Building
momentum
2 0 1 9 a n n u a l r e p o r t
Gaining
ground
Expanding
our Footprint
We continue to deliver meaningful progress on the execution
Over the last two years we have right-sized our facilities,
of our growth strategy, with a number of strategic milestones
creating global reach while handling more products and higher
accomplished during 2019.
volumes on lowered fixed costs per unit handled.
The year started strong by establishing our footprint in the
We will continue to grow our platform by forming strategic
organic grains business with the acquisition of Nature’s Organic
partnerships and completing acquisitions to become a preferred
Grist. We were successful in settling the Scoular lawsuit, allowing
operator and supplier of agricultural products and logistics.
us to focus our efforts on expanding our grain origination assets
in the United States Upper Plains and Western Canada. We
formally established a 50/50 joint venture for the transloading
of hydrocarbon products between Canada and the United
States with Steel Reef Infrastructure Corp. (“Steel Reef”). Finally,
subsequent to year-end, we completed the acquisition of Delmar
Commodities, adding further product lines and strategic grain
origination assets in Canada.
19
commodity product lines
22.7%
Gross profit increase
3 CERES GLOBAL AG CORP.
Duluth Storage
MINNEAPOLIS
Northgate
Malt One
Shakopee
MINNEAPOLIS
Savage
Port Colborne
Louisville
Origination Expansion
3rd Party Lease
Current
Origination Expansion
3 rd Party Lease
Current
About Ceres
Global Ag
Northgate
Commodity
Logistics Center
Through its network of commodity logistics centers and team
Ceres’ Northgate Terminal is ideally located on 1,300 acres
of industry experts, Ceres procures and supplies North American
in southeastern Saskatchewan, connected to BNSF’s 32,000-
agricultural commodities and value-added products, and provides
mile rail network, with a 2.7M bushel capacity for agricultural
reliable supply chain logistics services for industrial products,
products and 26,000t storage capacity for fertilizer.
fertilizer, and energy products customers worldwide.
Additionally, through our recent joint venture with Steel Reef,
Ceres is headquartered in Minneapolis, Minnesota and together
we are well positioned to develop Northgate into a highly
with its affiliated companies, operates 13 locations across
competitive transportation hub for energy products.
Saskatchewan, Manitoba, Ontario, and Minnesota. These
facilities have an aggregate grain and oilseed storage capacity
of approximately 30.8* million bushels.
Ceres also has a 50% interest in Savage Riverport, LLC, a
joint venture with Consolidated Grain and Barge Co., a 50%
interest in interest in Gateway Energy Terminal, a joint venture
with Steel Reef Infrastructure Corp., a 25% interest in Stewart
Southern Railway Inc., a short-line railway located in southeast
Saskatchewan with a range of 130 kilometers, and a 17%
interest in Canterra Seed Holdings Ltd, a Canada-based seed
development company.
30.8*M
bushel storage
capacity
17
supply chain
services
* As of September 18, 2019
2018 ANNUAL REPORT
4
chairman’s message
Last year at our annual meeting, we outlined a number of goals
we identified as key areas of focus for fiscal year 2019:
• Maintain trajectory of improved financial results;
•
•
Organically grow from investments previously made: core
and supply chain;
Add grower origination assets in Western Canada and Norther
Plains U.S.;
• Deepen relationships with strategic and key customers;
• Physically connect with the oil & gas industry at Northgate;
•
•
Increase pulses and organic product volumes; and
Invest in people and talent.
It is my pleasure to share with you further details on the significant
progress we have made on these initiatives during fiscal 2019.
1.
While our total results were impacted by the settlement of
the Scoular lawsuit, income from operations increased by more
than one million USD.
2.
Gross margins from core grains, organics, and non-ag supply
chain increased by approximately six million USD.
3.
Previous investments continued to be accretive.
Nature’s Organic Grist, acquired in June 2018, provided us with
an entryway into the specialty organic product market and
complemented our existing business with their cereal grains and
pulse product lines.
We also entered into a long-term agreement with London
Agriculture Commodities (“LAC”) at our Port Colborne, Ontario
grain elevator. This agreement will allow us to better utilize
capacity, while connecting us to LAC’s Ontario origination network.
4.
5.
While much of the industry suffered in 2018/19 from floods
and limited rail service, Ceres was able to leverage its terminal
elevator network to consistently supply its most important
customers and increase its overall market share. This year we
began architecting identity preserve (IP) supply chain solutions
with key and strategic customers. This will provide our
customers with IP supply chain solutions that enable them to
realize value for their products. We expect to see the benefits
of this work begin to materialize in 2019/20.
Furthermore, we have taken the first steps in developing our
Northgate location into a highly competitive transportation
hub for energy products by completing a joint venture
agreement with Steel Reef Infrastructure Corp. (“Steel Reef”).
The joint venture will focus on the transloading of hydrocarbon
products for movement between Canada and the United
States. This is a major milestone and we look forward to
working with the team at Steel Reef to build a world-class
hydrocarbon rail terminal. We should also mention that
industrial products shipments have increased as ten new
products are now being transloaded for shipment to
the United States at Northgate.
5 CERES GLOBAL AG CORP.
6.
With the acquisition of Natures Organic Grist (“NOG”) we
established a foothold in the organic wheat, durum and pulse
markets. This provides Ceres with an important revenue
stream that it can scale higher in the years to come.
7.
The Company continued to invest in people by adding
talent at the executive level as well as operations, business
development and technology.
Subsequent to fiscal year-end, we completed the acquisition
of Delmar Commodities, Ltd., a Manitoba-based agricultural
processing and supply chain company with four primary business
lines: grain merchandising, soybean crush, birdfeed production
and agricultural seed sales. Through this acquisition, we grew our
network of strategic origination assets, expanded our geographic
reach in Canada and added a talented team of people, with deep
customer relationships in our key target growth areas.
Two areas that negatively affected the company in fiscal year
2019 were:
1.
2.
Fees generated by handling 3rd party agricultural products
(decreased by $2.5 million USD).
Return from the equity investments (declined by
$0.6 million USD).
As I mentioned above, we settled the Scoular lawsuit matter
in October 2018. We are now able to focus our full attention
on the execution of our growth strategy and have completed a
number of important milestones. We added talent through new
hires and obtained expertise with our agreements, acquisitions
and partnerships. Nature’s Organic Grist, London Agriculture
Commodities, Steel Reef and Delmar Commodities have all
provided us with access to strong networks of people with
established relationships and market knowledge. As we look
towards the coming year, we believe we have the right people,
the right strategy and the foundation in place to continue to
position us for growth.
Finally, I want to thank our Board, the management team and
employees as well as you our shareholders for your continued
support of our company. I look forward to updating you on our
progress in 2020.
Sincerely,
Douglas E. Speers
Chairman of the Board
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…………………………………………………………...……………………...
Accounting Policies and Critical Accounting Estimates………………………………...…………
Outlook…………………………………………………………………….....................................
Other…………………………………………………………………….........................................
Non-IFRS Financial Measures and Reconciliations………………………………………………..
Key Assumptions & Advisories……………………………..……………………………………..
9
13
14
4
8
9
15
10
16
11
17
12
18
13
19
14
21
16
This Management’s Discussion and Analysis (“MD&A”) dated September 17, 2019 should be read in
conjunction with the audited Consolidated Financial Statements for the year ended June 30, 2019 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, 2018 (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,
1
2018 ANNUAL REPORT
6
MANAGEMENT’S DISCUSSION AND ANALYSIS
Table of Contents
Financial and Operating Summary…………………………………………………………………
Quarterly Financial Data……………………………………………...……………………………
Liquidity & Cash Flow…………………………………………………………...………………...
Capital Resources…………………………………………………………...……………………...
Accounting Policies and Critical Accounting Estimates………………………………...…………
Outlook…………………………………………………………………….....................................
Other…………………………………………………………………….........................................
Non-IFRS Financial Measures and Reconciliations………………………………………………..
Key Assumptions & Advisories……………………………..……………………………………..
4
8
9
10
11
12
13
14
16
This Management’s Discussion and Analysis (“MD&A”) dated September 17, 2019 should be read in
conjunction with the audited Consolidated Financial Statements for the year ended June 30, 2019 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, 2018 (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)”, none of
which have a standardized meaning under IFRS. See “Non-IFRS Financial Measures and Reconciliations.”
1
Risks and Forward-Looking Information
The Corporation’s financial and operational performance is potentially affected by a number of factors,
including, but not limited to, the factors described in “Key Assumptions & Advisories”.
This MD&A contains forward-looking information based on the Corporation’s current expectations, estimates,
projections and assumptions. This information is subject to a number of risks and uncertainties, including those
discussed in this MD&A and the Corporation’s other disclosure documents, many of which are beyond the
Corporation’s control. Users of this information are cautioned that actual results may differ materially. See
“Key Assumptions & Advisories” for information on material risk factors and assumptions underlying the
Corporation’s forward-looking information.
Who We Are
Through its network of commodity logistics centers and team of industry experts, Ceres procures and supplies
North American agricultural commodities and value-added products, industrial products, fertilizer, and energy
products, and provides reliable supply chain logistics services to customers worldwide.
Ceres is headquartered in Minneapolis, MN and together with its wholly-owned affiliates, operates 13 locations
across Saskatchewan, Manitoba, Ontario, and Minnesota. These facilities have an aggregate grain and oilseed
storage capacity of approximately 30.8 million bushels.
Ceres also has a 50% interest in Savage Riverport, LLC, a joint venture with Consolidated Grain and Barge
Co., a 50% interest in Gateway Energy Terminal, a joint venture with Steel Reef Infrastructure Corp., a 25%
interest in Stewart Southern Railway Inc., a short-line railway located in southeast Saskatchewan with a range
of 130 kilometers, and a 17% interest in Canterra Seed Holdings Ltd, a Canada-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
thirteen grain storage and handling facilities in Minnesota, Saskatchewan, Ontario, and Manitoba. 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
7 CERES GLOBAL AG CORP.
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 (“Northgate” or the
“NLC”). The NLC consists of a commodities logistics centre on approximately 1,300 acres of land at Northgate,
2
depreciation and amortization), “Return on Shareholders’ Equity” and “Adjusted Net Income (Loss)”, none 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”.
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 MD&A and the Corporation’s other disclosure documents, many of which are beyond the
Corporation’s control. Users of this information are cautioned that actual results may differ materially. See
“Key Assumptions & Advisories” for information on material risk factors and assumptions underlying the
Corporation’s forward-looking information.
Who We Are
Through its network of commodity logistics centers and team of industry experts, Ceres procures and supplies
North American agricultural commodities and value-added products, industrial products, fertilizer, and energy
products, and provides reliable supply chain logistics services to customers worldwide.
Ceres is headquartered in Minneapolis, MN and together with its wholly-owned affiliates, operates 13 locations
across Saskatchewan, Manitoba, Ontario, and Minnesota. These facilities have an aggregate grain and oilseed
storage capacity of approximately 30.8 million bushels.
Ceres also has a 50% interest in Savage Riverport, LLC, a joint venture with Consolidated Grain and Barge
Co., a 50% interest in Gateway Energy Terminal, a joint venture with Steel Reef Infrastructure Corp., a 25%
interest in Stewart Southern Railway Inc., a short-line railway located in southeast Saskatchewan with a range
of 130 kilometers, and a 17% interest in Canterra Seed Holdings Ltd, a Canada-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
thirteen grain storage and handling facilities in Minnesota, Saskatchewan, Ontario, and Manitoba. 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 (“Northgate” or the
“NLC”). The NLC consists of a commodities logistics centre on approximately 1,300 acres of land at Northgate,
Saskatchewan, 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 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
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’s grain facilities. 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 June 2019, the Corporation established Gateway Energy
Terminal, a 50/50 joint venture with Steel Reef Infrastructure Corp. located at Northgate (“Gateway”).
Gateway began operations on July 1, 2019 and handled the transloading of hydrocarbons at Northgate on an
exclusive basis. Ceres’ contracts with its existing hydrocarbon transload customers were transferred to Gateway
as of July 1, 2019. Gateway’s operations at Northgate provide a direct link for hydrocarbons to enter the US
market.
In November 2015, Ceres entered into an agreement with Koch Fertilizer Canada, ULC for the storage and
handling of dry fertilizer products 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, solvents, and magnesium chloride.
2018 ANNUAL REPORT
8
3
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
Diluted 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,
2019
June 30,
2018
$
$
$
$
438,396
14,320
1,289
(16,871)
27,934,991
29,029,087
(0.60)
(0.58)
$
$
$
$
411,122
11,670
(223)
(556)
27,924,308
27,924,308
(0.02)
(0.02)
$
$
$
$
$
(4,061)
$
4,369
$
212,964
$
188,001
$
33,694
$
10,910
$
$
19,608
130,764
$
$
9,661
147,497
-12.9%
-0.4%
(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, 2019
Income from operations increased $1.5 million compared to the previous year.
Gross margins from the Grain Division increased by $5.0 million, due to the ownership of Nature’s
Organic Grist (“NOG”) as well as increased gross margins from core product lines.
Grain storage and handling revenue decreased by nearly $4 million, due to a drop in barley volumes and
the sale of the Savage elevator to Savage Riverport, LLC.
Non-grain storage and handling revenue increased by over $1 million, due to increased volumes from
Natural Gas Liquids (“NGL”), fertilizer and industrial products.
Overall operating and SG&A costs decreased by nearly $1.0 million, due mainly to the sale of the Savage
elevator to Savage Riverport, LLC.
Interest costs increased by $1.4 million, due to higher average inventory in FY 2019 vs. FY 2018 as well
as increased outstanding term debt year over year.
The Corporation increased its term debt from $20 million to $35 million to fund business opportunities, and
increased its revolving credit facility from $67.5 million to $80 million to support anticipated increases in
volumes.
Significant progress was made on growth-based initiatives during FY 2019: acquisition of NOG, formation
of Gateway, and due diligence activity that resulted in the acquisition of Delmar Commodities Ltd.
(“Delmar”) on August 16, 2019.
Income from operations for the quarter ended June 30, 2019 increased $0.8 million compared to the same
9 CERES GLOBAL AG CORP.
4
quarter in the previous year. The increase was due to increases in gross margins from the presence of NOG,
core grain product lines and non-grain storage & handling, and a decrease in grain storage and handling
revenue; meanwhile, lower operating and SG&A costs were offset by higher interest costs from carrying
more inventories.
For the Year Ended June 30, 2019 and June 30, 2018
Overall Performance
The Corporation’s net loss was $16.9 million for the year ended June 30, 2019, compared to a net loss of $556
thousand for the year ended June 30, 2018. The net loss was due primarily due to the impact of the $8.2 million
settlement of the Scoular lawsuit, the amortization of intangible assets $4.0 million, and the write down of the
Corporation’s Canterra portfolio investment of $1.9 million. Gross profit was $14.3 million for the year ended
June 30, 2019, compared to a gross profit of $11.7 million for the year ending June 30, 2018 as a result of higher
merchandising margins compared to the prior year. Furthermore, income from operations was $1.3 million for
the year ended June 30, 2019 compared to a $223 thousand loss from operations for the year ended June 30,
2018.
Revenues and Gross Profit
Total revenue increased by $27.3 million in the year ended June 30, 2019 compared to the year ended June 30,
2018. The Corporation handled and traded 71.6 million bushels of grain and oilseed sales in fiscal year 2019
compared to 74.7 million bushels for the fiscal year 2018. In agriculture commodity markets, cost of sales
generally follow increases or decreases in gross revenues. The Corporation believes that changes in gross profits
and volume handled are a more accurate reflection of its operational performance than changes in revenue.
The table below represents a summary of the components of gross profit for the year ended June 30, 2019 and
2018:
(in thousands of USD)
Net trading margin
Storage and transloading revenue
Operating expenses included in Cost of sales
Depreciation expense included in Cost of sales
2019
Supply Chain
Services
$
-
8,301
(4,743)
(1,319)
Grain
$
21,392
-
(6,164)
(3,147)
Total
$
21,392
8,301
(10,907)
(4,466)
Gross profit (loss)
$
12,081
$
2,239
$
14,320
(in thousands of USD)
Net trading margin
Storage and transloading revenue
Operating expenses included in Cost of sales
Depreciation expense included in Cost of sales
2018
Supply Chain
Services
$
-
11,274
(3,991)
(1,250)
Grain
$
17,936
-
(8,675)
(3,624)
Total
$
17,936
11,274
(12,666)
(4,874)
Gross profit (loss)
$
5,637
$
6,033
$
11,670
5
2018 ANNUAL REPORT
10
Gross profit increased by $2.7 million in the year ended June 30, 2019 compared to the year ended June 30,
2018. The year over year increase in gross profit was driven by an increase in net trading margin as well as
decreased operating expenses.
Net trading margin
Net trading margin increased by $3.5 million in the year ended June 30, 2019 compared to the year ended June
30, 2018 due to higher trading margins on cereal grains year over year, as well as the addition of NOG.
Storage and transloading revenue
Storage and transloading revenue decreased by $3.0 million in the year ended June 30, 2019 compared to the
year ended June 30, 2018. The Corporation’s storage and transloading revenue decrease was primarily a result
of the reduction in storage revenue generated from its Savage, MN facility, which was contributed to Savage
Riverport, LLC on April 30, 2018 and therefore no longer consolidated within operations.
Operating expenses and depreciation
For the year ended June 30, 2019, operating and depreciation expense included in cost of sales totaled $15.4
million compared to $17.5 million for the year ended June 30, 2018. The primary reason behind the decrease is
a due to the contribution of the Savage, MN facility to Savage Riverport, LLC.
General and Administrative Expenses
For the year ended June 30, 2019, general and administrative expenses totaled $13.0 million compared to $11.9
million in the year ended June 30, 2018. The increase in general and administrative expenses was primarily due
to $0.4 million in legal and due diligence costs related to growth based initiatives, and an increase of $0.6
million of administrative expenses related increased headcount due to acquisitions.
Finance Income (Loss)
For the year ended June 30, 2019, finance loss totaled $2.1 million compared to a finance loss of $357 thousand
during the year end June 30, 2018. Finance 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 $1.7 million is driven by the recognition of a $1.9 million loss on the
revaluation of portfolio investments during the year ended June 30, 2019.
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,
2019
June 30,
2018
$
(2,448)
(152)
(1,256)
(15)
(681)
$
(1,785)
(37)
(892)
(8)
(450)
$
(4,552)
$
(3,172)
For the year ended June 30, 2019, interest expense totaled $4.6 million compared to $3.2 million for the year
ended June 30, 2018. The increase in interest expense was due to higher inventory levels on hand throughout
the year resulting in higher average borrowings on the revolving credit facility and repurchase obligations.
Additionally, on November 15, 2018, the Corporation entered into a $20.0 million term loan agreement with
Bixby Bridge Fund IV, LLC (“Bixby Loan”), which was subsequently amended on June 26, 2019. A portion
11 CERES GLOBAL AG CORP.
6
of the proceeds of the Bixby Loan were used to repay all amounts outstanding under the Macquarie Term Loan
which included all outstanding interest related to the Macquarie Term Loan.
Gain (Loss) on Property, Plant and Equipment
During the year ended June 30, 2018, the Corporation recorded an impairment related to its Calumet facility
(Minneapolis, Minnesota), as the operations had 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
was classified within profit or loss as “Gain (loss) on property, plant and equipment”.
On January 10, 2019, the Corporation closed on the sale of its Calumet grain storage facility. The gross proceeds
from the sale were $0.7 million. As at June 30, 2018, Calumet was recorded as an asset held for sale with a
carrying value of nil. As such, Ceres recorded a gain on the sale, which was recorded within profit or loss as
“Gain (loss) on sale of 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
and loss for the twelve months ended June 30, 2018 as “Gain (loss) on property, plant and equipment”.
Amortization of Intangible Assets
Amortization of intangible assets totaled $4.0 million for the year ended June 30, 2019 (nil in 2018) and was
comprised solely of the amortization of grain and organic supply contracts acquired in the NOG acquisition.
The grain contracts are amortized as bushels are delivered on those contracts. The organic supply contract is
amortized on a straight-line basis over the life of the contract, which ended in June 2019.
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.
Share of Net Income (Loss) in Investments in Associates
For the year ended June 30, 2019, the Corporation incurred a loss in its net share in investments in associates
of $423 thousand compared to a loss of $218 thousand for the year ended June 30, 2018.
Gain (loss) on currency translation adjustment
Gains and losses pertaining to translation of foreign operations relate to the net assets of CAD functional
currency operations (including the Northgate and Port Colborne facilities), which are translated into USD using
the rate at the reporting date. Future changes in the USD/CAD exchange rates will result in corresponding other
comprehensive income or loss. For example, the Corporation will generally recognize a gain on currency
translation when the CAD strengthens against the USD, and the Corporation will generally recognize a loss on
currency translation when the CAD weakens against the USD.
7
2018 ANNUAL REPORT
12
For the year ended June 30, 2019, the Corporation recognized a gain on currency translation totaling $116
thousand, compared to a loss of $970 thousand for year ended June 30, 2018. The currency translation
adjustment for the year ended June 30, 2019 is a result of the CAD strengthening from $0.7616 USD/CAD at
June 30, 2018 to $.7637 USD/CAD at June 30, 2019.
2. QUARTERLY FINANCIAL DATA
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
Reporting dates
(in thousands of USD
except per share)
Revenues
Gross profit (loss)
6/30/2019
3/31/2019
12/31/2018
9/30/2018
6/30/2018
3/31/2018
12/31/2017
9/30/2017
Q4 2019
Q3 2019
Q2 2019
Q1 2019
Q4 2018
Q3 2018
Q2 2018
Q1 2018
$
134,741
$
90,594
$
122,820
$
90,241
$
92,809
$
98,106
$
89,569
$
130,638
$
2,967
$
3,223
$
3,046
$
5,084
$
1,925
$
2,399
$
4,283
$
3,063
Income (loss) from operations
$
(141)
$
477
$
(364)
$
1,317
$
(971)
$
(933)
$
1,162
$
519
Net income (loss)
$
(1,858)
$
(1,240)
$
(5,159)
$
(8,515)
$
1,829
$
(1,802)
$
224
$
(806)
Return on shareholders' equity¹
Basic weighted-average number of
-1.4%
-0.9%
-3.9%
-6.0%
1.2%
-1.2%
0.1%
-0.5%
common shares for the quarter
27,935
27,935
27,935
27,935
27,935
27,935
27,917
27,910
Dilutive weighted-average number of
common shares for the quarter
29,092
28,122
28,122
27,935
27,935
27,935
27,917
27,910
Basic earnings (loss) per share
$
(0.07)
$
(0.04)
$
(0.18)
$
(0.30)
$
0.07
$
(0.06)
$
0.01
$
(0.03)
Fully diluted earnings (loss) per share
$
(0.06)
$
(0.04)
$
(0.18)
$
(0.30)
$
0.07
$
(0.06)
$
0.01
$
(0.03)
EBITDA¹
$
1,370
$
1,543
$
(1,225)
$
(6,583)
$
3,884
$
302
$
2,333
$
1,524
EBITDA per share
Litigation expenses (Scoular)1
Shareholders' equity, as at
reporting date
Shareholders' equity per common
$
0.05
$
0.06
$
(0.04)
$
(0.24)
$
0.14
$
0.01
$
0.08
$
0.05
$
-
$
(5)
$
(147)
$
(9,385)
$
(327)
$
(457)
$
(458)
$
(276)
$
130,764
$
131,584
$
131,628
$
140,868
$
147,497
$
147,116
$
150,761
$
151,094
share, as at reporting date
$
4.68
$
4.71
$
4.71
$
5.04
$
5.00
$
5.00
$
5.40
$
5.41
Volumes (in thousands of tonnes )
Total Product Handled and Traded
574
478
511
495
439
420
456
714
¹Non-IFRS measurement. See note 8 below for further information
Fourth Quarter
Gross profit for the quarter ended June 30, 2019 increased $1.1 million to $3.0 million compared to the same
period of the previous year. General and administrative expenses increased $212 thousand for the quarter ended
June 30, 2019 compared to the same period in the previous year. The increase in general and administrative
expense is driven by increased business development costs incurred with the formation of Gateway and the
acquisition of Delmar. The Corporation recognized a net loss for the quarter ended June 30, 2019 of $1.9 million
compared to net income of $1.8 million in the same quarter of the prior year. The Corporation recognized a
$3.7 million gain in relation to the sale of its equity investment in Savage Riverport, LLC during the year ended
June 30, 2018.
13 CERES GLOBAL AG CORP.
8
3. LIQUIDITY & CASH FLOW
(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
For the year ended
June 30,
2019
June 30,
2018
$
(24,254)
(6,892)
$
44,352
6,797
(31,146)
32,056
19
51,149
(50,776)
2
Increase (Decrease) in Cash and Cash Equivalents
$
929
$
375
Operating Activities
Cash used in operating activities was $24.3 million for the year ended June 30, 2019 compared to cash flows
provided by operating activities of $44.4 million in the prior year. The $68.7 million decrease in cash provided
by operating activities was primarily a result of increased inventory levels over the prior year.
Investing Activities
During the year ended June 30, 2019, cash used in investing activities was $6.9 million compared to cash
provided by investing activities of $6.8 million in the prior year. The $13.7 million decrease in cash used by
investing activities was primarily due to the purchase of NOG in the current year and the partial sale of Savage
Riverport, LLC in the prior year.
Financing Activities
During the year ended June 30, 2019, the Corporation had $32.1 million in cash provided by financing activities
compared to cash used in financing activities of $50.8 million in the prior year. The $82.9 million decrease in
cash flows from financing activities was primarily due to the increase of borrowings on the revolving line of
credit and term loan as a result of the acquisition of NOG.
Available Sources of Liquidity
The Corporation’s sources of liquidity as at June 30, 2019 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 fiscal 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, 2019 contains certain covenants, including a covenant that the
Corporation maintain minimum working capital of not less than $25.0 million. As at June 30, 2019 the
Corporation’s working capital – defined as current assets less current liabilities – totaled $36.7 million. In
addition to working capital, the covenants include the maintenance of “consolidated debt” to “consolidated
EBITDA” (as defined in the agreement) of not more than 5.0 to 1.0 and consolidated tangible net worth of not
less than $120.0 million. As at and for the year ended June 30, 2019 and June 30, 2018, the Corporation was in
compliance with all of the above mentioned financial covenants.
9
2018 ANNUAL REPORT
14
Liquidity risk
As at June 30, 2019 and 2018, the following are the contractual maturities of financial liabilities, excluding
interest payments:
June 30, 2019
(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, 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)
Carrying
Amount
Contractual
Cash
Flows
1 Year
2 years
3 to
5 years
More than
5 years
$ 33,694 $ 34,000 $ 34,000 $
— $
— $
—
23,944
23,944
23,944
—
—
—
3,435
19,608
—
28
3,435
20,000
3,107
32
3,435
5,000
608
8
—
5,000
582
8
—
10,000
1,072
16
—
—
845
—
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
—
—
—
—
—
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, 2019, on February 14, 2019,
the Corporation entered into a fourth amended and restated credit agreement led by Macquarie Bank Limited,
as administrative agent on behalf of a syndicate group of lenders which includes Bank of Montreal and
15 CERES GLOBAL AG CORP.
10
Cooperatieve Rabo Bank U.A. (the “New Credit Facility”). The New Credit Facility increases the amount of
the revolving facility available to Ceres from $67.5 million to $80 million, with the potential to access an
accordion feature that would provide an additional $20 million. The New Credit Facility matures on February
13, 2020. The interest rate under the New Credit Facility reflects a reduction of 50 basis points from Ceres’
prior revolving facility and borrowings bear an annual interest rate of 3.375% plus overnight LIBOR, and
interest is calculated and paid on a monthly basis. The New Credit Facility is subject to borrowing base
limitations. Amounts under the New Credit Facility that remain undrawn are not subject to a commitment fee.
Term Loan
On November 15, 2018, the Corporation entered into a $20.0 million term loan agreement with Bixby Bridge
Fund IV, LLC (“Bixby Loan”), subsequently amended on June 26, 2019. A portion of the proceeds of the
Bixby Loan were used to repay all amounts outstanding under the Macquarie Term Loan. The loan is secured
primarily by mortgages on Ceres’ elevator facilities, including; one in Northgate, SK, one in Duluth, MN and
two in Minneapolis, MN. This loan is for a term of 4 years with annual principal payments of $5.0 million due
November 15, 2019; November 15, 2020; November 15, 2021; and November 15, 2022. Pursuant to the agreed
upon conditions of the Bixby Loan, Ceres may, at its discretion, repay the balance of the loan at any time subject
to typical notice requirements. This loan has an annual interest rate of 5.25% plus one-month LIBOR.
Prior to the Bixby Loan, the Corporation had a senior secured term loan facility agreement with Macquarie
Bank (“Macquarie Term Loan”) which was 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 Macquarie Term Loan had an interest rate of one-month LIBOR plus 5.25%. As at June 30, 2018,
the outstanding principal balance on the Macquarie Term Loan was $10.0 million with a balance of unamortized
financing costs of $0.3 million.
Subsequent to the year ended June 30, 2019, in conjunction with the acquisition of Delmar, the Corporation
amended its term loan with Bixby and increased the amount borrowed from $20 million to $35 million. The
new amended agreement requires a payoff of the loan of $5 million in November 2020 and an additional $5
million payoff in November 2021. The remaining $25 million is due upon maturity in 2022.
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 year ended June 30, 2019.
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.
11
2018 ANNUAL REPORT
16
6. OUTLOOK
Grain Division
Market conditions were challenging to start the quarter (April – June 2019) due to extreme flooding and poor
railroad performance, but they improved by the end of the period. Faster than expected snow melt and rains in
February and March caused extreme flooding in critical areas of the Missouri and Mississippi rivers, which
forced class-1 railroads in the west to shut down portions of their main lines and access to many facilities. This
caused service issues across the network that did not get resolved until late in the quarter. As a result, many
companies in the industry incurred significant costs stemming from the need to buy spot trains in the secondary
market to fill customer contracts. The Corporation’s merchandizing and logistics teams managed to navigate
through these challenges effectively. Gross margins were supported by strong volumes through company-
owned assets and higher oat prices caused from tight supply, while sales and shipments of spring wheat and
durum maintained a steady pace. In addition, organic products generated positive margins as end of crop year
contracts were delivered.
Looking forward, cash merchandizing opportunities across core products are expected to remain steady over
the first two quarters of fiscal year 2020 (July – December 2019). In addition to reliable demand from key
customers, exports out of the Great Lakes to residual international buyers have picked up and the Corporation
looks to benefit from an overall increase in export volumes. Additionally, the spring wheat and durum markets
have developed carries due to large ending inventories from the 2018-2019 crop year and higher than expected
yields from the upcoming harvest. Recent rains could negatively impact quality in some areas, which could
lead to low quality delivery stocks and provide support for wide futures carries. Lastly, organic products
merchandized through NOG are expected to remain steady through the current fiscal year and increase into the
first quarter of the 2020 fiscal year.
On August 16, 2019 Ceres announced the acquisition of Delmar. While the Corporation expects this acquisition
to be accretive for the coming year, it is expecting to realize some initial maintenance and general improvement
costs that will limit any meaningful contribution in the first quarter of the 2020 fiscal year (July – September
2019). Beyond the Delmar acquisition, the Corporation announced in its third quarter MD&A that it had entered
into a non-binding letter of intent to partner in a venture that would further add to the its grower origination
capabilities. The Corporation is presently engaged in due diligence with respect to that potential transaction and
will have more to report in the future.
Supply Chain Services Division
Non-Ag product-lines generated solid margins in which propane volumes reached record volume for a quarter
and fertilizer increased from the same quarter a year ago. Gross margins for the segment recovered from the
third quarter and finished higher than expected for the April – June period. Volumes are expected to maintain
these levels into fiscal year 2020.
The Corporation previously announced that it had established the Gateway joint venture with Steel Reef, a mid-
stream company targeting strategic infrastructure projects in the Western Canadian Sedimentary Basin and
Williston Basin. Gateway handles NGLs and condensates at Northgate for movements by rail connecting
Canadian and US markets. The Corporation and Steel Reef have are jointly marketing Gateway’s service
capabilities and are developing a two-year plan that will evaluate infrastructure development at Northgate.
Ag product supply chain volumes were down as expected in the fourth quarter. Barley makes up the largest
percentage of product in this category and volumes are down as malting companies contracted fewer acres over
the past two crop years and supply chain needs have scaled back. Meanwhile, the Corporation’s agreement with
17 CERES GLOBAL AG CORP.
12
London Agricultural Commodities, Inc. through its Port Colborne, Ontario facility began on July 1, 2019 and
will begin to generate gross margins during the first quarter of fiscal 2020.
With expected increases in volumes from existing products, exploration and ultimately development of liquid
energy infrastructure, and continued focus on development of a broader portfolio of products, the Corporation
expects steady growth from the supply chain service business at Northgate and across Ceres’ terminal network
which will help offset the decline in the third-party grain storage agreements.
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, 2019, 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, 2019, 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, 2019 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 note 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.
13
2018 ANNUAL REPORT
18
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,
2019
June 30,
2018
$
1,551
446
$
1,090
233
$
1,997
$
1,323
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 $80 thousand is included in total revenue for the fiscal year 2019 compared to related party
revenue of $13 thousand in fiscal year 2018. Related party expenses recorded in cost of sales are $1.3 million
for the fiscal year 2019 and $240 thousand for fiscal year 2018. As at June 30, 2019, the accounts receivable,
due from Savage Riverport, LLC totaled $134 thousand ($29 thousand in 2018) and accounts payable, due to
Savage Riverport, LLC totaled $51 thousand ($36 thousand in 2018).
SHARES OUTSTANDING
As at September 17, 2019, the issued and outstanding equity securities of the Corporation consisted of
27,934,991 common shares. In addition, the Corporation has 1,830,387 stock options outstanding with a
weighted-average exercise price of C$5.17 per common share and 357,030 deferred share units outstanding.
CONTINGENCIES
See note 20 of the Annual Consolidated Financial Statements for disclosure of the Corporation’s contingencies
as at June 30, 2019.
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.
19 CERES GLOBAL AG CORP.
14
The following table is a reconciliation of EBITDA for Ceres on a consolidated basis for the years ended June
30, 2019 and June 30, 2018 and the three months ended June 30, 2019 and June 30, 2018:
Three months ended
June 30,
Year ended
June 30,
(in thousands of USD)
2019
2018
2019
2018
Net income (loss) for the period
Interest Expense
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
Amortization of intangible assets
Depreciation on property, plant and equipment
$
(1,958)
1,066
$
1,829
630
$
(16,871)
4,552
$
(556)
3,172
-
-
(9)
141
927
1,203
236
(3,675)
22
6
-
1,162
(696)
-
(4)
423
3,968
4,567
299
(3,675)
(38)
218
-
4,949
$
1,370
$
210
$
(4,061)
$
4,369
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 years ended June 30, 2019 and
June 30, 2018:
(in thousands of USD)
Net income (loss) for the period
Total shareholders' equity as at reporting date
June 30,
2019
June 30,
2018
$
$
(16,871)
130,764
$
$
(556)
147,497
-12.9%
-0.4%
Litigation Expense (Scoular)
The following table is a calculation of the total litigation expenses in relation to the Scoular case for the years
ended June 30, 2019 and 2018:
(in thousands of USD)
Legal settlement
Legal fees
Total litigation expense
June 30,
2019
June 30,
2018
$
(8,228)
$
-
$
(1,309)
$
(1,518)
$
(9,537)
$
(1,518)
15
2018 ANNUAL REPORT
20
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.
The following table is the adjusted net income (loss) for the years ended June 30, 2019 and June 30, 2018 and
the three months ended June 30, 2019 and June 30, 2018:
Three months ended
June 30,
Year ended
June 30,
(in thousands of USD)
2019
2018
2019
2018
Net income (loss)
Loss (gain) on sale of property, plant and equipment
Ongoing litigation expense (Scoular)
Loss (gain) on equity investments
Loss (gain) on investments in associates
Revaluation of portfolio investments
One time writedown of bad debt expense
$ 1,829
$ (1,958)
236
-
-
327
- (3,675)
6
141
-
-
-
6
$ (556)
$ (16,871)
299
(696)
9,537
1,519
- (3,675)
218
423
486
1,885
271
6
Adjusted net income (loss)
$
(1,811)
$
(1,277)
$
(5,716)
$
(1,438)
9. KEY ASSUMPTIONS & ADVISORIES
FORWARD LOOKING STATEMENTS
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, 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
16
21 CERES GLOBAL AG CORP.
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;
- 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 railroads, and in particular from the BNSF at NLC;
- The ability of Ceres to successfully operate Northgate;
- 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 ability of Ceres to successfully integrate and operate Delmar.
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 statements will prove to be
accurate, as actual results and future events could differ materially from those anticipated in such statements or
information.
By their nature, forward-looking statements are subject to various risks and uncertainties, including those risks
discussed in other sections of this 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 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.
17
2018 ANNUAL REPORT
22
18
CERES GLOBAL AG CORP.
financial consolidated statements
Table of Contents
Management’s Responsibility for Financial Reporting
Independent Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Equity
Notes to the Consolidated Financial Statements
Page
24
25
28
29
30
31
2
3
6
7
8
9
10-47
32-69
23 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 17, 2019 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
Baker Tilly WM 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. Baker Tilly WM
LLP has full and unrestricted access to the Audit Committee.
Robert Day
President and CEO
Kyle Egbert
Chief Financial Officer
2
2018 ANNUAL REPORT
24
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Ceres Global Ag Corp.:
INDEPENDENT AUDITOR'S REPORT
Baker Tilly WM LLP
900 – 400 Burrard Street
Vancouver, British Columbia
Baker Tilly WM LLP
Canada V6C 3B7
900 – 400 Burrard Street
T: +1 604.684.6212
Vancouver, British Columbia
Baker Tilly WM LLP
F: +1 604.688.3497
Canada V6C 3B7
900 – 400 Burrard Street
T: +1 604.684.6212
Vancouver, British Columbia
vancouver@bakertilly.ca
F: +1 604.688.3497
Canada V6C 3B7
www.bakertilly.ca
T: +1 604.684.6212
vancouver@bakertilly.ca
F: +1 604.688.3497
www.bakertilly.ca
vancouver@bakertilly.ca
www.bakertilly.ca
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Ceres Global Ag Corp.:
Opinion
To the Shareholders of Ceres Global Ag Corp.:
We have audited the consolidated financial statements of Ceres Global Ag Corp. and its subsidiaries
Opinion
(together the “entity”), which comprise the consolidated balance sheets as at June 30, 2019 and June 30,
2018, and the consolidated statements of comprehensive income (loss), consolidated statements of
We have audited the consolidated financial statements of Ceres Global Ag Corp. and its subsidiaries
Opinion
changes in shareholders' equity and consolidated statements of cash flows for the years then ended, and
(together the “entity”), which comprise the consolidated balance sheets as at June 30, 2019 and June 30,
We have audited the consolidated financial statements of Ceres Global Ag Corp. and its subsidiaries
notes to the consolidated financial statements, including a summary of significant accounting policies.
2018, and the consolidated statements of comprehensive income (loss), consolidated statements of
(together the “entity”), which comprise the consolidated balance sheets as at June 30, 2019 and June 30,
changes in shareholders' equity and consolidated statements of cash flows for the years then ended, and
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
2018, and the consolidated statements of comprehensive income (loss), consolidated statements of
notes to the consolidated financial statements, including a summary of significant accounting policies.
the consolidated financial position of the entity and its subsidiaries as at June 30, 2019 and June 30, 2018,
changes in shareholders' equity and consolidated statements of cash flows for the years then ended, and
and its consolidated financial performance and its consolidated cash flows for the years then ended in
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
notes to the consolidated financial statements, including a summary of significant accounting policies.
accordance with International Financial Reporting Standards.
the consolidated financial position of the entity and its subsidiaries as at June 30, 2019 and June 30, 2018,
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
and its consolidated financial performance and its consolidated cash flows for the years then ended in
Basis for Opinion
the consolidated financial position of the entity and its subsidiaries as at June 30, 2019 and June 30, 2018,
accordance with International Financial Reporting Standards.
and its consolidated financial performance and its consolidated cash flows for the years then ended in
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our
Basis for Opinion
accordance with International Financial Reporting Standards.
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Consolidated Financial Statements section of our report. We are independent of the entity and its
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our
Basis for Opinion
subsidiaries in accordance with the ethical requirements that are relevant to our audits of the consolidated
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our
financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with
of the Consolidated Financial Statements section of our report. We are independent of the entity and its
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
these requirements. We believe that the audit evidence we have obtained in our audits is sufficient and
subsidiaries in accordance with the ethical requirements that are relevant to our audits of the consolidated
of the Consolidated Financial Statements section of our report. We are independent of the entity and its
appropriate to provide a basis for our opinion.
financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with
subsidiaries in accordance with the ethical requirements that are relevant to our audits of the consolidated
these requirements. We believe that the audit evidence we have obtained in our audits is sufficient and
Other Information
financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with
appropriate to provide a basis for our opinion.
these requirements. We believe that the audit evidence we have obtained in our audits is sufficient and
Management is responsible for the other information. The other information comprises:
Other Information
appropriate to provide a basis for our opinion.
Management is responsible for the other information. The other information comprises:
Management is responsible for the other information. The other information comprises:
Other Information
The information included in the Management's Discussion and Analysis filed with the relevant
Canadian securities commissions; and,
The information included in the Management's Discussion and Analysis filed with the relevant
The information, other than the consolidated financial statements and our auditor's report thereon,
Canadian securities commissions; and,
in the Annual Report.
The information included in the Management's Discussion and Analysis filed with the relevant
The information, other than the consolidated financial statements and our auditor's report thereon,
Our opinion on the consolidated financial statements does not cover the other information and we do not
Canadian securities commissions; and,
in the Annual Report.
and will not express any form of assurance conclusion thereon.
The information, other than the consolidated financial statements and our auditor's report thereon,
Our opinion on the consolidated financial statements does not cover the other information and we do not
in the Annual Report.
In connection with our audits of the consolidated financial statements, our responsibility is to read the other
and will not express any form of assurance conclusion thereon.
information identified above and, in doing so, consider whether the other information is materially
Our opinion on the consolidated financial statements does not cover the other information and we do not
inconsistent with the consolidated financial statements or our knowledge obtained in our audits and remain
In connection with our audits of the consolidated financial statements, our responsibility is to read the other
and will not express any form of assurance conclusion thereon.
alert for indications that the other information appears to be materially misstated.
information identified above and, in doing so, consider whether the other information is materially
In connection with our audits of the consolidated financial statements, our responsibility is to read the other
inconsistent with the consolidated financial statements or our knowledge obtained in our audits and remain
information identified above and, in doing so, consider whether the other information is materially
alert for indications that the other information appears to be materially misstated.
inconsistent with the consolidated financial statements or our knowledge obtained in our audits and remain
alert for indications that the other information appears to be materially misstated.
ASSURANCE • TAX • ADVISORY
ASSURANCE • TAX • ADVISORY
Baker Tilly WM LLP is a member of Baker Tilly Canada Cooperative, which is a member of the global network of Baker Tilly International Limited.
All members of Baker Tilly Canada Cooperative and Baker Tilly International Limited are separate and independent legal entiti es.
ASSURANCE • TAX • ADVISORY
Baker Tilly WM LLP is a member of Baker Tilly Canada Cooperative, which is a member of the global network of Baker Tilly International Limited.
All members of Baker Tilly Canada Cooperative and Baker Tilly International Limited are separate and independent legal entiti es.
Baker Tilly WM LLP is a member of Baker Tilly Canada Cooperative, which is a member of the global network of Baker Tilly International Limited.
All members of Baker Tilly Canada Cooperative and Baker Tilly International Limited are separate and independent legal entiti es.
3
3
25 CERES GLOBAL AG CORP.
3
We obtained the information included in the Management's Discussion and Analysis as at the date of this
auditor's report. If, based on the work we have performed on this other information, we conclude that there
is a material misstatement of this other information, we are required to report that fact in this auditor's report.
We have nothing to report in this regard.
The information, other than the consolidated financial statements and our auditor's report thereon, in the
Annual Report is expected to be made available to us after the date of this auditor's report. If, based on
the work we will perform on this other information, we conclude that there is a material misstatement of this
other information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the 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.
In preparing the consolidated financial statements, management is responsible for assessing the entity’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless management either intends to liquidate the entity or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the entity’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with Canadian generally accepted auditing standards will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit 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.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
4
2018 ANNUAL REPORT
26
Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the entity to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor's report is Anna C. Moreton.
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, B.C.
September 17, 2019
27 CERES GLOBAL AG CORP.
5
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 (Note 8)
Accounts receivable
Accounts receivable due from associates (Note 16)
Inventories, grains (Note 5)
Prepaid expenses and sundry assets
Portfolio investments (Note 8)
Total current assets
Deferred tax asset (Note 19)
Investments in associates (Note 7)
Property, plant and equipment (Note 9)
Intangible assets
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Bank indebtedness (Note 10)
Current portion of term loan (Note 11)
Accounts payable and accrued liabilities
Accounts payable due to associates (Note 16)
Unrealized losses on open cash contracts (Note 8)
Contingent consideration - current (Note 17)
Total current liabilities
Term loan (Note 11)
Contingent consideration - non-current (Note 17)
Total liabilities
Shareholders’ equity:
Common shares (Note 14)
Deferred share units (Note 15)
Contributed surplus
Accumulated other comprehensive income (loss)
Deficit
Total shareholders' equity
Legal (Note 20)
Subsequent events (Note 21)
Total liabilities and shareholders’ equity
$
June 30,
2019
June 30,
2018
1,889 $
2,420
6,171
15,235
134
75,065
1,659
766
103,339
—
6,871
102,004
300
450
212,964 $
33,694 $
4,894
23,944
51
3,435
600
66,618
14,714
868
82,200
203,358
1,387
9,475
(22,239)
(61,217)
130,764
—
—
212,964 $
960
1,923
8,131
16,580
29
43,952
1,946
2,694
76,215
172
7,289
104,025
300
—
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
—
—
188,001
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
6
2018 ANNUAL REPORT
28
CERES GLOBAL AG CORP.
Consolidated Statements of Comprehensive Income (Loss)
Twelve months ended June 30, 2019 and 2018
(In thousands of USD except shares and loss per share)
Revenues
Cost of sales (Note 5)
Gross profit
General and administrative expenses
Income (loss) from operations
Finance income (loss) (Note 12)
Interest expense (Note 13)
Amortization of intangible assets (Note 17)
Revaluation of stock appreciation right liability
Legal settlement (Note 20)
Gain (loss) on equity investments (Note 7)
Gain (loss) on property, plant and equipment (Note 9)
Income (loss) before income taxes and undernoted items
Income tax (expense) recovered (Note 19)
Share of net loss of associates (Note 7)
Net income (loss)
Components of comprehensive income (loss):
Gain (loss) on currency translation adjustment
$
2019
438,396 $
(424,076)
14,320
(13,031)
2018
411,122
(399,452)
11,670
(11,893)
1,289
(2,068)
(4,552)
(3,968)
379
(8,228)
—
696
(16,452)
4
(423)
(16,871)
116
(223)
(357)
(3,172)
—
—
—
3,675
(299)
(376)
38
(218)
(556)
(970)
(1,526)
Total comprehensive income (loss)
$
(16,755) $
Basic weighted-average number of shares for the year
27,934,991
27,924,308
Diluted weighted-average number of shares for the year
29,029,087
27,924,308
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
$
$
(0.60) $
(0.58)
(4,466) $
(101)
(681)
(6,091)
(7,443)
(0.02)
(0.02)
(4,874)
(75)
(450)
(5,564)
(6,860)
The accompanying notes are an integral part of these consolidated financial statements
7
29 CERES GLOBAL AG CORP.
CERES GLOBAL AG CORP.
Consolidated Statements of Cash Flows
Twelve months ended June 30, 2019 and 2018
2019
2018
$
(16,871) $
(556)
(In thousands of USD)
Operating activities:
Net loss
Adjustments for:
Depreciation and amortization
Interest expense
Loss (gain) on equity method investment
Bad debt expense
Accretion of contingent consideration
Revaluation of portfolio investments
disposal of property, plant, and equipment
Deferred income tax
Share-based compensation
Share of net loss of associates
Revaluation for future payments to Front Street Capital
Revaluation of stock appreciation rights liability
Revaluation of foreign denominated accounts
Changes in non-cash working capital accounts:
Due from brokers
Net open cash contracts
Accounts receivable
Accounts receivable due from associates
Inventories, grains
Prepaid expenses and sundry assets
Accounts payable and accrued liabilities
Accounts payable due to associates
Other assets and liabilities
Interest paid
Net cash provided by (used in) operating activities
Investing activities:
Disposition of assets held for sale
Net proceeds from sale of equity method investment
Acquisition of Nature's Organic Grist, LLC, net
Acquisition of property, plant and equipment
Net cash provided by (used in) investing activities
Financing activities:
Net proceeds (repayment) of bank indebtedness
Proceeds from term debt
Repayment of term debt
Financing costs paid
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Increase in cash
Cash, beginning of year
Cash, end of year
8,535
4,552
—
20
138
1,885
(696)
172
34
423
—
(379)
(15)
(497)
2,072
1,610
(105)
(30,602)
287
9,440
15
(450)
(3,822)
(24,254)
696
—
(2,340)
(5,248)
(6,892)
23,000
20,000
(10,000)
(944)
32,056
19
929
960
$
1,889 $
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
2018 ANNUAL REPORT
30
The accompanying notes are an integral part of these consolidated financial statements.
8
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T
31 CERES GLOBAL AG CORP.
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and 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 Golden Valley, Minnesota,
United States.
These consolidated financial statements of Ceres as at and for the years ended June 30, 2019 and 2018 include
the accounts of Ceres and its wholly owned subsidiaries Ceres U.S. Holding Corp. (Delaware), Riverland
Ag Corp. (Delaware) (“Riverland Ag”), Nature’s Organic Grist LLC (“NOG”), and Ceres Global Ag Corp.
Mexico S.A. DE C.V. 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. NOG is a supplier of organic grains and ancient grains (including emmer and einkorn),
milled flours, and feed products.
(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 17, 2019.
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 or fair value through other comprehensive
income are measured at fair value; and
Inventories of grains are measured at fair value less costs to sell.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition, net sales and cost of sales
The Corporation’s grain revenue transactions consist of a single performance obligation to transfer promised
goods. The Corporation recognizes revenue when it has fulfilled a performance obligation, which is typically
10
2018 ANNUAL REPORT
32
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
when the grain is shipped from the Ceres facility. In accordance with IFRS 15, the Corporation follows a
policy of recognizing sales revenue at the time of delivery of the product and when all 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) in profit or loss.
Investments in associates and joint arrangements
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.
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
11
33 CERES GLOBAL AG CORP.
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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 profit or 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 and measurement of financial instruments
Financial assets
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value
through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”). The
classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow
characteristics and the Corporation’s business model for managing them. With the exception of trade
receivables that do not contain a significant financing component or for which the Corporation has applied
the practical expedient, the Corporation initially measures a financial asset at its fair value plus, in the case
of a financial asset not a fair value through profit or loss, transactions costs. Trade receivables that do not
contain a significant financing component or for which the Corporation has applied the practical expedient
are measured at the transaction price determined under IFRS 15.
In order for a financial asset to be classified and measured at amortized cost or FVOCI, it needs to give rise
to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding.
This assessment is referred to as the SPPI test and is performed at an instrument level.
The Corporation’s business model for managing financial assets refers to how it manages its financial assets
in order to generate cash flows. The business model determines whether cash flows will result from
collecting contractual cash flows, selling the financial asset, or both.
Purchases or sales of financial assets that required delivery of assets within a time frame established by
regulation or convention in the market place are recognized on the trade date.
Financial liabilities
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL, loans and
borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as
appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and
borrowings and payables, net of directly attributable transaction costs.
Equity
Common shares
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.
12
2018 ANNUAL REPORT
34
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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
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 profit or loss 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 profit or 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
35 CERES GLOBAL AG CORP.
13
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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 profit or loss.
Translation gains or losses on securities included in the investment portfolio of the Corporation are
recognized as Finance income (loss) in profit or 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
14
2018 ANNUAL REPORT
36
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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.
Interest expense
Interest expense represents the aggregate of interest expense on borrowings and the amortization of financing
transaction costs.
Inventories
Inventories represent agricultural grain, ancient grains, 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
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.
For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there
are separately identifiable cash flows.
37 CERES GLOBAL AG CORP.
15
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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
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 profit or 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
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.
16
2018 ANNUAL REPORT
38
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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 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.
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.
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 vested. 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
17
39 CERES GLOBAL AG CORP.
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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.
Recently adopted accounting standards
IFRS 9 – Financial Instruments
Beginning on July 1, 2018, the Company adopted IFRS 9, Financial Instruments retrospectively with no
restatement of comparative periods which replaces IAS 39 Financial Instruments: Recognition and
Measurement and provides detailed guidance for financial assets and liabilities, impairment of financial
assets, and hedge accounting. IFRS 9 contains a new classification and measurement approach for financial
assets to be classified and measured based on the business model in which they are held and the
characteristics of their contractual cash flows. IFRS 9 contains three principal classification categories for
financial assets: measured at amortized cost, fair value through other comprehensive income (“FVOCI”),
and fair value through profit and loss (“FVTPL”) and eliminates the existing IAS 39 categories of held to
maturity, loans and receivables, and available-for-sale.
For impairment of financial assets, IFRS 9 replaced the “incurred loss” model in IAS 39 with a forward-
looking “expected credit loss” model. The new impairment model will apply to financial assets measured
at amortized cost or FVOCI and to contract assets.
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities.
However, under IAS 39 all fair value changes of liabilities designated as FVTPL are recognized in profit or
loss, whereas under IFRS 9 the amount of change in fair value attributable to changes in the credit risk of
the liability is presented in OCI, and the remaining amount of change in fair value is presented in profit or
loss.
IFRS 9 also includes a new general hedge accounting standard which aligns hedge accounting more closely
with risk management.
There was no material impact to the Company's consolidated financial statements with regards to the changes
in IFRS 9 on the classification and measurement of financial assets and liabilities and hedge accounting.
The Corporation completed a detailed assessment of our financial assets and liabilities.
18
2018 ANNUAL REPORT
40
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
The following table shows the original classification under IAS 39 and the new classification under IFRS 9:
Financial assets/liabilities
Cash
Due from brokers
Unrealized gains/losses on open cash contracts
Accounts receivable
Accounts receivable due from associates
Portfolio investments
Accounts payable and accrued liabilities
Accounts payable due to associates
Share-based payment accruals, included in
accounts payable
Bank indebtedness
Term debt
Contingent consideration
Original classification
IAS 39
New classification
IFRS 9
Loans and receivables
Loans and receivables
FVTPL
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
FVTPL
IFRS 15 – Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers, replaces IAS 18, Revenue, and IAS 11, Construction
Contracts, and the related Interpretations on revenue recognition. IFRS 15 establishes a single
comprehensive model for recognizing revenues from contracts with customers. The standard requires
revenue to be recognized in a manner that depicts the transfer of promised goods or services to a customer
at an amount that reflects the consideration expected to be received in exchange for transferring those goods
and services.
The Corporation’s grain revenue transactions consist of a single performance obligation to transfer promised
goods. The Corporation recognizes revenue when it has fulfilled a performance obligation, which is typically
when the grain is shipped from the Ceres facility. In accordance with IFRS 15, the Corporation follows a
policy of recognizing sales revenue at the time of delivery of the product and when all 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.
The Company adopted IFRS 15 as of July 1, 2018 using the modified retrospective transition method, which
involves not restating periods prior to the date of initial application. The application of IFRS 15 required no
adjustment to the Company’s consolidated financial statements for the year ended June 30, 2019, as the
amount and timing of substantially all of its revenues is, and will continue to be, recognized at a point in
time.
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
41 CERES GLOBAL AG CORP.
19
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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 16 – Leases
In January 2016, the IASB issued IFRS 16, Leases. This new standard requires entities to recognize on its
balance sheet assets and liabilities associated with the rights and obligations created by leases with terms
greater than twelve months. This new standard is effective for annual reporting periods beginning on or after
January 1, 2019, and interim periods within those annual periods. The Company has completed its evaluation
of IFRS 16, including a review of each of its leases. The Company is adopting the new leasing standard
effective July 1, 2019, electing the package of practical expedients, and expects to recognize approximately
$3.6 million in right-of-use assets and lease liabilities on the balance sheet upon adoption. The adoption of
IFRS 16 is not expected to have a significant impact on the Company’s results of operations or cash flows.
(4) SUMMARY OF SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES, AND
ASSUMPTIONS
The timely preparation of consolidated 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. 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 cost of sales. 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.
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 of
local market conditions.
20
2018 ANNUAL REPORT
42
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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 IFRS 9, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate,
with the corresponding gain or loss recognized in profit or loss.
Valuation of investments
Portfolio investments are measured at FVTPL, 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, 2019 and June 30, 2018, the Corporation held $75.1 million and $44.0 million, of inventories
at fair value less costs to sell, respectively. For the year ended June 30, 2019, inventories recognized as an
expense through cost of sales totaled $371 million. For the year ended June 30, 2018, inventories recognized
as an expense through Cost of sales totaled $370 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.
43 CERES GLOBAL AG CORP.
21
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and 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,
2019
June 30,
2018
2,127 $
293
2,420
—
2,420 $
2,216
271
2,487
(564)
1,923
June 30,
2019
June 30,
2018
4,653 $
2,218
6,871 $
4,860
2,429
7,289
$
$
$
$
(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.
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.
22
2018 ANNUAL REPORT
44
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
Due to these factors, Ceres has joint control of Savage Riverport, and accounts for its investment in Savage
Riverport using the equity method.
Beginning investment balance
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
Ending investment in Savage Riverport, LLC
June 30,
2019
June 30,
2018
4,860 $
—
—
4,860
—
(554)
347
4,653 $
—
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,
2019 and 2018:
(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
Loss from continuing operations
Net and comprehensive loss
The following amounts have been included in the
amounts above:
Depreciation and amortization
June 30,
2019
June 30,
2018
457 $
16,070
16,527
390
16,137
697
16,868
17,565
321
17,244
192 $
342
Period ended
June 30,
2019
June 30,
2018
2,846 $
(1,159)
(1,108)
729
(56)
(56)
1,187 $
197
$
$
$
$
45 CERES GLOBAL AG CORP.
23
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and 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, 2019 and June 30, 2018:
Opening net assets of Savage Riverport, LLC
Investment in Savage Riverport, LLC
Working capital contributions
Joint venture net loss
Closing net assets of Savage Riverport, LLC
$
June 30,
2019
June 30,
2018
17,244 $
—
—
(1,108)
16,136
—
17,000
300
(56)
17,244
Corporation's share of net assets at 50%
8,068
8,622
Deferred gain on disposal of asset
Plus: Amortization of deferred gain
Investment in Savage Riverport, LLC
(3,762)
347
$
4,653 $
(3,820)
58
4,860
For the year ended June 30, 2019, 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
loss of $207 thousand compared to 2018 net income of $30 thousand. During the years ended June 30, 2019
and 2018, 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
$
$
Year ended
June 30,
2019
June 30,
2018
891 $
(1,153)
(844)
1,163 $
7,581
301
24
709
(1,462)
(990)
1,606
7,862
106
96
24
2018 ANNUAL REPORT
46
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
For the year ended June 30, 2019, the Corporation’s consolidated profit or loss included the Corporation’s
share in the net loss of SSR’s equity of $216 thousand (2018: net loss of $248 thousand). During the year
ended June 30, 2019 and 2018, the Corporation did not receive a dividend from SSR.
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, 2019 and June 30, 2018:
Investee's equity as at reporting date
Corporation's 25% portion of SSR equity
Goodwill
Carrying Value
June 30,
2019
June 30,
2018
$
$
8,420 $
2,105
113
2,218 $
9,266
2,316
113
2,429
Reconciliation of the Corporation’s share in net income of SSR to carrying value:
(in thousands of USD)
Investee's equity at beginning of year
Ceres' share in SSR net income
Currency translation differences
Balance at June 30, 2019
(8) FINANCIAL INSTRUMENTS
Fair value of financial instruments
Level 3
2,429
(216)
5
2,218
$
$
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,
2019.
47 CERES GLOBAL AG CORP.
25
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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.
Level 1
Level 2
Level 3
Total
June 30, 2019
— $
—
— $
766
1,889
766
—
2,127
—
—
—
—
(1,468)
(289)
(991) $
293
6,171
—
(3,435)
(1,468)
(289)
6,054
$
$
$
(in thousands of USD)
Cash
Portfolio investments
Due from broker, margin
deposits (note 6)
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)
Contingent consideration (note 17)
Stock appreciation right liability
included in accounts payable
(in thousands of USD)
Cash
Portfolio investments
Due from broker, margin
deposits (note 6)
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)
1,889 $
—
2,127
293
—
—
—
—
—
960 $
—
2,216
271
—
—
—
6,171
—
(3,435)
—
—
—
—
8,131
4,309 $
2,736 $
Level 1
Level 2
Level 3
Total
June 30, 2018
— $
—
— $
2,694
960
2,694
—
2,216
—
—
—
—
(564)
—
—
(3,323)
$
1,923 $
4,808 $
2,694 $
26
271
8,131
(564)
(3,323)
9,425
2018 ANNUAL REPORT
48
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
Reconciliation of Level 3 fair values:
(in thousands of USD)
Balance at June 30, 2018
Revaluation of portfolio investments
Currency translation differences
Balance at June 30, 2019
Level 3
2,694
(1,885)
(43)
766
$
$
Management of financial instrument risks
In the normal course of business, the Corporation is exposed to various financial instruments risks, including
market risk (consisting of price risk, commodity risk, interest rate risk and currency risk), credit risk,
custodian and prime brokerage risks, and liquidity risk. The Corporation’s overall risk management program
seeks to minimize potentially adverse effects of those risks on the Corporation’s financial performance. The
Corporation may use derivative financial instruments to mitigate certain risk exposures. The Corporation
may invest in non-public and public issuers and assets.
Price risk
As at June 30, 2019, the Corporation’s market risk pertaining to portfolio investments was potentially
affected by changes in actual market prices. As at June 30, 2019, 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, 2019 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.
The potential effects on the result of operations for the year ending June 30, 2019 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
$
$
77 $
(77) $
0.00
0.00
Commodity risk
Management has determined the effect on the results of operations of the Corporation for the year ended
June 30, 2019 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.
49 CERES GLOBAL AG CORP.
27
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
The potential effects on the results of operations for the year ending June 30, 2019 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
$
$
551 $
(551) $
0.02
(0.02)
As at June 30, 2019, Ceres had no long or short portfolio positions in any interest-bearing investment
securities.
As at June 30, 2019, 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, 2019, 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, 2019, the Corporation’s Credit Facility (as
defined herein) bears interest at an annual rate of overnight LIBOR plus 3.375%. As at June 30, 2019,
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, 2019, the Corporation’s term loan (note 11) bears interest at an annual rate of
one-month LIBOR plus 5.25%. As at June 30, 2019, 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.
On that basis, the potential effects on the results of operations for the year ending June 30, 2019 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
Increase in
net loss
Increase in
loss per share
$
$
86 $
41 $
0.00
0.00
28
2018 ANNUAL REPORT
50
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
Credit risk
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 financial instruments. As at June 30, 2019, 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 $6 thousand was deemed uncollectable and subsequently written off. As at
June 30, 2019, the allowance for doubtful accounts was $57 thousand. Total bad debt expense recorded
during the year ended June 30, 2019 was $20 thousand, which is classified in “General and Administrative
Expenses” in profit or loss.
The Corporation had one customer that represented more than 10% of total revenue for the year ended June
30, 2019, comprising 11.1% of total revenue. For the year ended June 30, 2018, the Corporation had one
customer that individually represented more than 10% of total revenue, comprising of 20% of total revenue.
Custody and prime brokerage risk
There are risks involved with dealing with a custodian or broker who settles 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.
51 CERES GLOBAL AG CORP.
29
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
Liquidity risk
As at June 30, 2019 and June 30, 2018, the following are the contractual maturities of financial liabilities,
excluding interest payments:
June 30, 2019
(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, 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)
Carrying
Amount
Contractual
Cash
Flows
1 Year
2 years
3 to
5 years
More than
5 years
$ 33,694 $ 34,000 $ 34,000 $
— $
— $
—
23,944
23,944
23,944
—
—
—
3,435
19,608
—
28
3,435
20,000
3,107
32
3,435
5,000
608
8
—
5,000
582
8
—
10,000
1,072
16
—
—
845
—
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
—
—
—
—
—
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.
30
2018 ANNUAL REPORT
52
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
As at June 30, 2019, 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
$
(1,317)
The following is a summary of the effect on Ceres’ profit or loss for the year ended June 30, 2019 if the USD
had become 5% stronger or weaker against the CAD as at June 30, 2019, 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
$
$
53 $
(48) $
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 accounts receivable, bank indebtedness, and account payable and accrued liabilities
approximate their fair values as at June 30, 2019 due to the short-term nature of these instruments. The
carrying value of long-term debt approximates fair value as at June 30, 2019 based on current market rates
for similar instruments.
53 CERES GLOBAL AG CORP.
31
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
(9) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at June 30, 2019 and June 30, 2018:
June 30, 2019
(in thousands of USD)
Land
Office
Buildings
Machinery
Silos &
Elevators & equipment
equipment Construction
& other
assets
in
progress
Totals
Cost
June 30, 2018
Additions
Placed in service
Disposals
Currency translation
June 30, 2019
$
20,833 $
—
—
—
47
20,880
70,682 $
—
1,751
—
106
72,539
24,197 $
—
334
—
61
24,592
3,563 $
—
619
(17)
6
4,171
347 $ 119,622
2,381
—
(17)
220
122,206
2,381
(2,704)
—
—
24
Accumulated depreciation
June 30, 2018
Depreciation
Disposals
Currency translation
June 30, 2019
—
—
—
—
—
(9,799)
(2,677)
—
(21)
(12,497)
(4,040)
(1,581)
—
(24)
(5,645)
(1,758)
(309)
7
—
(2,060)
—
—
—
—
—
(15,597)
(4,567)
7
(45)
(20,202)
Carrying amount
June 30, 2019
June 30, 2018
(in thousands of USD)
Land
$
20,880 $
60,042 $
18,947 $
2,111 $
24 $ 102,004
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
$
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 $ 132,530
2,260
—
(13,657)
(396)
(1,115)
119,622
2,260
(2,209)
(62)
—
—
347
Accumulated depreciation
June 30, 2017
Depreciation
Disposals
Impairments
Currency translation
June 30, 2018
—
—
—
—
—
—
(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)
Carrying amount
June 30, 2018
$
20,833 $
60,883 $
20,157 $
1,805 $
347 $ 104,025
32
2018 ANNUAL REPORT
54
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
There were no property, plant and equipment additions that have been accrued but not yet paid as at June 30,
2019 compared to $3.0 million as at June 30, 2018.
Impairments
During the year ended June 30, 2019, there were no asset impairments recorded.
During the year ended June 30, 2018, the Corporation recorded an impairment related to its Calumet facility
(Minneapolis, Minnesota), as the operations had ceased, and the cash flows associated with this specific
asset could no longer support its carrying value. During the year ended June 30, 2018, Ceres recorded a loss
of $236 thousand on the impairment of the Calumet facility.
Disposals
On January 10, 2019, Ceres closed on the sale of its Calumet facility in Minneapolis, MN. The Corporation
recognized a gain of $696 thousand classified within profit or loss as “Gain (loss) on property, plant and
equipment”. There were no other disposals during the year ended June 30, 2019.
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.
(10) BANK INDEBTEDNESS
On February 14, 2019, the Corporation entered into a fourth amended and restated credit agreement led by
Macquarie Bank Limited, as administrative agent on behalf of a syndicate group of lenders which includes
Bank of Montreal and Cooperatieve Rabo Bank U.A. (the “New Credit Facility”). The New Credit Facility
increases the amount of the revolving facility available to Ceres from $67.5 million to $80 million, with the
potential to access an accordion feature that would provide an additional $20 million. The revolving facility
matures on February 13, 2020. The interest rate under the New Credit Facility reflects a reduction of 50 basis
points from Ceres’ prior revolving facility and borrowings bear an annual interest rate of 3.375% plus
overnight LIBOR, and interest is calculated and paid on a monthly basis. The New Credit Facility is subject
to borrowing base limitations. Amounts under the New Credit Facility that remain undrawn are not subject
to a commitment fee. The New Credit Facility has certain covenants pertaining to the accounts of the
Corporation. As at and for the year ended June 30, 2019, the Corporation was in compliance with all
covenants.
As at June 30, 2019 and June 30, 2018, the Corporation had $16.0 million and $26.2 million in availability,
respectively, on its revolving credit facility.
55 CERES GLOBAL AG CORP.
33
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
As at June 30, 2019 and June 30, 2018, the carrying amount of bank indebtedness is summarized as follows:
(in thousands of USD)
Revolving credit facility
Unamortized financing costs
Bank indebtedness
(11) TERM LOAN
June 30,
2019
June 30,
2018
$
$
34,000 $
(306)
33,694 $
11,000
(90)
10,910
On November 15, 2018, the Corporation entered into a $20.0 million term loan agreement with Bixby Bridge
Fund IV, LLC (“Bixby Loan”), subsequently amended on June 26, 2019. A portion of the proceeds of the
Bixby Loan were used to repay all amounts outstanding under the Macquarie Term Loan. The loan is secured
primarily by mortgages on Ceres’ elevator facilities, including; one in Northgate, SK, one in Duluth, MN
and two in Minneapolis, MN. This loan is for a term of 4 years with annual principal payments of $5.0
million due November 15, 2019; November 15, 2020; November 15, 2021; and November 15, 2022.
Pursuant to the agreed upon conditions of the Bixby Loan, Ceres may, at its discretion, repay the balance of
the loan at any time subject to typical notice requirements. This loan has an annual interest rate of 5.25%
plus one-month LIBOR.
Prior to the Bixby Loan, the Corporation had a senior secured term loan facility agreement with Macquarie
Bank (“Macquarie Term Loan”) which was entered into on December 30, 2014 and subsequently amended.
The Macquarie Term Loan had an interest rate of one-month LIBOR plus 5.25%. As at June 30, 2018, the
outstanding principal balance on the Macquarie Term Loan was $10.0 million with a balance of unamortized
financing costs of $0.3 million. During fiscal 2019, the Corporation repaid all amounts under the Macquarie
Term Loan.
In connection with the origination of the Bixby Loan, the Corporation paid transaction costs relating to the
loan closure in the amount of $0.4 million, which included legal fees and other related borrowing costs.
Transaction costs directly attributable to the issuance of the 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.
June 30,
2019
June 30,
2018
(in thousands of USD)
Current portion of term loan
Less current portion of unamortized financing costs
$
Current portion of term loan
Long-term portion of term loan
Less long-term portion of unamortized financing costs
5,000 $
(106)
4,894
15,000
(286)
Total term loan
$
14,714 $
5,000
—
5,000
5,000
(339)
4,661
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 the real property of Northgate; and (iii) a pledge of substantially all of the equity interests
and investment property held by the Corporation.
34
2018 ANNUAL REPORT
56
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and 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, 2019 and 2018:
(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
Accretion of contingent consideration
Finance income (loss)
June 30,
2019
June 30,
2018
$
$
(45) $
—
(1,885)
(138)
(2,068) $
99
30
(486)
—
(357)
(13) INTEREST EXPENSE
The following table presents interest expense for the years ended June 30, 2019 and 2018:
(in thousands of USD)
Interest on revolving credit facility
Interest on repurchase obligations
Interest on term loans
Interest on other financing obligations
Amortization of financing costs paid
Interest expense
(14) EQUITY
(a)
Authorized
June 30,
2019
June 30,
2018
$
$
(2,448) $
(152)
(1,256)
(15)
(681)
(4,552) $
(1,785)
(37)
(892)
(8)
(450)
(3,172)
Unlimited number of voting, participating Common shares, without par value.
(b)
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 may be 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
57 CERES GLOBAL AG CORP.
35
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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
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, 2019, 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, 2019, the outstanding Tandem SARs are as
follows:
Outstanding as at June 30, 2017
Granted
Exercised
Expired/forfeited
Outstanding as at June 30, 2018
Granted
Exercised
Expired/forfeited
Outstanding as at June 30, 2019
Weighted-
average
exercise price
(CAD)
Weighted-
average
remaining
contractual
term (years)
6.00
5.84
—
6.01
5.96
3.68
4.49
5.16
5.17
3.91
4.23
3.17
4.26
2.90
Number of
Options
1,091,879 $
340,500
—
(59,042)
1,373,337
750,000
(27,500)
(265,450)
1,830,387 $
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 2.39%; expected volatility of
20.7%; dividend yield of nil; an average expected option life of 3.25 years; and average exercise price of
CAD $3.68. The weighted average grant date fair value of the Options granted during the year ended June
30, 2019, is CAD $0.67 and CAD $0.42 for the year ended June 30, 2018. As at June 30, 2019, Options had
exercise prices ranging from CAD $3.68 to CAD $6.75 and CAD $5.84 to CAD $6.75 as at June 30, 2018.
36
2018 ANNUAL REPORT
58
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
The total Option compensation cost included in general and administrative expenses for the year ended June
30, 2019, amounted to $195 thousand and $264 thousand for the year ended June 30, 2018, with the non-
cash expense being accrued and classified within contributed surplus in the Consolidated Balance Sheet.
(c)
Issued and outstanding as at June 30, 2019 and June 30, 2018
The following is a summary of the changes in the Common shares for the year ended June 30, 2019 and year
ended June 30, 2018:
Balances, June 30, 2017
Redemption of deferred share units
Directors' remuneration
Balances, June 30, 2018
Redemption of deferred share units
Balances, June 30, 2019
Common shares
Number of
Shares
Amount
(thousands of USD)
27,909,596 $
22,326
3,069
27,934,991
—
27,934,991 $
203,263
82
13
203,358
—
203,358
As at June 30, 2019 and June 30, 2018, directors and officers of the Corporation beneficially own, directly
or indirectly, or exercise control or direction over 44.0% and 43.7%, 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).
59 CERES GLOBAL AG CORP.
37
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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.
The following table summarizes the information related to deferred share units (“DSUs”) outstanding:
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
Issuance of Deferred Share Units
Reclassification of Deferred Share Units
Outstanding as at June 30, 2019
(16) RELATED PARTY TRANSACTIONS
Key management personnel
Number of
DSUs
Amount
(thousands of USD)
183,585 $
91,244
(22,326)
—
252,503
104,527
—
357,030 $
771
323
(82)
(211)
801
318
268
1,387
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,
2019
June 30,
2018
$
$
1,551 $
446
1,997 $
1,090
233
1,323
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 $80 thousand is included in total revenue for the fiscal year 2019 compared to
related party revenue of $13 thousand in fiscal year 2018. Related party expenses recorded in cost of sales
are $1.3 million for the fiscal year 2019 and $240 thousand for fiscal year 2018. As at June 30, 2019, the
accounts receivable, due from Savage Riverport, LLC totaled $134 thousand ($29 thousand in 2018) and
accounts payable, due to Savage Riverport, LLC totaled $51 thousand ($36 thousand in 2018).
38
2018 ANNUAL REPORT
60
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
(17) BUSINESS COMBINATION
On July 11, 2018, the Company acquired 100% of the equity of Natures’ Organic Grist, LLC ("NOG"), a
supplier of organic grains and ancient grains (including emmer and einkorn), milled flours, and feed
products, for consideration as follows:
• Cash consideration $2.8 million paid at closing, with an additional payment of $0.5 million paid one month
following the close for working capital acquired; and
• A performance based earn-out of up to $3.2 million based on total NOG performance over a three-year
period following closing which was fair valued at $1.3 million using a discounted cash flow model and a
probability factor of 50% for each of the three years of the contingent payments and a 10% discount rate.
This model is based on forecasted gross margin based on the information available as of the reporting date.
The present value of the performance based earn-out is revalued each period. Accretion of contingent
consideration recorded in finance income is $0.2 million for the year ended June 30, 2019, bringing the
current contingent consideration to $1.5 million.
(in thousands of USD)
Cash consideration
Working capital
Fair value of contingent consideration
Total consideration
July 11,
2018
2,800
475
1,330
4,605
$
$
61 CERES GLOBAL AG CORP.
39
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
The acquisition of NOG was accounted for as a business combination. The purchase price has been allocated
to the assets acquired and liabilities assumed based on their fair values as follows:
(In thousands of USD))
Cash
Accounts receivable
Inventory
Intangible assets
Open grain contracts
Organic supply contracts
Total assets acquired
Accounts payable and accrued liabilities
Total liabilities assumed
Net assets acquired
Amounts
Recognized as of
the Acquisition
Date
Measurement
Period
Adjustments (a)
Amounts
Recognized as of
June 30, 2019
$
$
936 $
274
511
3,968
—
—
5,689
1,084
1,084
4,605 $
— $
—
—
(3,968)
731
3,237
—
—
—
— $
936
274
511
—
731
3,237
5,689
1,084
1,084
4,605
(a) During the measurement period, the Corporation recorded certain adjustments to the purchase price
allocation including the identification of open grain contracts and organic supply contracts.
The grain contracts are amortized as bushels are delivered on those contracts. The organic supply contract is
amortized on a straight-line basis over the life of the contract, which ended in June 2019. The amortization
expense of the intangible assets is as follows:
(in thousands of USD)
Intangible assets at July 11, 2018
Amortization grain contracts
Amortization supply contract
Net intangible assets at June 30, 2019
(18) SEGMENT REPORTING
Amount
3,968
(731)
(3,237)
—
$
$
As at June 30, 2019, the Company had three reportable segments: Grain, Supply Chain Services, and
Corporate. As at June 30, 2019, the Company had two operating segments: Grain and Supply Chain Services.
The Corporation’s Grain segment is engaged in grain procurement and merchandising of specialty grains
and oilseeds such as oats, barley, rye, hard red spring wheat, durum wheat, canola, and pulses. The Supply
Chain Services segment utilizes the Corporation’s facilities to provide logistics services, storage, and
transloading for commodities and industrial products.
40
2018 ANNUAL REPORT
62
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
During the previous fiscal year, the Corporation had one reportable segment and two operating segments.
Therefore, the information below restates the financial information for twelve months ended June 30, 2018
in the three new reporting segments. Management reporting comprises analysis of revenue and gross profit
within two distinct operating divisions. Corporate oversees and administers the operating divisions. Items
included in the Corporate segment include but are not limited to the following: interest and amortization of
prepaid loan fees related to the Term Loan, Scoular legal settlement (note 20) expense, administrative
personnel salaries, business development expenses, share in net income (loss) of associates, gain (loss) on
sale of property plant and equipment, revaluation of portfolio investments, and gain (loss) on foreign
exchange. The chief operating decision maker focuses on revenues and costs by operating segment, but
manages assets and liabilities on a global basis.
The following table presents information about reported segment profit or loss from the Statement of
Comprehensive Income (Loss) for the twelve months ended June 30, 2019:
(In thousands of USD)
Grain
Supply-
Chain
Services
Corporate
Total
Revenues
Cost of sales
$
430,095 $
(418,015)
8,301 $
(6,061)
— $
—
438,396
(424,076)
Gross profit
General and administrative expenses
Income (loss) from operations
Finance income (loss)
Revaluation of stock appreciation right
liability
Amortization of intangible asset
Interest expense
Legal settlement
Gain (loss) on property, plant and equipment
Income (loss) before income taxes
Income tax (expense) recovered
Share of net income (loss) of associates
12,080
(5,972)
6,108
(138)
—
(3,968)
(2,877)
—
—
(875)
—
—
2,240
(415)
1,825
—
—
—
—
—
—
—
(6,644)
(6,644)
(1,930)
379
—
(1,675)
(8,228)
696
1,825
—
—
(17,402)
4
(423)
14,320
(13,031)
1,289
(2,068)
379
(3,968)
(4,552)
(8,228)
696
(16,452)
4
(423)
Net income (loss)
$
(875) $
1,825 $
(17,821) $
(16,871)
63 CERES GLOBAL AG CORP.
41
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
The following table presents information about reported segment profit or loss from the Statement of
Comprehensive Income (Loss) for the twelve months ended June 30, 2018:
(In thousands of USD)
Grain
Supply-
Chain
Services
Corporate
Total
Revenues
Cost of sales
Gross profit
General and administrative expenses
Income (loss) from operations
Finance income (loss)
Interest expense
Gain (loss) on equity investment
Gain (loss) on property, plant and equipment
Income (loss) before income taxes
Income tax (expense) recovered
Share of net income (loss) of associates
$
399,848 $
(394,211)
11,274 $
(5,241)
— $
—
411,122
(399,452)
5,637
(7,606)
(1,969)
—
(2,273)
3,675
—
(567)
—
—
6,033
(1,795)
4,238
—
—
—
—
4,238
—
—
—
(2,492)
(2,492)
(357)
(899)
—
(299)
(4,047)
38
(218)
11,670
(11,893)
(223)
(357)
(3,172)
3,675
(299)
(376)
38
(218)
(556)
Net income (loss)
$
(567) $
4,238 $
(4,227) $
(19) 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.
42
2018 ANNUAL REPORT
64
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and 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 years ended
June 30,
2019
June 30,
2018
$
$
Income (loss) before income and taxes and share of
net income (loss) of associates:
Canada
Mexico
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
$
(7,928)
12
(8,536)
(16,452)
$
26.5%
(4,360)
(171)
(325)
(282)
5,129
5
4,356
Income tax expense (recovered)
$
(4)
$
(3,352)
-
2,976
(376)
26.5%
(100)
157
18
(45)
(36)
(32)
62
(38)
65 CERES GLOBAL AG CORP.
43
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
The components of the provision for income taxes for the years ended June 30, 2019 and 2018 are as follows:
Canada
Mexico
Current
Deferred
Current
Deferred
United States of America - Federal
Current
Deferred
United States of America - State
Current
Deferred
2019
$
-
-
2018
$
-
-
2019
-
-
(2)
(2)
-
-
-
-
(2)
(2)
-
2018
$
-
-
-
113
(172)
(59)
21
-
21
Income tax expense (recovered)
$
(4)
$
(38)
44
2018 ANNUAL REPORT
66
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
(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:
(In thousands of USD)
Deferred tax assets:
Non-capital and net operating losses carried-forward
Amortization of grain and supply contracts
Interest expense limitation
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
Unrecognized deferred tax assets
Non-current deferred tax asset, net
(c) Tax losses carried forward
(i) Operations in Canada
For the years ended
June 30,
2019
June 30,
2018
$
32,661
902
880
784
732
2
$
29,191
-
-
960
730
89
861
36,822
(9,467)
(1,172)
-
(10,639)
(26,183)
533
31,503
(9,003)
(1,323)
-
(10,326)
(21,005)
$
-
$
172
As at June 30, 2019, the Corporation has accumulated non-capital losses in the amount of CAD $76.9 million
relating to its operations in Canada.
67 CERES GLOBAL AG CORP.
45
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
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
2039
Amount in CAD
401
7,335
6,549
13,586
8,198
10,777
7,008
12,070
11,028
76,952
$
$
As at June 30, 2019, Ceres has accumulated capital losses totaling CAD $7.75 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
As at June 30, 2019, 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
2039
$
-
-
-
-
-
5,472
3,686
8,570
12,773
-
26,591
5,310
3,618
-
840
$
3,387
1,724
6,335
9,210
-
9,847
2,188
2,072
-
772
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
617
6
-
-
-
$
-
-
-
-
-
400
201
124
68
-
121
91
40
-
31
$
-
-
1,208
1,764
-
-
-
-
-
-
311
111
41
-
38
$
66,860
$
35,535
$
623
$
1,076
$
3,473
46
2018 ANNUAL REPORT
68
Ceres Global Ag Corp.
Notes to the Consolidated Financial Statements
June 30, 2019 and June 30, 2018 (Expressed in USD)
(20) LEGAL
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, 2019 and June 30, 2018, 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). Scoular filed a breach of contract claim
for injunctive relief and unspecified damages. On October 5, 2018, the Corporation settled the lawsuit for
$11.3 million, of which $3.1 million was previously accrued, resulting in the recognition of an $8.2 million
expense recorded in profit or loss for the year ended June 30, 2019. As at June 30, 2019, the $11.3 million
Scoular settlement has been paid in full.
(21) SUBSEQUENT EVENTS
On July 1, 2019, the Corporation formed a joint venture with Steel Reef Infrastructure Corp. to transload
hydrocarbon products at the Corporations Northgate facility. The Corporation owns 50% of the joint venture.
On August 16, 2019, the Corporation acquired 100% of the equity of Delmar Commodities, Ltd., a Canadian
agricultural processing and supply chain company for a purchase price of CAD $15.3 million exclusive of
closing costs. The purchase price was paid in cash using a portion of the net proceeds from the New Credit
Facility. In addition, the Corporation assumed $7.6 million in debt. The Corporation amended its term loan
with Bixby and increased the amount borrowed from $20 million to $35 million. The new amended
agreement requires a payoff of the loan of $5 million in November 2020 and an additional $5 million payoff
in November 2021. The remaining $25 million is due upon maturity in 2022. The Corporation acquired
Delmar in order to increase grain origination assets as well as diversify products. As of the issuance date the
Corporation has not completed the initial accounting for the business combination and is unable to disclose
certain information.
69 CERES GLOBAL AG CORP.
47
corporate
information
SENIOR MANAGEMENT
Robert Day
President and Chief
Executive Officer,
Board Member
DIRECTORS
Douglas Speers
Independent Director,
Chairman of the Board,
Member of the Human
Resources, Safety and
Environment Committee
Kyle Egbert
Vice President and
Chief Financial Officer
Glen Goldman
Vice President, General
Counsel and Corporate
Secretary
Sarah Blomquist
Vice President, Human
Resources and Corporate
Administration
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
Independent Director,
Member of Audit
and Finance Committee
CORPORATE OFFICE
701 Xenia Ave S., Suite 400
Golden Valley, MN 55416 USA
REGISTERED OFFICE
155 Wellington West, 40th floor
Toronto, ON M5V 3J7
TRANSFER AGENT
AST Trust Company (Canada)
AUDITORS
Baker Tilly WM LLP
900–400 Burrard Street
Vancouver, BC V6C 3B7
INVESTOR CONTACT
Katelynn Thissen
NATIONAL, Capital Markets
T: 416-848-1427
E: kthissen@national.ca
AGM
Ceres Global Ag Corp.
Annual General Meeting
November 20 at 11:00 am EST
NATIONAL Public Relations
320 Front Street West, Suite 1600
Toronto, ON M5V 3B6
ceresglobalagcorp.com