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Participants

Blake Amundson; VP & CFO; Ceres Global Ag Corp.

Carlos Esteban Paz; CEO, President & Director; Ceres Global Ag Corp.

Presentation

Operator

Good morning, everyone. Welcome to Ceres Global Ag’s earnings call for their fourth quarter and full year results for financial year 2023.
(Operator Instructions)
I would like to remind everyone that today’s discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks and uncertainties related to these forward-looking statements, please refer to the company’s management’s discussion and analysis, which is available on SEDAR and on the company’s website. I would like to turn the call over to Carlos Paz CEO of Ceres Global Ag. Please go ahead, Mr. Paz.

Carlos Esteban Paz

Thank you, operator, and good morning, everyone. Our business has evolved significantly over the past year and we thought it would be an opportune time to disclose our progress and the solid foundation we built for achieving our vision in the next fiscal year and beyond.
This year, markets were volatile due to a variety of geopolitical and climate-related factors. Russia exited the Black Sea grain deal on July 17 and has since attempt to contain Ukraine’s alternative export channels, southern supply concerns, particularly for developing countries, historically supplied by Ukraine. Although overall market volatility has lessened compared to the start of the conflict, southern changes may lead to higher volatility returning to markets. Thus, we continue to keep a close eye on the conflict to position ourselves accordingly.
We saw an unprecedented drought in South America in the second quarter and experience dry and hot weather across the U.S. Northern Plains and Canadian Prairies during Q4. There have been reports that parts of the Canadian Prairies experienced the second dry year in 45 years, further contributing to market volatility.
A large part of our ability to navigate this theoretic and volatile markets comes on to our team’s experience in recognizing early crop development. By leveraging our knowledge of markets and expertise in trading, we efficiently utilize our asset footprint and network partners to effectively position our business resulting in another year of positive adjusted net income.
Despite challenging micro conditions, we handled 2% higher volume compared to last year. Driven in part by our farmer-direct origination strategy, 2 significant contributors to our growth were based on our 2 joint ventures. One, with Berthold Farmers Elevator in North Dakota; and second with Farmers Grain co-op in Thief River Falls, Minnesota.
Volumes handled at our vertical JV increased by 90% in the fourth quarter and 17% in fiscal year 2023 compared to the same period last year. This growth demonstrates our ability to maximize the value of our assets, diversals, JVs, role as a brief shift for Ceres to reach producers and offer solutions for our end users.
As we conclude the first full fiscal year of operating with expanded unit train capacity, at our joint venture facility with Farmer’s Grain co-op in Thief River Falls. Volumes handled increased by 35% in the fourth quarter and by 177% in 2023 compared to the same periods last year. We’ve also made operational improvements by recruiting a new general manager and great merchandiser for the JV. And we are currently in discussion with railroads to secure freight capacity and rate — and rail execution for future harvest, which will set a strong foundation for long-term success.
In the Supply Chain Services segment, Industrial product volumes were higher compared to the fourth quarter last year, mainly due to greater demand for chemicals and adequate rail performance. While fertilizer volumes were lower in Q4, natural gas liquid volumes continue to trend higher on a quarterly basis due to the commissioning of the Gateway pipeline connection to Northgate and the origination and marketing efforts of our joint venture partner, Steel Reef Infrastructure Corp.
Overall, Q4 gross margins and volumes were the strongest we saw this fiscal year, up 7% and 24%, respectively. In the Seed and Processing segment, quarterly soybean crush volumes through our Jordan, Manitoba plant were similar compared to the fourth quarter of the prior year. And yearly volumes were 5% higher than fiscal year 2022 due to improvements in operational efficiency and effective merchandising. On July 1, and align with our strategic vision for the year, we exited the Seed — production and distribution business by ending our distribution agreements with Sevita International and Horizon Fleets Canada to focus on our core business.
I will speak about our outlook and the company’s plans for growth in a few minutes. But first, I’d like to turn things over to Blake to review our financial results for the quarter. Blake?

Story continues

Blake Amundson

Thank you, Carlos, and good morning, everyone. Before I begin, please note that all dollar amounts expressed in today’s call are in U.S. dollars, unless otherwise stated. For definitions, and reconciliations of non-IFRS measures, including reference adjusted EBITDA, working capital and adjusted net income, please refer to Section 8 of this quarter’s MD&A.
Starting with financials for the quarter, revenue was $205.7 million, down from $278.2 million as a result of higher commodity prices in the same period last year. Gross profit was $4.9 million compared to $3.7 million in Q4 of last year, mainly due to improved positioning in our core commodities and an increase in gross margins from our Jordan, Manitoba crush facility.
Income from operations was negative $1.8 million compared to negative $329,000 in Q4 last year. Net income was negative $2.5 million or negative $0.08 per share up from negative $22.5 million or negative $0.73 per share, primarily due to the write-off of the Northgate crush plant project in the fourth quarter of 2022.
Adjusted EBITDA rose slightly from $2.7 million to $2.8 million in Q4 2023. Adjusted net income was $1.5 million, down from $5 million in Q4 of last year, largely due to the $3.7 million gain that was recognized in Q4 of last year on the sale of the St Agathe facility.
Moving on to the financials for the fiscal year. Gross profit was $22.8 million, down from $55.9 million in 2022, primarily due to fewer trading opportunities across our core commodities. Revenue was $1.04 billion, down slightly from $1.06 billion due to higher commodity prices last year. We handled and traded 98.5 million bushels of grain and oilseed during the year, an increase of 2% compared to 96.6 million bushels in the previous year.
Income from operations was negative $2.7 million compared to $24 million in 2022. Net income was negative $7.9 million or negative $0.25 per share up slightly from negative $8.8 million or negative $0.29 per share in the previous year.
We maintained positive adjusted EBITDA and adjusted net income this year, realizing $7.2 million and $2.8 million, respectively, compared to $32 million and $21.8 million for the same period last year. Net trading margin was $31.6 million, down from $62.9 million in the prior year due to fewer trading opportunities across multiple commodities.
Supply Chain Service revenue was $7.7 million, down slightly from $8 million in 2022, mainly due to the sale of the Port Colborne facility in February 2023. Our net Seed and Processing margin was $6.6 million in 2023 compared to $8.3 million last year. primarily due to the sale of the St Agathe Bird Food plant that occurred in Q4 of 2022.
General and administrative expenses were $25.5 million in 2023 down from $31.9 million as a result of higher incentive accruals related to our operations in the previous year, partially offset by increased severance costs and the legal settlement reserve established in fiscal year 2023.
Regarding the legal reserve as it relates to the CFTC investigation, please refer to Section 7 of this quarter’s MD&A.
Interest expense was $6.2 million, up from $4.8 million in 2022, primarily due to higher term loan interest expense. There was an income tax recovery of $865,000 this year compared to an income tax expense of $5.9 million in 2022. At the end of the fiscal year 2023, we had $44.9 million of working capital.
This concludes my review of our financials. For more information, please refer to our MD&A and financial statements. I’ll now turn it back to Carlos to provide some comments on our outlook for the next fiscal year and the progress that we’ve made over the past year.

Carlos Esteban Paz

Thank you, Blake. Looking forward, with the drought negatively affecting crops in the U.S. Northern Plains and the Canadian Prairies, we expect that volume handle for fiscal year 2024 have the potential to be lower than initially expected. Regardless of weather conditions, our team is closely monitoring how this crops evolve to position our business accordingly and capitalize the market opportunities as they arise.
In the Supply Chain Services segment, we expect farmer’s demand for crop inputs, including fertilizers, to drive increased volumes in the fall. And we expect industrial product volumes to trend higher to replenish supply chains. With the completed commissioning of the pipeline connection to Steel Reef (inaudible) facility in North Port of Saskatchewan, we expect NGL throughput volumes to increase at our Gateway joint venture from previous years.
For our Processing segment, we expect an average soybean crop from the higher acres planted in Manitoba to produce adequate volumes, which will allow our crush plant to be utilized at an elevated capacity and produce adequate margins during Q1.
I would like to now take a step back, zoom out and discuss on a broader level, our progress over the past year and how we plan to leverage the solid foundation we built to achieve our vision. As you all know, there have been some changes to our team over the past year. And we’ve spent significant effort and energy in consolidating our business to position ourselves for success.
The sale of Port Colborne facility and the exit from wholesale distribution activities in our seed business are 2 clear examples of this. In alignment with Ceres Vision, we’re continuing to focus our resources on maximizing our network of partners and finding creative capital efficient ways to increase our farmer-direct origination, thus enabling our customers to achieve the supply chain and regenerative ag goals.
This year, we’ve seen positive results from connecting growers to end user businesses and how that has led to promoting more efficient growing practices among our farmer partners. As concerns about environmental sustainability continue to escalate, the importance of regenerative agriculture will continue to grow. Developing regenerative agriculture and supply chain solutions will be a core long-term priority for us in the future.
Of course, effective trading and merchandising remain the underpinnings of our growth strategy as we fulfill the increasing demand for our core products. As we continue to capitalize on synergies across our asset footprint and network of partners, we look forward to sharing developments related to our regenerative agriculture efforts and other areas of growth over the next fiscal year. On that note, I would like to open the call for questions.

Question and Answer Session

Operator

(Operator Instructions) And at this time, sir, it appears we have no questions. Please proceed with any closing remarks.

Carlos Esteban Paz

Thank you, operator, and thank you, everybody, for your participation in today’s call. We appreciate your support, and we look forward to speaking with you again next quarter.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.