MOVING FORWARD
2018 Annual Report
MOVING FORWARD
Over the past year, Ceres continued to think long-term. We committed
to our strategy and focused on growing our two core businesses—
the Grain Division and the Supply Chain Servies Division. We made
significant investments in our integrated network of assets and
facilities, including the acquisition of Nature’s Organic Grist, our first
foray into organic grains. Also in our Grain Division, we entered into
a joint venture to create Savage Riverport, LLC. At the Northgate
Logistics Center, we continued to work towards developing the
Northgate Terminal into a world-class logistics center.
18
commodity product lines
49%
INCREASE IN GROSS PROFIT
ABOUT CERES GLOBAL AG
Through our network of commodity logistics centers and team
of industry experts, Ceres procures and provides North American
agricultural commodities and value-added products, industrial
products, fertilizer, energy products and reliable supply chain
logistics services to customers worldwide.
Ceres operates six locations, Duluth, MN; Minneapolis, MN;
Shakopee, MN; Northgate, Saskatchewan; and Port Colborne,
Ontario, and is headquartered in Minneapolis, MN. Our facilities
throughout North America have an aggregate grain and oilseed
storage capacity of approximately 29.7 million bushels.
Ceres also has a 50% interest in Savage Riverport LLC, a joint
venture with Consolidated Grain and Barge Co. (“CGB”), a 25%
interest in Stewart Southern Railway Inc., a short-line railway located
in southeast Saskatchewan with a range of 130 kilometers, and a
17% interest in Canterra Seed Holdings Ltd, a Canadian-based seed
development company.
29.7 M
bushel storage capacity
14
supply chain services supplied
49%
NORTHGATE
LOGISTICS CENTER
Ceres’ Northgate Terminal is positioned to become one of
North America’s most trusted and valued logistics centers for
agricultural commodities and other value-added products,
industrial products, fertilizer and energy products.
Northgate’s facilities sit on 1,300 acres in southeastern
Saskatchewan, has 2.7M bushel capacity for agricultural
products, 26,000 ton storage capacity for fertilizer and is
connected to BNSF’s 32,000 mile rail network.
SPOTLIGHT ON THE GRAIN DIVISION
Ceres connects North American farmers with the global market through its services and facilities located
in Minnesota, Saskatchewan and Ontario. We have grown our platform through strategic partnerships and
acquisitions to become a preferred operator and supplier of agricultural products and logistics.
Northgate
Duluth Storage
MINNEAPOLIS
Malt One
Shakopee
Savage
MINNEAPOLIS
Port Colborne
Louisville
74.7 m
bushels handled in 2018
Origination Expansion
3rd Party Lease
Current
2018 ANNUAL REPORT
1
CHAIRMAN’S MESSAGE
Fiscal year 2018 was a year of change and continual improvement at
Ceres. Although we have considerable distance to go to meet our
long-term financial targets, this past year we put a good foundation in
place to achieve improved financial results. We added and upgraded
talent, continued to right-size our asset footprint, expanded marketing
outlets and relationships with key customers, and added new product
lines in both the ag and non-ag market sectors. We entered fiscal-
year 2018 committed to improving our business model by focusing on
more attractive trade flows and monetizing our greenfield investment
in Northgate. The impact of these moves resulted in lowered costs,
improved efficiency, increased consistency of revenues, and a more stable
business from which Ceres can pursue its long-term growth strategy.
Key achievements during fiscal-year 2018 included:
•
•
•
•
•
Improved operating financial results and health of the company:
improved the bottom line by over $13 million, paid down $5 million
in long-term debt and lowered annual interest costs by over
$700 thousand
Increased specialty grain volumes and established a footprint in
organic grains with the acquisition of Nature’s Organic Grist, a
supplier of organic and ancient grains, milled flours and feed products
Increased efficiencies and lowered costs per unit handled by
divesting some elevators and creating Savage Riverport, LLC as a
joint venture between Ceres and Consolidated Grain and Barge Co.
Accelerated development of the Northgate Terminal into a world-
class logistics center capable of handling multiple commodities
and significantly increasing natural gas liquids (NGLs), fertilizer and
industrial product volumes
Continued to add talent to the company; strengthened the senior
management team with the addition of Kyle Egbert as Vice President
and Chief Financial Officer, Glen Goldman as Vice President, General
Counsel and Corporate Secretary, Jeremy Nielsen as General
Manager at Northgate, and many other key positions across
the company
In terms of our Core Agricultural Products business, we focused on
customers that are more receptive to our value proposition, which
emphasizes quality and reliability versus simply price. Meanwhile, the
subsequent addition of Nature’s Organic Grist added new specialty
products to our portfolio. Diversification of products (and assets) has
helped to reduce risk and strengthen our position across the supply
chain. Also, the joint venture between Ceres and Consolidated Grain
and Barge Co. has allowed us to maintain strategic access to the upper
Mississippi River region, including barges, rail and truck logistics, while
lowering operating costs and freeing up capital that we are using to grow
other areas of our business.
In our supply chain services business, we continued to focus on
developing the full capacity of our Northgate facility in Saskatchewan.
We incrementally increased volumes in all major product categories
(NGLs, fertilizer, industrial products and non-core ag products), we added
certifications that are critical for support from government and help
market where we offer (Customers Trade Partnership Against Terrorism
certification and BNSF Railway Site Certification Status), and we made
progress with potential new partners in the energy and industrial product
spaces by agreeing to explore long-term opportunities in greater depth.
As we enter fiscal 2019, we remain committed to the growth of our two
core business models: Core Agricultural Products (North American cereal
grains and pulses), and Supply Chain Services (NGLs, fertilizer, industrial
products and non-core ag products). Specifically, we are committed to the
following in fiscal-year 2019:
•
Maintain the positive trajectory of improved financial results
•
•
•
•
Continue to deepen relationships and development with key
customers
Maximize current volumes and analyze the opportunity to structurally
connect Ceres at Northgate with the oil and gas industry in Canada
Add more product lines to the supply chain services business at
Northgate
Add grain origination assets in Western Canada and the U.S. Upper
Midwest
• Continue to add talent to the organization
Finally, with respect to the litigation with Scoular, we enter the
proceedings confident that we have a strong case and we look forward
to having the case resolved. Resolution is expected sometime in the last
quarter of calendar year 2018.
On behalf of the Board, I would like to thank our employees for their hard
work and commitment. Throughout the year we have been fortunate to
have made high quality additions to our team and are well positioned for
improved profitability and accelerated growth. I would also like to thank
our Board of Directors for their always thoughtful counsel and advice.
Finally, thank you to our shareholders for your continued belief in our
company.
Sincerely,
Douglas E. Speers
Chairman of the Board
Ceres Global Ag Corp.
2 CERES GLOBAL AG CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Table of Contents
Financial and Operating Summary…………………………………………………………………
Quarterly Financial Data……………………………………………...……………………………
Liquidity & Cash Flow…………………………………………………………...………………...
Capital Resources…………………………………………………………...……………………...
6
10
11
12
3
7
8
9
Accounting Policies and Critical Accounting Estimates………………………………...………… 10
13
Outlook…………………………………………………………………….....................................
13
10
Other…………………………………………………………………….........................................
15
12
Non-IFRS Financial Measures and Reconciliations………………………………………………..
16
13
Key Assumptions & Advisories……………………………..……………………………………..
18
15
This Management’s Discussion and Analysis (“MD&A”) dated September 25, 2018 should be read in
conjunction with the audited Consolidated Financial Statements for the year ended June 30, 2018 of Ceres
Global Ag Corp. (“Ceres”, the “Corporation”, “we”, “our”, and “us”), and the Corporation’s audited
consolidated financial statements for the year ended June 30, 2017 (the “Annual Consolidated Financial
Statements”). Additional information about Ceres filed with Canadian securities regulatory authorities,
including the quarterly financial statements and MD&A, and annual report and the Annual Information Form,
is available online at www.sedar.com.
Basis of Presentation
Unless otherwise noted, all financial information has been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Unless otherwise
indicated, dollar amounts are expressed in United States dollars (“$” and “USD”) and references to “CAD” are
to Canadian dollars.
Non-IFRS Financial Measures
This MD&A contains references to certain financial measures, including some that do not have any standardized
meaning prescribed by IFRS. These measures include “EBITDA” (Earnings before interest, income tax,
depreciation and amortization), “Return on Shareholders’ Equity” and “Adjusted Net Income (Loss)”, neither
of which have a standardized meaning under IFRS. See “Non-IFRS Financial Measures and Reconciliations.”
Risks and Forward-Looking Information
The Corporation’s financial and operational performance is potentially affected by a number of factors,
including, but not limited to, the factors described in “Key Assumptions & Advisories”.
1
2018 ANNUAL REPORT
3
MANAGEMENT’S DISCUSSION AND ANALYSIS
Table of Contents
Financial and Operating Summary…………………………………………………………………
Quarterly Financial Data……………………………………………...……………………………
Liquidity & Cash Flow…………………………………………………………...………………...
Capital Resources…………………………………………………………...……………………...
3
7
8
9
Accounting Policies and Critical Accounting Estimates………………………………...………… 10
Outlook…………………………………………………………………….....................................
Other…………………………………………………………………….........................................
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-IFRS Financial Measures and Reconciliations………………………………………………..
Key Assumptions & Advisories……………………………..……………………………………..
10
12
13
15
This Management’s Discussion and Analysis (“MD&A”) dated September 25, 2018 should be read in
conjunction with the audited Consolidated Financial Statements for the year ended June 30, 2018 of Ceres
Global Ag Corp. (“Ceres”, the “Corporation”, “we”, “our”, and “us”), and the Corporation’s audited
consolidated financial statements for the year ended June 30, 2017 (the “Annual Consolidated Financial
Statements”). Additional information about Ceres filed with Canadian securities regulatory authorities,
including the quarterly financial statements and MD&A, and annual report and the Annual Information Form,
is available online at www.sedar.com.
Basis of Presentation
Unless otherwise noted, all financial information has been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Unless otherwise
indicated, dollar amounts are expressed in United States dollars (“$” and “USD”) and references to “CAD” are
to Canadian dollars.
Non-IFRS Financial Measures
This MD&A contains references to certain financial measures, including some that do not have any standardized
meaning prescribed by IFRS. These measures include “EBITDA” (Earnings before interest, income tax,
depreciation and amortization), “Return on Shareholders’ Equity” and “Adjusted Net Income (Loss)”, neither
of which have a standardized meaning under IFRS. See “Non-IFRS Financial Measures and Reconciliations.”
Risks and Forward-Looking Information
The Corporation’s financial and operational performance is potentially affected by a number of factors,
including, but not limited to, the factors described in “Key Assumptions & Advisories”.
1
4 CERES GLOBAL AG CORP.
This MD&A contains forward-looking information based on the Corporation’s current expectations, estimates,
projections and assumptions. This information is subject to a number of risks and uncertainties, including those
discussed in this annual MD&A and the Corporation’s other disclosure documents, many of which are beyond
the Corporation’s control. Users of this information are cautioned that actual results may differ materially. See
“Key Assumptions and Advisories” for information on material risk factors and assumptions underlying the
Corporation’s forward-looking information.
Who We Are
Through our network of commodity logistics centers and team of industry experts, Ceres procures and provides
North American agricultural commodities and value-added products, industrial products, fertilizer, energy
products and reliable supply chain logistics services to customers worldwide.
Ceres operates six locations, Duluth, MN; Minneapolis, MN; Shakopee, MN; Northgate, Saskatchewan; and
Port Colborne, Ontario, and is headquartered in Minneapolis, MN. Our facilities throughout North America
have an aggregate grain and oilseed storage capacity of approximately 29.7 million bushels after the formation
of Savage Riverport, LLC.
Ceres also has a 50% interest in Savage Riverport LLC, a joint venture with Consolidated Grain and Barge Co.
(“CGB”), and a 25% interest in Stewart Southern Railway Inc. (“SSR”), a short-line railway located in southeast
Saskatchewan with a range of 130 kilometers, and a 17% interest in Canterra Seed Holdings Ltd (Canterra), a
Canadian-based seed development company.
Grain Division
The Corporation’s grain division is engaged in grain storage, procurement, and merchandising of specialty
grains and oilseeds such as oats, barley, rye, hard red spring wheat, durum wheat, canola and pulses through
six grain storage and handling facilities in Minnesota, Saskatchewan and Ontario. Two of the grain storage
facilities are located at deep-water ports in the Great Lakes allowing access to vessels, and another facility is
located on the Minnesota River with capacity to load barges for shipment down the Mississippi River to export
terminals in New Orleans, combining to provide Ceres with efficient access to export and import flows of our
core grains and oilseeds to global markets. Approximately 24.8 million bushels of the Corporation’s facilities
are “regular” for delivery for both spring wheat against the Minneapolis Grain Exchange futures contract and
oats against the Chicago Board of Trade futures contract. In addition, spring wheat and oats sourced by the
Corporation out of Canada are eligible for delivery against respective futures contracts.
The majority of the grain division’s current storage space supports grain trading, arbitrage and merchandising
opportunities. Management determines which of the Corporation’s facilities is to be employed for the storage
or throughput of a particular grain shipment based on the source of the grain shipment, the elevator location
relative to the end customers, the cost of logistics to transport the grain, and the availability of space in the
intended elevator. In addition, the Corporation stores and handles grain for third-party customers.
Supply Chain Services
Ceres’ key asset in its supply chain services division is the Northgate Logistics Center. Ceres owns
approximately 1,300 acres of land at Northgate, Saskatchewan, where it has constructed a commodities logistics
centre designed to utilize two rail loops, each capable of handling unit trains of up to 120 railcars and ladder
tracks capable of handling up to 100 rail cars. The Northgate Logistics Center (“Northgate” or the “NLC”) is
an approximately CAD $100 million state-of-the-art grain, oil, natural gas liquids and fertilizer terminal and is
connected to the Burlington Northern Santa Fe Railway (the “BNSF”) with intentions to further build out
infrastructure to support handling of other industrial products and equipment.
2
2018 ANNUAL REPORT
5
The Corporation commenced its initial grain operations at Northgate in October 2014 and the elevator was fully
operational in May 2016. As part of its grain operations, the Corporation contracts grain and oilseed purchases
from Western Canadian producers that are delivered by truck and unloaded at the NLC grain terminal. Ceres
has the option of storing the grain on-site, loading it into outbound railcars to end-users, or shipping to the
Corporation’s other facilities to take advantage of the value and strategic location of its current asset base.
In addition to the grain operations at Northgate, in April 2015, the Corporation entered into an agreement with
Elbow River Marketing (“ERM”), a wholly owned subsidiary of Parkland Fuel Corporation, to transload
propane at Northgate. This provides a direct link and an added access point for propane to enter the US market.
In November 2015, Ceres entered into an agreement with Koch Fertilizer Canada, ULC for the storage and
handling of dry fertilizer products which brings fertilizer shipments to Northgate. At Northgate, Ceres unloads
and warehouses fertilizer in a state-of-the art, 26,000-ton fertilizer storage terminal. The fertilizer is loaded out
by Ceres into trucks and distributed to Canadian retailers. The fertilizer operation commenced on April 30,
2017.
The Corporation continues to expand products transloaded at the Northgate facility including but not limited to
propane, fertilizer, barite, bentonite, solvents, drilling pipe, and magnesium chloride.
1. FINANCIAL AND OPERATING SUMMARY
(in thousands of USD except shares and
income (loss) per share)
Revenues
Gross profit (loss)
Income (loss) from operations
Net income (loss)
Weighted average common shares outstanding
Income (loss) per share - Basic
Income (loss) per share - Diluted
EBITDA (1)
As at:
Total assets
Total bank indebtedness, current (2)
Term debt (3)
Shareholders' equity
Return on shareholders' equity (1)
For the year ended
June 30,
2018
June 30,
2017
411,122
11,670
(223)
(556)
27,924,308
(0.02)
(0.02)
4,369
$
$
188,001
10,910
9,661
147,497
-0.4%
528,478
7,841
(1,717)
(13,652)
27,538,615
(0.50)
(0.50)
2,596
256,282
56,443
14,454
148,759
-9.2%
$
$
(1) Non-IFRS measure. See "Non-IFRS Financial Measures and Reconciliations" section.
(2) Includes bank indebtedness and outstanding cheques in excess of cash on hand.
(3) Includes current portion of long-term debt.
HIGHLIGHTS FOR THE YEAR ENDED JUNE 30, 2018
•
Successfully formed Savage Riverport, LLC, a joint venture with Consolidated Grain and Barge Co.,
generating $8.5 million from the sale of 50% of the Corporation’s assets at Savage.
• Gross profit increased $3.8 million or 49% compared to the prior year due to the increases in storage and
rental income and logistics and transloading income.
3
6 CERES GLOBAL AG CORP.
Storage and rental income increased 25% compared to the prior year.
• Logistics and transloading revenue increased 138% compared to the prior year.
•
• EBITDA increased $1.8 million or 68% compared to the prior year.
• Operating expenses decreased $1.1 million as a result of increased efficiency due to the sale of the Buffalo
and Lakeport, Duluth facilities.
• Cash flow from operations increased $29.7 million or 303% compared to the prior year.
For the Year Ended June 30, 2018 and 2017
Overall Performance
The Corporation’s net loss was $556 thousand for the year ended June 30, 2018, compared to a net loss of $13.7
million for the year ended June 30, 2017. Gross profit was $11.7 million for the year ended June 30, 2018,
compared to a gross profit of $7.8 million for the year ending June 30,2017. Furthermore, loss from operations
was $223 thousand for the year ended June 30, 2018 compared to a $1.7 million loss from operations for the
year ended June 30, 2017.
Revenues and Gross Profit
The Corporation’s revenue is currently generated by its grain and supply chain division. The revenues are
predominantly composed of the sale of grain, storage and rental income, and transloading income. Since a
significant portion of revenue is generated through the sale of grain, as a commercial commodities
merchandizing business, revenues can vary from year-to-year due to fluctuations of agricultural commodity
prices. The Corporation has the flexibility to be opportunistic in its decisions to buy, sell or hold inventory
based on market conditions such as grain supply, demand, and grain values.
Total revenue decreased by $117.4 million in the year ended June 30, 2018 compared to the year ended June
30, 2017. The Corporation handled and traded 74.7 million bushels of grain and oilseed sales in fiscal year 2018
compared to 111.1 million bushels for the fiscal year 2017.
The Corporation’s grain division is principally involved in an agricultural commodity-based business, in which
changes in selling prices generally move in relation 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. Accordingly, management believes it is more important to focus on changes in gross
profit and bushels handled than on changes in revenue dollars.
The table below represents a summary of the components of gross profit for the year ended June 30, 2018 and
2017:
(in thousands of USD)
Net trading margin
Storage and rental income
Logistics and transloading
Operating expenses included in Cost of sales
Depreciation expense included in Cost of sales
Gross profit (loss)
For the year ended
June 30,
2018
June 30,
2017
$
$
$
18,089
8,032
3,090
(12,667)
(4,874)
11,670
$
18,391
6,439
1,298
(13,792)
(4,495)
7,841
4
2018 ANNUAL REPORT
7
Gross profit increased by $3.8 million in the year ended June 30, 2018 compared to the year ended June 30,
2017. The year over year increase in gross profit was driven by an increase in storage and rental income as well
as an increase in logistics and transloading income.
Net trading margin
Net trading margin decreased by $300 thousand in the year ended June 30, 2018 compared to the year ended
June 30, 2017 due to lower trading volumes year over year (2018: 74.7 million bushels, 2017: 111.1 million
bushels) offset by higher margins. In fiscal year 2018, the Corporation was selective in their trading
opportunities and focused more on higher margins as opposed to larger volumes.
Storage and rental income
Storage and rental income increased $1.6 million in the year ended June 30, 2018 compared to the year ended
June 30, 2017. The Corporation’s storage and rental income increase was primarily a result of an increase in
margin in relation to third-party agreements related to the Corporation’s facilities in the United States.
Logistics and transloading
Logistics and transloading revenue increased $1.8 million in the year ended June 30, 2018 compared to the year
ended June 30, 2017. The increase was due primarily to fertilizer transloading income, whose shipments began
in the fourth quarter of fiscal 2017 as well as an increase of greater than 30% in Natural Gas Liquids (“NGLs”)
shipped out of Northgate.
Operating expenses and depreciation
For the year ended June 30, 2018, operating and depreciation expense included in cost of sales totaled $17.5
million compared to $18.3 million for the year ended June 30, 2017. The primary reason behind the decrease is
due to the sale of the Buffalo and Duluth Lakeport facilities as well as the Corporation’s continued efforts to
reduce costs. The Buffalo and Duluth Lakeport facilities incurred operating expense in fiscal year 2017 and
were sold in early fiscal 2018.
General and Administrative Expenses
For the year ended June 30, 2018, general and administrative expenses totaled $11.9 million compared to $9.6
million in the year ended June 30, 2017. The increase in administration expense was primarily due to efforts to
add talent to the Corporation and strengthen its senior management team. The increase is also related to higher
legal expenses in connection with the Corporation’s preparation for the upcoming Scoular litigation.
Finance Income (Loss)
For the year ended June 30, 2018, finance loss totalled $357 thousand compared to a finance loss of $268
thousand during the year end June 30, 2017. Finance income (loss) is composed of realized and unrealized gains
and losses on foreign exchange transactions and currency hedging transactions along with revaluation gains of
portfolio investments. The finance loss increase of $89 thousand is primarily due to the revaluation of portfolio
investments offset by foreign exchange gains.
Gain (Loss) on Property, Plant and Equipment
During the year ended June 30, 2018, the Corporation recorded an impairment loss related to its Calumet facility
(Minneapolis, Minnesota), as the operations have ceased, and the cash flows associated with this specific asset
could no longer support its carrying value. Ceres recorded a loss of $236 thousand on the impairment, which is
classified within profit or loss as “(Loss) gain on property, plant and equipment”.
During the year ended June 30, 2018, the Corporation closed on the sale of the Buffalo and Duluth Lakeport
storage facilities. The realized gain on the sale of its Buffalo storage facility of $103 thousand and a loss of
$166 thousand on the sale of Duluth Lakeport, for an aggregate loss of $63 thousand, are reported within profit
5
8 CERES GLOBAL AG CORP.
and loss for the twelve months ended June 30, 2018. Both facilities were classified as “Assets held for sale” on
the Consolidated Balance Sheet in the June 30, 2017 audited Consolidated Financial Statements, valued at nil,
being the lesser of their carrying amount and fair value less costs to sell.
Gain (Loss) on Equity Investment
On April 30, 2018, the Corporation formed Savage Riverport, LLC and transferred the grain elevator and related
assets at its Savage, Minnesota facility, which had net book value of $9.3 million as at April 30, 2018, to the
newly formed entity. Subsequent to the transaction, Ceres received cash of $8.5 million from Consolidated
Grain and Barge in exchange for 50% of the equity in Savage Riverport, LLC, of which, $2.0 million was
utilized to pay down the term debt. The sale of the equity in Savage Riverport, LLC net of transaction fees
resulted in a gain of $3.7 million. The Corporation will recognize the remaining gain of $3.8 million over the
useful life of the contributed assets.
Interest Expense
(in thousands of USD)
Revolving credit facility
Repurchase obligations
Long-term debt
Other financing obligations
Amortization of financing costs paid
Total interest expense
For the year ended
June 30,
2018
June 30,
2017
$
$
$
(1,785)
(37)
(892)
(8)
(450)
(3,172)
$
(1,823)
(297)
(1,163)
-
(596)
(3,879)
For the year ended June 30, 2018, interest expense totaled $3.2 million compared to $3.9 million for the year
ended June 30, 2017. The decrease in interest expense was due to lower inventory levels on hand throughout
the year resulting in lower average borrowings on the revolving credit facility and repurchase obligations.
Additionally, the interest expense related to the term debt decreased. This is a result of the two principal
payments totaling $5 million in fiscal year 2018.
Share of Net Income (Loss) in Investments in Associates
For the year ended June 30, 2018, the Corporation incurred a loss in its net share in investments in associates
of $218 thousand compared to a loss of $237 thousand for the year ended June 30, 2017.
6
2018 ANNUAL REPORT
9
2. QUARTERLY FINANCIAL DATA
Reporting dates
(in thousands of USD
except per share)
Revenues
Gross profit
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
6/30/2018
3/31/2018
12/31/2017
9/30/2017
6/30/2017
3/31/2017
12/31/2016
9/30/2016
Q4 2018
Q3 2018
Q2 2018
Q1 2018
Q4 2017
Q3 2017
Q2 2017
Q1 2017
$
92,809
$
98,106
$
89,569
$
130,638
$
112,178
$
128,534
$
131,838
$
155,927
$
1,925
$
2,399
$
4,283
$
3,063
$
52
$
3,048
$
2,870
$
1,871
Income (loss) from operations
$
(971)
$
(933)
$
1,162
$
519
$
(2,522)
$
631
$
779
$
(605)
Net income (loss)
$
1,829
$
(1,802)
$
224
$
(806)
$
(4,040)
$
(8,104)
$
(153)
$
(1,356)
Return on shareholders' equity¹
Weighted-average number of
common shares for the quarter
Basic and fully diluted earnings
(loss) per share
EBITDA¹
EBITDA per share
Shareholders' equity, as at
reporting date
Shareholders' equity per common
1.2%
-1.2%
0.1%
-0.5%
-2.7%
-5.4%
-0.1%
-0.9%
27,935
27,935
27,917
27,910
27,947
28,030
27,303
26,889
$
0.07
$
(0.06)
$
0.01
$
(0.03)
$
(0.14)
$
(0.29)
$
(0.01)
$
(0.05)
$
209
$
302
$
2,333
$
1,524
$
(1,720)
$
1,568
$
2,002
$
744
$
0.01
$
0.01
$
0.08
$
0.05
$
(0.06)
$
0.06
$
0.07
$
0.03
$
147,497
$
147,116
$
150,761
$
151,094
$
148,759
$
150,958
$
158,367
$
155,062
share, as at reporting date
$
5.00
$
5.00
$
5.40
$
5.41
$
5.33
$
5.40
$
5.64
$
5.77
Volumes
Elevator bushels handled
Direct ship bushels
12,495
1,758
11,495
4,797
14,342
2,610
22,874
4,363
26,099
3,580
16,055
5,809
20,021
4,641
25,030
9,912
¹Non-IFRS measurement. See "Non-IFRS Financial Measures and Reconciliations" section below for further information.
Note: The data in the schedule above has been intentionally rounded to the nearest thousand, and therefore, the quarterly amounts may not sum to the fiscal year-to-date amounts.
Fourth Quarter
Gross profit for the quarter ended June 30, 2018 increased $1.87 million to $1.93 million compared to the same
period of the previous year. The increase in gross profit was driven by the Corporation’s focus on executing
trades with higher margin opportunity as opposed to high trading volume. Operating and depreciation expense
in cost of sales decreased by $700 thousand primarily due the disposal of the Savage elevator for the formation
of Savage Riverport, LLC. General and administrative expenses increased $321 thousand for the quarter ended
June 30, 2018 compared to the same quarter in prior year due to an increase in legal expenses in connection
with the Corporation’s preparation for the upcoming Scoular trial. The Corporation recognized a net income
for the quarter ended June 30, 2018 of $1.8 million compared to net loss of $4.0 million in the same quarter of
the prior year. In addition to the increased gross profit discussed above, the Corporation recognized a $3.7
million gain in relation to the sale of its equity investment in Savage Riverport, LLC.
7
10 CERES GLOBAL AG CORP.
2. QUARTERLY FINANCIAL DATA
3. LIQUIDITY & CASH FLOW
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
6/30/2018
3/31/2018
12/31/2017
9/30/2017
6/30/2017
3/31/2017
12/31/2016
9/30/2016
Q4 2018
Q3 2018
Q2 2018
Q1 2018
Q4 2017
Q3 2017
Q2 2017
Q1 2017
$
92,809
$
98,106
$
89,569
$
130,638
$
112,178
$
128,534
$
131,838
$
155,927
$
1,925
$
2,399
$
4,283
$
3,063
$
52
$
3,048
$
2,870
$
1,871
Income (loss) from operations
$
(971)
$
(933)
$
1,162
$
519
$
(2,522)
$
631
$
779
$
(605)
Net income (loss)
$
1,829
$
(1,802)
$
224
$
(806)
$
(4,040)
$
(8,104)
$
(153)
$
(1,356)
1.2%
-1.2%
0.1%
-0.5%
-2.7%
-5.4%
-0.1%
-0.9%
27,935
27,935
27,917
27,910
27,947
28,030
27,303
26,889
$
0.07
$
(0.06)
$
0.01
$
(0.03)
$
(0.14)
$
(0.29)
$
(0.01)
$
(0.05)
$
209
$
302
$
2,333
$
1,524
$
(1,720)
$
1,568
$
2,002
$
744
$
0.01
$
0.01
$
0.08
$
0.05
$
(0.06)
$
0.06
$
0.07
$
0.03
$
147,497
$
147,116
$
150,761
$
151,094
$
148,759
$
150,958
$
158,367
$
155,062
Reporting dates
(in thousands of USD
except per share)
Revenues
Gross profit
Return on shareholders' equity¹
Weighted-average number of
common shares for the quarter
Basic and fully diluted earnings
(loss) per share
EBITDA¹
EBITDA per share
Shareholders' equity, as at
reporting date
Shareholders' equity per common
Volumes
Elevator bushels handled
Direct ship bushels
share, as at reporting date
$
5.00
$
5.00
$
5.40
$
5.41
$
5.33
$
5.40
$
5.64
$
5.77
12,495
1,758
11,495
4,797
14,342
2,610
22,874
4,363
26,099
3,580
16,055
5,809
20,021
4,641
25,030
9,912
¹Non-IFRS measurement. See "Non-IFRS Financial Measures and Reconciliations" section below for further information.
Note: The data in the schedule above has been intentionally rounded to the nearest thousand, and therefore, the quarterly amounts may not sum to the fiscal year-to-date amounts.
Fourth Quarter
Gross profit for the quarter ended June 30, 2018 increased $1.87 million to $1.93 million compared to the same
period of the previous year. The increase in gross profit was driven by the Corporation’s focus on executing
trades with higher margin opportunity as opposed to high trading volume. Operating and depreciation expense
in cost of sales decreased by $700 thousand primarily due the disposal of the Savage elevator for the formation
of Savage Riverport, LLC. General and administrative expenses increased $321 thousand for the quarter ended
June 30, 2018 compared to the same quarter in prior year due to an increase in legal expenses in connection
with the Corporation’s preparation for the upcoming Scoular trial. The Corporation recognized a net income
for the quarter ended June 30, 2018 of $1.8 million compared to net loss of $4.0 million in the same quarter of
the prior year. In addition to the increased gross profit discussed above, the Corporation recognized a $3.7
million gain in relation to the sale of its equity investment in Savage Riverport, LLC.
(in thousands of USD)
Net Cash Provided by (Used in)
Operating activities
Investing activities
Net Cash Provided (Used) Before Financing Activities
Financing Activities
Foreign Exchange Cash Flow Adjustment on Accounts
Denominated in a Foreign Currency
Increase (Decrease) in Cash and Cash Equivalents
For the year ended
June 30,
2018
June 30,
2017
$
$
$
44,352
6,797
51,149
(50,776)
2
375
$
14,624
(10,947)
3,677
(2,982)
-
695
Operating Activities
Cash provided by operating activities was $44.4 million for the year ended June 30, 2018 compared to $14.6
million in the prior year. The $29.7 million increase in cash provided by operating activities was primarily a
result of better operating results and lower inventory levels year over year.
Investing Activities
During the year ended June 30, 2018, cash provided by investing activities was $6.8 million (which comprised
mainly of the formation and sale of 50% of Savage Riverport, LLC) compared to the $10.9 million cash used
in investing activities in the prior year. The $17.7 million decrease in cash used by investing activities was
primarily due to the completion of asset purchases for the fertilizer facility at Northgate in the prior year.
Financing Activities
During the year ended June 30, 2018, the Corporation had $50.8 million in cash used in financing activities
compared to $3.0 million in the prior year. The $47.8 million increase in cash used by financing activities was
primarily due to the decrease of borrowings on the revolving line of credit as a result of cash generated from
operations as well as lower inventory levels throughout the year.
Available Sources of Liquidity
The Corporation’s sources of liquidity as at June 30, 2018 include available funds under its revolving credit
facility (the “Credit Facility”). Management believes that cash flow from operations will be adequate to fund
operating expenditures, maintenance capital, interest, and any income tax obligations. Growth capital
expenditures in the next year are expected to be funded by cash on hand and borrowing against the Credit
Facility. Any additional debt incurred is expected to be serviced by the anticipated increases in cash flow and
will only be borrowed within the Corporation’s debt covenant limits.
In addition, the Credit Facility, as at June 30, 2018 contains certain covenants, including a covenant that the
Corporation maintain minimum working capital of not less than $30.0 million. As at June 30, 2018 the
Corporation’s working capital – defined as current assets less current liabilities – totaled $40.4 million. In
addition to working capital, the covenants include the maintenance of “consolidated debt” to “consolidated
tangible net worth” (as defined in the agreement) of not more than 4.0 to 1.0 and consolidated tangible net worth
of not less than $120.0 million. As at June 30, 2018 and June 30, 2017, the Corporation was in compliance with
all of the above mentioned financial covenants.
7
8
2018 ANNUAL REPORT
11
Liquidity risk
As at June 30, 2018 and 2017, the following are the contractual maturities of financial liabilities, excluding
interest payments:
(in thousands of USD)
June 30, 2018
Carrying
amount
Contractual
cash flows
1 year
2 years
3 to
5 years
More than
5 years
Bank indebtedness
Accounts payable and accrued liabilities
Unrealized losses on open cash contracts
Term debt
Operating lease obligations
Capital lease obligation(s)
$
$
10,910
16,574
3,323
9,661
-
45
$
11,000
16,574
3,323
10,000
1,213
52
$
11,000
16,574
3,323
5,000
475
11
$
-
-
-
5,000
388
10
$
-
-
-
-
350
31
-
-
-
-
-
-
(in thousands of USD)
June 30, 2017
Carrying
amount
Contractual
cash flows
1 year
2 years
3 to
5 years
More than
5 years
Bank indebtedness
Accounts payable and accrued liabilities
Unrealized losses on open cash contracts
Term debt
Operating lease obligations
$
$
56,443
22,560
14,066
14,454
-
$
56,595
22,560
14,066
15,000
1,652
$
56,595
22,560
14,066
3,000
517
$
-
-
-
5,000
456
$
-
-
-
7,000
679
-
-
-
-
-
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: the prompt settlement of amounts due from brokers, 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.
4. CAPITAL RESOURCES
The Corporation utilizes the Credit Facility to finance its grain trading operations, which primarily consist of
purchases of grain inventories, financing of accounts receivable, and hedging activities, less accounts payable.
Levels of short-term debt fluctuate based on changes in underlying commodity prices, inventories on hand and
the timing of grain purchases.
Credit Facility
As disclosed in the Consolidated Financial Statements for the year ended June 30, 2018, on December 28, 2017
the Corporation renewed and amended its uncommitted credit facility to a maximum revolving facility amount
of $67.5 million. The agreement is set to expire on December 27, 2018. Borrowings bear an interest rate of
overnight LIBOR plus 3.875% per annum, calculated and paid on a monthly basis. The Credit Facility is subject
to borrowing base limitations. Amounts under the Credit Facility that remain undrawn are not subject to a
commitment fee. The Credit Facility has certain covenants pertaining to the accounts of the Corporation, and
as at June 30, 2018, the Corporation was in compliance with all covenants.
9
12 CERES GLOBAL AG CORP.
Term Loan
In accordance with the Corporation’s senior secured term loan facility agreement with Macquarie Bank entered
into on December 30, 2014 and subsequently amended, a principal payment of $3.0 million was paid on
December 29, 2017 and an additional $2 million was paid on April 30, 2018. The next principal payment is
payable on December 28, 2018 for the amount of $5.0 million and the final principal payment is due on
December 27, 2019 in the amount of $5.0 million. The term loan has an interest rate of one-month LIBOR plus
5.25%.
Normal Course Issuer Bid
During the year ended June 30, 2018, the Corporation did not qualify to purchase any Shares under any Normal
Course Issuer Bid.
During the year period ended June 30, 2017, the Corporation purchased Shares under normal course issuer bids,
the purpose of which 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 common shares. The Corporation renewed the normal course
issuer bid (“the 2016-2017 NCIB”) commencing on June 12, 2016. Using the facilities of the Toronto Stock
Exchange (“TSX”) and in accordance with its rules and policies, Ceres intended to purchase up to a maximum
of 1,595,765 of its Common Shares, representing approximately 10% of its unrestricted public float as of June
2, 2016, subject to a maximum aggregate purchase price of CAD $5 million pursuant to restrictions under the
Corporation’s Credit Facility. Ceres purchased up to a daily maximum of 2,119 Common Shares under the
2016-2017 NCIB, except for purchases made in accordance with the “block purchase” exception under
applicable TSX rules and policies. The 2016-2017 NCIB concluded on June 11, 2017.
During the year ended June 30, 2017, the Corporation purchased a total of 257,582 common shares under the
normal course issuer bid for aggregate cash consideration of $1.1 million. The stated capital value of these
repurchased Shares was $1.9 million. The excess of the stated capital value of the repurchased common shares
over the cost thereof, being $826 thousand, was allocated to Deficit in the twelve-month period ended June 30,
2017.
5. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
Changes in Accounting Policies and Standards Issued but Not Yet Effective
Refer to Note 3 to the Annual Consolidated Financial Statements for information pertaining to accounting
changes and information on standards issued but not yet effective for the period ending June 30, 2018.
Critical Accounting Estimates
The discussion and analysis of Ceres’ financial condition and results of operations are based upon the
Corporation’s Consolidated Financial Statements, which have been prepared in accordance with IFRS. Ceres’
significant accounting policies and accounting estimates are contained in the Annual Consolidated Financial
Statements (see Notes 3 and 4, respectively, for the description of policies or references to notes where such
policies are contained). The critical accounting estimates are valuation of investments; valuation of inventories
and commodity derivatives; because they require Ceres to make assumptions about matters that are potentially
uncertain at the time the accounting estimate is made and due to the likelihood that materially different amounts
could be reported under different conditions or using different assumptions.
6. OUTLOOK
Grain Division
The 2018 cereal grain growing season began with good growing conditions along with increased acreage in the
western half of the U.S. and Southwestern Canadian growing areas followed by late summer heat and drought.
10
2018 ANNUAL REPORT
13
These conditions created a significant amount of volatility for markets. Initially, prices decreased due to
increased acreage and favorable growing conditions, then more recently prices increased as yields have been
less than expected due to drought conditions. In addition, uncertainty in foreign policy, particularly in the US,
related to tariff implementations has directly impact pricing of cereal grains.
Early indications for the upcoming crop year harvest suggest increased yields for spring wheat and durum and
lower forecasted production for oats. There were some bin cleanouts by farmers in June, primarily in wheat
and durum, but as prices fell so did sales from farmers. The timing of future sales will depend on whether new
production volumes force sales to ramp up as the harvested crops are brought in from the fields.
With trade wars pressuring North American commodities, there have been some negative impacts on cereal
grain prices. This is especially evident in the Western growing regions of North America where the bulk of the
Corporation’s facilities are located. In contrast to the North American price weakness, several European and
Australian crops (oats, wheat and canola) have suffered from heat and drought which has reduced supply in
those regions. The Corporation will look to take advantage of both the larger storage revenue potential and the
increased exports in our core commodities.
In addition, the Corporation continues to focus on its long-term goals which include:
Increasing origination volume direct from farmers in the U.S. and Canada;
1.
2. Maximizing volumes and value through and around its network, capitalizing on its asset utility and
3.
effectively lowering fixed cost per bushel handled;
Investing in its infrastructure to broaden its product portfolio and focus more on pulses and specialty crops,
both at Northgate and other locations;
4. Extending its reach to chosen quality conscious customers both in the U.S. and internationally;
5. Hiring talented people who can execute on the above items.
Supply Chain Services Division
Q4 2018 experienced a steady increase in volumes from nearly all products vs Q4 2017, most notably with
NGLs which increased more than 30% vs. Q3 and Q4 2017. From Northgate, NGLs are unloaded from trucks
onto BNSF railcars for shipment into the US & Mexico. Demand has been strong and volumes continue to
exceed expectations. The Corporation expects volumes will maintain these higher levels throughout the rest of
the autumn season. Fertilizer movement was modest as Q4 is an off-season time of year. The next surge in
volume will happen in late Q1 and into Q2, and volumes are expected to be higher in fiscal year 2019 vs. 2018.
The Corporation had previously advised its efforts to explore opportunities to build out and further develop the
NLC energy & industrial products transloading business, including the potential to handle other types of energy
and industrial products such as crude oil, oil field supplies, construction materials, and industrial parts and
equipment. Consistent with these efforts, the Corporation is presently engaged in discussions and analysis with
an oil and gas infrastructure company concerning the feasibility of constructing a pipeline to transport crude oil
to NLC for movement by rail into the U.S. In addition, through a coordinated effort with BNSF, the Corporation
has worked with U.S. Customs & Border Patrol (CBP) to provide the infrastructure and personnel needed to
inspect a broad list of products that were previously not approved for import into the U.S. As a result of that
effort CBP has approved the following products and efforts are being made to add those to the Corporation’s
portfolio of supply chain services: dried leguminous vegetables, seeds, crude, alfalfa, butane, LPG, coal, fly
ash, lumber, Oriented Strand Board (“OSB”), sodium chloride and sodium phosphate.
With expected increases in volumes from existing products, exploration and ultimately development of liquid
energy infrastructure, and a broader portfolio of products now approved for import into the U.S., the
11
14 CERES GLOBAL AG CORP.
Corporation expects steady growth from the transload and supply chain service business at Northgate,
Saskatchewan and will continue to pursue those types of opportunities at other locations as well.
7. OTHER
CONTROLS ENVIRONMENT
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 June 30, 2018, designed the 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 Controls 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 June 30, 2018, designed ICFR 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 CPA Canada (formerly The Canadian Institute of Chartered Accountants).
There have been no material changes in the Corporation’s internal control over financial reporting during the
year ended June 30, 2018 that materially affected, or are reasonably likely to materially affect, the Corporation’s
internal control over financial reporting.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
The Corporation’s financial instruments and other instruments, including a discussion of risks and relevant risk
sensitivities, can be found in footnote 8 of the Annual Consolidated Financial Statements.
OFF-BALANCE SHEET ARRANGEMENTS
Ceres has operating lease commitments that are not recorded on the balance sheet. Refer to footnote 8 for the
schedule for the contractual maturities of operating lease obligations.
12
2018 ANNUAL REPORT
15
RELATED-PARTY TRANSACTIONS
The remuneration of key management personnel of the Corporation, which includes both members of the Board
of Directors and leadership team including the President and CEO, CFO and vice presidents, is set out below
in aggregate:
(in thousands of USD)
Employee/director salaries and benefits
Share-based compensation
Savage Riverport, LLC
Twelve-months ended
June 30,
2018
June 30,
2017
$
$
1,266
233
1,499
$
$
1,091
417
1,508
Ceres routinely transacts business directly with Savage Riverport, LLC. Such transactions are in the ordinary
course of business and include storage and elevation fees for grain storage, as well as management fees. Related
party revenue included in total revenue in the Consolidated Statements of Income include $13 thousand and nil
for fiscal year 2018 and 2017, respectively. Related party expenses recorded in cost of goods sold are $240
thousand and nil for fiscal year 2018 and 2017, respectively. As at June 30, 2018, the accounts receivable, due
from Savage Riverport, LLC totaled $29 thousand and accounts payable, due to Savage Riverport, LLC totaled
$36 thousand.
SHARES OUTSTANDING
As at September 25, 2018, the issued and outstanding equity securities of the Corporation consisted of
27,934,991 common shares. In addition, the Corporation has 1,350,462 stock options outstanding with a
weighted-average exercise price of C$5.84 per common share and 252,503 deferred share units outstanding.
CONTINGENCIES
See Note 19 of the Annual Consolidated Financial Statements for disclosure of the Corporation’s contingencies
as at June 30, 2018.
8. NON-IFRS FINANCIAL MEASURES AND RECONCILIATIONS
Certain financial measures in this annual MD&A and discussed below are not prescribed by and do not have a
standardized meaning under IFRS. As such, they are unlikely to be comparable to similar measures presented
by other issuers. These non-IFRS financial measures are included because management uses the information to
analyze leverage, liquidity, and operating performance.
Earnings Before Interest, Income Taxes, Depreciation and Amortization
The Corporation believes the presentation of EBITDA can provide useful information to investors and
shareholders as it provides increased transparency. EBITDA is one metric that is used by management to
determine the Corporation’s ability to service its debt and finance capital. EBITDA excludes gains and losses
on property, plant and equipment, assets held for sale, and gains and losses on equity investments as these items
are considered to be non-reoccurring in nature.
13
16 CERES GLOBAL AG CORP.
The following table is a reconciliation of EBITDA for Ceres on a consolidated basis for the year ended June
30, 2018, and the year ended June 30, 2017:
(in thousands of USD)
Net income (loss) for the period
Add/(Deduct):
Interest Expense
Revaluation of derivative warrant liability
Loss (Gain) on sale or property, plant and equipment
Loss (Gain) on equity investment
Income taxes (recovered)
Share of net (income) loss in investments in
associates
Depreciation on property, plant and equipment
Twelve-months ended
June 30,
2018
June 30,
2017
$
(556)
$
(13,652)
3,172
-
299
(3,675)
(38)
218
4,949
4,369
$
3,879
(104)
7,651
-
4
237
4,581
2,596
$
Return on Shareholders’ Equity
Ceres believes that the return on shareholders’ equity can be an effective measure used to evaluate the
performance of the business over time. Management uses this metric to analyze performance and set targets.
Return on shareholders’ equity is the quotient of the net income (loss) for the period and the total shareholders’
equity as at the reporting date.
The following table is a calculation of return on shareholders’ equity for the year ended June 30, 2018, and the
year ended June 30, 2017:
(in thousands of USD)
Net income (loss) for the period
Total shareholders' equity as at reporting date
Twelve months ended
June 30,
2018
June 30,
2017
$
$
(556)
147,497
$
$
(13,653)
148,759
Adjusted Net Income (Loss)
The Corporation believes that the adjusted net income (loss) can be an effective measure used to evaluate its
profitability by excluding non-reoccurring items. In calculating adjusted net income, Ceres excludes gain (loss)
on sale or impairment of property, plant and equipment, income (loss) from investments in associates,
revaluation of warrants, gain (loss) on equity investments, legal expense related to ongoing litigation and one-
time write-downs. Ceres may calculate adjusted net income differently than other companies; therefore, Ceres’
Adjusted Net Income (Loss) may not be comparable to similar measures presented by other issuers.
14
2018 ANNUAL REPORT
17
The following table is the adjusted net income (loss) for the year ended June 30, 2018, and the year ended June
30, 2017:
(in thousands of USD)
Adjusted net income (loss)
9. KEY ASSUMPTIONS & ADVISORIES
FORWARD LOOKING INFORMATION
Twelve-months ended
June 30,
2017
June 30,
2018
$
(1,438)
$
(5,123)
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. 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, the action against Ceres initiated by the Scoular Company, expected and future cash flows, costs,
planned capital expenditures, additional anticipated capital projects, construction and completion dates,
including plans to further develop the NLC, operating and financial results, critical accounting estimates and
the expected financial and operational consequences of future commitments.
Generally, forward-looking statements can be identified by the use of forward-looking terminology such as
“plans”, “expects” or “does not expect”, “is expected”, “budget”, “outlook”, “likely”, “probably”, “going
forward”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, “believes”,
“may have implications” or similar words and phrases or statements that certain actions, events or results “may”,
“could”, “should”, “would”, “might”, or “will be taken”, “occur”, or “be achieved”. 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 are based on the opinions and estimates of management at the date the information
is made, and are based on a number of assumptions and subject to a variety of risks and uncertainties and other
factors that could cause actual events or results to differ materially from those projected in the forward-looking
statements. 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
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:
- No material change in the regulatory environment in Canada and the United States;
-
Supply and demand factors as well as the pricing environment for grains and other agricultural
commodities;
15
18 CERES GLOBAL AG CORP.
-
Fluctuation of currency and interest rates;
- General financial conditions for Western Canadian and American agricultural producers;
- Market share that will be achieved by the Corporation;
- Adequate and timely service from the railroad companies, and in particular from the Burlington Northern
-
-
Santa Fe railroad at the NLC;
The ability of Ceres to successfully operate Northgate;
The Corporation’s ability to successfully defend itself against, or settle, the dispute with The Scoular
Company and the costs of that dispute;
- Realization of economic benefits resulting from the synergies with NLC; and
-
The Corporation’s ability to maintain existing customer contracts and relationships coupled with its ability
to increase its customer portfolio.
The preceding list is not an exhaustive list of all possible factors. All factors should be considered carefully
when making decisions with respect to Ceres. Many such factors and events are not within the control of 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 the 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
the regulatory environment, processes and decisions. Ceres has attempted to identify important factors that
could cause actual actions, events or results to differ materially from those described in forward-looking
statements. However, there may be other factors that might cause actions, events or results that are not
anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to
be accurate, as actual results and future events could differ materially from those anticipated in such statements
or information.
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 the forward-looking
statements herein, which are 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 statements or information, whether as a result of
new information, change in management’s estimates or opinions, future events or otherwise, except as required
by law.
16
2018 ANNUAL REPORT
19
CONSOLIDATED FINANCIAL STATEMENTS
For the year ended June 30, 2018 and the year ended June 30, 2017
(Expressed in US Dollars)
CERES GLOBAL AG CORP.
Table of Contents
Management’s Responsibility for Financial Reporting
Independent Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Equity
Notes to the Consolidated Financial Statements
Page
21
2
3
22
4
23
5
24
6
25
7
26
8-41
27-60
20 CERES GLOBAL AG CORP.
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 September 25, 2018 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
Wolrige Mahon Collins Barrow LLP, Chartered Professional Accountants, in accordance with Canadian
generally accepted auditing standards. Their Independent Auditor’s Report outlines their responsibilities,
the scope of their audit, and their opinion on the accompanying consolidated financial statements. Wolrige
Mahon Collins Barrow LLP has full and unrestricted access to the Audit Committee.
Robert Day
President and CEO
Kyle Egbert
Chief Financial Officer
2
2018 ANNUAL REPORT
21
Wolrige Mahon Collins Barrow LLP
VANCOUVER OFFICE
900 – 400 Burrard Street
Vancouver, BC V6C 3B7
Canada
T: 604.684.6212
F: 604.688.3497
E: email@wm.ca
www.collinsbarrow.com
TORONTO OFFICE
1400 – 200 University Avenue
Toronto, ON M5H 3C6
Canada
T: 416.368.7990
F: 416.368.0886
E: email@wm.ca
www.collinsbarrow.com
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Ceres Global Ag Corp.
We have audited the accompanying consolidated financial statements of Ceres Global Ag Corp. and its subsidiaries, which
comprise the consolidated balance sheets as at June 30, 2018 and 2017, and the consolidated statements of net income (loss)
and comprehensive income (loss), statements of changes in shareholders’ equity and statements of cash flows for the years
then ended, and 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.
Auditor’s 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 audits 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 the auditor’s 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, the auditor considers 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 financial position of Ceres
Global Ag Corp. and its subsidiaries as at June 30, 2018 and 2017, and their financial performance and cash flows for the
years then ended in accordance with International Financial Reporting Standards.
CHARTERED PROFESSIONAL ACCOUNTANTS
September 25, 2018
Vancouver, B.C.
22 CERES GLOBAL AG CORP.
CERES GLOBAL AG CORP.
Consolidated Balance Sheets
(In thousands of USD)
Current assets:
Assets
Cash
Due from brokers (Note 6)
Unrealized gains on open cash contracts
Accounts receivable
Accounts receivable due from associates (Note 16)
Inventories, grains (Note 5)
Prepaid expenses and sundry assets
Portfolio investments
Total current assets
Deferred tax asset (Note 18)
Investments in associates (Note 7)
Intangible assets
Property, plant and equipment (Note 9)
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Bank indebtedness (Note 10)
Current portion of long-term debt (Note 11)
Accounts payable and accrued liabilities
Accounts payable due to associates (Note 16)
Unrealized losses on open cash contracts (Note 8)
Total current liabilities
Long-term debt (Note 11)
Total liabilities
Shareholders’ equity:
Common shares (Note 14)
Deferred share units (Note 15)
Contributed surplus
Accumulated other comprehensive income (loss)
Deficit
Total shareholders' equity
Contingent liabilities (Note 19)
$
$
$
June 30,
2018
June 30,
2017
$
960
1,923
8,131
16,580
29
43,952
1,946
2,694
76,215
172
7,289
300
104,025
188,001
$
$
10,910
5,000
16,574
36
3,323
35,843
4,661
40,504
203,358
801
9,771
(22,355)
(44,078)
147,497
585
1,828
10,502
22,695
—
95,275
1,924
3,193
136,002
—
2,706
300
117,274
256,282
56,443
3,000
22,560
—
14,066
96,069
11,454
107,523
203,263
771
9,632
(21,385)
(43,522)
148,759
Total liabilities and shareholders’ equity
$
188,001
$
256,282
The accompanying notes are an integral part of these consolidated financial statements.
ON BEHALF OF THE BOARD
Signed "Gary Mize" Director
Signed "Doug Speers" Director
4
2018 ANNUAL REPORT
23
CERES GLOBAL AG CORP.
Consolidated Statements of Net and Comprehensive Income (Loss)
Twelve months ended June 30, 2018 and 2017
(In thousands of USD except shares and loss per share)
Revenues
Cost of sales
Gross profit
General and administrative expenses
Income (loss) from operations
Finance income (loss) (Note 12)
Interest expense (Note 13)
Revaluation of derivative warrant liability
Gain (loss) on equity investment (Note 7)
Gain (loss) on property, plant and equipment (Note 9)
Income (loss) before income taxes and undernoted items
Income tax (expense) recovered (Note 18)
Share of net income (loss) of associates
Net income (loss)
Components of comprehensive income (loss):
Gain (loss) on currency translation adjustment
Total comprehensive income (loss)
Weighted-average number of shares for the year
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 Interest expense
Personnel costs included in Cost of sales
Personnel costs included in General and administrative expenses
2018
$
411,122
(399,452)
$
2017
528,478
(520,637)
11,670
(11,893)
(223)
(357)
(3,172)
—
3,675
(299)
(376)
38
(218)
(556)
(970)
7,841
(9,558)
(1,717)
(268)
(3,879)
104
—
(7,651)
(13,411)
(4)
(237)
(13,652)
(24)
$
$
$
(1,526) $
(13,676)
27,924,308
27,538,615
(0.02) $
(0.02)
(4,874) $
(75)
(450)
(5,564)
(6,860)
(0.50)
(0.50)
(4,495)
(86)
(596)
(5,821)
(5,358)
The accompanying notes are an integral part of these consolidated financial statements.
24 CERES GLOBAL AG CORP.
5
(In thousands of USD except shares and loss per share)
Revenues
Cost of sales
Gross profit
General and administrative expenses
Income (loss) from operations
Finance income (loss) (Note 12)
Interest expense (Note 13)
Revaluation of derivative warrant liability
Gain (loss) on equity investment (Note 7)
Gain (loss) on property, plant and equipment (Note 9)
Income (loss) before income taxes and undernoted items
Income tax (expense) recovered (Note 18)
Share of net income (loss) of associates
Net income (loss)
Components of comprehensive income (loss):
Gain (loss) on currency translation adjustment
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 Interest expense
Personnel costs included in Cost of sales
Personnel costs included in General and administrative expenses
11,670
(11,893)
(223)
(357)
(3,172)
—
3,675
(299)
(376)
38
(218)
(556)
(970)
(0.02) $
(0.02)
(4,874) $
(75)
(450)
(5,564)
(6,860)
7,841
(9,558)
(1,717)
(268)
(3,879)
104
—
(7,651)
(13,411)
(4)
(237)
(13,652)
(24)
(0.50)
(0.50)
(4,495)
(86)
(596)
(5,821)
(5,358)
$
$
$
Total comprehensive income (loss)
(1,526) $
(13,676)
Weighted-average number of shares for the year
27,924,308
27,538,615
The accompanying notes are an integral part of these consolidated financial statements.
CERES GLOBAL AG CORP.
Consolidated Statements of Net and Comprehensive Income (Loss)
Twelve months ended June 30, 2018 and 2017
CERES GLOBAL AG CORP.
Consolidated Statements of Cash Flows
Twelve months ended June 30, 2018 and 2017
2018
$
411,122
(399,452)
$
2017
528,478
(520,637)
(In thousands of USD)
Operating activities:
Net loss
Adjustments for:
2018
2017
$
(556)
$
(13,652)
Depreciation of property, plant and equipment
Interest expense
Gain on equity method investment
Bad debt expense
Revaluation of portfolio investments
Loss on disposal of property, plant and equipment
Deferred income tax
Income tax expense (net)
Share-based compensation
Share of net loss of associates
Revaluation for future payments to Front Street Capital
Revaluation of derivative warrant liability
Revaluation of foreign denominated accounts
Changes in non-cash working capital accounts:
Due from brokers
Decrease in net open cash contracts
Accounts receivable, trade
Accounts receivable due from associate(s)
Inventories, grains
Prepaid expenses and sundry assets
Accounts payable and accrued liabilities
Accounts payable due to associate(s)
Interest paid
Net cash provided by operating activities
Investing activities:
Disposition of assets held for sale
Net proceeds from sale of equity method investment
Acquisition of property, plant and equipment
Net cash provided by (used in) investing activities
Financing activities:
Net proceeds (repayment) of bank indebtedness
Repayment of term loan
Financing costs paid
Warrants exercised
Repurchase of common shares under normal course issuer bid
Net cash (provided by) used in financing activities
Effect of exchange rate changes on cash
Increase in cash
Cash, beginning of period
Cash, end of period
4,949
3,172
(3,675)
315
486
299
(172)
—
363
218
(11)
—
(7)
(95)
(8,396)
5,821
(29)
51,560
(814)
(6,264)
37
(2,849)
44,352
(63)
8,205
(1,345)
6,797
(45,595)
(5,000)
(181)
—
—
(50,776)
2
375
585
960
$
$
4,581
3,879
—
—
188
7,651
—
(20)
467
237
(61)
(104)
—
3,631
6,102
(9,152)
—
7,383
(27)
6,816
—
(3,295)
14,624
—
—
(10,947)
(10,947)
1,596
(8,642)
(305)
5,425
(1,056)
(2,982)
—
695
(110)
585
5
6
The accompanying notes are an integral part of these consolidated financial statements.
2018 ANNUAL REPORT
25
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26 CERES GLOBAL AG CORP.
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
(1) CORPORATE STATUS, REPORTING 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). On April 1, 2013, Ceres Global Ag Corp. amalgamated with Corus Land Holding Corp. In
addition, on April 1, 2014, Ceres Global Ag Corp. amalgamated with Riverland Agriculture Ltd. and Ceres
Canada Holding Corp. Thereafter, the amalgamated corporations continued operating as Ceres Global Ag
Corp. Ceres is a corporation domiciled in Canada, with its head office located in St. Louis Park, Minnesota,
United States.
These consolidated financial statements of Ceres as at and for the years ended June 30, 2018 and 2017 include
the accounts of Ceres and its wholly owned subsidiaries Ceres U.S. Holding Corp. and Riverland Ag Corp.
(“Riverland Ag”). All intercompany transactions and balances have been eliminated. In combination with
Riverland Ag, the Corporation is an agricultural cereal grain storage, customer-specific procurement and
supply ingredient company that operates six grain storage, handling and merchandising facilities in the state
of Minnesota and the provinces of Ontario and Saskatchewan, with a combined licensed capacity of 29.7
million bushels.
The Corporation has one reportable segment while having two operating segments: (1) grain trading,
handling and storage; and (2) logistics and supply chain solutions, which includes transloading non-grain
commodities on behalf of third-party customers. With the exception of $3.2 million of revenue recognized
for the year ended June 30, 2018 and $1.4 million for the year ended June 30, 2017, all of the Corporation’s
revenues are comprised of grain trading, handling and storage.
(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 were authorized for issue by the Board of Directors of the
Corporation on September 25, 2018.
Functional and presentation currency
These consolidated financial statements are presented in United States Dollars (“USD”), which is different
from the Corporation’s functional currency of Canadian Dollars (“CAD”).
Basis of measurement
These consolidated financial statements have been prepared on a historical cost basis, except for the
following material items in the statement of financial position:
• Derivative financial instruments are measured at fair value;
• Assets held for sale are measured at fair value less costs to sell;
•
•
Financial instruments at fair value through profit or loss are measured at fair value; and
Inventories of grains are measured at fair value less costs to sell.
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2018 ANNUAL REPORT
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Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
(3)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies described below have been applied consistently to all periods presented in these
consolidated financial statements.
Revenue recognition, net sales and cost of sales
The Corporation 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 within 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 is recognized as earned using the effective interest method. 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 as a revaluation of
portfolio investments in Finance income (loss) on the Statement of Net and Comprehensive Income (Loss).
Investments in associates
Associates are entities in which Ceres has significant influence, but not control, over the financial and
operating policies. Significant influence is presumed to exist when the Corporation holds between 20% and
50% of the voting power of another entity.
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
associate’s 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, 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 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. 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.
28 CERES GLOBAL AG CORP.
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Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
Investment in Joint Arrangements
Investments in joint ventures, over which the Corporation has joint control, are accounted for using the equity
method. Under the equity method of accounting, investments are initially recorded at cost, and the carrying
amount is increased or decreased to recognize the Corporation’s share of the investee’s net profit or loss.
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 as General and administrative expenses in the Statement of Net and Comprehensive
Income (Loss).
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. Transaction costs related to bank indebtedness are amortized using the straight-line method
over the term of the financing arrangement, while transaction costs for long-term debt are amortized using
the effective interest method.
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. Portfolio
investments represent non-derivative financial assets classified as held for trading. The Corporation’s
unrealized gains on open cash contracts are derivative financial assets classified as held for trading.
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 cash, due from brokers, and
accounts receivable, trade, and accounts receivable, due from associates.
Financial liabilities
Unrealized losses on open cash contracts are classified as held for trading and valued at fair value through
profit or loss. The provision for future payment to Front Street Capital is also valued at fair value through
profit and loss. Non-derivative financial liabilities of the Corporation include bank indebtedness, accounts
payable and accrued liabilities, accounts payable due to associates, 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.
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2018 ANNUAL REPORT
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Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
Equity
Common shares and unconditional warrants
Common shares and certain 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 stated capital amount of the shares repurchased is added to (or deducted
from) retained earnings (deficit), as applicable.
Valuation of investments
Portfolio investments are held for trading and are measured and reported at fair value.
As at a reporting date, the fair value of financial instruments traded in active markets (primarily equity
securities of public companies 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. 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 Unrealized gains (losses) on open
cash contracts, as applicable, and are recognized in the Statement of Net and Comprehensive Income (Loss)
30 CERES GLOBAL AG CORP.
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Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
as a component of Finance income (loss) and included with the revaluation of portfolio 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 Net and Comprehensive Income (Loss) as realized gain (loss) on currency hedging
transactions.
To reduce price risk caused by market fluctuations, the Corporation 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. The Corporation 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 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. Derivative contracts have not
been designated, and are not accounted for, as fair value hedges. Management determines fair value based
on exchange-quoted prices, and in the case of its forward purchase and sale contracts, estimated fair value is
adjusted for differences in local markets. Realized and unrealized gains and losses in the value of inventories
of merchandisable agricultural commodities, forward cash purchase and sales contracts, and exchange-traded
futures contracts are recognized in profit or loss 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, Unrealized gains (losses) on open cash contracts, as applicable.
Fair value measurements
The Corporation uses a valuation hierarchy as a framework for disclosing fair values, based on the inputs to
measure the fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities including
exchange-traded derivative contracts that can be assessed at measurement date;
Level 2 – inputs are quoted prices for similar assets and liabilities in active markets or inputs that are
observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices); and
Level 3 – inputs are unobservable inputs based on the Corporation’s own assumptions used to measure assets
and liabilities at fair value.
Foreign currency translation, transactions of Canadian dollar functional currency entities
Foreign currency transactions are translated into 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 Net and Comprehensive Income (Loss). Translation gains or losses on securities included in the
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2018 ANNUAL REPORT
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Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
investment portfolio of the Corporation are recognized as Finance income (loss) in the Statement of Net and
Comprehensive Income (Loss) and classified with the revaluation of portfolio investments.
Foreign currency translation, non-USD functional currency entities
For the preparation of these consolidated financial statements, all assets and liabilities are translated into the
presentation currency of U.S. dollars (“USD”) using the foreign exchange rate in effect as at the reporting
date with Net and comprehensive income (loss) 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.
Finance income (loss)
Finance income (loss) pertains to revenues, gains and losses related to the investing activities of the
Corporation, and includes:
• Dividend revenues, if any, from portfolio investments;
• Realized gains (losses) on portfolio investments;
• Realized and unrealized gains (losses) on currency-hedging transactions;
• Realized and unrealized gains (losses) on foreign exchange; and
• Unrealized increase (decrease) in fair value of portfolio investments.
Depending on the movements of equity and other markets, finance income and losses will vary for each
reporting period.
Interest expense
Interest expense represents the aggregate of interest expense on borrowings and the amortization of financing
transaction costs.
Inventories
Inventories represent agricultural grain and oilseed commodities and are stated at fair value less costs to sell.
Fair value is primarily determined from market prices quoted on public commodity exchanges, adjusted for
expected freight costs to normal delivery points and a price premium or discount to cover local supply and
demand factors as estimated by management. Changes in the fair value less costs to sell of inventories of
agricultural grain commodities are recognized in profit or loss as and when they occur, and such changes are
included as a component of Cost of sales.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Cost includes expenditures
that are directly attributable to the acquisition of the asset. Subsequent costs are included in the asset’s
carrying amount or recognized as a separate asset, as appropriate. Costs are capitalized only when it is
probable that future economic benefits associated with the item will flow to the Corporation and the cost can
be measured reliably. When parts of an item of property and equipment have different useful lives, they are
32 CERES GLOBAL AG CORP.
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Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
accounted for as separate components of property and equipment and depreciated accordingly. The carrying
amount of a replaced component is derecognized.
Repairs and maintenance costs are expensed as incurred.
Property, plant and equipment are reviewed for impairment at the end of each reporting period to assess
whether there is any indication of impairment. If any indication of impairment exists, an estimate of the
asset’s recoverable amount is calculated as the higher of fair value less costs of disposal and value in use.
Land is not depreciated. Depreciation on the other assets is provided for on a straight-line basis over the
estimated useful lives of the assets as follows:
Buildings, silos/elevators, and improvements
Machinery and equipment
Furniture, fixtures, office equipment, and other assets
15 – 31 years
7 – 15 years
3 – 7 years
For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there
are separately identifiable cash flows.
Gains and losses on disposals of property, plant and equipment are determined by comparing the disposal
proceeds with the carrying amount of the asset and are included in net and comprehensive income (loss) as
gain (loss) on property, plant and equipment.
Repurchase obligations
The Corporation periodically enters into sale/repurchase agreements whereby the Corporation receives cash
in exchange for selling inventory to a commodity trading financial institution and the Corporation agrees to
repurchase the inventory from the financial institution at a fixed rate on a future date. The Corporation
accounts for these as product financing arrangements and, accordingly, these transactions are treated as
borrowings and commodity inventory in the Corporation’s consolidated financial statements and no sales
and purchases are reported in the consolidated financial statements.
Income taxes
Income tax expense (recovered) comprises current and deferred taxes. Current tax and deferred tax are
recognized in profit or loss, except to the extent that they relate 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, measured 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
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2018 ANNUAL REPORT
33
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
have been enacted or substantively enacted as at 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 and 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.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized; such reductions are reversed when the probability of
future taxable profits improves.
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 options or Warrants or the redemption of Deferred Share Units
outstanding as at the end of a reporting period. The effect of the potential issuance of common shares related
to the redemption of Deferred Share Units or exercise of options on diluted EPS has not been presented, as
it is anti-dilutive in a period of loss.
Share-based payments
Deferred Share Unit
The Corporation has established a Directors’ Deferred Share Unit Plan (the “DSU Plan”), which became
effective on March 10, 2014 and is an equity-settled share-based payment plan. Under the DSU Plan, a
director who is not an employee of the Corporation or any affiliate (including any non-executive Chair of the
Board) is an Eligible Director. Any Eligible Director may elect to receive some or all of the Annual Cash
Remuneration amount (as defined in the DSU Plan) for that Director in the form of Deferred Share Units
(“DSUs”). DSUs are settled by the issuance of common shares on the Entitlement Date (as defined under the
DSU Plan), which is a date after the end of a director’s term of service with the Board.
As at the dates on which DSUs are issued under the Plan, the Corporation recognizes as an expense the
portion of the Directors’ fees issued in the form of DSUs issued to the Director, which are issued at fair value,
and the Corporation increases shareholders’ equity by an equal amount. The Corporation revalues DSUs as
at each reporting period-end, based on the volume-weighted average trading price per common share of the
Corporation on the Toronto Stock Exchange during the immediately preceding five (5) trading days.
Revaluation adjustments are recognized as an increase or decrease in the expense for Directors’ fees during
the reporting period, with a corresponding increase or decrease in shareholders’ equity.
Stock Options
Stock options are equity-settled share-based payment transactions. The Corporation follows the fair value
method to measure stock option awards it grants to certain officers, key employees and consultants of the
Corporation and its subsidiaries. The fair value of stock options on the date the options are granted is
determined by the Black Scholes option pricing model with assumptions for risk-free interest rate, dividend
yield, volatility of the expected market price of the Corporation’s common shares and expected life of the
options. The number of stock option awards expected to vest are estimated using a forfeiture rate based on
historical experience and future expectations, as applicable. Expected annual volatility is estimated using
historical volatility. Compensation is amortized to earnings over the vesting period of the related options.
34 CERES GLOBAL AG CORP.
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Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
The Corporation uses graded or accelerated amortization, which specifies that each vesting tranche must be
accounted for as a separate arrangement with a unique fair value measurement. Each vesting tranche is
subsequently amortized separately and in parallel from the grant date.
Stock Appreciation Rights
Stock Appreciation Rights (“SARs”) may be granted to officers, certain employees and consultants of the
Corporation on such terms and conditions determined by the Board of Directors (the “Board”). Stand Alone
SARs are cash-settled share-based payment transactions and are measured at the fair value of the liability as
at the date the Stand-Alone SARs are granted. At the end of each reporting period, the Corporation re-
measures the fair value of the liability for such Stand-Alone SARs, and any changes in fair value of that
liability is recognized in profit or loss for the period. Tandem SARs are granted with stock options. Tandem
SARs may be settled by the payment or the delivery of cash or common shares, as may be determined by the
Board. Any portion of Tandem SARs to be settled for cash is measured using the measurement standards
described for Stand-Alone SARs. The portion, if any, of the Tandem SARs to be settled by the issuance of
common shares is measured using the measurement standards that apply to stock options awards, as described
in the preceding paragraph.
Option-pricing models require the use of highly subjective estimates and assumptions; including the expected
share price volatility. Changes in the underlying assumptions can materially affect fair value estimates.
Therefore, existing models do not necessarily provide reliable measurement of the fair value of the
Corporation’s share-based payments.
Future changes in accounting standards
The standards and interpretations that are issued but not yet effective up to the date of issuance of the
Corporation’s consolidated financial statements are listed below. This listing of standards and interpretations
issued includes those that the Corporation reasonably expects to have an impact on disclosures, financial
position or performance when applied at a future date.
IFRS 9 – Financial Instruments
On July 24, 2014, the IASB issued the final version of IFRS 9, which replaces IAS 39 – Financial
Instruments: Recognition and Measurement and all previous versions of IFRS 9. The new standard
introduces requirements for the classification and measurement of financial assets and financial liabilities,
impairment, hedge accounting and the fair value of an entity’s own debt. IFRS 9 will be effective for annual
periods beginning on or after January 1, 2018. The Corporation plans to adopt the new standard on the
required effective date and has initially assessed that there will be no significant impacts on its consolidated
financial statements.
IFRS 15 – Revenue from Contracts with Customers
On May 28, 2014, the IASB issued IFRS 15, which provides a single, principles-based five-step model to be
applied to all contracts with customers. IFRS 15 specifies how and when to recognize revenue as well as
requiring entities to provide users of financial statements with more relevant disclosures. IFRS 15 supersedes
IAS 18 – Revenue, IAS 11 – Construction Contracts and a number of revenue-related interpretations and
applies to annual reporting periods beginning on or after January 1, 2018.
The Corporation’s assessment primarily involved determining whether there were any separately identifiable
performance obligations under existing contracts that would affect the timing revenue recognition under
IFRS 15. Grain contracts, storage and handling agreements, and transloading revenue were analyzed to
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2018 ANNUAL REPORT
35
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
understand whether the timing and amount of revenue recognized could differ under IFRS 15. The
Corporation determined that, as the majority of the Corporation’s revenue is derived from arrangements in
which the transfer of risks and rewards coincides with the fulfilment of performance obligations and transfer
of control as defined by IFRS 15, no material impacts on the timing and measurement of revenue from
existing revenue recognition practices are applicable from the adoption of the new standard on the required
effective date. Additional disclosures under IFRS 15 are anticipated for reporting periods after the required
effective date.
IFRS 16 – Leases
On January 13, 2016, the IASB issued IFRS 16. This standard introduces a single lessee accounting model
and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months,
unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing
its right to use the underlying asset and a lease liability representing its obligation to make lease payments.
The new standard is effective for annual periods beginning on or after January 1, 2019. Ceres has not yet
determined the impact of this standard on the Corporation’s consolidated financial statements.
(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. Actual results may differ from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. The
following summarizes the accounting judgments, estimates and assumptions management considers
significant:
Inventories and Commodity Derivatives
To reduce price risk caused by market fluctuations, the Corporation 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. The Corporation will 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 impacted 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.
Derivative instruments, including futures contracts, forward commitments, options and other similar types
of contracts and commitments based on commodity derivatives, are carried at their fair value. The estimated
fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is
recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits)
within commodity Unrealized gains (losses) on open cash contracts. Management determines fair value
based on exchange quoted prices and in the case of its forward purchase and sale contracts, estimated fair
value is adjusted for differences in local markets. While the Corporation considers its commodity contracts
to be effective economic hedges, the Corporation does not designate or account for its commodity contracts
as hedges. Realized and unrealized gains and losses in the value of commodity contracts and grain
inventories are recognized in earnings immediately in Cost of sales in consolidated profit or loss. Unrealized
gains and losses on these derivative contracts are included in due from broker, and Unrealized gains (losses)
on open cash contracts on the consolidated Balance Sheet.
36 CERES GLOBAL AG CORP.
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Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
Estimates and assumptions are required in determination of fair values of commodity inventories,
particularly for those commodities where exchange-traded prices are not available. For these inventories,
management assesses the available quoted market prices and applies judgment in determining the effect local
market conditions.
Business combinations
Judgment is used in determining whether a transaction is a business combination or an asset acquisition. In
determining the allocation of the purchase price in a business combination, including any acquisition related
contingent consideration, estimates including market based and appraisal values are used. The contingent
consideration is measured at its acquisition-date fair value and included as part of the consideration
transferred in a business combination. Contingent consideration that is classified as equity is not remeasured
at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent
consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in
accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate,
with the corresponding gain or loss being recognized in profit or loss.
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.
Functional Currency
The functional currency of the Corporation is the Canadian Dollar. Determination of the functional currency
may involve certain judgments to determine the primary economic environment and this determination is re-
evaluated for each new entity or if conditions change. Management has determined that the functional
currency for the Canadian operations is the Canadian Dollar. Management has determined that the functional
currency for the operations based in the United States is the United States Dollar.
(5)
INVENTORIES
As at June 30, 2018 and June 30, 2017, the Corporation held $44.0 million and $95.2 million, of inventories
at fair value less costs to sell, respectively. For the year ended June 30, 2018, inventories recognized as an
expense through cost of sales totaled $370 million. For the year ended June 30, 2017, inventories recognized
as an expense through Cost of sales totaled $445 million.
(6) DUE FROM (TO) BROKERS
“Due from brokers” represents unrealized gains and losses due from custodian brokers on commodity futures
and options contracts in addition to margin deposits in the form of cash that are held by custodian brokers
in connection with such contracts. Amounts due from brokers are offset by amounts due to the same brokers,
under the terms and conditions of enforceable master netting arrangements in effect with all brokers, through
which the Corporation executes its transactions and for which the Corporation intends either to settle on a
net basis, or to realize the asset and settle the liability simultaneously.
18
2018 ANNUAL REPORT
37
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
Amounts due from brokers consist of the following:
(in thousands of USD)
Margin deposits
Unrealized gains on futures contracts and options,
at fair value
Unrealized losses on futures contracts and options,
at fair value
Due from brokers
(7)
INVESTMENTS IN ASSOCIATES
(in thousands of USD)
Savage Riverport, LLC., common shares
Stewart Southern Railway Inc., common shares
June 30,
2018
June 30,
2017
2,216 $
271
2,487
(564)
1,923 $
2,815
33
2,848
(1,020)
1,828
June 30,
2018
June 30,
2017
4,860 $
2,429
7,289 $
—
2,706
2,706
$
$
$
$
(a)
Savage Riverport, LLC (“Savage Riverport”)
Savage Riverport is a joint venture in which the Corporation has joint control and a 50% ownership interest.
Savage Riverport was founded by the Corporation and Consolidated Grain and Barge (“CGB”) on April 30,
2018. The Corporation transferred the grain elevator and related assets at its Savage, Minnesota facility,
which had net book value of $9.4 million as at April 30, 2018, to the newly formed entity. Savage Riverport,
is principally engaged in grain, storage, and handling, and based in Savage, MN. Subsequent to the
transaction, Ceres received cash of $8.5 million in exchange for 50% of the equity in Savage Riverport, of
which, $2.0 million was utilized to pay down the term debt. The sale of the equity in Savage Riverport net
of transaction fees resulted in a gain of $3.7 million. The Corporation will recognize the remaining gain of
$3.8 million over the useful life of the contributed assets.
38 CERES GLOBAL AG CORP.
19
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
Ceres holds a 50% equity interest in Savage Riverport. Major operating decisions of Savage Riverport are
made by its Board of Directors and Ceres does not have a majority of the board seats. Due to these factors,
Ceres has joint control of Savage Riverport, and accounts for its investment in Savage Riverport using the
equity method.
June 30,
2018
June 30,
2017
Balance July 1, 2017
Asset contribution to Savage Riverport, LLC
Sale of 50% equity to CGB
Equity investment in joint venture
Working capital contribution
Corporation 50% share of joint venture net income (loss)
Amortization of deferred gain
Investment in Savage Riverport, LLC
$
$
— $
9,360
(4,680)
4,680
150
(28)
58
4,860 $
—
—
—
—
—
—
—
—
Included below is summary balance sheet and profit and loss information of Savage Riverport as at June 30,
2018 and June 30, 2017:
(in thousands of USD)
Current assets
Non-current assets
Total assets
Current liabilities
Net assets
The following amounts have been included in the
amounts above:
Cash and cash equivalents
(in thousands of USD)
Revenues
Income (loss) from continuing operations
Net and comprehensive income (loss)
The following amounts have been included in the
amounts above:
Depreciation and amortization
June 30,
2018
June 30,
2017
697
16,868
$
17,565
321
17,244
342
$
—
—
—
—
—
—
Two-month period ended
June 30,
June 30,
2017
2018
$
729
(56)
(56)
197
$
—
—
—
—
$
$
$
$
20
2018 ANNUAL REPORT
39
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
Included below is a reconciliation of Savage Riverport’s equity to the carrying value reported on the
Consolidated Balance Sheets as at June 30, 2018 and June 30, 2017:
Opening net assets of Savage Riverport, LLC
Investment in Savage Riverport, LLC
Working capital contributions
Joint venture net loss
Closing net assets if Savage Riverport, LLC
Corporation's share of net assets at 50%
Deferred gain on disposal of asset
Plus: Amortization of deferred gain
Investment in Savage Riverport, LLC
June 30,
2018
June 30,
2017
$
— $
17,000
300
(56)
17,244
8,622
(3,820)
58
$
4,860 $
—
—
—
—
—
—
—
—
For the year ended June 30, 2018, the Corporation’s consolidated profit or loss included the Corporation’s
share in the net loss of Savage Riverport’s equity, after recognition of the amortization of deferred gain, is a
profit of $30 thousand compared to 2017 net income of nil. During the years ended June 30, 2018 and 2017,
the Corporation did not receive a dividend from Savage Riverport, LLC.
(b)
Investment in Stewart Southern Railway Inc. (“SSR”)
Ceres holds a 25% equity interest in SSR, a Canadian private company. Ceres also holds rights to a 25%
voting position on SSR’s Board of Directors. SSR operates a 132-kilometre (82-mile) short-line railway in
southeastern Saskatchewan. Major operating decisions of SSR are made by its Board of Directors and Ceres
does not have a majority of the board seats. Due to these factors, Ceres does not control SSR, and accounts
for its investment in SSR using the equity method.
(in thousands of USD)
Revenues
Income (loss) from continuing operations
Net and comprehensive income (loss)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Twelve-month period ended
June 30,
June 30,
2017
2018
$
$
$
$
709
(1,462)
(990)
1,606
7,862
106
96
1,245
(1,137)
(948)
2,217
8,382
145
88
For the year ended June 30, 2018, the Corporation’s consolidated profit or loss included the Corporation’s
share in the net loss of SSR’s equity of $248 thousand (2017: net loss of $237 thousand). During the year
ended June 30, 2018, the Corporation did not receive a dividend from SSR (2017: nil).
40 CERES GLOBAL AG CORP.
21
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
Included below is a reconciliation of the Corporation’s 25% portion in SSR’s equity to the carrying value
reported on the Consolidated Balance Sheets as at June 30, 2018 and June 30, 2017:
Investee's equity as at reporting date
Corporation's 25% portion of SSR equity
Goodwill
Carrying Value
(8)
FINANCIAL INSTRUMENTS
Fair value of financial instruments
June 30,
2018
June 30,
2017
9,266 $
10,367
2,316
113
2,429 $
2,592
114
2,706
$
$
The Corporation’s financial assets and liabilities that are measured at fair value in the consolidated balance
sheets are categorized by level according to the inputs used in making the measurements. The Corporation
recognizes transfers between fair value measurements’ hierarchy levels as of the date of the event or change
in circumstances that caused the transfer. There were no transfers between levels in the year ended June 30,
2018.
The following table presents information about the financial assets and liabilities measured at fair value on
a recurring basis, and indicates the fair value hierarchy of the valuation techniques used to determine such
fair values.
(in thousands of USD)
Portfolio investments
Due from broker, unrealized
gains on futures and
options (Note 6)
Unrealized gains on open
cash contracts (derivatives)
Due from broker, unrealized
losses on futures and
options (Note 6)
Unrealized losses on open
cash contracts (derivatives)
Provision for future payments
to Front Street Capital,
included in Accounts Payable
Level 1
Level 2
Level 3
Total
June 30, 2018
$
— $
— $
2,694
$
2,694
271
—
—
8,131
(564)
—
—
—
(3,323)
—
—
—
—
—
—
$
(293) $
4,808
$
2,694
$
271
8,131
(564)
(3,323)
—
7,209
22
2018 ANNUAL REPORT
41
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
(in thousands of USD)
Portfolio investments
Due from broker, unrealized
gains on futures and
options (Note 6)
Unrealized gains on open
cash contracts (derivatives)
Due from broker, unrealized
losses on futures and
options (Note 6)
Unrealized losses on open
cash contracts (derivatives)
Provision for future payments
to Front Street Capital,
included in Accounts Payable
Level 1
Level 2
Level 3
Total
June 30, 2017
$
— $
— $
3,193 $
3,193
33
—
—
10,502
(1,020)
—
—
—
(14,066)
(11)
—
—
—
—
—
33
10,502
(1,020)
(14,066)
(11)
$
(987) $
(3,575) $
3,193 $
(1,369)
Reconciliation of Level 3 fair values:
(in thousands of USD)
Balance at June 30, 2017
Revaluation of portfolio investments
Currency translation differences
Balance at June 30, 2018
Management of financial instrument risks
Level 3
3,193
(486)
(13)
2,694
$
$
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
As at June 30, 2018, the Corporation’s market risk pertaining to portfolio investments was potentially
affected by changes in actual market prices. As at June 30, 2018, the Corporation’s portfolio investments are
solely in private companies. Therefore, market factors affecting the value of the portfolio investments are
primarily changes in fair value of the investments and the Corporation’s ability to liquidate the investments.
Management has determined the effect on the results of operations of the Corporation for the year ended
June 30, 2018 if the fair value of each of the portfolio investments as of that date had increased or decreased
by 10%, using the fair market value of the portfolio investments as at that date and the number of shares then
issued and outstanding, and with all other variables remaining constant.
42 CERES GLOBAL AG CORP.
23
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
The potential effects on the result of operations for the year ending June 30, 2018 would be as follows:
(in thousands of USD except loss per share)
(Increase)
decrease in
net loss
(Increase)
decrease in
loss per share
10% increase in fair value of portfolio investments
10% decrease in fair value of portfolio investments
$
$
$
269
(269) $
0.01
(0.01)
Commodity risk
Management has determined the effect on the results of operations of the Corporation for the year ended
June 30, 2018 if the fair value of each of the open cash contracts as of that date had increased or decreased
by 5%, using the open cash contracts as at that date and the number of shares then issued and outstanding,
and with all other variables remaining constant.
The potential effects on the results of operations for the year ending June 30, 2018 would be as follows:
(in thousands of USD except loss per share)
5% increase in bid/ask prices of commodities
5% decrease in bid/ask prices of commodities
Interest rate risk
(Increase)
decrease in
net loss
(Increase)
decrease in
loss per share
$
$
$
284
(284) $
0.01
(0.01)
As at June 30, 2018, Ceres had no long or short portfolio positions in any interest-bearing investment
securities.
As at June 30, 2018, 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 financial assets. 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 June 30, 2018, the Corporation’s assets are not directly exposed to any significant degree to
cash flow interest rate risk due to changes in prevailing market interest rates.
As disclosed in Note 10 (Bank Indebtedness), as at June 30, 2018, the Corporation’s Credit Facility (as
defined herein) bears interest at an annual rate of overnight LIBOR plus 3.875%. As at June 30, 2018,
management has determined the effect on the future results of operations of the Corporation if the variable
interest rate component applicable on that date was to increase by 25 basis points (“25 bps”), using the
balance of the revolving credit facility payable as at that date and the number of shares then issued and
outstanding, and with all other variables remaining constant.
Furthermore, as at June 30, 2018, the Corporation’s term loan (Note 11) bears interest at an annual rate of
one-month LIBOR plus 5.25%. As at June 30, 2018, management has determined the effect on the future
results of operations of the Corporation if the variable interest rate component applicable on that date on the
term loan was to increase by 25 bps, using the balance of the term loan payable as at that date and the number
of shares then issued and outstanding, and with all other variables remaining constant.
24
2018 ANNUAL REPORT
43
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
On that basis, the potential effects on the results of operations for the year ending June 30, 2018 would be as
follows:
(in thousands of USD except loss per share)
Revolving credit facility
25 bps increase in annual interest rate
Term loan
25 bps increase in annual interest rate
Credit risk
Increase in
net loss
Increase in
loss per share
$
$
85
33
$
$
0.00
0.00
Credit risk is the risk a counterparty would be unable to pay for amounts due to the Corporation in accordance
with the terms and conditions of the debt instruments. As at June 30, 2018, the Corporation is subject to
credit risk concerning cash, amounts due from brokers, trade accounts receivable, and to the extent that open
cash contracts for grain commodities have given rise to unrealized gains. The maximum exposure to credit
risk on those assets is limited to the carrying value of those assets. The Corporation 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. Management has assessed the counter-party risk and
believes that insignificant losses, if any, would result from non-performance.
The Corporation regularly evaluates its credit risk concerning its trade accounts receivable to the extent that
such receivables may be concentrated with significant customers. The Corporation minimizes this risk by
having a diverse customer base and established credit policies. The aging of the Corporation’s trade accounts
receivable is substantially current. Based on its review and assessment of its trade accounts receivable,
management determined that $271 thousand was deemed uncollectable and subsequently written off. As at
June 30, 2018, the allowance for doubtful accounts was $43 thousand. Total bad debt expense recorded
during the year ended June 30, 2018 was $314 thousand, which is classified in “General and Administrative
Expenses” on the Consolidated Statements of Comprehensive Income (Loss).
The Corporation had one customer that represented more than 10% of total revenue for the year ended June
30, 2018, comprising 20% of total revenue. For the year ended June 30, 2017, the Corporation had two
customers that each individually represented more than 10% of total revenue for the year ended June 30,
2017, comprising 12% and 11% of total revenue.
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 implications 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.
44 CERES GLOBAL AG CORP.
25
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
Liquidity risk
As at June 30, 2018 and June 30, 2017, the following are the contractual maturities of financial liabilities,
excluding interest payments:
June 30, 2018
(in thousands of USD)
Bank indebtedness
Accounts payable and
accrued liabilities
Unrealized losses on open
cash contracts
Long-term debt
Operating lease obligations
Capital lease obligation(s)
June 30, 2017
(in thousands of USD)
Bank indebtedness
Accounts payable and
accrued liabilities
Unrealized losses on open
cash contracts
Long-term debt
Operating lease obligations
Carrying
Amount
Contractual
Cash
Flows
1 Year
2 years
3 to
5 years
More than
5 years
$ 10,910
$ 11,000
$ 11,000
$
— $
— $
16,574
16,574
16,574
—
3,323
9,661
—
45
3,323
10,000
1,213
52
3,323
5,000
475
11
—
5,000
388
10
—
—
—
350
31
—
—
—
—
—
—
Carrying
Amount
Contractual
Cash
Flows
1 Year
2 years
3 to
5 years
More than
5 years
$ 56,443
$ 56,595
$ 56,595
$
— $
— $
22,560
22,560
22,560
—
—
14,066
14,454
—
14,066
15,000
1,652
14,066
3,000
517
—
5,000
456
—
7,000
679
—
—
—
—
—
Future operational cash flows and assets are expected to be sufficient 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: the prompt settlement of amounts due from brokers, 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.
Currency risk
In the normal course of business, Ceres may hold assets or have liabilities denominated in currencies other
than USD. Therefore, Ceres is exposed to currency risk, as the value of any monetary assets or liabilities
denominated in currencies other than USD will vary due to changes in foreign exchange rates.
26
2018 ANNUAL REPORT
45
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
As at June 30, 2018, the following is a summary, at fair value, of Ceres’ exposure to currency risks on
monetary assets and liabilities:
(in thousands of CAD)
Canadian dollars
Net asset
(liability)
exposure
$
2,272
The following is a summary of the effect on Ceres’ profit or loss for the year ended June 30, 2018 if the USD
had become 5% stronger or weaker against the CAD as at June 30, 2018, with all other variables remaining
constant including the number of shares then issued and outstanding, related to monetary assets and liabilities
denominated in CAD:
(in thousands of USD except loss per share)
CAD 5% Stronger
CAD 5% Weaker
Increase
(decrease) in
net loss
Increase
(decrease) in
loss per share
$
$
(91) $
$
82
0.00
0.00
Currency risk for Ceres relates to transactions denominated in a currency other than USD and the translation
of its accounts from the functional currency CAD to the presentation currency USD for the purposes of the
consolidated financial reporting of Ceres. Adjustments related to the translation of accounts from the
functional currency to the presentation currency are included as other comprehensive income (loss) and have
no effect on the determination of profit or loss for the reporting period.
Other financial instruments
The carrying values of cash and cash equivalents, margin deposits with brokers, accounts receivable, bank
indebtedness, and account payable and accrued liabilities approximate their fair values as at June 30, 2018
due to the short-term nature of these instruments. The carrying value of long-term debt approximates fair
value as at June 30, 2018 based on current market rates for similar instruments.
46 CERES GLOBAL AG CORP.
27
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
(9)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at June 30, 2018 and June 30, 2017:
June 30, 2018
(in thousands of USD)
Land
Office
Buildings
Machinery
Silos &
Elevators & equipment
equipment Construction
& other
assets
in
progress
Totals
Cost
June 30, 2017
Additions
Placed in service
Disposals
Impairments
Currency translation
June 30, 2018
Accumulated depreciation
June 30, 2017
Depreciation
Disposals
Impairments
Currency translation
June 30, 2018
Carrying amount
June 30, 2018
$
$
21,936
—
11
(780)
(91)
(243)
20,833
$
82,179
—
1,165
(11,893)
(251)
(518)
70,682
$
24,424
—
1,017
(883)
(37)
(324)
24,197
$
3,633
—
16
(39)
(17)
(30)
3,563
358
2,260
(2,209)
(62)
—
—
347
$ 132,530
2,260
—
(13,657)
(396)
(1,115)
119,622
—
—
—
—
—
—
(11,009)
(2,962)
3,987
118
67
(9,799)
(2,729)
(1,684)
273
25
75
(4,040)
(1,518)
(303)
37
16
10
(1,758)
—
—
—
—
—
—
(15,256)
(4,949)
4,297
159
152
(15,597)
$
20,833
$
60,883
$
20,157
$
1,805
$
347
$ 104,025
June 30, 2017
(in thousands of USD)
Land
Office
Buildings
Silos &
Machinery
Elevators & equipment
equipment Construction
& other
assets
in
progress
Totals
Cost
June 30, 2016
Additions
Placed in service
Disposals
Impairments
Currency translation
June 30, 2017
Accumulated depreciation
June 30, 2016
Depreciation
Disposals
Impairments
Currency translation
June 30, 2017
Carrying amount
June 30, 2017
$
$
22,709
—
4
(790)
—
13
21,936
$
79,579
—
10,937
(8,412)
—
203
82,307
$
23,450
—
2,246
(1,322)
—
51
24,425
$
3,479
—
75
(51)
—
1
3,504
3,266
10,478
(13,262)
(126)
—
2
358
$ 132,483
10,478
—
(10,701)
—
270
132,530
—
—
—
—
—
—
(10,601)
(2,791)
2,406
—
(23)
(11,009)
(1,648)
(1,646)
596
—
(31)
(2,729)
(1,417)
(144)
49
—
(6)
(1,518)
—
—
—
—
—
—
(13,666)
(4,581)
3,051
—
(60)
(15,256)
$
21,936
$
71,298
$
21,696
$
1,986
$
358
$ 117,274
28
2018 ANNUAL REPORT
47
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
Property, plant and equipment additions that have been accrued but not yet paid totaled $3.0 million as at
June 30, 2018 and $3.9 million as at June 30, 2017.
Impairments
During the year ended June 30, 2018, the Corporation recorded an impairment related to its Calumet facility
(Minneapolis, Minnesota), as the operations have ceased, and the cash flows associated with this specific
asset could no longer support its carrying value. The impairment of $236 thousand is classified within profit
or loss as “Gain (loss) on property, plant and equipment”.
During the year ended June 30, 2017, the Corporation recorded an impairment loss related to its Buffalo,
New York (Buffalo); and Duluth, Minnesota (Duluth Lakeport) facilities as the operations have ceased, and
the cash flows associated with these specific assets could no longer support their carrying values. During the
year ended June 30, 2017, Ceres recorded a loss of $7.7 million on the impairment of Duluth Lakeport and
Buffalo facilities.
Disposals
During the year ended June 30, 2018, the Corporation closed on the sale of the Buffalo and Duluth Lakeport
storage facilities. The realized gain on the sale of its Buffalo storage facility of $103 thousand and a loss of
$166 thousand on the sale of Duluth Lakeport, for an aggregate loss of $63 thousand, are reported within
profit and loss for the year ended June 30, 2018. Both facilities were classified as “Assets held for sale” on
the Consolidated Balance Sheet as at June 30, 2017, valued at nil, being the lesser of their carrying amount
and fair value less costs to sell.
On April 30, 2018, the Corporation formed Savage Riverport, LLC and transferred the grain elevator and
related assets at its Savage facility, which had net book value of $9.4 million as at April 30, 2018, to the
newly formed entity. In accordance with IFRS 11, the investment in Savage Riverport, LLC is a Joint
Venture and is presented on the Consolidated Balance Sheet in “Investment in associates”. Refer to footnote
7 “Investment in associates” information regarding Savage Riverport, LLC.
(10) BANK INDEBTEDNESS
On December 28, 2017, the Corporation amended its uncommitted credit facility (the “Credit Facility”),
which now expires on December 27, 2018. The maximum borrowings under the revolving facility are $67.5
million. Borrowings bear an interest rate of overnight LIBOR plus 3.875% per annum, and interest is
calculated and paid on a monthly basis. The Credit Facility is subject to borrowing base limitations. Amounts
under the Credit Facility that remain undrawn are not subject to a commitment fee. The Credit Facility has
certain covenants pertaining to the accounts of the Corporation, as at and for the year ended June 30, 2018,
the Corporation was in compliance with all covenants.
As at June 30, 2018 and June 30, 2017, the Corporation had $26.2 million and $10.7 million in availability,
respectively, on its revolving Credit Facility.
48 CERES GLOBAL AG CORP.
29
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
As at June 30, 2018 and June 30, 2017, the carrying amount of bank indebtedness is summarized as follows:
(in thousands of USD)
Revolving credit facility
Unamortized financing costs
Bank indebtedness
(11) LONG-TERM DEBT
June 30,
2018
June 30,
2017
$
$
11,000 $
(90)
10,910 $
56,595
(152)
56,443
In accordance with the Corporation’s senior secured term loan facility agreement with Macquarie Bank
entered into on December 30, 2014 and subsequently amended, a principal payment of $3.0 million was paid
on December 29, 2017. On April 30, 2018, the Corporation paid an additional principal payment of $2.0
million that was applied against the principal payment due on December 27, 2019. The next principal
payment is payable on December 28, 2018 in the amount of $5.0 million and the final principal payment is
due on December 27, 2019 in the amount of $5.0 million. The term loan has an interest rate of one-month
LIBOR plus 5.25%.
Prior to that, the Corporation reduced the principal of its term loan to $15.0 million by making the following
payments. On December 29, 2016, the Corporation paid down the principal on its term loan facility
agreement by the amount of $1.6 million in accordance with the principal payment schedule included in the
agreement and made an additional principal payment of $7.0 million. On November 17, 2015, $1.4 million
was repaid of its outstanding term debt.
In connection with the origination of the term loan, the Corporation paid transaction costs relating to the loan
closure in the amount of $1.0 million, which included legal fees and other related borrowing costs.
Transaction costs directly attributable to the issuance of the term loan are recognized as a reduction in the
balance of the loan, and are amortized over the term of the loan using the effective interest rate method.
(in thousands of USD)
Total term debt
Less current portion of long-term debt
Unamortized financing costs
Total long-term debt
June 30,
2018
June 30,
2017
10,000
(5,000)
$
5,000
(339)
4,661
$
15,000
(3,000)
12,000
(546)
11,454
$
$
The term loan is secured by the following: (i) a security interest in substantially all of the personal property
of Ceres; (ii) a charge and mortgage over substantially all of the real property and elevator assets held by
Riverland Ag; and (iii) a pledge of substantially all of the equity interests and investment property held by
the Corporation.
30
2018 ANNUAL REPORT
49
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
(12) FINANCE INCOME (LOSS)
The following table presents realized and unrealized gains (losses) on foreign exchange, currency-hedging
transactions and the revaluation of portfolio investments for the years ended June 30, 2018 and 2017:
(in thousands of USD)
Realized and unrealized gains (losses) on foreign exchange
Realized and unrealized gains (losses) on
currency hedging transactions
Revaluation of portfolio investments
Finance income (loss)
June 30,
2018
June 30,
2017
$
$
99 $
30
(486)
(357) $
(73)
(7)
(188)
(268)
(13)
INTEREST EXPENSE
The following table presents interest expense for the years ended June 30, 2018 and 2017:
(in thousands of USD)
Interest on revolving credit facility
Interest on repurchase obligations
Interest on long-term debt
Interest on other financing obligations
Amortization of financing costs paid
Interest expense
(14) EQUITY
(a)
Authorized
June 30,
2018
June 30,
2017
(1,785) $
(37)
(892)
(8)
(450)
(3,172) $
(1,822)
(297)
(1,164)
—
(596)
(3,879)
$
$
Unlimited number of voting, participating Common shares, without par value.
(b) Normal Course Issuer Bids
During the year ended June 30, 2018, the Corporation did not purchase any Shares under any Normal Course
Issuer Bid.
During the year ended June 30, 2017, the Corporation purchased Shares under normal course issuer bids, the
purpose of which 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 common shares. The Corporation renewed the normal
course issuer bid (“the 2016-2017 NCIB”) commencing on June 12, 2016. Using the facilities of the Toronto
Stock Exchange (“TSX”) and in accordance with its rules and policies, Ceres intended to purchase up to a
maximum of 1,595,765 of its Common Shares, representing approximately 10% of its unrestricted public
float as of June 2, 2016, subject to a maximum aggregate purchase price of CAD $5 million pursuant to
restrictions under the Corporation’s Credit Facility. Ceres purchased up to a daily maximum of 2,119
Common Shares under the 2016-2017 NCIB, except for purchases made in accordance with the “block
purchase” exception under applicable TSX rules and policies. The 2016-2017 NCIB concluded on June 11,
2017.
During the year ended June 30, 2017, the Corporation purchased a total of 257,582 common shares under
the normal course issuer bid for aggregate cash consideration of $1.1 million. The stated capital value of
50 CERES GLOBAL AG CORP.
31
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
these repurchased Shares was $1.9 million. The excess of the stated capital value of the repurchased common
shares over the cost thereof, being $826 thousand, was allocated to Deficit in the year ended June 30, 2017.
(c)
Common Share Purchase Warrants
In connection with the completion of the Corporation’s rights offering (the “Rights Offering”), on December
4, 2014, Ceres issued an aggregate of 2,083,334 warrants (the “Warrants”) to the stand-by purchasers. The
Warrants issued were conditional upon approval at the Corporation’s annual general meeting (“AGM”),
which was obtained at the AGM on August 7, 2015.
Furthermore, the Warrants were issued at a fixed exercise price of CAD $5.84 and were each exercisable
into one common share of the Corporation (a “Common Share”). The Warrants had an expiry date of
December 4, 2016, being 24 months after issuance. In the event that the Warrants were exercised prior to the
completion of a change of control of the Corporation, but after a transaction that will result in such a change
of control has been publicly announced, in lieu of exercising the Warrants, the holders of Warrants could
elect a cashless exercise to receive Common Shares equal to: the difference between the ten-day Volume-
Weighted Average Price (“VWAP”) of the Corporation’s stock price and CAD $5.84; multiplied by the
number of Common Shares in respect of which the election was made; divided by the ten-day VWAP of the
Corporation’s stock price. If a Warrant holder exercised this option, there would be variability in the number
of shares issued per Warrant.
In accordance with IFRS, a contract to issue a variable number of shares fails to meet the definition of equity
and must instead be classified as a derivative liability and measured at fair value with changes in the fair
value recognized in profit or loss at each period end.
On November 30, 2016, 1,250,000 Warrants were exercised into 1,250,000 Common Shares at an exercise
price of CAD $5.84 for total consideration of $5,425,492 (CAD $7,300,000). On December 4, 2016, the
remaining 833,334 Warrants expired, resulting in no warrant liability as at June 30, 2018 or June 30, 2017.
(d)
Stock Option and Appreciation Rights
On March 10, 2014, the Board approved the Ceres Global Ag Corp. Stock Option Plan (the “Options Plan”).
The Options Plan is available to certain officers, key employees and consultants of the Corporation and its
subsidiaries. The purpose of the Options Plan is to attract, retain and motivate these parties by providing
them with the opportunity, through options, to acquire a proprietary interest in the Corporation and to benefit
from its growth.
The Options Plan is administered by the Board, which determines (among other things) those officers, key
employees and consultants who may be granted awards as Participants and the terms and conditions of any
award to any such Participant. The Exercise Price of the options is fixed by the Board and maybe no less
than 100% of the Market Price on the effective date of the award of the options, which may be granted for a
term not exceeding ten (10) years. The maximum number of common shares reserved for issuance upon the
exercise of options cannot exceed 10% of the total number of common shares issued and outstanding less
the number of common shares reserved for issuance under the Corporation’s Directors Deferred Share Unit
Plan (Note 15). Restrictions exist as to the number of options that may be granted to Insiders within any
one-year period, and as to the number of, and the aggregate fair market value of, the common shares
underlying the options that may be granted to any one Participant.
The Options Plan also provides for the Board to grant Stock Appreciation Rights (“SARs”) to certain
officers, key employees and consultants of the Corporation. Stand-Alone SARs granted under the Plan
become vested at such times, in such installments and subject to the terms and conditions of the Options Plan
(including satisfaction of Performance Criteria and/or continued employment) as may be determined by the
Board. The Base Price for each common share subject to a Stand-Alone SAR may not be less than 100% of
32
2018 ANNUAL REPORT
51
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
the Market Price of a common share on the Effective Date of the award of such Stand-Alone SAR. Tandem
SARs may be granted at or after the Effective Date of the related award of options, and each Tandem SAR
is subject to the same terms and conditions and denominated in the same currency as the option to which it
relates and the additional terms and conditions under the Options Plan. Tandem SARs may be exercised
only if and to the extent the options related thereto are then vested and exercisable. On exercise of a Tandem
SAR, the related option will be cancelled, and the Participant will be entitled to an amount in settlement of
such Tandem SAR calculated and, in such form, as provided by the Options Plan.
On May 10, 2018 the Board of Directors of the Corporation, authorized an amendment to all issued and
outstanding Options to add a Tandem SAR grant and revised vesting schedule, resulting in an accrued
liability and corresponding compensation cost of $99 thousand and a revaluation gain of $24 thousand.
During the year ended June 30, 2018, Ceres granted stock options (“options”), which include Tandem SARs,
under the Corporation’s stock option plan to certain officers and employees of the Corporation. The exercise
price is fixed by the Board of Directors at the time of grant; provided that the exercise price shall not be less
than the fair market value of the common shares. As at June 30, 2018, the outstanding Tandem SARs are as
follows:
Outstanding as at June 30, 2016
Granted
Exercised
Expired/forfeited
Outstanding as at June 30, 2017
Granted
Exercised
Expired/forfeited
Outstanding as at June 30, 2018
Weighted-
average
exercise price
(CAD)
Weighted-
average
remaining
contractual
term (years)
6.71
5.84
—
6.75
6.00
5.84
—
6.01
5.96
4.53
4.11
3.91
4.23
3.17
Number of
Options
278,331 $
892,826
—
(79,278)
1,091,879
340,500
—
(59,042)
1,373,337 $
At the grant date, the fair value of the options was estimated using the Black-Scholes pricing model with the
following weighted-average assumptions: an average risk-free interest rate of 1.68%; expected volatility of
20.6%; dividend yield of nil; an average expected option life of 3.25 years; and average exercise price of
CAD $5.84. The weighted average grant date fair value of the Options granted during the year ended June
30, 2018, is CAD $0.42 and CAD $0.72 for the year ended June 30, 2017. As at June 30, 2018 and June 30,
2017, outstanding Options had exercise prices ranging from CAD $5.84 to CAD $6.75.
The total Option compensation cost included in general and administrative expenses for the year ended June
30, 2018, amounted to $264 thousand and $200 thousand for the year ended June 30, 2017, with the non-
cash expense being accrued and classified within contributed surplus in the Consolidated Balance Sheet.
52 CERES GLOBAL AG CORP.
33
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
(e)
Issued and outstanding as at June 30, 2018 and June 30, 2017
The following is a summary of the changes in the Common shares for the year ended June 30, 2018 and year
ended June 30, 2017:
Balances, June 30, 2016
Redemption of deferred share units
Repurchase under normal course issuer bid
Exercise of warrants
Directors' remuneration
Balances, June 30, 2017
Redemption of deferred share units
Directors' remuneration
Balances, June 30, 2018
Common shares
Number of
Shares
Amount
(thousands of USD)
$
26,889,055
17,333
(257,582)
1,250,000
10,790
27,909,596
22,326
3,069
27,934,991
$
199,606
70
(1,882)
5,425
44
203,263
82
13
203,358
As at June 30, 2018 and June 30, 2017, directors and officers of the Corporation beneficially own, directly
or indirectly, or exercise control or direction over 43.7% and 43.6%, respectively, of the outstanding
Common shares of the Corporation.
(15) DEFERRED SHARE UNIT PLAN
Effective September 29, 2016, the Board amended the Directors’ Deferred Share Unit Plan to (i) authorize
the Board, in its sole discretion, to issue Common Shares to directors in lieu of all or a portion of the annual
cash remuneration payable to eligible directors in respect of services provided by such eligible directors to
the Corporation, (ii) increase the aggregate number of Common Shares issuable under the plan from 450,000
to 600,000 Common Shares and (iii) rename the plan the Directors’ Share and Deferred Share Unit Plan.
Effective March 10, 2014, Ceres has a Directors’ Deferred Share Unit Plan, whereby deferred share units
(“DSU”) are issued to Eligible Directors, in lieu of cash, for a portion of Directors’ fees otherwise payable
to Directors. The Fair Market Value of the DSUs on the date such units are calculated and issued represents
the volume-weighted average trading price of Ceres’ common shares for the five trading days immediately
preceding the date of issuance of the DSUs. Each DSU entitles the director to receive payment after the end
of the director’s term in the form of common shares of the Corporation. Under the plan, the aggregate
number of common shares issuable by Ceres under this Plan was limited to 450,000 and subsequently
amended to 600,000 common shares. Certain insider restrictions and annual dollar limits per Eligible
Director exist. Dividends, if any, otherwise payable on the common shares represented by the DSUs are
converted into additional DSUs based on the Fair Market Value as of the date on which any such dividends
would be paid. The Plan also provides for the Board to award additional DSUs (referred to in the Plan
agreement as “Matching DSUs”) to an Eligible Director who has elected to receive DSUs pertaining to
his/her Annual Cash Remuneration amount (as defined by the Plan).
The Corporation intends to settle all DSUs with shares through the issuance of treasury shares.
Compensation expense is included as part of Directors’ fees classified with general and administrative
expenses, and is recognized in the accounts as and when services are rendered to the Corporation. DSUs
outstanding as at a reporting period-end are revalued at the fair market value as at that period and changes
in the fair market value are recognized to Directors’ fees in the period in which the changes occur.
34
2018 ANNUAL REPORT
53
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
The following table summarizes the information related to deferred share units (“DSUs”) outstanding:
Outstanding as at June 30, 2016
Issuance of Deferred Share Units
Redemption of Deferred Share Units
Fair value adjustment of Deferred Share Units
Outstanding as at June 30, 2017
Issuance of Deferred Share Units
Redemption of Deferred Share Units
Fair value adjustment of Deferred Share Units
Outstanding as at June 30, 2018
(16) RELATED PARTY TRANSACTIONS
Key management personnel
Number of
DSUs
Amount
(thousands of USD)
$
142,717
58,201
(17,333)
—
183,585
91,244
(22,326)
—
252,503
$
617
231
(70)
(7)
771
323
(82)
(211)
801
The remuneration of key management personnel of the Corporation, which includes both members of the
Board of Directors and leadership team, including the President and CEO, CFO and vice presidents, is set
out below in aggregate:
(in thousands of USD)
Salary and short-term employee/director benefits
Share-based compensation
Twelve months ended
June 30,
2018
June 30,
2017
$
$
1,090 $
233
1,323 $
1,091
417
1,508
Savage Riverport, LLC
Ceres routinely transacts business directly with Savage Riverport, LLC. Such transactions are in the ordinary
course of business and include storage and elevation fees for grain storage, as well as management fees.
Related party revenue of $13 thousand is included in total revenue in the Consolidated Statements of Net
and Comprehensive Income (Loss) for the fiscal year 2018. Related party expenses recorded in cost of sales
are $240 thousand for the fiscal year 2018. As at June 30, 2018, the accounts receivable, due from Savage
Riverport, LLC totaled $29 thousand and accounts payable, due to Savage Riverport, LLC totaled $36
thousand.
(17) SUBSEQUENT ACQUISITION
On July 11, 2018, the Corporation acquired 100% of the equity of Natures’ Organic Grist, LLC ("NOG"), a
supplier of organic and ancient grains (including cereal grains, pulses and seeds), milled flours, and feed
products, for consideration as follows:
• Cash consideration of $2.8 million paid at closing, with an additional payment of $638 thousand paid one
month following the close for working capital acquired; and
54 CERES GLOBAL AG CORP.
35
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
• A performance based earn-out of up to $3.2 million based on total NOG performance over a three-year
period following closing which is fair valued at $1.3 million.
(in thousands of USD)
Cash consideration
Working capital
Fair value of contingent consideration
Total consideration
July 11,
2018
2,800
638
1,330
4,768
$
$
The acquisition of NOG was accounted for as a business combination. The purchase price has been allocated
on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values as
follows:
(in thousands of USD)
Cash
Accounts receivable
Inventory
Other
Intangible assets
Total assets acquired
Accounts payable and accrued liabilities
Total liabilities assumed
Net assets acquired
Nature's Organic
Grist, LLC
$
$
936
274
511
2
4,082
5,805
1,037
1,037
4,768
The purchase price allocation has not been finalized. The Corporation will finalize the purchase price
allocation upon making a final determination of the fair value of the assets acquired and the liabilities
assumed. Any future adjustments will be recorded as adjustments to the purchase price allocation.
(18)
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.
36
2018 ANNUAL REPORT
55
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
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:
(In thousands of USD)
For the twelve-months ended
June 30,
June 30,
2017
2018
Income (loss) before income and taxes and share of
net income (loss) of associates:
Canada
United States of America
$
Combined statutory Canadian federal and Ontario corporate
income tax rate.
Provisions for income taxes recoverable using statutory rate
Adjusted for the income tax effect of:
Difference in tax rates applicable to subsidiaries
U.S. state taxes, net of U.S. federal benefit
Non-deductible portion of unrealized losses (non-taxable
portion of unrealized gains) on investments
Changes in unrecognized temporary difference on deferred
income tax assets, net of deferred tax liabilities
Foreign exchange and other differences
(3,352) $
2,976
(376)
26.5%
(100)
157
18
(45)
(36)
(32)
62
Income tax expense (recovered)
$
(38) $
(5,342)
(8,069)
(13,411)
26.5%
(3,554)
(964)
4
145
6,126
(1,753)
3,558
4
56 CERES GLOBAL AG CORP.
37
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
The components of the provision for income taxes for the years ended June 30, 2018 and 2017 are as follows:
(In thousands of USD)
Canada
Current
Deferred
United States of America - Federal
Current
Deferred
United States of America - State
Current
Deferred
For the twelve-months ended
June 30,
June 30,
2017
2018
$
$
-
-
-
113
(172)
(59)
-
21
21
-
-
-
-
-
-
-
4
4
4
Income tax expense (recovered)
$
(38)
$
(b) Deferred income tax asset
The tax effects of temporary differences that give rise to significant elements of the net deferred income tax
asset are as follows:
38
2018 ANNUAL REPORT
57
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
(In thousands of USD)
Deferred tax assets:
Non-capital and net operating losses carried-forward
Allowable capital losses carried forward
Deductible portion of unrealized depreciation of associates
Share issuance costs
Other temporary deductible differences, net of temporary
taxable differences
$
Deferred tax liabilities:
Property, plant and equipment
Taxable portion of unrealized depreciation of associates
Other temporary taxable differences, net of temporary
deductible differences
For the twelve-months ended
June 30,
June 30,
2017
2018
$
29,191
960
730
89
533
31,503
(9,003)
(1,323)
-
(10,326)
(21,005)
41,125
974
679
205
-
42,983
(14,340)
(423)
(387)
(15,150)
(27,833)
$
172
$
-
Unrecognized deferred tax assets
Non-current deferred tax asset, net
(c) Tax losses carried forward
(i) Operations in Canada
As at June 30, 2018, the Corporation has accumulated non-capital losses in the amount of CAD $62.9 million
relating to its operations in Canada. The non-capital losses are being carried forward and, unless utilized,
will expire in the following taxation years:
(in thousands of CAD)
Year of expiry
2031
2032
2033
2034
2035
2036
2037
2038
Amount in CAD
401
7,335
6,549
13,586
8,198
10,777
7,008
9,043
62,897
$
$
As at June 30, 2018, Ceres has accumulated capital losses totaling CAD $9.5 million , which are available
indefinitely to be applied against capital gains in future taxation years. The potential income tax benefit of
the non-capital and capital losses has not been recognized in the consolidated financial statements.
(ii) Operations in the United States of America
58 CERES GLOBAL AG CORP.
39
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
As at June 30, 2018, the Corporation has accumulated net operating losses in the amounts noted below in
USD, for federal and state income tax purposes. These net operating losses are being carried forward and,
unless utilized, will expire in the following taxation years:
(in thousands of USD)
Year of expiry
Federal
Minnesota
New York
North Dakota
Wisconsin
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
$
$
-
-
-
-
-
9,597
3,686
8,570
12,773
-
-
26,591
5,310
3,618
$
5,249
1,724
6,335
9,210
-
9,847
2,188
2,072
-
-
-
-
-
-
-
-
-
-
-
5,704
3,169
9,875
13,817
-
-
617
6
-
$
-
$
-
-
-
-
471
201
124
68
-
121
91
-
40
$
70,145
$
36,625
$
33,188
$
1,116
$
-
-
1,279
1,764
-
-
-
-
-
-
311
111
-
41
3,506
(19) CONTINGENT LIABILITIES
The Corporation is involved in various legal claims and legal notices arising in the ordinary course of
business. The Corporation believes it has adequately assessed each claim, and the necessity of a provision
for such claims. As at June 30, 2018 and June 30, 2017, the Corporation has no provision for any of these
legal claims.
During the year ended March 31, 2014, Ceres terminated its arrangements and ongoing discussions with the
Scoular Company (“Scoular”) as a potential development partner with respect to the development and
construction of a grain facility at Northgate Logistics Centre (“NLC”). Since the termination of discussions,
Scoular filed a breach of contract claim for injunctive relief and unspecified damages. The Corporation
intends to vigorously defend the lawsuit. The recovery and/or reimbursement of such amounts, if any, will
be subject to resolution of the claim described below.
As of the date hereof, the Corporation, based on the advice of its litigation counsel, does not believe that the
claims alleged by Scoular have any legal merit, and therefore, the Corporation intends to vigorously defend
the lawsuit. Prior to the termination of its relationship with Scoular, the counterparty paid CAD $3,899,146
in costs related to the project. The Corporation does not believe that the counterparty is entitled to recovery
of any of these costs based on the legal relationship that existed at the time and based on the claims alleged
in the counterparty’s complaint. On January 20, 2017, the court heard oral argument on the Corporation’s
motion for summary judgment, which seeks dismissal of all claims asserted by Scoular. On August 16,
2017, the court denied the Corporation’s motion and scheduled a trial by jury on October 9, 2018.
The outcome of this complaint is difficult to assess or quantify. The plaintiff may seek recovery of large or
indeterminate amounts, and the magnitude of the potential loss may remain unknown for substantial periods
40
2018 ANNUAL REPORT
59
Ceres Global Ag Corp
Notes to the Consolidated Financial Statements
June 30, 2018 (Expressed in USD)
of time. The cost to defend this complaint may be significant. In addition, this complaint, if decided adversely
to the Corporation or settled by the Corporation, may result in a liability material to the Corporation’s
financial statements as a whole or may materially and adversely affect the Corporation’s business, financial
position, cash flow and/or results of operations.
60 CERES GLOBAL AG CORP.
41
CORPORATE OFFICE
1660 S. Highway 100
Suite 350
St. Louis Park MN
55416 USA
REGISTERED OFFICE
155 Wellington West, 40th floor
Toronto ON M5V 3J7
TRANSFER AGENT
AST Trust Company (Canada)
AUDITORS
Wolrige Mahon Collins Barrow LLP
400 Burrard Street, Ninth Floor
Vancouver BC V6C 3B7
INVESTOR CONTACT
Heidi Christensen Brown
NATIONAL Equicom
T: 416 848 1389
E: hchristensenbrown@national.ca
AGM
Ceres Global Ag Corp.
Annual General Meeting
November 14 at 11:00 am EST
Blake, Cassels & Graydon LLP
199 Bay Street, Suite 4000
Commerce Court West
Toronto, ON M5L 1A9
SENIOR MANAGEMENT
Robert Day
President and
Chief Executive Officer
Kyle Egbert
Vice President and
Chief Financial Officer
John Carroll
Vice President Trading
and Risk Management
Glen Goldman
Vice President, Corporate Counsel
and Corporate Secretary
Sarah Blomquist
Director, Human Resources
DIRECTORS
Douglas Speers
Independent Director,
Chairman, and Member of the
Human Resources, Safety and
Environment Committee
Robert Day
Director and Officer,
Member of Nominating,
Government, Risk and
Ethics Committee
Harvey Joel
Independent Director,
Chair of the Human Resources
Safety and Environment Committee,
Member of the Audit and
Finance Committee
Gary Mize
Independent Director,
Chair of Audit and Finance Committee,
Chair of the Nominating, Governance,
Risk and Ethics Committee
James Vanasek
Member of Audit and
Finance Committee
ceresglobalagcorp.com
2018 ANNUAL REPORT
61
CORPORATE INFORMATION
ceresglobalagcorp.com