develop. As
this occurs, we expect new sourcing paradigms to develop based on an increased north–south flow of grain versus the historical
east–west flow, such as the Northgate commodities logistics hub that Ceres has announced.
Stewart Southern Railway Investment
SSR should benefit from increased oil shipment, as the expansion in daily capacity to 45,000 bpd was completed in December
2012. The shipper of oil on the line has expressed an interest to move third party barrels of oil through their facility, which should
broaden the supply base going forward. Grain shipments have returned with the 2012 harvest and look to continue through the
year; however, it is oil shipments that are the key driver of the success and growth of this company. SSR has also initiated a rail
car storage program, which in addition to driving additional revenues and earnings, will make it an attractive location for manifest
shippers. As SSR management and operations absorb the large growth of the Stoughton oil shipments, they will look to drive
growth in new areas.
Northgate Commodities Logistics Hub Investment
The late spring weather has delayed the construction schedule; however, the Corporation will continue to gain approvals and
formalize agreements with partners and move the project forward. As reported in the MD&A (Subsequent event) in June 2013,
Ceres commenced the site preparation work for this project. Pursuant to an agreement with Scoular concerning this project, Ceres
is responsible for 50 per cent of the cost of the site preparation work phase.
Business Risks
Risks related to the portfolio investments
As at March 31, 2013, Ceres’ portfolio investments currently consist of publicly traded equities of entities located in Canada,
and of equities in private companies located in Canada and the United States of America. As at that date, total investment in
non-public issuers represents 1.17 per cent of consolidated shareholders’ equity (March 31, 2012: 2.47 per cent of consolidated
shareholders’ equity). These securities are subject to risks including market price risks, liquidity risk (as to investments in any
private companies and restricted shares of public companies), issuer-specific credit risks, and fluctuations in foreign currency
exchange rates and in interest rates.
Primary risks related to its operating subsidiary
Ceres’ foreign subsidiary, Riverland Ag, operates in US dollars, being its reporting and functional currency. It does not hold assets
nor have liabilities denominated in currencies other than US dollars. Therefore, it is not directly exposed to currency risk in its
normal operations.
Riverland Ag uses various grain contracts as part of its overall grain-merchandising strategies. Performance on these contracts
is dependent on delivery of the grain or a customer buy-out. There is counterparty risk associated with non-performance, which
may have the potential of creating losses for Riverland Ag. Management has assessed the counterparty risk and believes that
no significant losses, if any, would result from non-performance.
Concerning its trade accounts receivable, Riverland Ag regularly evaluates its credit risk to the extent that such receivables
may, from time-to-time, be concentrated in certain industries or with significant customers. Riverland minimizes this risk by
having a diverse customer base and established credit policies. The aging of Riverland Ag’s trade accounts receivable is
substantially current. Based on its review and assessment of its trade accounts receivable, management has determined credit
risk related to trade accounts receivable is minimal.
Riverland Ag’s participation in the grain business makes it subject to market price volatility inherent in agricultural commodities.
The nature of Riverland Ag’s arbitrage and merchandising business mitigates the effect that short- and near-term price volatility
would otherwise have on operating earnings. Interest costs on debt used to finance inventory fluctuates with changes in
commodity prices. Riverland Ag typically builds inventory positions that bridge different crop years, which serves to mitigate
earnings volatility related to poor or bumper crop years.
26 CERES GLOBAL AG CORP.
Commodity risk is inherent in the nature of Riverland Ag’s business, as it enters into commitments involving a degree of
speculative risk. To reduce risk that might be caused by commodity market fluctuations, Riverland Ag’s risk management policy,
with certain exceptions, follows a policy of using exchange-traded futures and options contracts to minimize its net position of
merchandisable agricultural commodity inventories and forward cash purchase and sales contracts. It would also use exchange-
traded futures and options contracts as components of merchandising strategies designed to enhance margins. The results of
these strategies can be significantly influenced by factors such as the volatility of the relationship between the value of exchange-
traded commodities futures contracts and the cash prices of the underlying commodities, and volatility of freight markets.
Liquidity risk relating to Riverland Ag’s business has been discussed in the Liquidity and Capital Resources section of this report.
Use of derivatives
As described above concerning commodity risk, Riverland Ag generally uses exchange-traded futures and options contracts in
managing such risk, and to enhance margins whenever possible. Changes to the market price of inventories of merchandisable
agricultural commodities, forward cash purchase and sales contracts, and exchange-traded futures contracts are recognized
in the Statement of Comprehensive Income as a component of cost of sales. Unrealized gains and losses on these derivative
contracts are recognized on the Balance Sheet and included in due from broker (March 31, 2013: $11.9 million; March 31, 2012:
$2.5 million) and as derivative assets or derivative liabilities, as applicable, in unrealized net gains (losses) on open cash contracts
(as at March 31, 2013: unrealized gains of $2.3 million and unrealized losses of $1.6 million; March 31, 2012: unrealized gains
of $3.0 million and unrealized losses of $2.9 million).
Ceres may use certain derivative instruments to manage its exposure to fluctuations in foreign currency exchange rates
on the portfolio investments. For the year ended March 31, 2013, the realized loss on foreign currency hedging transactions was
$0.31 million (2012: loss of $0.5 million). For the quarter ended March 31, 2013, the realized loss on foreign currency hedging
transactions was $0.6 million (quarter ended March 31, 2012: gain of $0.8 million). As at March 31, 2013, Ceres recognized
an unrealized gain of $10,701 on its only forward foreign currency contract as at that date (2012: $nil).
OUTSTANDING SHARE DATA
As at June 6, 2013 and March 31, 2013, the issued and outstanding equity securities of the Corporation consisted of 14,334,699
Common Shares issued and 150,000 Warrants.
RELATED PARTY TRANSACTIONS
Front Street Capital 2004 and certain affiliates (collectively referred to as “Front Street Capital”) are related parties to Ceres by
virtue of a management agreement, pursuant to which Front Street Capital provides certain services to Ceres. Chief among those
services are:
• Providing management and officers to Ceres, in order to carry out day-to-day responsibilities and strategic direction;
• Providing office facilities to house the Corporation; and
• Providing miscellaneous personnel to perform certain clerical and administrative services for the Corporation.
The management agreement is in place until April 26, 2015, at which time Front Street Capital could be removed with two
years written notice.
(a) Management fees and incentive fees
For the year ended March 31, 2013, management fees of $3.1 million were charged to operations and included with general
and administrative expenses (2012: $3.4 million). As at March 31, 2013, management fees payable to the Manager amounted
to $0.3 million (2012: $0.3 million). For the years ended March 31, 2013 and 2012, the Statements of Comprehensive Income
(Loss) reflect no provision for an incentive fee. As at March 31, 2013 and 2012, there was no liability for an incentive fee.
For the quarter ended March 31, 2013, management fees of $0.7 million were charged to operations and included with general
and administrative expenses (2012: $0.7 million).
(b) Due to Manager
As at March 31, 2013, the Corporation had a liability to the Manager in the amount of $268,565 (2012: $55,000), for the
repayment of certain operating expenses.
CERES GLOBAL AG CORP. 27
SIGNIFICANT ACCOUNTING POLICIES
The preparation of Ceres’ consolidated financial statements in conformity with IFRS requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
as at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Actual results may vary from current estimates. Management reviews these estimates periodically and, as adjustments become
necessary, they are reported in the Statement of Comprehensive Income in the period in which they become known.
The following significant accounting policies involve the use of estimates.
Financial instruments
Trade accounts receivable are classified as loans and receivables. All other financial assets are held for trading and classified at
fair value through profit or loss. Current liabilities and long-term debt are classified as other liabilities, except Derivative liabilities
(unrealized losses on open cash contracts), which are held-for-trading and classified at fair value through profit or loss. The
carrying value of financial assets classified as current assets and the carrying fair value of financial liabilities classified as current
liabilities approximate the fair value thereof given their short-term maturities. The carrying value of long-term debt, before the
effect of the unamortized amount of financing transaction costs, is not materially different than the fair value of the principal
amount of the loans.
Valuation of investments in private companies
The fair value of financial instruments not traded in an active market (including, but not limited to: over-the-counter derivatives
and debentures, and securities in private companies, warrants and restricted securities, among others) is determined using
valuation techniques. Depending on various circumstances, the Corporation may use several methods and make assumptions
based on market conditions existing at each reporting date. Valuation techniques may include, without limitation, the use of
comparable recent arm’s length transactions, discounted cash flow analysis, option-pricing models and other valuation
techniques commonly used by market participants.
Derivative commodity contracts
Riverland Ag generally follows a policy of using exchange-traded futures and options contracts to minimize its net position of
merchandisable agricultural commodity inventories and forward cash purchase and sales contracts. These derivative contracts
have not been designated as fair value hedges and are valued at market price. Changes in the market price of inventories of
merchandisable agricultural commodities, forward cash purchase and sales contracts, and exchange-traded futures contracts
are recognized in the Statement of Comprehensive Income as a component of cost of sales. Unrealized gains and losses on these
derivative contracts are recognized on the Balance Sheet and classified as due from broker and derivative assets (unrealized
gains on open cash contracts) and derivative liabilities (unrealized losses on open cash contracts).
Recognition of Riverland Ag revenues
Riverland Ag recognizes sales revenue at the time of delivery of the product when all of the following have occurred: a sales
agreement is in place, title and risk of loss have passed, pricing is fixed or determinable, and collection is reasonably assured.
Grain-storage income is recorded as earned on an accrual basis. Freight costs and handling charges related to sales are
presented in the Statement of Comprehensive Income gross in revenues and cost of sales. Other direct and indirect costs
associated with inventory and storage, including payroll and benefits of elevator employees, depreciation of buildings, silos
and elevators, utilities and other similar costs are classified in cost of sales.
Inventories
Inventories consist of agricultural grain commodities owned by Riverland Ag, and are stated at fair value less costs to sell. Changes
in the fair value less costs to sell of inventories of agricultural grain commodities are recognized in the determination of income
for the period, as a component of cost of sales.
Investment property
Investment property is stated using the cost model. Investment property includes land currently held for capital appreciation
and not otherwise utilized by Ceres. On initial recognition, investment property is measured at cost, including directly attributable
expenditures that are capitalized on the basis it is probable that future economic benefits associated with the expenditure related
to the investment property will flow to Ceres and the cost of such expenditure can be measured reliably.
28 CERES GLOBAL AG CORP.
Property, plant, and equipment
Property, plant, and equipment are stated at their fair value as at the date of the Acquisition. Amortization is calculated using
the straight‑line method over the estimated useful lives of the respective classes of assets, as follows:
Buildings, silos/elevators, and improvements
Machinery and equipment
Furniture, fixtures, office equipment, computer software and other property, plant and equipment
15 – 31 years
7 – 15 years
7 years
Riverland Ag reviews property, plant, and equipment for impairment whenever events or changes in circumstances indicate that
the expected fair value of such assets might not be sufficient to support the carrying amount of the assets.
SUBSEQUENT EVENT
On June 3, 2013, Ceres authorized the commencement of site preparation work for the commodity logistics hub planned for
Northgate, Saskatchewan, on land currently owned by Ceres. Pursuant to an agreement with Scoular concerning this project,
Ceres is responsible for 50 per cent of the cost of the site preparation work phase. Ceres’ share of the total cost of the site
preparation work is projected to be approximately $3.5 million.
CONTROLS AND PROCEDURES
Disclosure controls and procedures
Ceres maintains appropriate information systems, procedures and controls to ensure that new information disclosed externally
is complete, reliable and timely. National Instrument 52‑109 Certification of Disclosure in Issuers’ Annual and Interim Filings
(“NI 52‑109”) requires the Chief Executive Officer and the Chief Financial Officer to certify that they are responsible for establishing
and maintaining disclosure controls and procedures (“DC&P”) and that they have, as at March 31, 2013, designed DC&P
(or have caused such DC&P to be designed under their supervision) to provide reasonable assurance that material information
relating to Ceres is made known to them by others, particularly during the period in which Ceres’ annual filings are being prepared,
and that information required to be disclosed by Ceres in its annual filings, interim filings or other reports filed or submitted by
Ceres under applicable securities legislation is recorded, processed, summarized and reported within the time periods specified
in applicable securities legislation.
Internal control over financial reporting
NI 52‑109 also requires the Chief Executive Officer and the Chief Financial Officer to certify that they are responsible for establishing
and maintaining internal control over financial reporting (“ICFR”) and that they have, as at March 31, 2013, designed ICFR
(or have caused such ICFR to be designed under their supervision) to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with International Financial
Reporting Standards (IFRS). The control framework used by the Chief Executive Officer and the Chief Financial Officer to design
Ceres’ ICFR is the Risk Management and Governance: Guidance on Control (COCO Framework) published by The Canadian
Institute of Chartered Accountants. During the period beginning on April 1, 2012 and ended on March 31, 2013, there have
been no changes in Ceres’ ICFR that have materially affected, or are reasonably likely to materially affect, Ceres’ ICFR.
CERES GLOBAL AG CORP. 29
Management’s Responsibility for Financial Reporting
These consolidated financial statements of the Corporation are the responsibility of management. The consolidated financial
statements were prepared by management in accordance with International Financial Reporting Standards (“IFRS”) using
information available to June 6, 2013 and management’s best estimates and judgments, where appropriate.
Management has established a system of internal accounting and administrative controls to provide reasonable assurance
that assets are safeguarded from loss or unauthorized use, transactions are properly authorized and recorded, and financial
records are properly maintained for the preparation of reliable financial statements.
The Board of Directors discharges its responsibility for the consolidated financial statements primarily through its Audit
Committee, which comprises members of the Board of Directors. The Audit Committee meets with management and with
the external auditors to discuss the results of the audit examination and review the consolidated financial statements of the
Corporation. The Audit Committee also considers, for review by the Board and approval by the shareholders, the engagement
or re-appointment of the external auditors. The financial statements have been approved by the Board of Directors and have
been audited by KPMG LLP, Chartered Accountants, in accordance with Canadian generally accepted auditing standards. Their
Independent Auditors’ Report outlines their responsibilities, the scope of their audit, and their opinion on the accompanying
consolidated financial statements. KPMG LLP has full and unrestricted access to the Audit Committee.
Signed “Gary Selke”
Signed “Jason Gould”
Gary Selke
Chief Executive Officer
Jason Gould
Chief Financial Officer
30 CERES GLOBAL AG CORP.
Independent Auditors’ Report
To the Shareholders of Ceres Global Ag Corp.
We have audited the accompanying consolidated financial statements of Ceres Global Ag Corp., which comprise the consolidated
balance sheets as at March 31, 2013 and March 31, 2012, the consolidated statements of comprehensive income (loss), changes
in shareholders’ equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting
policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we
consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of
Ceres Global Ag Corp. as at March 31, 2013 and March 31, 2012, and its consolidated financial performance and its consolidated
cash flows for the years then ended in accordance with International Financial Reporting Standards.
Signed “KPMG LLP”
Chartered Accountants
June 6, 2013
Winnipeg, Canada
CERES GLOBAL AG CORP. 31
Consolidated Balance Sheets
Note
March 31,
2013
March 31,
2012
(Note 21(a))
$ 29,733,963
9,873,064
2,463,520
2,955,578
9,622,892
158,810,128
842,478
2,140,943
216,442,566
3,117,903
299,250
2,900,582
69,637,460
75,955,195
$ 292,397,761
$ 79,439,289
3,141,089
–
2,917,960
–
267,223
55,000
4,877,740
90,698,301
42,959,816
2,839,991
45,799,807
136,498,108
$ 20,443,836
6,488,254
11,943,310
2,311,882
13,215,771
164,750,108
–
1,458,362
220,611,523
4,349,467
304,800
4,975,921
66,007,982
75,638,170
$ 296,249,693
$ 116,327,864
5,296,033
27,130,501
1,627,645
260,539
250,763
268,565
–
151,161,910
–
207,272
207,272
151,369,182
138,298,904
202,384
9,026,038
(1,292,904)
(1,353,911)
144,880,511
140,678,062
202,384
9,026,038
(3,290,879)
9,284,048
155,899,653
$ 296,249,693
$ 292,397,761
5
6
13(a)
7
8
9
10
11
13(a)
15(a)
15(b)
12
12
16(b)
14(c)
14(c)
22
ASSETS
Current
Cash
Portfolio investments owned, at fair value
Due from brokers
Derivatives
Accounts receivable, trade
Inventories, grains
Income taxes recoverable
Prepaid expenses and sundry assets
Current assets
Investments in associates
Intangible assets
Investment property
Property, plant and equipment
Non‑current assets
TOTAL ASSETS
LIABILITIES
Current
Bank indebtedness
Accounts payable and accrued liabilities
Repurchase obligations
Derivatives
Income taxes payable
Management fees payable
Due to Manager
Current portion of long‑term debt
Current liabilities
Long‑term debt
Deferred income taxes
Non‑current liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Common shares
Warrants
Contributed surplus
Currency translation account
Retained earnings (deficit)
TOTAL SHAREHOLDERS’ EQUITY
SUBSEQUENT EVENT
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
The accompanying notes are an integral part of these financial statements.
On Behalf of the Board
Signed “Gary Selke”
Director
32 CERES GLOBAL AG CORP.
Signed “Mary Parniak”
Director
Consolidated Statements of
Comprehensive Income (Loss)
For the years ended March 31
Note
2013
2012
REVENUES
Cost of sales
GROSS PROFIT
General and administrative expenses
(LOSS) INCOME FROM OPERATIONS
Finance loss
Finance expenses
Loss on impairment of property, plant and equipment
Gain on sale of property, plant and equipment
LOSS BEFORE INCOME TAXES AND THE UNDERNOTED ITEM
Income taxes recovered
LOSS BEFORE THE UNDERNOTED ITEM
Share of net income (net loss) in investments in associates
NET LOSS FOR THE YEAR
Other comprehensive gain for the year
Gain on translation of foreign currency accounts of foreign operations
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
13(b)
16(a)
$ 223,079,919
(221,040,333)
$ 184,414,138
(168,458,905)
2,039,586
(10,641,561)
(8,601,975)
(4,664,051)
(11,620,188)
–
9,598,255
(15,287,959)
(2,571,270)
(12,716,689)
1,231,563
(11,485,126)
15,955,233
(10,911,124)
5,044,109
(1,757,162)
(7,144,851)
(146,092)
–
(4,003,996)
(612,749)
(3,391,247)
(414,509)
(3,805,756)
1,997,975
2,495,382
$
(9,487,151)
$
(1,310,374)
WEIGHTED-AVERAGE NUMBER OF SHARES FOR THE YEAR
14,397,241
14,936,272
LOSS PER SHARE
Basic
Diluted
Supplemental disclosure of selected information:
Depreciation included in Cost of sales
Depreciation included in General and administrative expenses
Amortization of financing costs included in Finance expenses
Personnel costs included in Cost of sales
Personnel costs included in General and administrative expenses
The accompanying notes are an integral part of these financial statements.
$
$
$
$
$
$
$
(0.80)
(0.80)
$
$
(0.25)
(0.25)
2,777,276
144,314
1,128,219
1,753,086
494,053
$ 2,492,924
132,450
$
745,330
$
$ 2,026,869
475,143
$
21(b)
21(b)
CERES GLOBAL AG CORP. 33
Consolidated Statements of Cash Flows
For the years ended March 31
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year
Adjustments for:
Depreciation of property, plant and equipment
Realized loss on sale of investments
Unrealized decrease (increase) in fair value of investments
Loss on impairment of property, plant and equipment
Gain on sale of property, plant and equipment
Finance expenses
Income taxes recovered
Share of (net income) net loss in investments in associates
Changes in non‑cash working capital accounts
Interest paid
Income taxes recovered
Cash flow (used in) provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments, investments sold short and options
Proceeds from sale of investments, short sales and option premiums
Loan receivable advanced to associate
Acquisition of investment property and capitalized costs
Proceeds from sale of property, plant and equipment, net of costs to dispose
Acquisition of property, plant and equipment
Cash flow provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from bank indebtedness
Net proceeds from (net repayment of) repurchase obligations
Financing costs paid
Proceeds from issuance of long‑term debt
Repayment of long‑term debt
Repurchase of common shares under normal course issuer bid
Cash flow provided by (used in) financing activities
Foreign exchange cash flow adjustment on accounts denominated in a foreign currency
Decrease in cash for the year
Cash, beginning of year
Cash, end of year
The accompanying notes are an integral part of these financial statements
Note
2013
2012
(Note 21(a))
$ (11,485,126)
$
(3,805,756)
13(b)
13(b)
16(a)
19
8
9
2,921,590
14,931
4,369,758
–
(9,598,255)
11,620,188
(2,571,270)
(1,231,563)
(5,959,747)
(13,307,434)
(10,425,283)
1,031,289
(28,661,175)
(1,050,000)
39,420
–
(2,071,720)
12,959,804
(1,452,058)
8,425,446
35,045,500
26,737,963
(823,562)
–
(48,467,092)
(1,531,991)
10,960,818
(15,216)
(9,290,127)
29,733,963
$ 20,443,836
2,625,375
5,257,461
(3,916,939)
146,092
–
7,144,851
(612,749)
414,509
7,252,844
13,076,003
(6,658,924)
2,115,444
15,785,367
(1,000,025)
7,837,861
(62,500)
(2,900,582)
–
(13,530,303)
(9,655,549)
2,482,500
(38,326,606)
(442,532)
21,184,002
(3,860,288)
(4,133,682)
(23,096,606)
(136,090)
(17,102,878)
46,836,841
$ 29,733,963
34 CERES GLOBAL AG CORP.
–
–
–
–
Consolidated Statements of Changes in
Shareholders’ Equity
For the years ended March 31, 2013 and 2012
Note
Common
shares
Currency
Contributed
translation
Warrants
surplus
account
Retained
earnings
(deficit)
Total
Balances, April 1, 2012
$ 140,678,062 $
202,384 $ 9,026,038 $
(3,290,879) $ 9,284,048 $ 155,899,653
Changes for the year ended March 31, 2013
Repurchases under normal course
issuer bid
14(b)
(2,379,158)
Other comprehensive income
Net loss for the year
Balances, March 31, 2013
–
–
–
–
–
–
–
847,167
(1,531,991)
1,997,975
–
1,997,975
–
(11,485,126)
(11,485,126)
$ 138,298,904 $
202,384 $ 9,026,038 $
(1,292,904) $
(1,353,911) $ 144,880,511
Balances, April 1, 2011
$ 146,947,393 $
202,384 $ 9,026,038 $
(5,786,261) $ 10,954,155 $ 161,343,709
Changes for the year ended March 31, 2012
Repurchases under normal course
issuer bid
14(b)
(6,269,331)
Other comprehensive income
Net loss for the year
Balances, March 31, 2012
–
–
–
–
–
–
–
2,135,649
(4,133,682)
2,495,382
–
2,495,382
–
(3,805,756)
(3,805,756)
$ 140,678,062 $
202,384 $ 9,026,038 $
(3,290,879) $ 9,284,048 $ 155,899,653
The accompanying notes are an integral part of these financial statements
CERES GLOBAL AG CORP. 35
Notes to the Consolidated Financial Statements
March 31, 2013 and 2012
1. CORPORATE STATUS, REPORTING ENTITY AND NATURE OF OPERATIONS
Ceres Global Ag Corp. (hereinafter referred to as “Ceres” or the “Corporation”) was incorporated on November 1, 2007, as
amended on December 6, 2007, under the provisions of the Business Corporations Act (Ontario). Ceres is a corporation domiciled
in Canada, and the address of its registered office is 33 Yonge Street, Suite 600, Toronto, Ontario, Canada, M5E 1G4. These
consolidated financial statements of Ceres as at and for the year ended March 31, 2013 include the accounts of Ceres and its
wholly owned subsidiaries Ceres Canada Holdco Corp., Riverland Agriculture Limited (“Riverland Canada”), Ceres U.S. Holdco
Corp., Corus Land Holdings Corp. and Riverland Ag Corp. (“Riverland Ag”). All intercompany transactions and balances have
been eliminated.
Unless otherwise stated, Riverland Ag and Riverland Canada will be collectively referred to as Riverland Ag. Riverland Ag is an
agricultural grain supply ingredient company that owns and operates 11 storage and handling facilities in the states of Minnesota,
New York, North Dakota, Wisconsin, and the province of Ontario, with a combined licensed capacity of 52,300,000 bushels.
2. BASIS OF PREPARATION
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS). The accounting, estimation and valuation policies, as described below, have been consistently applied to all periods
presented herein.
These consolidated financial statements of Ceres, as at and for the years ended March 31, 2013 and 2012, were authorized
for issue by the Audit Committee of the Board of Directors on June 6, 2013.
Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars (“CAD”), which is the Corporation’s functional currency.
Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis, except for the following material items
in the statement of financial position:
• Derivative financial instruments are measured at fair value;
• Financial instruments at fair value through profit or loss are measured at fair value; and
•
Inventories are measured at fair value less costs to sell.
Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,
income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized
in the period in which the estimates are revised and in any future periods affected.
Significant accounting judgments, estimates and assumptions used by management in preparing these consolidated financial
statements are described in Note 4.
36 CERES GLOBAL AG CORP.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies described below have been applied consistently to all periods presented in these consolidated financial
statements.
Investments in associates
Associates are entities in which Ceres has significant influence, but has no control, over the financial and operating policies.
Significant influence is presumed to exist when the Corporation holds between 20 and 50 per cent of the voting power of another
entity. Ceres has a 25 per cent equity ownership interest in two Canadian companies.
Investments in associates are accounted for using the equity method and are recognized initially at cost. The Corporation’s
investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial
statements include the Corporation’s share of the after-tax net income (or net loss) and of the changes in equity during a
reporting period, after adjustments (if any) to align the accounting policies with those of the Corporation, from the date that
significant influence commences until the date that significant influence ceases. If the Corporation’s accumulated share of net
losses in an associate were to exceed the carrying amount of its interest in that associate, the carrying amount of that interest,
including any long-term investments, would be reduced to nil and the recognition of further losses would be discontinued except
to the extent the Corporation were to have an obligation or were to have made payments on behalf of the associate.
The Corporation reviews its investments in associates for impairment whenever events or changes in business circumstances
indicate that the carrying amount of the investments may not be fully recoverable. Evidence of impairment in value might include
the absence of an ability to recover the carrying amount of the investments, the inability of the associates to sustain earnings
capacity that would justify the carrying amount of the investments, or, where applicable, estimated sales proceeds that are
insufficient to recover the carrying amount of the investments. Management’s assessment as to impairment in value, if any,
is based on its assessment of whether evidence indicates the carrying amount of the investments is recoverable or whether the
investees have the ability to sustain earnings capacity that would justify the carrying amount of the investments. If the recoverable
amount of the investments is determined to be less than the carrying amount, an impairment write-down is recorded based on
the excess of the carrying amount over management’s estimate of the recoverable amount.
Transaction costs
Portfolio transaction costs include brokerage commissions incurred in the purchase and sale of portfolio securities in which
Ceres invests. Corporate transaction costs include costs directly attributable to the acquisition of subsidiaries and the investments
in associates. All such costs are expensed in the period incurred and classified with general and administrative expenses in the
Statement of Comprehensive Income.
Transaction costs related to the issuance of equity instruments of the Corporation or its subsidiaries are accounted for as
a reduction of the stated capital of the equity securities issued. Transaction costs related to the issuance of debt instruments
of the Corporation or its subsidiaries are considered in the determination of amortized cost using the effective interest method
for the measurement of non-derivative financial liabilities, and relate to bank indebtedness and long-term debt. Transaction costs
related to debt instruments are amortized using the straight-line method over the term of the financing arrangement.
Classification of financial instruments
Financial assets
A financial asset is classified at fair value through profit or loss, if it is classified as held for trading or is designated as such upon
initial recognition. Financial assets are designated at fair value through profit or loss if the Corporation manages such investments
and makes purchase and sale decisions in accordance with the Corporation’s documented risk management and investment
strategies. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized
in net income or loss. Non-derivative financial assets classified as held for trading comprise portfolio investments owned. The
Corporation has the following derivative financial assets classified as held for trading: unrealized gains on forward foreign exchange
contracts and unrealized gains on open cash contracts.
Financial assets having fixed or determinable payments, and which are not quoted in an active market, are defined as loans
and receivables. Such assets are initially recognized at fair value plus directly attributable transaction costs, if any. Thereafter,
loans and receivables are measured at amortized cost using the effective interest method, less impairment losses, if any. Loans
and receivables include: due from brokers, and accounts receivable, trade.
CERES GLOBAL AG CORP. 37
Financial liabilities
Unrealized losses on open cash contracts and unrealized loss on forward foreign exchange contracts are classified as held for
trading and are valued at fair value through profit or loss.
The Corporation has the following non-derivative financial liabilities: bank indebtedness, accounts payable and accrued
liabilities, repurchase obligations, management fees payable, due to Manager, and long-term debt. These financial liabilities are
initially recognized at fair value plus any directly attributable transaction costs. Thereafter, these financial liabilities are measured
at amortized cost using the effective interest method.
Equity
Common shares and warrants
Common shares and warrants are classified as equity. Incremental costs directly attributable to the issue of common shares and
warrants are recognized as a deduction from equity, net of the effects of income taxes, if any.
Contributed surplus
The value of warrants issued that have expired is recognized as contributed surplus, net of the effects of income taxes, if any.
Repurchase of common shares
When common shares recognized as equity are repurchased, the amount of the consideration paid (which may include directly
attributable transaction costs) is recognized as a deduction from equity, net of the effects of income taxes, if any. The portion of
the consideration paid that represents the value of the stated capital of the shares repurchased is deducted from the carrying
amount of common shares. Any difference between the total consideration paid and the portion thereof representing the stated
capital of the shares repurchased is added to (or deducted from) retained earnings, as applicable.
Valuation of investments
Portfolio investments are held for trading, and are measured and reported at fair value, and securities and ownership interests
over which the Corporation exercises significant influence or control are accounted for using the equity-accounting model or
through consolidation, as appropriate.
As at a reporting date, the fair value of financial instruments traded in active markets (primarily equity securities and related
derivative instruments, if any) is based on the bid price for investments held by the Corporation, and on the asking price for
investments sold short, if any, and for written options, if any. The fair value of financial instruments not traded in an active market
(including, but not limited to: securities in private companies, warrants and restricted securities) is determined using valuation
techniques. Depending on various circumstances, the Corporation may use several methods and makes assumptions based on
market conditions existing at each reporting date. Valuation techniques may include, without limitation, the use of comparable
recent arm’s length transactions, discounted cash flow analysis, option-pricing models and other valuation techniques commonly
used by market participants.
Recognition of investments
Purchases and sales of investments are recognized on the trade date, being the date on which the Corporation commits to purchase
or sell an investment. Investments cease to be recognized when the rights to receive cash flows from the investments have expired
or the Corporation has transferred substantially all risks and rewards of ownership.
Derivative contracts
Ceres may purchase forward foreign exchange contracts to act as an economic hedge against assets and liabilities denominated
in foreign currencies. As at a reporting date, forward foreign exchange contracts are valued based on the difference between the
forward contract rate and the forward bid rate (for currency held). Unrealized gains and losses, if any, on these forward contracts
used to hedge foreign currency assets and liabilities are presented separately on the Balance Sheet and included in Derivative
assets or Derivative liabilities, as applicable, and are recognized in the Statement of Comprehensive Income as a component of
Finance income (loss) and included with the change in fair value of investments. Upon the closing out of these contracts, any
gains or losses on foreign exchange are reported in Finance income (loss) in the Statement of Comprehensive Income as realized
gain (loss) on currency-hedging transactions.
To reduce price risk caused by market fluctuations, Riverland Ag generally follows a policy of using exchange-traded futures
and options contracts to minimize its net position of merchandisable agricultural commodity inventories and forward cash
purchase and sales contracts. Riverland Ag will also use exchange-traded futures and options contracts as components of
merchandising strategies designed to enhance margins. The results of these strategies may be significantly influenced by
38 CERES GLOBAL AG CORP.
factors such as the volatility of the relationship between the value of exchange-traded commodities futures contracts and the
cash prices of the underlying commodities, and volatility of freight markets. These derivative contracts have not been designated
as fair value hedges and are valued at market price with changes in fair value recorded in earnings. Changes in the market price
of inventories of merchandisable agricultural commodities, forward cash purchase and sales contracts, and exchange-traded
futures contracts are recognized in the Statement of Comprehensive Income as a component of Cost of sales. Unrealized gains
and losses on these derivative contracts are recognized in earnings and classified on the Balance Sheet as Due from Broker,
Derivative assets or Derivative liabilities, as applicable.
Fair value measurements
The Corporation must use a three-tier hierarchy as a framework for disclosing fair values, based on inputs used to value the
Corporation’s investments. This hierarchy is summarized as follows:
• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
(i.e., prices) or indirectly (i.e., derived from prices); and
• Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Details of the fair value measurements are reported in Note 13(d) (Financial Instruments – Fair value measurements).
Changes in valuation methods may result in transfers into or out of an investment’s assigned level.
Foreign currency translation, transactions and balances of Ceres
Foreign currency transactions are translated into Canadian dollars (“CAD”) using the exchange rates prevailing at the dates of the
transactions. As at a reporting date, assets and liabilities denominated in a foreign currency are translated into CAD, as follows:
• Foreign currency monetary items are translated using the spot exchange rate in effect at the reporting date; and
• Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate(s) in effect as at the
date(s) on which fair value was determined.
Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation as at a reporting
date of assets and liabilities denominated in foreign currencies are reflected in the Statement of Comprehensive Income.
Translation differences on securities included in the investment portfolio of the Corporation are recognized in Finance income
(loss) in the Statement of Comprehensive Income and included in the change in fair value of investments.
Foreign currency translation, foreign operations of Riverland Ag
Riverland Ag Corp. is a foreign operation and its functional currency is the U.S. dollar (“USD”). For the preparation of these
consolidated financial statements, all assets and liabilities are translated into the presentation currency of Canadian dollars using
the foreign exchange rate in effect as at the reporting date with income statement accounts translated using the average exchange
rate for the reporting or applicable period. Translation adjustments arising from changes in exchange rates are reported as a
component of other comprehensive income and form part of the cumulative translation account in shareholders’ equity. When
a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the
translation account related to that foreign operation is reclassified to profit or loss as part of the profit or loss on disposal.
Revenue recognition, net sales and cost of sales
Riverland Ag follows a policy of recognizing sales revenue at the time of delivery of the product and when all of the following
have occurred: a sales agreement is in place, title and risk of loss have passed, pricing is fixed or determinable, and collection
is reasonably assured. Grain storage, rental and other operating income are recorded as earned on an accrual basis. Freight
costs and handling charges related to sales are presented gross in revenues and cost of sales. Other direct and indirect costs
associated with inventory and storage, including payroll and benefits of elevator employees, depreciation of buildings, silos and
elevators, utilities and other similar costs are classified with cost of sales.
Income and expenses are recorded on an accrual basis. Investment transactions are recognized on the trade date. Dividend
revenues are recognized on the ex-dividend date. Interest and other revenues are recognized as earned. Realized gains and
losses from the sale of investments are calculated using the average cost method. The change over a reporting period of the
difference between the fair value and the cost of portfolio investments is recognized in finance income (loss) in the Statement
of Comprehensive Income as the change in fair value of investments.
CERES GLOBAL AG CORP. 39
Finance income (loss)
Finance income (loss) pertains to revenues, gains and losses related to the investing activity of the Corporation, and includes
the following:
Interest revenues on funds invested in interest-bearing securities and on cash balances;
•
• Dividend revenues;
• Realized gains (losses) on sale of investments;
• Realized gains (losses) on currency-hedging transactions;
• Realized and unrealized gains (losses) on foreign exchange; and
• Change in fair value of investments.
Depending on the movements of equity and other markets, finance income and losses will vary from reporting period to
reporting period. Details of finance income (loss) for the year are presented in Note 13(b) (Financial Instruments).
Finance expenses
Finance expenses represent the aggregate of interest expense on borrowings and the amortization of financing transaction costs.
Inventories
Inventories represent agricultural grain commodities owned by Riverland Ag, such as oats, spring wheat, barley, corn, and
soybeans, which are stated at fair value less costs to sell. Changes in the fair value less costs to sell inventories of agricultural
grain commodities are charged to operations as and when they occur, and such changes are included as a component of cost
of sales.
Indefinite-life intangible assets
Identifiable intangible assets with indefinite lives are not amortized and are tested annually for impairment of value and whenever
events or changes in circumstances indicate the carrying amount of the assets may be impaired. Impairment of identifiable
intangible assets with indefinite lives occurs when the fair value of the asset is less than its carrying amount. If impaired, the
asset’s carrying amount is reduced to its fair value.
Riverland Ag holds indefinite‑life exchange membership seats on the Minneapolis Grain Exchange, which provide it with the
right to process trades directly with that exchange.
Property, plant, and equipment
Property, plant, and equipment are stated at their fair value as at the date of the Acquisition, plus the cost of property, plant and
equipment acquired thereafter, less accumulated depreciation and accumulated impairment losses, if any.
Cost includes expenditures that are directly attributable to the acquisition of the asset and to bringing the asset to a working
condition for its intended use.
If parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major
components) of property, plant and equipment.
Gains or losses related to the disposition of property, plant and equipment are recognized in the Statement of Comprehensive
Income as other income.
Depreciation is determined over the depreciable amount, being the cost of the asset or other amount substituted for cost,
less its residual value, if any. Depreciation is recognized in net income and is calculated using the straight‑line method over the
estimated useful lives of the respective classes of assets as follows:
Buildings, silos/elevators, and improvements
Machinery and equipment
Furniture, fixtures, office equipment, computer software and other property, plant and equipment
15 – 31 years
7 – 15 years
7 years
Depreciation methods, useful lives of the assets and their residual values are reviewed at fiscal year‑end and adjusted if appropriate.
Riverland Ag reviews property, plant, and equipment for impairment at each reporting date to determine whether there is any
indication of impairment. If such were the case, the recoverable amount of the asset(s) is estimated. The recoverable amount
of an asset is the greater of its value in use (using present value calculations based on a pre‑tax discount rate reflecting current
market assessments of the time value of money and risks specific to the assets) and its fair value less costs to sell.
40 CERES GLOBAL AG CORP.
Repurchase obligations
Riverland Ag periodically enters into sale/repurchase agreements, whereby it receives cash in exchange for selling inventory
to Macquarie Commodities (USA), Inc. (“MCUSA”) and agrees to repurchase the inventory from MCUSA for a fixed price on
a future date.
Riverland Ag recognizes these transactions as borrowings and commodity inventory in its accounts. No sales and purchases
are recognized in relation to these transactions.
Income taxes
Income tax expense comprises current and deferred taxes. Current tax and deferred tax are recognized in profit or loss, except
to the extent that it relates to a business combination, or to items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following
temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled
entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized
for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are
expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively
enacted by the reporting date. Deferred tax assets and liabilities are offset to the extent that they relate to income taxes levied
on the same taxable entity by the same taxation authority.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that
it is probable that future taxable income will be available against which they can be utilized. A valuation allowance is established,
if necessary, to reduce any deferred tax asset to an amount that is probable to be realized.
Earnings (Loss) per Share
Earnings (Loss) per Share (“EPS”) is reported for basic and diluted net income (loss). Basic EPS is calculated by dividing net
income (loss) for the reporting period by the weighted-average number of common Shares outstanding during the reporting
period. Diluted EPS is calculated by adjusting net income (loss) and the weighted-average number of common Shares outstanding
for the effects, if any, of all potentially dilutive common Shares, resulting from the exercise of Warrants outstanding as at the end
of a reporting period.
Employee benefits, defined contribution plan
A defined contribution plan is a post-employment benefit plan, under which an entity pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined
contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services
are rendered by employees. Prepaid contributions are recognized as an asset to the extent the Corporation is entitled to a cash
refund or a reduction in future payments. Contributions to a defined contribution plan due more than twelve months after the
end of the period in which the employees render the service (if any) are discounted to their present value. Riverland Ag has
a defined contribution employee benefit plan in the form of a qualified 401(k) profit sharing plan, as described in Note 18
(Employee Benefit Plan).
Future changes in accounting standards
In May 2011, the International Accounting Standards Board (“IASB”) issued IFRS 10 Consolidated Financial Statements, which is
effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. IFRS 10 replaces the guidance
in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special Purpose Entities. IAS 27 (2008)
survives as IAS 27 (2011) Separate Financial Statements, only to carry forward the existing accounting requirements for separate
financial statements. IFRS 10 provides a single model to be applied in the control analysis for all investees, including entities that
currently are SPEs in the scope of SIC-12. In addition, the consolidation procedures are carried forward substantially unmodified
from IAS 27 (2008). The Corporation intends to adopt IFRS 10 in its consolidated financial statements for the annual period
beginning on April 1, 2013. The effects of the adoption of IFRS 10 are not expected to be material.
CERES GLOBAL AG CORP. 41
In May 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities, which is effective for annual periods beginning
on or after January 1, 2013, with early adoption permitted. If an entity applies this Standard earlier, it shall apply IFRS 10, IFRS 11,
IAS 27 (2011) and IAS 28 (2011) at the same time. IFRS 12 contains the disclosure requirements for entities that have interests
in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities.
Interests are widely defined as contractual and non-contractual involvement that exposes an entity to variability of returns from
the performance of the other entity. The required disclosures aim to provide information in order to enable users to evaluate the
nature of, and the risks associated with, an entity’s interest in other entities, and the effects of those interests on the entity’s
financial position, financial performance and cash flows. The Corporation intends to adopt IFRS 12 in its consolidated financial
statements for the annual period beginning on April 1, 2013. The effects of the adoption of IFRS 12 are not expected to be material.
In May 2011, the IASB published IFRS 13 Fair Value Measurement, which is effective prospectively for annual periods
beginning on or after January 1, 2013. The disclosure requirements of IFRS 13 need not be applied in comparative information
for periods before initial application. IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with
a single source of fair value measurement guidance. It defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date, i.e. an exit price. The
standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements
to provide information that enables financial statement users to assess the methods and inputs used to develop fair value
measurements and, for recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the
measurements on profit or loss or other comprehensive income. IFRS 13 explains ‘how’ to measure fair value when it is required
or permitted by other IFRSs. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does
it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards. The Corporation
intends to adopt IFRS 13 prospectively in its financial statements for the annual period beginning on April 1, 2013. The extent
of the impact of adoption of IFRS 13 has not yet been determined.
In December 2011, the IASB published Offsetting Financial Assets and Financial Liabilities and issued new disclosure
requirements in IFRS 7 Financial Instruments: Disclosures. The effective date for the amendments to IAS 32 Financial Instruments:
Presentation is annual periods beginning on or after January 1, 2014. The effective date for the amendments to IFRS 7 is annual
periods beginning on or after January 1, 2013. These amendments are to be applied retrospectively. The amendments to IAS 32
clarify that an entity currently has a legally enforceable right to set-off if that right is not contingent on a future event; and
enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all
counterparties. The amendments to IAS 32 also clarify when a settlement mechanism provides for net settlement or gross
settlement that is equivalent to net settlement. The amendments to IFRS 7 contain new disclosure requirements for financial
assets and liabilities that are offset in the statement of financial position; or subject to master netting arrangements or similar
arrangements. The Corporation intends to adopt these changes retroactively in its financial statements for the annual period
beginning on April 1, 2013 or April 1, 2014, as applicable. The extent of the impact of adoption of these changes has not yet
been determined.
Effective for annual reporting periods beginning on or after January 1, 2015, the current standard for financial instruments
(IAS 39 Financial Instruments – Recognition and Measurement) will be replaced by IFRS 9 Financial Instruments. The new
standard will replace the current multiple classification and measurement models for financial assets and liabilities with a single
model having only two classification categories: amortized cost and fair value. The Corporation is currently evaluating the effects
related to the future adoption of IFRS 9.
4. SUMMARY OF SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The timely preparation of financial statements requires management to make judgments, estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.
The following summarizes the accounting judgments, estimates and assumptions management considers significant:
Valuation of investments
Portfolio investments are held for trading, are measured and reported at fair value, and may include securities not traded in an
active market. The fair value of such securities is determined using valuation techniques. Depending on various circumstances,
the Corporation may use several methods and makes assumptions based on market conditions existing at each reporting date.
Valuation techniques may include, without limitation, the use of comparable recent arm’s length transactions, discounted cash
flow analysis, option-pricing models and other valuation techniques commonly used by market participants.
42 CERES GLOBAL AG CORP.
Other judgments, estimates and assumptions
Accounts receivable, trade are stated after an evaluation as to their collectability, and when appropriate, providing for an allowance
for doubtful accounts.
Inventories consist of agricultural grain commodities owned by Riverland Ag, and are stated at fair value less costs to sell.
Estimates may be used in the determination of fair value, and changes in the fair value of inventories of agricultural grain
commodities are recognized in the Statement of Comprehensive Income for the period, as a component of Cost of sales.
Depreciation of property, plant and equipment is based on management’s estimates of the useful lives of the assets and
the residual value at the end of their useful lives.
Estimates are also used when determining the amount of impairment of assets and the likelihood of contingencies.
5. PORTFOLIO INVESTMENTS
Portfolio investments owned are classified as held for trading and consist primarily of equity securities.
Total fair value
Total cost
2013
2012
$
6,488,254
$ 13,396,506
$ 9,873,064
$ 12,387,501
As at March 31, 2013, non-publicly traded securities, including securities of private companies, warrants and restricted securities,
represent 37.11 per cent (March 31, 2012: 39.11 per cent) of the fair value of the investments owned.
6. DUE FROM (TO) BROKERS
Due from broker for Ceres’ portfolio investments represents amounts at the custodian brokers from settled and unsettled
trades. Due from broker for Riverland Ag for commodity futures and options contracts represents margin deposits and open trade
equity maintained by a broker in connection with such contracts.
Due to broker for Riverland Ag for commodity futures and options contracts represents the excess of open trade deficiencies
on such contracts over the aggregate of minimum collateral requirements on deposit with the broker.
7. INVESTMENTS IN ASSOCIATES
Canterra Seeds Holdings, Ltd., common shares
Stewart Southern Railway Inc., common shares
Stewart Southern Railway Inc., loan receivable
2013
1,522,179
2,764,788
62,500
4,349,467
$
$
2012
$ 1,488,742
1,566,661
62,500
$ 3,117,903
Riverland Canada holds a 25 per cent interest in Canterra Seeds Holdings, Ltd. (“Canterra”), a Canadian company. Riverland
Canada also holds rights to a 25 per cent voting position on the Board of Directors of Canterra.
Ceres holds a 25 per cent interest in Stewart Southern Railway Inc. (“SSR”), also a Canadian company. Ceres also holds rights
to one out of four seats on the Board of Directors of SSR.
8. INVESTMENT PROPERTY
Investment property is stated using the cost model. Investment property includes land currently held for capital appreciation
and not otherwise utilized by Ceres. On initial recognition, investment property is measured at cost, including directly attributable
expenditures that are capitalized on the basis it is probable that future economic benefits associated with the expenditure related
to the investment property will flow to Ceres and the cost of such expenditure can be measured reliably. As at March 31, 2013 and
2012, management has determined that the fair value of investment property approximates cost, on the basis that investment
property was acquired recently and no significant conditions exist that indicate that the fair value varies materially from cost.
For the years ended March 31, 2013 and 2012, the changes to the investment property are as follows:
Investment property, cost as at beginning of year
Investment property additions
Costs capitalized
Foreign currency translation adjustments
Investment property, cost as at end of year
2013
2,900,582
830,993
1,240,727
2,071,720
3,619
4,975,921
$
$
2012
$
–
2,805,669
94,913
2,900,582
–
$ 2,900,582
CERES GLOBAL AG CORP. 43
9. PROPERTY, PLANT AND EQUIPMENT
Land
Buildings and
silos/elevators
Machinery &
equipment
Furniture, fixtures,
computers and
office equipment
Totals
March 31, 2013
Cost
Balances, April 1, 2012
Assets acquired (reclassifed)
Disposals
Loss on impairment
Foreign currency translation
adjustments
Balances, March 31, 2013
Accumulated depreciation
Balances, April 1, 2012
Depreciation charged to operations
Disposals
Loss on impairment
Foreign currency translation
adjustments
Balances, March 31, 2013
$ 5,796,412
100,065
(192,429)
–
$ 62,883,609
665,041
(3,295,038)
–
$ 3,380,918
577,010
(169,781)
–
$ 1,664,782
109,942
(89,210)
–
$ 73,725,721
1,452,058
(3,746,458)
–
106,146
5,810,194
1,353,937
61,607,549
47,673
3,835,820
42,648
1,728,162
1,550,404
72,981,725
–
–
–
–
–
–
(3,341,763)
(2,365,610)
320,348
–
(339,990)
(5,727,015)
(315,347)
(259,672)
34,910
–
7,603
(532,506)
(431,151)
(296,308)
38,236
–
(24,999)
(714,222)
(4,088,261)
(2,921,590)
393,494
–
(357,386)
(6,973,743)
Net Book Values, March 31, 2013
$ 5,810,194
$ 55,880,534
$ 3,303,314
$ 1,013,940
$ 66,007,982
March 31, 2012
Cost
Balances, April 1, 2011
Assets acquired (reclassifed)
Loss on impairment
Foreign currency translation
adjustments
Balances, March 31, 2012
Accumulated depreciation
Balances, April 1, 2011
Depreciation charged to operations
Loss on impairment
Foreign currency translation
adjustments
Balances, March 31, 2012
$ 5,545,211
106,827
–
$ 48,699,392
12,821,193
(153,521)
$ 2,620,251
684,062
–
$ 1,697,077
(81,779)
–
$ 58,561,931
13,530,303
(153,521)
144,374
5,796,412
1,516,545
62,883,609
76,605
3,380,918
49,484
1,664,782
1,787,008
73,725,721
–
–
–
–
–
(1,079,131)
(2,142,014)
7,429
(128,047)
(3,341,763)
(90,909)
(216,815)
–
(7,623)
(315,347)
(149,362)
(266,545)
–
(15,244)
(431,151)
(1,319,402)
(2,625,374)
7,429
(150,914)
(4,088,261)
Net Book Values, March 31, 2012
$ 5,796,412
$ 59,541,846
$ 3,065,571
$ 1,233,631
$ 69,637,460
10. BANK INDEBTEDNESS
On July 31, 2012, Riverland Ag amended and restated its USD$180 million syndicated committed revolving line of credit dated
October 29, 2010. This credit agreement is with a lender based in the United States of America, and is secured by predominantly
all assets of Riverland Ag, including cash but excluding property, plant and equipment. The obligation is guaranteed by Riverland Ag
and by Ceres Canada Holding Corp., Ceres U.S. Holding Corp., and Riverland Canada. The credit agreement is subject to borrowing
base limitations. The agreement may be extended by mutual agreement of Riverland Ag and the lenders prior to the expiration
of the agreement.
Until November 28, 2011 and for the period from February 27, 2012 to July 30, 2012, interest was at LIBOR plus 4.00 per
cent, and was calculated and paid monthly. For the period from November 29, 2011 to February 27, 2012, the lender had agreed
to a fixed LIBOR rate of 0.52 per cent on a base line of USD$50 million, with interest due on February 27, 2012. After July 30, 2012,
pursuant to the amended and restated agreement, borrowings were subject to interest at LIBOR plus 3.75 per cent, with interest
calculated and paid monthly. The credit agreement is subject to certain commitment fees based on a graduated scale depending
on the amount of the credit facility that remains undrawn. The commitment fees are payable quarterly in arrears on the average
daily undrawn amount.
44 CERES GLOBAL AG CORP.
As described in Note 20 (Management of capital), this credit facility has certain covenants pertaining to the accounts of
Riverland Ag. As at March 31, 2013 and 2012, Riverland Ag was in compliance with all debt covenants.
As at March 31, 2013 and 2012, the carrying amount of bank indebtedness is summarized as follows:
Revolving line of credit
Unamortized financing costs
11. REPURCHASE OBLIGATIONS
2013
2012
in USD
in CAD
in USD
in CAD
$ 115,000,000
(504,071)
$ 114,495,929
$ 116,840,000
(512,136)
$ 116,327,864
$ 80,000,000
(361,615)
$ 79,638,385
$ 79,800,000
(360,711)
$ 79,439,289
As at March 31, 2013, Riverland Ag has open repurchase commitments under its product financing arrangement with Macquarie
Commodities (USA), Inc. (“MCUSA”) to repurchase 4,000,000 bushels of certain grains. Under the product financing arrangement,
Riverland Ag sold MCUSA grains under contract and simultaneously entered into contracts to repurchase the grains during
the first quarter of the fiscal year ending March 31, 2014 (“FYE 2014”). Since Riverland Ag is obligated to repurchase these
commodities from MCUSA, it has not recognized these transactions as sales. As at March 31, 2013, the Corporation continues
to recognize the inventory owned by Riverland Ag in this regard on its consolidated balance sheet and has recorded a liability of
USD$26,703,249 at that date (CAD$27,130,501), plus accrued interest payable. As at March 31, 2013, the fixed interest rates
on the open repurchase commitments range from 3.99 per cent to 4.05 per cent.
As at March 31, 2012, Riverland Ag had no liability under this product financing arrangement with MCUSA.
12. LONG-TERM DEBT
Prior to December 17, 2012, Riverland Ag had a ten-year term loan agreement in the amount of USD$10 million with Great
Western Bank (“GWB”), bearing a fixed annual interest rate of 6.60 per cent (“GWB loan #2”), which was repayable in 120 equal
monthly principal installments of USD$83,333 plus interest, and a ten-year secured term loan agreement in the amount of
USD$40.5 million with GWB, bearing a fixed annual interest rate of 5.35 per cent (“GWB loan #3”), which was repayable in
120 monthly installments requiring a level principal repayment of USD$337,500 plus interest.
On December 17, 2012, Riverland Ag repaid its outstanding notes payable due to GWB. The amount of principal repaid totalled
USD$44,616,667 (CAD$43,907,262). On repayment, Riverland Ag also paid a loan prepayment penalty of USD$2,513,098
(CAD$2,473,140). Riverland Ag has also amortized the remaining unamortized financing costs of USD$348,616 (CAD$343,073)
related to long-term debt. The prepayment penalty amount and the amortization of the long-term debt financing costs are
included in finance expenses.
As at March 31, 2013 and 2012, the carrying amount of long-term debt is summarized as follows:
GWB loan #2
GWB loan #3
Unamortized financing costs
Net carrying amounts
Portion due within twelve months
Unamortized financing costs on current portion
Current portion, net of unamortized financing costs
Long-term portion of term loans payable, net of
unamortized financing costs
2013
2012
in USD
in CAD
in USD
in CAD
$
$
–
–
–
–
–
–
–
–
–
$
$
–
–
–
–
–
–
–
–
–
$
8,916,667
39,487,500
48,404,167
(446,717)
47,957,450
(5,050,000)
160,035
(4,889,965)
$ 8,894,375
39,388,781
48,283,156
(445,600)
47,837,556
(5,037,375)
159,635
(4,877,740)
$ 43,067,485
$ 42,959,816
USD amounts as at a reporting date are translated to CAD using the exchange rate effective as at the reporting date. USD amounts
as at a transaction date are translated to CAD using the exchange rate effective on the transaction date.
CERES GLOBAL AG CORP. 45
13. FINANCIAL INSTRUMENTS
(a) Fair value of financial instruments
The fair value of financial instruments closely approximates their carrying values.
Derivative assets and Derivative liabilities, which are held for trading and valued at fair value through profit and loss,
include the following:
Derivative assets
Unrealized gain on forward foreign exchange contracts
Unrealized gains on open cash contracts
Derivative liabilities
Unrealized losses on open cash contracts
2013
2012
$
$
10,701
2,301,181
2,311,882
$
–
2,955,578
$ 2,955,578
$
(1,627,645)
$
(2,917,960)
(b) Finance loss
For the years ended March 31, 2013 and 2012, finance loss includes the following:
Dividend revenues, net of withholding taxes of $nil (2012: $3,745)
Interest and other revenues
Realized loss on sale of investments
Realized loss on currency-hedging transactions
Realized and unrealized gain on foreign exchange
Unrealized (decrease) increase in fair value of investments
2013
–
20,726
(14,931)
(313,003)
12,915
(4,369,758)
(4,664,051)
$
$
2012
$
21,221
3,637
(5,257,461)
(541,271)
99,773
3,916,939
(1,757,162)
$
(c) Management of financial instruments risks
In the normal course of business, the Corporation is exposed to various financial instruments risks, including market risk (consisting
of price risk, commodity risk, interest rate risk and currency risk), credit risk, custodian and prime brokerage risks, and liquidity
risk. The Corporation’s overall risk management program seeks to minimize potentially adverse effects of those risks on the
Corporation’s financial performance. The Corporation may use derivative financial instruments to mitigate certain risk exposures.
The Corporation may invest in non-public and public issuers and assets.
Price risk
The Corporation trades in financial instruments and may take positions in traded, over-the-counter and non-public instruments,
which may include derivatives. Within defined limits, the Corporation may buy or sell call or put options and financial futures
or other derivatives.
All investments in securities present a risk of loss of capital. The Manager, as identified in Note 15(a), mitigates this risk
through a careful selection of securities and other financial instruments, within specified limits. The maximum risk for financial
instruments owned by the Corporation is determined by the fair value thereof. From time-to-time, the Corporation has issued
written put and call options, although no such options are issued and outstanding as at March 31, 2013 and 2012. Potential
losses from written put options could be unlimited. Short sales that the Corporation has made and may make in the future could
involve certain risks and other considerations. Potential losses from short sales differ from potential losses from securities owned
(long positions), because losses from short sales might be unlimited. The Corporation’s overall market positions are monitored
on a daily basis by the Manager and are reviewed quarterly by the Board of Directors.
As at March 31, 2013 and 2012, the Corporation has invested in equity securities of companies whose securities are actively
traded on recognized public exchanges and in private companies. Equities are susceptible to market price risk arising from
uncertainties about future prices of those instruments. As at March 31, 2013, the Corporation’s portfolio investments in private
companies represents 0.57 per cent of consolidated total assets (March 31, 2012: 1.32 per cent).
Notwithstanding the investment objectives of the Corporation and its investment focus, market price risk is managed through a
diversification of the investment portfolio between industry sub-sectors and by avoiding undue industry sub-sector, geographical
or investee concentration. As at March 31, 2013, 1.17 per cent of shareholders’ equity is represented by portfolio investments in
private companies (March 31, 2012: 2.47 per cent). As at March 31, 2013, 3.32 per cent of shareholders’ equity is invested in equity
instruments of publicly traded companies located in Canada and the United States of America (March 31, 2012: 3.85 per cent).
As at March 31, 2013 and 2012, the Corporation’s market risk pertaining to portfolio investments is potentially affected by two
main components, being changes in actual market prices and changes in foreign exchange rates. The Corporation’s sensitivity to
foreign currency movements is reported below (Currency risk).
46 CERES GLOBAL AG CORP.
Notwithstanding these factors, the following is a summary of the effect on the results of operations of the Corporation,
if the bid or ask prices of each of the portfolio investments (including investments owned, short sales and written options)
as at March 31, 2013 and 2012 had increased or decreased by 10 per cent, with all other variables remaining constant:
Change in bid/ask prices of investments
10% increase in bid-ask prices
10% decrease in bid-ask prices
2013
2012
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
$
$
648,825
(648,825)
$
$
0.05
(0.05)
$
$
199,850
(199,850)
$
$
0.01
(0.01)
Commodity risk
Commodity risk is the risk of financial loss resulting from changes in commodity prices. Commodity risk is inherent in the nature
of Riverland Ag’s business, as it enters into commitments involving a degree of speculative risk. To reduce risk caused by
commodity market fluctuations, Riverland Ag generally follows a policy of using exchange-traded futures and options contracts to
minimize its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts.
It would also use exchange-traded futures and options contracts as components of merchandising strategies designed to
enhance margins. The results of these strategies can be significantly influenced by factors such as the volatility of the relationship
between the value of exchange-traded commodities futures contracts and the cash prices of the underlying commodities, and
volatility of freight markets.
Notwithstanding these factors, the following is a summary of the effect on the results of operations of the Corporation, if the
fair value of each of the open cash contracts as at March 31, 2013 and 2012 had increased or decreased by 5 per cent, with all
other variables remaining constant:
Change in bid/ask prices of commodities
5% increase in bid-ask prices
5% decrease in bid-ask prices
2013
2012
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
$
$
1,658,491
(1,658,491)
$
$
0.12
(0.12)
$
$
126,572
(126,572)
$
$
0.01
(0.01)
Interest rate risk
As at March 31, 2013 and 2012, Ceres has no long or short portfolio positions in any interest-bearing securities.
As at March 31, 2013 and 2012, except for cash on deposit, the amounts of which vary from time-to-time and on which the
Corporation earns interest at nominal variable interest rates, the Corporation had no other variable rate interest-bearing securities.
As at those dates, a notional increase or decrease in interest rates applicable to cash on deposit would not have materially
affected interest revenue and the results of operations. Therefore, as at March 31, 2013 and 2012, the Corporation was not
directly exposed to any significant degree to cash flow interest rate risk due to changes in prevailing market interest rates.
As at March 31, 2012 and 2011, Riverland Ag has a variable rate interest-bearing liability in the form of its revolving credit
facility. As disclosed in Note 10 (Bank indebtedness), as at March 31, 2013, Riverland Ag’s revolving credit facility bears interest
at an annual rate of LIBOR plus 3.75 per cent (March 31, 2012: LIBOR plus 4.00 per cent). As at March 31, 2013 and 2012,
management has determined the effect on the future results of operations of the Corporation, if the variable interest rate
component applicable on those dates on the revolving credit facility were to increase by 25 basis points (“25 bps”) as at those
dates respectively, using the balance of the revolving credit facility payable as at those dates, using the number of shares then
issued and outstanding, and with all other variables remaining constant. On that basis, the potential effects on the future result
of operations would be as follows:
Change in interest rate on revolving facility
2013
2012
Increase
in net
loss
Increase
in loss
per share
Increase
in net
loss
Increase
in loss
per share
25 bps increase in annual interest rate
$
(292,100)
$
(0.02)
$
(199,500)
$
(0.01)
Riverland Ag is not subject to cash flow interest rate risk concerning the repurchase obligations and long-term debt, as these
liabilities bear interest at fixed rates.
CERES GLOBAL AG CORP. 47
Credit risk
Credit risk is the risk a counterparty would be unable to pay amounts due to the Corporation in accordance with the terms and
conditions of the debt instruments. As at March 31, 2013 and 2012, the Corporation is subject to credit risk concerning cash,
amounts due from brokers, trade accounts receivable, and to the extent that certain forward foreign exchange contracts on hand
and open cash contracts for grain commodities as at those dates gave rise to unrealized gains thereon. The maximum exposure
to credit risk on those assets is limited to the carrying value of those assets.
The Corporation mitigates the credit risk concerning forward foreign exchange contracts by entering into such contracts with
financially stable and credit-worthy counter-parties. Credit risk arising from the amounts due from broker is described below
(Custody and prime brokerage risks). Ceres management assesses credit risk of debt securities, if any, on an on-going basis.
Riverland Ag uses various grain contracts as part of its overall grain merchandising strategies. Performance on these contracts
is dependent on delivery of the grain or a customer buy-out. There is counter-party risk associated with non-performance, which
may have the potential of creating losses for the Corporation. The Corporation’s management has assessed the counter-party risk
and believes that insignificant losses, if any, would result from non-performance.
Riverland Ag regularly evaluates its credit risk concerning its trade accounts receivable to the extent that such receivables
may be concentrated in certain industries or with significant customers. Riverland minimizes this risk by having a diverse
customer base and established credit policies. The aging of Riverland Ag’s trade accounts receivable are substantially current.
Based on its review and assessment of its trade accounts receivable, management of Riverland Ag has determined that as at
March 31, 2013 and 2012, no allowance for doubtful accounts is warranted, and management is confident in its ability to collect
outstanding trade accounts receivable.
Custody and prime brokerage risk
There are risks involved with dealing with a custodian or broker who settle trades. In certain circumstances, the securities or
other assets deposited with the custodian or broker may be exposed to credit risk with respect to those parties. In addition, there
may be practical or timing problems associated with enforcing the Corporation’s rights to its assets, in the case of the insolvency
of any such party. Notwithstanding the foregoing, management has evaluated the risk of loss related to the custodian or brokers
and has determined this risk to be insignificant.
Liquidity risk
As at March 31, 2013 and 2012, the following are the contractual maturities of financial liabilities, including interest payments:
2013
Bank indebtedness
Accounts payable and accrued liabilities
Repurchase obligations
Derivatives
Income taxes payable
Management fees payable
Due to Manager
2012
Bank indebtedness
Accounts payable and accrued liabilities
Derivatives
Management fees payable
Due to Manager
Long-term debt
Carrying
amount
Contractual
cash flows
1 year
2 years
3 to
5 years
More than
5 years
$ 116,327,864
5,296,033
27,130,501
1,627,645
260,539
250,763
268,565
$ 151,161,910
$ 116,840,000
5,296,033
27,130,501
1,627,645
260,539
250,763
268,565
$ 151,674,046
$ 116,840,000
5,296,033
27,130,501
1,627,645
260,539
250,763
268,565
$ 151,674,046
$
$
–
–
–
–
–
–
–
–
$
$
–
–
–
–
–
–
–
–
$
$
–
–
–
–
–
–
–
–
Carrying
amount
Contractual
cash flows
1 year
2 years
3 to
5 years
More than
5 years
$ 79,439,289
3,141,089
2,917,960
267,223
55,000
47,837,556
$ 133,658,117
$ 79,800,000
3,141,089
2,917,960
267,223
55,000
61,298,947
$ 147,480,219
$ 79,800,000
3,141,089
2,917,960
267,223
55,000
7,603,273
$ 93,784,545
$
–
–
–
–
–
7,321,304
$ 7,321,304
$
–
–
–
–
–
20,276,459
$ 20,276,459
$
–
–
–
–
–
26,097,911
$ 26,097,911
Future expected operational cash flows and sufficient assets are available to fund the settlement of these obligations in the
normal course of business. In addition, the following factors allow for the substantial mitigation of liquidity risk: availability
of portfolio investments traded in active exchanges, the prompt settlement of amounts due from brokers, and the active
management of trade accounts receivable and the lack of concentration risk related thereto. The Corporation’s cash flow
management activities and the continued likelihood of its operations further minimize liquidity risk.
48 CERES GLOBAL AG CORP.
Currency risk
In the normal course of business, Ceres may hold assets or have liabilities denominated in currencies other than Canadian dollars
(its presentation and functional currency, and referred to in this section as “CAD”). Therefore, Ceres is exposed to currency risk,
as the value of any assets or liabilities denominated in currencies other than CAD will vary due to changes in foreign exchange rates.
As at March 31, 2013 and 2012, the following is a summary, at fair value, of Ceres’ exposure to currency risks:
Currency
U.S. dollars
Australian dollars
*Exposure excludes the effect of forward foreign exchange contracts.
2013
2012
Net asset
exposure*
Net forward
contracts (to sell
foreign currency)
Net asset
exposure*
Net forward
contracts (to sell
foreign currency)
$
$
537,484
809
$ 30,000,000
–
$
$
$
2,530,933
803
$ 32,494,151
–
$
As at March 31, 2013, Ceres was committed to a forward foreign exchange contract executed on March 27, 2013 and due
April 30, 2013, in the amount noted in the preceding table.
The following is a summary of the effect on the results of operations of the Corporation if the CAD had become 5 per cent
stronger or weaker against each of the other currencies as at March 31, 2013 and 2012, with all other variables remaining
constant, related to assets and liabilities denominated in foreign currencies and to the forward foreign exchange contracts:
Change in foreign exchange rate
CAD 5% stronger
CAD 5% weaker
2013
2012
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
$
$
1,498,554
(1,495,812)
$
$
0.10
(0.10)
$
$
1,502,954
(1,490,274)
$
$
0.10
(0.10)
Currency risk related to the accounts of Ceres’ foreign subsidiary, Riverland Ag Corp., relates primarily to the translation of its
accounts into CAD for the purposes of the consolidated financial reporting of Ceres. Adjustments related to the translation of
foreign currency accounts of a foreign operation are included as other comprehensive income (loss) and have no effect on the
determination of net income for the reporting period. Consequently, no currency risk sensitivity analysis concerning Riverland Ag
Corp. has been presented.
(d) Fair value measurements
The following is a summary of the classification of assets and liabilities carried at fair value, using the hierarchy of inputs
described in Note 3 (Summary of significant accounting policies – fair value measurements):
March 31, 2013
Equities, long
Due from Broker, unrealized gains on futures and options
Derivative assets
Inventories, grains
Derivative liabilities
Level 1
4,080,650
3,678,406
–
–
–
7,759,056
$
$
Level 2
$
718,685
–
2,311,882
156,965,289
(1,627,645)
$ 158,368,211
Level 3
1,688,919
–
–
–
–
1,688,919
$
$
Total
$ 6,488,254
3,678,406
2,311,882
156,965,289
(1,627,645)
$ 167,816,186
During the year ended March 31, 2013, there was a transfer from Level 3 to Level 2 for $1,000,025. This transfer reflects the
initial public offering of a private company, the investment in which had been previously classified in Level 3, but for which
the trading in those shares is restricted as at March 31, 2013.
The following is a reconciliation of the changes in the equities, long, measured at fair value using unobservable inputs (Level 3),
for the year ended March 31, 2013:
Balance, April 1, 2012
Transfer out to Level 2
Net purchase
Change in fair value of Level 3 portfolio investments
$ 3,861,027
(1,000,025)
450,000
(1,622,083)
$ 1,688,919
CERES GLOBAL AG CORP. 49
March 31, 2012
Equities, long
Derivative assets
Inventories, grains
Due to broker, unrealized losses on futures and options
Derivative liabilities
Level 1
6,012,037
–
–
(6,590,043)
–
(578,006)
$
$
Level 2
$
–
2,955,578
158,400,586
–
(2,917,960)
$ 158,438,204
Level 3
3,861,027
–
–
–
–
3,861,027
$
$
Total
$ 9,873,064
2,955,578
158,400,586
(6,590,043)
(2,917,960)
$ 161,721,225
During the year ended March 31, 2012, there was a transfer from Level 3 to Level 1 for $5,140,659. This transfer reflects the
initial public offering of a private company, the investment in which had been previously classified in Level 3.
The following is a reconciliation of the changes in the equities, long, measured at fair value using unobservable inputs (Level 3),
for the year ended March 31, 2012:
Balance, April 1, 2011
Transfer out to Level 1
Net purchase
Change in fair value of Level 3 portfolio investments
14. SHARE CAPITAL AND WARRANTS
$ 7,946,060
(5,140,659)
1,000,025
55,601
$ 3,861,027
(a) Authorized
Unlimited number of voting, participating Common Shares, without par value and 150,000 Common Share Purchase Warrants,
expiring on June 11, 2013 and entitling each holder thereof to acquire one Common Share of the Corporation at a price of
$10.40 each.
(b) Normal Course Issuer Bids
2010–2011 Normal Course Issuer Bid
On October 7, 2010, Ceres announced a normal course issuer bid (“2010–2011 NCIB”) commencing on October 8, 2010. The
purpose of the 2010–2011 NCIB was to provide Ceres with a mechanism to decrease the potential spread between the net asset
value per Share and the market price of the Shares. The 2010–2011 NCIB concluded on October 7, 2011. Using the facilities
of the TSX and in accordance with its rules and policies, Ceres intended to purchase up to 1,016,638 of its common Shares,
representing approximately 10 per cent of its unrestricted public float as at October 4, 2010. Ceres was permitted to purchase
up to a daily maximum of 3,657 Shares, except where such purchases were made in accordance with the “block purchase”
exception under applicable TSX rules and policies. The Shares were purchased for cancellation via the TSX and were purchased
when the net asset value per Share exceeded its trading price.
For the period from April 1 to October 5, 2011, Ceres purchased 276,021 Shares under the 2010–2011 NCIB for an
aggregate consideration of $2,107,288. The stated capital value of the repurchased Shares was $2,663,006. The excess of the
stated capital value of the repurchased Shares over the cost thereof, being $555,718 for this period has been allocated to
Retained Earnings during the year ended March 31, 2012.
2011–2012 Normal Course Issuer Bid
On October 13, 2011, Ceres announced a normal course issuer bid (“2011–2012 NCIB”) commencing on October 17, 2011.
The purpose of the 2011–2012 NCIB was to provide Ceres with a mechanism to decrease the potential spread between the net
asset value per Share and the market price of the Shares. The 2011–2012 NCIB concluded on October 16, 2012. Using the
facilities of the TSX and in accordance with its rules and policies, Ceres intended to purchase up to 1,184,334 of its common
Shares, representing approximately 10 per cent of its unrestricted public float as at October 11, 2011. Ceres was permitted
to purchase up to a daily maximum of 3,726 Shares, except for purchases made in accordance with the “block purchase”
exception under applicable TSX rules and policies. The Shares were purchased for cancellation via the TSX and were purchased
when the net asset value per Share exceeded its trading price.
For the period from October 17, 2011 to March 31, 2012, Ceres purchased 373,796 Shares under the 2011–2012 NCIB for
an aggregate consideration of $2,026,394. The stated capital value of these repurchased Shares was $3,606,325. The excess
of the stated capital value of the repurchased Shares over the cost thereof, being $1,579,931, has been allocated to Retained
Earnings in the year ended March 31, 2012.
50 CERES GLOBAL AG CORP.
For the period from April 1, 2012 to October 16, 2012, Ceres purchased 246,600 Shares under the 2011–2012 NCIB for an
aggregate consideration of $1,531,991. The stated capital value of these repurchased Shares was $2,379,158. The excess of
the stated capital value of the repurchased Shares over the cost thereof, being $847,167, has been allocated to Retained
Earnings in the year ended March 31, 2013.
(c) Issued and outstanding as at March 31, 2013 and 2012
The following is a summary of the changes in the Common Shares and Warrants during the years ended March 31, 2013
(“FYE 2013”) and 2012 (“FYE 2012”):
Balances, April 1, 2011
Changes in FYE 2012
Repurchases under normal course issuer bid
Balances, March 31, 2012
Changes in FYE 2013
Repurchases under normal course issuer bid
Balances, March 31, 2013
Common shares
#
$
Warrants
#
$
15,231,116
$ 146,947,393
150,000
$
202,384
(649,817)
14,581,299
(6,269,331)
$ 140,678,062
(246,600)
14,334,699
(2,379,158)
$ 138,298,904
–
150,000
–
150,000
–
202,384
–
202,384
$
$
15. MANAGEMENT FEES AND OTHER EXPENSES
(a) Management fees and incentive fees
Pursuant to a management agreement dated December 13, 2007, as amended on April 26, 2010 (the “Management Agreement”),
between the Corporation and Front Street Capital 2004 (the “Manager”), the Corporation pays the Manager an annual management
fee of 2 per cent of the Net Asset Value (as defined in the Management Agreement) of the Corporation based on the average
weekly Net Asset Value of the Corporation, payable monthly in arrears. The Net Asset Value represents the excess of the market
value of all assets of the Corporation over all of its liabilities. The Manager and certain affiliates are considered related parties
through the provision of management services through the Management Agreement.
In addition to the annual management fees and in respect of each fiscal year, the Corporation is also required to pay to the
Manager an annual incentive fee (the “Incentive Fee”) equal to: (a) 20 per cent of the amount by which the Adjusted Net Asset
Value per Common Share (as defined in the Management Agreement and described in the prospectus dated December 13, 2007)
at the end of such fiscal year exceeds the highest year-end Net Asset Value per Common Share (“Highest Year”) adjusted pro
rata to reflect Warrants exercised since the Highest Year multiplied by (b) the average daily number of Common Shares outstanding
during such fiscal year. Notwithstanding the foregoing, no Incentive Fee will be payable with respect to the current fiscal year
of the Corporation unless the Adjusted Net Asset Value per Common Share at the end of the current fiscal year exceeds the
Net Asset Value per Common Share at the end of the preceding year, adjusted pro rata to reflect Warrants exercised during the
current fiscal year, by a minimum of 8 per cent (the “Threshold Rate”). For calculating the Incentive Fee, the Threshold Rate will
be pro-rated for any partial fiscal year. The Incentive Fee will be estimated and accrued as at each Valuation Date (being the date
on which the Net Asset Value is determined on a weekly basis, as defined in the prospectus) and each reporting date, and any
such fee will be paid within 30 business days after each fiscal year-end of the Corporation. As at March 31, 2013 and 2012,
no Incentive Fee was payable to the Manager.
For the year ended March 31, 2013, management fees charged to operations total $3,135,745 (2012: $3,383,652) and are
included with general and administrative expenses. As at March 31, 2013, management fees payable to the Manager amounted
to $250,763 (2012: $267,223).
(b) Other expenses
The Corporation is responsible for paying fees and expenses incurred in its operations and administration, except fees and
expenses to be borne by the Manager as set out in the Management Agreement. In addition to the Management Fees and
Incentive Fees payable to the Manager, the Corporation shall reimburse the Manager for all expenses it incurs related to its
duties (including payments to third parties in that regard) to the extent such expenses were incurred for and on behalf of the
Corporation. As at March 31, 2013, the amount of $268,565 was due to the Manager (2012: $55,000).
CERES GLOBAL AG CORP. 51
16. INCOME TAXES
(a) Reconciliation of statutory tax provision to the effective tax provision
As the Corporation operates in several tax jurisdictions, its income is subject to taxation at various rates.
The provision for income taxes differs from the amount that would have resulted from applying the Canadian statutory income
tax rates to income before income taxes for the following reasons:
2013
2012
Income (loss) before income taxes and share of net income (net loss) in investments in associates:
Canada
United States of America
$
(9,581,994)
(5,705,965)
$ (15,287,959)
$
(7,144,809)
3,140,813
(4,003,996)
$
Combined statutory Canadian federal and Ontario corporate income tax rate
Provision for income taxes recoverable using statutory rate
Adjusted for the income tax effects of:
Difference in tax rates applicable to subsidiaries
U.S. State taxes, net of U.S. federal benefit
Intercompany dividend eliminated on consolidation
Non-deductible portion of capital losses
Non-deductible portion of unrealized losses on investments (non-taxable portion of
unrealized gains on investments)
Future tax rate changes on temporary differences
Other
Change in valuation allowance on future income tax assets of Ceres and Riverland Ag Corp.
Income taxes recovered
The components of the provision for income taxes are as follows:
Canada
Current
Future
United States of America – Federal
Current
Future
United States of America – State
Current
Future
26.50%
(4,051,309)
$
27.75%
(1,111,109)
$
(714,957)
(494,361)
(1,293,554)
41,714
578,993
–
338,141
3,024,063
1,480,039
(2,571,270)
(240,647)
71,586
(1,343,575)
855,517
(543,569)
343,776
(131,168)
1,486,440
498,360
(612,749)
$
2013
57,340
136,980
194,320
$
2012
(2,203)
14,854
12,651
12,769
(2,422,145)
(2,409,376)
(2,218,575)
1,712,269
(506,306)
$
$
1,889
(358,103)
(356,214)
(2,571,270)
$
(333,631)
214,537
(119,094)
(612,749)
$
(b) Deferred income tax liability
The tax effects of temporary differences that give rise to significant elements of the net deferred income tax liability are
as follows:
Deferred income tax assets
Non-capital and net operating losses carried forward
Allowable capital losses carried forward
Deductible portion of unrealized depreciation of investments
Future years’ deductions for Share issue costs
Other temporary deductible differences, net of temporary taxable differences
Deferred income tax asset, before valuation allowance
Valuation allowance
Net deferred income tax asset
Deferred income tax liability, property, plant and equipment
2013
2012
$ 18,306,069
858,595
983,368
–
3,924,290
24,072,322
(10,284,256)
13,788,066
(13,995,338)
$ 13,491,388
816,839
451,539
320,005
2,356,452
17,436,223
(7,260,213)
10,760,010
(13,016,001)
Net deferred income tax liability
$
(207,272)
$
(2,839,991)
52 CERES GLOBAL AG CORP.
(c) Tax losses carried forward
As at March 31, 2013, Ceres has accumulated non-capital losses in the amount of $26,515,281. The non-capital losses are
being carried forward and, unless utilized, will expire in the following taxation years:
Year of expiry
2028
2029
2030
2031
2032
2033
Amount
$
591,209
2,064
6,387,927
5,943,058
7,273,866
6,317,157
$ 26,515,281
As at March 31, 2013, Riverland Ag has accumulated net operating losses of USD$28,864,470 (CAD$29,326,302). These net
operating losses are being carried forward and, unless utilized, will expire in the following taxation years:
Year of expiry
2031
2032
2033
Amount
$ 14,342,188
6,741,992
7,780,290
$ 28,864,470
As at March 31, 2013, capital losses in the amount of $6,479,961 are available indefinitely to be applied against capital gains
of the Corporation in future taxation years. The potential income tax benefit of the capital losses has not been recognized in the
financial statements.
17. RELATED PARTY TRANSACTIONS
(a) Management fees and incentive fees
Terms and conditions pertinent to management fees and incentive fees, and the amounts charged to operations related thereto,
have been reported in Note 15(a) (Management fees and other expenses – management fees and incentive fees).
(b) Key management personnel
The Corporation has defined key management personnel as senior executive officers, as well as the members of the Board of
Directors, as they collectively have the authority and responsibility for planning, directing and controlling the activities of the
Corporation and its subsidiaries. The following table summarizes total compensation expense for key management personnel
for the years ended March 31, 2013 and 2012.
Salaries, senior executive officers
Personnel costs, senior executive officers
Directors’ fees
18. EMPLOYEE BENEFIT PLAN
2013
735,956
63,947
157,750
957,653
$
$
2012
$ 1,348,533
44,007
136,157
$ 1,528,697
On January 1, 2009, Riverland Ag established a qualified 401(k) profit-sharing plan in the United States of America that covers
all of its employees reaching 21 years of age and who have completed two months of service. Riverland Ag employees are
permitted to make voluntary contributions under a 401(k) arrangement and Riverland Ag contributes a fully vested safe harbor
non-elective matching contribution of 3.00 per cent of participants’ eligible wages. For the year ended March 31, 2013,
Riverland Ag’s contribution was $177,600 (2012: $171,570).
19. CHANGES IN NON-CASH WORKING CAPITAL ACCOUNTS
(Increase) decrease in due from broker, commodity futures contracts
Increase in net derivative assets
(Increase) decrease in accounts receivable
(Increase) decrease in inventories
Decrease (increase) in prepaid expenses and sundry assets
Increase (decrease) in accounts payable and accrued liabilities
Decrease in management fees payable
Increase in due to Manager
2013
2012
$
(9,297,603)
(626,030)
(3,365,006)
(2,951,302)
716,601
2,018,801
(16,460)
213,565
$ (13,307,434)
$ 7,955,093
(618,657)
833,796
6,905,191
(1,382,954)
(644,597)
(26,869)
55,000
$ 13,076,003
CERES GLOBAL AG CORP. 53
20. MANAGEMENT OF CAPITAL
Ceres considers financial instruments in the form of Common Shares and Warrants (net of share issue costs) to represent capital.
In managing this capital, the objectives of the Corporation are:
• to safeguard the Corporation’s ability to continue as a going concern, be flexible and take advantage of opportunities, which
might present themselves;
• to provide an appropriate return to shareholders;
• to use active management strategies related to its portfolio of investments, which are intended to enhance the returns of
the Corporation and concurrently minimize risk and reduce the risk of loss of capital, through global exposure to agricultural
assets involved in the supply and demand chains of the agricultural sector and sector-influenced industries;
• to potentially make future investments in private companies and in public companies where such investments are less liquid
than a traditional portfolio equity investment, with the ability to potentially acquire controlling interests, on a global basis in
agricultural businesses that exhibit potential for substantial capital appreciation and/or cash flows; and
• from time-to-time, take advantage of international stock market cycles, to obtain a greater degree of geographic diversification
for the Corporation’s assets or for other investment considerations determined by the Manager.
Riverland Ag, the operating subsidiary of Ceres, has capital requirements imposed by its lenders. As at March 31, 2013,
Riverland Ag is required to comply with the following primary financial covenants and ratios concerning the revolving credit
facility (Note 10, Bank indebtedness), including the maintenance of:
(a) the ratio of “consolidated debt” to “consolidated tangible net worth” (as defined by the agreement) of not more than
4.0 to 1.0;
(b) consolidated working capital of not less than USD$30 million; and
(c) consolidated tangible net worth of not less than USD$90 million.
As at March 31, 2013 and 2012, Riverland Ag complies with the debt covenants for the revolving credit facility.
21. COMPARATIVE FIGURES
a) Investment property
As at December 31, 2012, land acquired by certain subsidiaries has been determined to be investment property (Note 8). As at
March 31, 2012, such land was included in property, plant and equipment. As such, figures as at March 31, 2012 on the balance
sheet and the consolidated statement of cash flows have been reclassified to reflect this change. In management’s opinion,
this presentation provides users with more reliable and relevant information, as this reclassification is to distinguish investment
property assets from property, plant and equipment currently used in a productive capacity.
These changes have no effect on consolidated net income (loss), consolidated comprehensive income (loss) or consolidated
retained earnings (deficit). No such investment property was acquired prior to April 1, 2011.
b) Personnel costs
Comparative figures concerning personnel costs included in Cost of sales and in General and administrative expenses, as
previously reported as “Supplemental disclosure of selected information” in the consolidated statement of comprehensive
income for the year ended March 31, 2012, have been revised for that year. Previously reported figures included amounts only
for Riverland’s contribution to the 401(k) plan for the period. Revised figures also now include other personnel costs also
recorded in cost of sales that were inadvertently omitted. These revisions have no effect on net income (loss) for that year.
22. SUBSEQUENT EVENT
On June 3, 2013, Ceres authorized the commencement of site preparation work for a commodity logistics hub planned for
Northgate, Saskatchewan, on land currently owned by Ceres. Pursuant to an agreement with a partner concerning this project,
Ceres is responsible for 50 per cent of the cost of the site preparation work phase. Ceres’ share of the total cost of the site
preparation work is projected to be approximately $3.5 million.
54 CERES GLOBAL AG CORP.
Directors
Gary P. Selke
Thomas P. Muir, FCA, FCBV
Brian Little 1, 2
Mr. Selke is the Chairman and Chief Executive
Officer of the Corporation. Mr. Selke is a partner,
Management Committee Member, President
and Chief Executive Officer of Front Street
Capital, the Manager of Ceres.
Mr. Muir is the Chief Transaction Officer of the
Corporation. Mr. Muir is also the Co‑Managing
Director of Muir Detlefsen & Associates Limited,
the strategic advisor to Front Street Capital,
the Manager of Ceres.
Mr. Little is the principal of W. Brian Little
Holdings Inc. Mr. Little recently retired as
National Manager of agriculture and agribusi‑
ness for the Royal Bank of Canada.
R. John Heimbecker 1, 2
Mary F. Parniak 1, 2
Mr. Heimbecker is a Vice President of Parrish
and Heimbecker Limited, a Canadian based
agribusiness company.
Ms. Parniak is a Corporate Director and
formerly Vice President, Finance of ConAgra
Foods Canada Inc., a large North American
packaged food company.
1 Audit Committee (Chair: Ms. Parniak)
2 Corporate Governance and Nominating Committee (Chair: Mr. Heimbecker)
More complete biographical information on the directors can be found in the Annual Information Form.
CERES GLOBAL AG CORP. 55
Corporate Information
Transfer Agent & Registrar
Canadian Stock Transfer
320 Bay Street
Toronto, Ontario
M5H 4A6
Solicitors
Blake, Cassels & Graydon LLP
Barristers & Solicitors
Patent & Trade-mark Agents
199 Bay Street
Suite 4000, Commerce Court West
Toronto, Ontario
M5L 1A9
Auditors
KPMG LLP
Suite 2000
One Lombard Place
Winnipeg, Manitoba
R3B 0X3
Stock Exchange Listings
Toronto Stock Exchange
Symbol CRP
Annual Meeting
The annual meeting of shareholders of
Ceres Global Ag Corp. is scheduled for
Friday, September 27, 2013 at 11:00 a.m.
at One King Street West, Toronto,
Ontario, Canada M5H 1A1.
56 CERES GLOBAL AG CORP.
Ceres Global Ag Corp.
The benefit of Ceres long-term capital
is that we can benefit from short-term
decision making from sellers of assets
where time and strategic attention
can be applied. At Ceres our goal is
to acquire undervalued assets in the
agriculture and related supply chains
and through strategic initiatives such
as adding scale, optimizing the capital
structure bringing in new management
and customers, reposition these assets
so that they can be monetized for a
significant appreciation in value.
C
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R
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G
L
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B
A
L
A
G
C
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R
P
.
2
0
1
3
A
N
N
U
A
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Ceres Global Ag Corp.
33 Yonge Street
Suite 600
Toronto, Ontario
Canada
M5E 1G4
1-800-513-2832
ceresglobalagcorp.com
The Track to GrowthCeres Global Ag Corp. 2013 Annual Report