Ridley Inc. Reports Financial Results for Fiscal 2013 Second Quarter

Transcription

1 NEWS RELEASE RIDLEY Inc. Trading symbol: RCL on The Toronto Stock Exchange FOR IMMEDIATE RELEASE Ridley Inc. Reports Financial Results for Fiscal 2013 Second Quarter MANKATO, MINNESOTA (February 4, 2013) Ridley Inc. (TSX: RCL) today reported its financial results for the three and six months ended, All currency amounts are stated in U.S. dollars unless otherwise noted. For the three months ended, 2012, Ridley s earnings before interest, taxes, depreciation and amortization (EBITDA (i)) from continuing operations were $10.9 million compared to $7.9 million last year. Net income from continuing operations (net of income tax expense) for the period was $5.9 million (earnings per share of $0.46) compared to $3.8 million (earnings per share of $0.30) last year. Consolidated net income for the period (after income taxes) was $6.6 million ($0.51 per share) compared to $4.0 million ($0.31 per share) last year. For the six months year-to-date, Ridley reported EBITDA from continuing operations of $20.9 million compared to $12.6 million for the same period last year. Net income from continuing operations (net of income tax expense) for the year-to-date was $11.2 million (earnings per share of $0.88) compared to $5.3 million (earnings per share of $0.42) last year. Consolidated net income for the year-to-date was $11.8 million ($0.92 per share) compared to $4.7 million ($0.37 per share) last year. Ridley s revenues from continuing operations grew by 7.4% to $157.1 million in the second quarter this year, primarily a result of higher raw material prices relative to the same period last year and a continuing shift in product mix towards higher value added products. Overall tonnage volumes were lower by 1% from the same period last year as gains in feed supplements and blocks were offset by lower volumes of complete feeds. Sales volume in the second quarter continued to benefit from strong demand for feed supplements in the beef and dairy sectors resulting from drought in the United States. Gross profits from continuing operations increased by 17.4% in the second quarter to $21.4 million, partly from growth in volumes of higher value-added products and lower production costs, but mainly the result of increased average unit margins relative to last year when feed ingredient prices were declining. U.S. Feed Operations (USFO) and Ridley Block Operations (RBO) produced strong results in the second quarter of fiscal 2013 on increased volumes of feed supplements and blocks in the beef cattle sector and improved unit margins from rising commodity prices and favorable product mix. USFO operating income increased by $1.7 million to $3.5 million in the quarter while RBO operating income increased by $1.4 million to $6.1 million. Ridley Feed Ingredients (RFI) reported improved gross profit in the second quarter as lower manufacturing overheads offset reduced volumes and the negative effect on unit margins of declining market prices for vitamins and other micro feed ingredients. On November 28, 2012, Ridley acquired substantially all of the assets and assumed certain liabilities of Stockade Brands Inc. a privately held manufacturer of blocks, loose minerals and dried molasses products. The Stockade business will be integrated and reported within the RBO segment. On November 30, 2012 Ridley and Masterfeeds Inc. completed the merger of their respective commercial livestock and poultry feed and nutrition businesses in Canada into a new limited partnership called Masterfeeds LP. The merger creates the second largest feed provider in Canada operating, among other things, 22 feed manufacturing plants and employing over 500 people in a business spanning Quebec,

2 Ontario and the Prairie Provinces. Starting in the second quarter of fiscal 2013, Ridley s operations in Canada, previously reported as the Canadian Feed Operations (CFO) segment, are now reported as discontinued operations. Prior period results have been re-presented to reflect discontinued operations. Ridley owns a non-controlling interest in the limited partnership, Masterfeeds LP. Since start-up on December 1, 2012, Ridley s share of the earnings of Masterfeeds LP, reported in continuing operations as share of income of associate, was $0.2 million in the second quarter of fiscal MANAGEMENT S DISCUSSION AND ANALYSIS This Management Discussion and Analysis dated as at February 4, 2013 and the accompanying interim consolidated financial statements for the three and six months ended, 2012 have been prepared in accordance with Canadian generally accepted accounting principles ( GAAP ) which incorporate International Financial Reporting Standards ( IFRS ). Second Quarter Results The following summary data is presented to assist in understanding the fiscal 2013 second quarter results. Summary of Results Three months ended Six months ended ($ million except for EPS) Continuing Operations (i) Revenue $157.1 $146.3 $300.1 $273.2 Gross profit Operating income Net income from continuing operations Earnings per share (EPS), from continuing operations $0.46 $0.30 $0.88 $0.42 EBITDA (ii) Net income (loss) from discontinued operations $0.7 $0.1 $0.6 $(0.7) Net income for the period Earnings per share (EPS), basic and diluted $0.51 $0.31 $0.92 $0.37 (i) Continuing Operations excludes the results of the Company s feed manufacturing operations in Canada previously reported as the Canadian Feed Operations (CFO) segment and now comprising discontinued operations. (ii) EBITDA Operating income before depreciation, amortization and exceptions. EBITDA does not have a standardized meaning prescribed by GAAP and, therefore, is not readily comparable to similar measures presented by other companies. However, management believes that this measure provides investors with useful supplemental information. Consolidated Second Quarter Results Revenue from continuing operations was $157.1 million in the second quarter of fiscal 2013, an increase of $10.8 million over the same period last year. A comparison of revenue is not necessarily indicative of the strength of Ridley's business because revenue is influenced by fluctuating commodity prices. Raw material prices were generally higher this year than the same period last year, which had the effect of increasing average unit selling prices for the Company s feed products. Overall sales volume, as measured in tons of feed products sold, was lower by 1.0% in the second quarter reflecting mainly the shift in product mix from complete feeds to higher value-added products. Consequently, the 7.4% increase in sales revenues in the second quarter was largely the result of higher raw material prices relative to last year and continually improving product mix. Sales volume in the second quarter continued to benefit from higher demand for feed supplements in the beef and dairy sectors resulting from drought in the United States. Although the beef cattle population has declined for several years, tighter stocks have meant significantly improved cattle prices enabling cow/calf producers to operate profitably during the quarter. Consolidated gross profit from continuing operations in the second quarter of fiscal 2013 was $21.4 million compared to $18.2 million in the same period last year. The increase of $3.2 million in gross profits in the - 2 -

3 second quarter is largely the result of the continuing shift in product mix to higher value-added products, particularly feed supplements and blocks, and an increase in average unit margins relative to last year when feed ingredient prices were declining. Direct production costs and manufacturing overheads, included in reported gross profits, were lower by 2.5% in the second quarter from last year. Operating expenses, which include technical services, selling, administration expenses and research and development, were $12.2 million in the second quarter of fiscal 2013, unchanged from last year. EBITDA is comprised of operating income of continuing operations before depreciation, amortization and exceptions. For the three months ended, 2012 EBITDA was $10.9 million compared to $7.9 million for the same period last year. There were no material exceptions in the second quarter of this year or the prior year. Net income from continuing operations, net of income tax expense, for the second quarter of fiscal 2013 was $5.9 million (earnings per share of $0.46) compared to $3.8 million (earnings per share of $0.30) in the same period of fiscal Discontinued operations are comprised of the Company s feed manufacturing business in Canada, previously reported as the Canadian Feed Operations (CFO) segment, which was merged into a limited partnership with Masterfeeds Inc. in the second quarter this year. The Company owns a non-controlling interest in the limited partnership, Masterfeeds LP. Prior period results have been re-presented to reflect discontinued operations. Net income from discontinued operations was $0.7 million compared to $0.1 million last year. Since start-up on December 1, 2012, the Company s share of the earnings of Masterfeeds LP, reported as share of income of associate, was $0.2 million. Including income from discontinued operations and share of income of associate, the Company reported net income after taxes for the second quarter of $6.6 million (earnings per share of $0.51) compared to $4.0 million (earnings per share of $0.31) in the same period last year. Consolidated Six Months Results For the six months ended, 2012, revenue of $300.1 million from continuing operations was $26.9 million higher than the same period last year. Higher feed ingredient prices account for the major part of the increase in revenues in the first half of fiscal An increase of 2.8% in sales volume, mainly in feed supplements and blocks, also contributed to the 9.9% increase in sales revenue in the year-to-date. Factors bearing on sales volume in the first half of fiscal 2013 included generally favorable economic conditions for livestock and poultry producers and increased demand for feed supplementation during the drought in the U.S. Consolidated gross profit from continuing operations for the first half of fiscal 2013 was $41.1 million compared to $33.1 million in the year-to-date last year. Average unit margins increased this year from generally higher feed ingredient prices and the continuing shift in product mix to higher value-added products. Direct production costs and manufacturing overheads, included in reported gross profits, increased by 1.8% in the first half. Operating expenses of continuing operations in the first half of fiscal 2013 were $23.6 million, a decrease of $0.9 million from last year. Other expense in the first half this year includes a reduction of $0.4 million in bad debts provisions. The loss on sale of facilities of $0.3 million in the first quarter of fiscal 2012 relates to the disposal of previously closed facility in Syracuse, Indiana. EBITDA from continuing operations in the first six months of fiscal 2013 was $20.9 million compared to $12.6 million for the same period last year. EBITDA is comprised of operating income before amortization and exceptions. There were no material exceptions in the first half of the current year. Exceptions in the prior year were comprised of a $0.2 million loss net of income taxes on the sale of a redundant facility. Net income from continuing operations, net of income tax expense for the six months ended, 2012 were $11.2 million (earnings per share of $0.88) compared with net earnings after taxes of $5.3 million (earnings per share of $0.42) in the same period last year. Net income from discontinued operations was $0.6 million compared to a loss of $0.7 million last year. Including income from - 3 -

4 discontinued operations and share of income of associate, the Company reported net income after taxes for the second half of fiscal 2013 of $11.8 million (earnings per share of $0.92) compared to $4.7 million (earnings per share of $0.37) in the same period last year. Comprehensive Income Comprehensive income (loss) is the change in net assets that results from transactions, events and circumstances from sources other than investments by and/or distributions to shareholders. Other comprehensive income (OCI) is comprised primarily of unrealized gains and losses on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency. Comprehensive income in the second quarter of fiscal 2013 was $8.4 million which was comprised of net income of $6.6 million, as reported above, less unrealized loss of $0.3 million on the translation of the financial statements of Canadian entities to U.S. currency, plus reclassification of $2.1 million of accumulated currency translation losses from equity to net income related to the transfer of Canadian assets to Masterfeeds LP in the second quarter this year. EBITDA Three months ended Six months ended ($ million) Net earnings $5.9 $3.8 $11.2 $5.3 Provision for income taxes Share of income of associate (0.2) - (0.2) - Finance expense Finance income (0.1) (0.1) (0.1) (0.1) Operating income $9.2 $6.0 $17.5 $8.7 Amortization of property, plant and equipment Other amortization Loss on sale of facilities EBITDA $10.9 $7.9 $20.9 $12.6 SEGMENT RESULTS In the second quarter of fiscal 2013, the Company modified its reporting segments to eliminate the Canadian Feed Operations (CFO) segment following the sale of substantially all of the assets of its Canadian operations to Masterfeeds LP. The following is a summary of operating income (loss) of the reporting segments of the Company s continuing operations. Operating Income (Loss) Three months ended Six months ended ($ million) U.S. Feed Operations (USFO) $3.5 $1.8 $6.9 $2.2 Ridley Feed Ingredients (RFI) Ridley Block Operations (RBO) Corporate (0.8) (0.7) (1.4) (1.5) Consolidated operating income from continuing operations $9.2 $6.0 $17.5 $8.7 U.S. Feed Operations (USFO) The U.S. Feed Operations (USFO) segment consists of twenty-one full-line production facilities operating in the United States producing and marketing products for the core animal nutrition market. USFO plants derive most of their business by manufacturing and marketing a broad range of complete feeds, supplements and premixes to meat, milk and egg producers, and owners of equine and companion animals located mostly in the Midwestern United States. Tonnage volume was lower by 2.0% in the second quarter of fiscal 2013 compared to last year. Lower volumes in the second quarter reflect the shift in product mix from complete feeds to higher value-added products. Feed supplements were in higher demand in the - 4 -

5 second quarter due to continuation of drought conditions in the United States. For the year-to-date, USFO volumes were higher by 2.8% over last year. Gross profits in the second quarter this year were $11.1 million compared to $9.6 million in the same period last year. Average unit margins were higher this year over last year when unit margins were negatively affected by declining commodity prices. Gross profits for the six months year-to-date were higher by $4.0 million, also reflecting improvement in average unit margins over last year when commodity prices were declining. Operating expenses in the second quarter were lower by $0.2 million and were $0.7 million lower for the year-to-date on reduced administrative expenses. Operating income for the quarter was $3.5 million, an increase of $1.7 million from last year. For the year-to-date operating income was $6.9 million compared to $2.2 million for the same period last year. Ridley Feed Ingredients (RFI) The Ridley Feed Ingredients (RFI) segment produces and distributes vitamin and trace mineral premixes, small packaged specialty products, medicated and non-medicated feed additives and micro feed ingredients to customers throughout North America from its facility in Mendota, Illinois. Revenue in the second quarter of fiscal 2013, including intersegment sales, decreased by 7.5% from the same period last year as a result of declining prices and lower volumes from last year in feed-grade vitamins and amino acids, which comprise a significant part of RFI s manufactured and resale products. Gross profit in the second quarter this year of $1.4 million was higher by $0.2 million or 14.3% over last year as lower manufacturing overheads offset reduced volumes and the negative effect on unit margins of declining market prices for feed ingredients. For similar reasons, gross profit for this year-to-date of $2.9 million was $0.1 million over last year. Operating expenses in the second quarter were almost even with the prior year but lower by $0.1 million for the year-to-date on reduced administrative expenses. Operating income for the quarter was $0.4 million, an increase of $0.2 million over last year. For the year-to-date, operating income was $1.1 million compared to $0.9 million last year. Ridley Block Operations (RBO) The Ridley Block Operations (RBO) segment manufactures a complete range of block supplements, including low moisture, pressed, compressed, composite and poured blocks, loose minerals and dried molasses from eight U.S. facilities. Tonnage volume in the second quarter of fiscal 2013 was ahead of last year by 8.5% on higher demand for feed supplements due to continuation of drought in the United States. For the year-to-date, RBO volumes were 14.0% ahead of last year as a result of a favourable beef cattle economy and continued effects of drought. Gross profits of $8.9 million in the second quarter this year were higher $1.5 million over last year as a result of increased volumes and higher average unit margins resulting from continuing improvements in product mix. For the six months year-to-date, gross profits were ahead of last year by $3.8 million on increased tonnage volumes and improved average unit margins. Operating expenses in the second quarter of fiscal 2013 increased by $0.1 million over last year but were unchanged for the six months year-to-date. Operating income increased over last year by $1.4 million in the second quarter and $3.8 million for the year-to-date in line with the increase in gross profits and good control of overhead expenses

6 Liquidity/Capital Resources/Cash Flow Ridley s working capital and debt-to-equity positions are summarized below. Balances ($000) as of: 2012 September June March Non-cash working capital (i) $32,723 $46,336 $39,067 $46,556 $45,595 Net debt (cash surplus) (ii) 2,599 12,251 9,356 (8,453) (2,624) Equity 133, , , , ,344 Net debt-to-equity ratio 1.9% 9.8% 7.8% n/a n/a (i) Non-cash working capital is defined as current assets less current liabilities, excluding the following items: cash, short-term debt, and the current portion of long-term debt. (ii) Net debt (cash surplus) is defined as bank obligations less cash and short-term deposits. A cash surplus is defined as an excess of cash and short-term deposits over bank obligations. Working capital balances decreased by $13.6 million in the three months between September 30, 2012 and, The sale to Masterfeeds LP of the working capital of Canadian operations accounted for $10.9 million of the decrease in working capital in the second quarter of fiscal Additionally, working capital was reduced by $3.8 million from increased advances from U.S. customers who prepay their feed accounts for tax reasons. Net debt of $2.6 million as at, 2012 was comprised of total long term debt of $13.3 million less $10.7 million of cash and short term deposits. For the three months year-to-date the Company funded $3.6 million of capital expenditures and $5.7 million of business acquisitions from the cash generated from operating activities. The following is a summary of cash generated or utilized by business operations, net of capital expenditures on plant and equipment and other intangibles, excluding business acquisitions. Summary of Changes in Cash Available Three months ended Six months ended ($ million) Cash flow from operating activities $5.4 $6.1 $12.7 $9.0 Net decrease (increase) in non-cash working capital balances (0.5) (1.4) Increase in loans receivable, net (0.1) (0.1) (0.4) (0.6) Proceeds on disposal of property, plant and equipment Capital expenditures, excluding business acquisitions (3.6) (1.9) (6.6) (4.0) Business acquisitions (5.7) - (5.7) - Distributions from associate Proceeds on transfer of Canadian business unit Increase in cash available $12.6 $8.2 $9.5 $3.4 For the second quarter of fiscal 2013, cash flows from operations net of capital expenditures were $12.6 million compared to $8.2 million in the same three-month period last year. Cash flows from decreased working capital balances in continuing operations were $6.7 million in the second quarter of fiscal 2013 and mainly reflect the return to normal levels of accounts receivable and accounts payable. Business acquisitions of $5.7 million in the second quarter this year reflect the net purchase price for the assets of Stockade Brands Inc. Distributions from associate of $7.9 million were the return of cash from Masterfeeds LP following the transfer of working capital assets of Canadian operations to Masterfeeds LP. Proceeds of $2.1 million on the transfer of Canadian operations were the excess of working capital over start-up requirements set by the partners of Masterfeeds LP. Capital Expenditures Capital expenditures on property, plant and equipment, and intangible assets (software) in the second quarter of fiscal 2013 were $3.6 million compared to $1.9 million in the same period a year ago. Capital - 6 -

7 expenditures for the year-to-date were $6.6 million compared to $4.0 million last year. Major capital expenditures in the second quarter included $0.9 million for completion of facility renovations at Brandon, Manitoba. Business Acquisitions On November 28, 2012, the Company acquired substantially all of the assets and assumed certain liabilities of Stockade Brands Inc. (Stockade) for cash consideration of $5.7 million. Stockade manufactures blocks, loose minerals and dried molasses products for livestock from a single production facility in Pittsburg, Kansas. The business was integrated and reported within the RBO segment. Investment in Masterfeeds LP On November 30, 2012 the Company and Masterfeeds Inc. completed the merger of their respective livestock and poultry feed and nutrition businesses in Canada into a new limited partnership called Masterfeeds LP. The merger joins the Company s Feed-Rite brand with Masterfeeds to create the second largest feed provider in Canada operating, among other things, 22 feed manufacturing plants and employing over 500 people in a business spanning Quebec, Ontario and the Prairie Provinces. Masterfeeds Inc. and Ridley Inc. each contributed essentially all of their respective Canadian feed operating assets and liabilities in exchange for relative unit holdings in Masterfeeds LP. Ridley owns a non-controlling interest in Masterfeeds LP. Starting in the second quarter of fiscal 2013, results of the Company s Canadian operations up to November 30, 2012 are reported as net income (loss) from discontinued operations. In the second quarter this year, net income of $0.7 million was reported in discontinued operations, which was comprised of an operating loss in Canadian operations of $2.1 million, offset by a net pre-tax gain of $3.7 million on the disposal of $21.6 million of Canadian assets at book value to Masterfeeds LP, less income tax expense of $1.0 million. Pre-tax earnings accruing from the Company s investment in Masterfeeds LP are reported as share of income of associate under the equity method of accounting, which in the second quarter of fiscal 2013 was $0.2 million. The Company s investment in Masterfeeds LP is reported as an investment in associate, which as at, 2012 was $17.6 million, consisting of the initial investment of $25.4 million, less a cash distribution of $7.9 million received from the limited partnership, plus pre-tax share of income of associate in the second quarter of $0.2 million. As a limited partnership, Masterfeeds LP is not subject to income taxes; any taxable income is allocated between the respective partners. The following chart describes the disposal to Masterfeeds LP on November 30, 2012 of the Company s Canadian business unit net assets, and related pre-tax gain. ($000) Fair value of the Company s initial investment in associate (Masterfeeds LP) $25,405 Net cash proceeds on disposal of Canadian business unit 2,076 Fair value of consideration received 27,481 Net assets of Canadian business unit disposed 21,599 Gain on disposal of Canadian business net assets 5,882 Recognized accumulated currency translation losses upon disposal of Canadian business unit (2,142) Gain on disposal of Canadian business unit $3,740 Outstanding Share Data Ridley s share capital consists of an unlimited number of common shares, with no par value. On December 13, 2012 Ridley received approval from the Toronto Stock Exchange (the TSX ) to initiate a normal course issuer bid for the Company s shares through the facilities of the TSX. The shares repurchase program permits the Company to purchase for cancellation up to 639,499 of its common shares over the twelve month period ending December 14, As at, 2012 the Company had repurchased no shares under the current normal course issuer bid. The number of shares outstanding as at, 2012 and as at February 4, 2013 was 12,789,

8 Seasonality and Commodity Variability The Company experiences seasonal variations in revenue. Historically, revenue is strongest in the second and third fiscal quarters when colder weather from October to March typically increases demand for beef feed. Other product lines are only marginally affected by seasonal conditions. Certain of the raw materials comprising the Company s products incorporate commodity-based products and the by-products of commodity processing. Fluctuating commodity prices may therefore influence revenues and associated cost of sales as the Company s selling prices are adjusted to reflect current raw materials markets. Selected Quarterly Financial Information Fiscal Year First Quarter Second Quarter Third Quarter Fourth Quarter (US$ millions except per share data) Revenue (i) Net income (loss) before discontinued operations and exceptions (ii) net of income taxes (0.4) Net income (loss) per share (EPS) before discontinued operations and exceptions (ii) net of income taxes (0.03) Net income (loss) (0.4) Net income (loss) per share (EPS) (0.04) (i) Revenue in the current and prior quarters has been restated to exclude discontinued operations. (ii) Exceptions include asset impairment loss, restructuring charges, and loss on sale of facilities. Internal Control Over Financial Reporting The Chief Executive Officer and Chief Financial Officer have each signed form F2 Certification of Interim Filings and filed it with the appropriate securities regulators in Canada in compliance with National Instrument : Certification of Disclosure in Issuers Annual and Interim Filings issued by the Canadian Securities Administrators. There has been no change in Ridley s internal controls over financial reporting or disclosure controls and procedures that occurred during the most recent interim period that has materially affected, or is reasonably likely to materially affect, Ridley s internal control over financial reporting. Forward-Looking Information This report contains forward-looking information. The forward-looking information includes statements concerning the proposed transaction described herein, Ridley s outlook for the future, as well as other statements of beliefs, plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. Forward-looking information and statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, contemplated or implied by, such statements. These risks and uncertainties include the risk that the proposed transaction described herein will not be completed, the ability to make effective acquisitions and successfully integrate newly acquired businesses into existing operations, the availability and prices of raw materials and supplies, livestock disease, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital, the cost of compliance with environmental and health standards and other regulatory requirements affecting Ridley s business, adverse results from ongoing litigation, and actions of domestic and foreign governments. Other risks are outlined in the Risk Management section of the MD&A included in Ridley s Annual Report. Unless otherwise required by applicable securities law, - 8 -

9 Ridley disclaims any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. Ridley cautions readers not to place undue reliance upon forward-looking statements. OUTLOOK Since 2008, high feed ingredient prices have limited herd and flock expansion. The potential for continuing volatility in feed ingredient prices will remain one of the more significant drivers for Ridley s results. Ridley s business will be sensitive to any changes in the economic environment for producers and herd or flock populations. Ridley s growing lifestyle markets and higher-value added products tend to be more stable in market demand. In the face of these external uncertainties, the Company continues to improve its cost competitiveness through a number of initiatives to improve operating efficiencies including additional manufacturing automation, using lean manufacturing techniques and better utilization of information technology. Ridley Inc., headquartered in Mankato, Minnesota, is one of North America s leading commercial animal nutrition companies. Ridley employs more than 700 people in the manufacture, sales and marketing of a full range of animal nutrition products under highly regarded trade names. Ridley s common shares are listed on The Toronto Stock Exchange (trading symbol: RCL). Additional information, including the notes to the interim financial statements and Ridley s Annual Information Form (AIF), are available at Visit our website at ### For more information, please contact: RIDLEY Inc. Steve VanRoekel, President and CEO (507) RIDLEY Inc. Gordon Hildebrand, Chief Financial Officer (507)

10 RIDLEY Inc INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) Six months ended, 2012 and 2011 The Company s independent external auditors, PricewaterhouseCoopers LLP have not audited these interim consolidated financial statements. RIDLEY

11 CONSOLIDATED BALANCE SHEETS (Expressed in thousands of U.S. dollars) (unaudited) June 30 Note ASSETS Current assets Cash 10,674 1,676 4,137 Accounts receivable 31,027 32,971 37,170 Inventories 6 42,803 47,783 51,490 Income taxes recoverable Prepaids and other current assets 1,637 1,124 1,955 Current portion of loans receivable 1, ,462 Total current assets 87,323 84,406 96,467 Non-current assets Loans receivable Assets-held-for-sale Property, plant and equipment 64,097 69,623 72,597 Deferred income tax asset 7,837 8,489 8,589 Investment in associate 11 17, Intangible assets 8,953 7,392 7,669 Goodwill 9 38,928 37,982 37,982 Total non-current assets 138, , ,225 TOTAL ASSETS 225, , ,692 LIABILITIES and SHAREHOLDERS' EQUITY Current liabilities Outstanding cheques in excess of bank balances 1,491 4, Short-term debt - - 1,000 Accounts payable and accrued liabilities 35,560 37,052 40,687 Advances from customers 4, ,881 Income taxes payable 2,587 1,451 - Current portion of long-term debt Total current liabilities 43,987 43,722 47,793 Non-current liabilities Long-term debt 13,212 10, Deferred income tax liability 16,838 16,768 19,780 Other accrued liabilities Post-employment benefit obligations 17,097 17,252 10,810 Total non-current liabilities 47,560 45,485 31,555 Total liabilities 91,547 89,207 79,348 Shareholders' equity Share capital 13 53,159 53,159 53,159 Retained earnings 80,793 68,982 93,584 Accumulated other comprehensive income (loss) (50) (2,819) (2,399) 80,743 66,163 91,185 Total shareholders' equity 133, , ,344 TOTAL LIABILITIES and SHAREHOLDERS' EQUITY 225, , ,692 Refer to accompanying notes to the interim consolidated financial statements. Approved by the Board of Directors (signed) B. P. Martin, Director (signed) W. Harden, Director - 2 -

12 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Expressed in thousands of U.S. dollars) (unaudited) Three Months Ended Six Months Ended Note Revenue 157, , , ,212 Cost of sales 6 135, , , ,098 Gross profit 21,397 18,231 41,072 33,114 Operating (income) expenses Technical services, selling and administrative 12,213 12,082 23,736 23,838 Other expense (income) (123) (57) (438) 26 Loss on sale of facilities Research and development Net operating expenses 12,204 12,194 23,568 24,461 Operating income 9,193 6,037 17,504 8,653 Share of income of associate Finance expense (85) (47) (175) (140) Finance income Income before income taxes 9,328 6,020 17,587 8,586 Income tax expense 12 3,455 2,208 6,395 3,239 Net income from continuing operations 5,873 3,812 11,192 5,347 Net income (loss) from discontinued operations (675) Net income for the period 6,554 3,950 11,811 4,672 Retained earnings, beginning of period 74,239 89,634 68,982 88,912 Net income for the period 6,554 3,950 11,811 4,672 Retained earnings, end of period 80,793 93,584 80,793 93,584 Net income per share from continuing operations, basic and diluted Net income (loss) per share from discontinued operations, basic and diluted (0.05) Net income per share, basic and diluted Refer to accompanying notes to the interim consolidated financial statements

13 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Expressed in thousands of U.S. dollars) (unaudited) Three Months Ended Six Months Ended Net income for the period 6,554 3,950 11,811 4,672 Unrealized gain (loss) on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency (313) (1,344) Reclassification to net income of accumulated currency translation losses upon disposal of Canadian business unit (Note 10) 2,142-2,142 - Other comprehensive income (loss) for the period 1, ,769 (1,344) Comprehensive income (loss) for the period 8,383 4,478 14,580 3,328 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Expressed in thousands of U.S. dollars) (unaudited) Accumulated other Note Share capital Retained earnings comprehensive loss Total Equity Balance at June 30, ,159 88,912 (1,055) 141,016 Change in currency translation - - (1,344) (1,344) Net income for the period - 4,672-4,672 Balance at, ,159 93,584 (2,399) 144,344 Accumulated other Note Share capital Retained earnings comprehensive loss Total Equity Balance at June 30, ,159 68,982 (2,819) 119,322 Change in currency translation - - 2,769 2,769 Net income for the period - 11,811-11,811 Balance at, ,159 80,793 (50) 133,902 Accumulated other comprehensive loss is comprised entirely of the unrealized loss on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency. Refer to accompanying notes to the interim consolidated financial statements

14 CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of U.S. dollars) (unaudited) Three Months Ended Six Months Ended Notes Cash flow from operating activities Net income for the period 6,554 3,950 11,811 4,672 Add (deduct) items not affecting cash: Depreciation of property, plant and equipment 1,650 1,840 3,351 3,659 Deferred income taxes (130) Share of (income) of associate 11 (181) - (181) - (Gain) loss on sale of property, plant and Equipment 72 (16) Loss on sale of facilities (Gain) on disposal of Canadian business unit 10 (3,740) - (3,740) - Other amortization Other items not affecting cash 4 10 (73) 42 5,366 6,088 12,680 8,958 Net change in non-cash working capital balances related Accounts to operations: receivable 8,330 (1,487) (8,904) (3,513) Inventories 85 (795) (3,008) (4,349) Prepaids and other current assets (679) (925) Accounts payable and accrued liabilities (8,009) 90 7, Advances from customers 3,888 5,765 3,427 5,228 Income taxes payable and recoverable 1, ,135 1,301 6,650 4,027 (462) (1,439) Net cash from (for) operating activities 12,016 10,115 12,218 7,519 Cash flow from investing activities Proceeds on disposal of property, plant and equipment and facilities Proceeds on disposal of Canadian business unit 10 2,076-2,076 - Purchase of property, plant and equipment (3,540) (1,845) (6,465) (3,923) Purchase of intangible assets (32) (90) (129) (90) Decrease (increase) in loans receivable, net (106) (74) (406) (593) Business acquisitions 9 (5,732) - (5,732) - Distributions from associate 11 7,944-7,944 - Net cash utilized from (for) investing activities 611 (1,919) (2,703) (4,128) Cash flow from financing activities Repayment of short- and long-term debt (6,675) (2,277) (8,624) (7,261) Proceeds from short- and long-term debt 6,030 1,014 10,859 7,307 Net cash utilized from (for) financing activities (645) (1,263) 2, Effect of exchange rate changes on cash - (4) (26) 65 (Decrease) increase in cash and cash equivalents 11,982 6,929 11,724 3,502 Cash and cash equivalents - beginning of period (2,799) (2,959) (2,541) 468 Cash and cash equivalents - end of period 9,183 3,970 9,183 3,970 Cash and cash equivalents are comprised of: Cash 10,674 4,137 10,674 4,137 Outstanding cheques in excess of bank balances (1,491) (167) (1,491) (167) 9,183 3,970 9,183 3,970 Refer to accompanying notes to the interim consolidated financial statements

15 RIDLEY Inc. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, 2012 and 2011 (unaudited) (Expressed in U.S. Dollars unless otherwise indicated) 1. Nature of business Ridley Inc. (the Company) manufactures and distributes a full range of animal nutrition products including formulated complete feeds, premixes, feed blocks, animal care products, supplements, feed ingredients and animal health products. The Company s customers are located primarily in North America. The Company is incorporated in the province of Manitoba, with its registered office at c/o Aikins, MacAulay & Thorvaldson LLP, 30 th Floor, 360 Main Street, Winnipeg, Manitoba, R3C 4G1. The Company s corporate office and principal place of business is located at 424 North Riverfront Drive, Mankato, Minnesota, U.S.A The ultimate controlling party of Ridley Inc. is Fairfax Financial Holdings Limited ( Fairfax ), a publicly listed company. The Company s financial statements include the accounts for its wholly owned subsidiary Ridley US Holdings Inc., a U.S. entity. The financial statements of Ridley US Holdings Inc. herein include its wholly owned subsidiary Ridley USA Inc., a U.S. entity. The Company applies the equity method to record changes in its 30% equity investment in Masterfeeds Limited Partnership (Masterfeeds). The Company is organized into four business units as described in Note 18 Segment Information. These business units are: U.S. Feed Operations (USFO), Ridley Feed Ingredients (RFI), Ridley Block Operations (RBO) and Corporate. The beef cattle feed sector of Ridley s business is seasonal, with a higher percentage of feed sold and earnings generated during the winter months. This seasonality is driven largely by weather conditions. If the weather is particularly cold and snowy during the winter, sales of feed for cattle increase as compared with normal seasonal patterns because the cattle are unable to graze under those conditions and have high energy requirements. If the weather is relatively warm during the winter, sales of feed for cattle may decrease as compared with normal seasonal patterns because the cattle may be better able to graze under those conditions. Other product lines are affected only marginally by seasonal conditions. 2. Basis of presentation The Company prepares its unaudited interim consolidated financial statements in accordance with Canadian generally accepted accounting principles as set out in Part 1 of the Handbook of the Canadian Institute of Chartered Accountants (CICA). The CICA Handbook incorporates International Financial Reporting Standards (IFRS). These unaudited interim consolidated financial statements comply with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB); accordingly, certain note disclosures included in the annual consolidated financial statements prepared in accordance with IFRS have been omitted or condensed. These unaudited interim consolidated financial statements should be read in conjunction with the Company s audited annual consolidated financial statements for the fiscal year ended June 30, The Audit Committee on behalf of the Board of Directors approved the unaudited interim consolidated financial statements on February 4, The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, revenue, and expenses during the applicable reporting periods. Critical accounting estimates and judgments are described in Note 4. The interim consolidated financial statements are prepared under the historical-cost convention, except certain financial instruments, post-employment benefits plans and provisions are measured at their fair value

16 The consolidated financial statements are presented in U.S. dollars, which is the U.S. subsidiaries functional currency and the presentation currency of the consolidated Company. The U.S. dollar is the presentation currency as more than 80% of the Company s business is conducted in U.S. dollars. Reporting in U.S. dollars increases transparency by significantly reducing the volatility of results due to fluctuation in the rate of exchange between the U.S. and Canadian currencies. The Canadian dollar is the functional currency of the Company s related entities in Canada. All amounts reported are in thousands of U.S. dollars unless otherwise stated. 3. Significant accounting policies The significant accounting policies are unchanged from those set out in the Company s fiscal 2012 audited annual consolidated financial statements except for the addition of the application of equity accounting related to investments in associates. These policies have been applied to all periods presented in these interim consolidated financial statements, and have been applied consistently by both the Company and its subsidiaries using uniform accounting policies for like transactions and other events in similar circumstances. Associates are entities in which an investor has significant influence but not control; this generally accompanies an equity interest between 20% and 50%. Accordingly, the Company applies the equity method of accounting regarding its investment in Masterfeeds. The equity method initially recognizes investments at cost and adjusted thereafter for the post-acquisition change in the investor s share of net assets of the investee. The profit or loss of the investor includes the investor s share of profit or loss of the investee. 4. Critical accounting estimates The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent liabilities. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis and revisions to accounting estimates are recognized in the period that the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The estimates and assumptions that are critical to the determination of carrying value of asset and liabilities are as follows: a) Impairment of property plant and equipment, intangibles, and goodwill A critical component of impairment testing is determining the asset s recoverable value. Determining recoverable value involves significant management judgment including projections of future cash flows and appropriate discount rates. Qualitative factors include market presence and trends, customer relations, strength of local management, debt and capital markets, variability in cash flows, and other factors considered in the development of cash flow projections and selection of discount rates. The discounted cash flow projections used in determining recoverable value are subject to sensitivity in discount rates, expected cash flows, and assumed growth rates used for extrapolation purposes. A change in any significant assumption or estimate may result in a material change in the recoverable value. b) Employee benefit plans Accounting for pension and post-retirement benefit plan obligations requires the use of actuarial assumptions. These assumptions depend on underlying economic conditions, government regulations, discount rates, investment performance, and mortality rates. These assumptions can change in the future and may result in a material change to employee benefit plan expense. c) Income taxes Significant management judgment is required to determine deferred tax balances. Management is required to determine the amount of deferred tax assets and liabilities that can be recognized based on their best estimate of the likely timing that the temporary differences will be realized and the likelihood that taxable profits will exist in the future. If the assessment of the Company s - 7 -

17 ability to utilize the underlying deferred income tax deductions changes, then an increase in income tax would occur in the period in which the change is determined. The Company maintains provisions for uncertain income tax positions with respect to income tax matters under discussion, dispute or appeal with tax authorities or otherwise considered to involve uncertainty. These provisions are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. However, it is possible that the outcome of these matters is different from the amounts initially recorded; such difference will affect income tax in the period in which such determination is made. 5. Accounting standards development The following are new or amended standards issued by the International Accounting Standards Board (IASB) that are not yet effective, unless otherwise stated. The Company is currently evaluating these new and amended standards to determine the potential impact, if any, on its consolidated financial statements and disclosures. IFRS 9 Financial Instruments The IASB issued IFRS 9 in November 2009 and issued amendments in October 2010 and November IFRS 9 uses a single approach to determine when a financial asset or liability is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. For financial assets, the approach in IFRS 9 is based on how an entity manages its financial instrument in the context of its business model and contractual cash flow characteristics of the financial asset. The new standard also requires the use of a single impairment method, compared to multiple impairment methods in IAS 39. For financial liabilities measured at fair value, fair value changes due to changes in the Company s credit risk are presented in other comprehensive income, instead of net income. The new pronouncement is effective for annual periods beginning on or after January 1, 2015; early adoption is permitted. Amendments to IAS 32 Financial Instruments Presentation and IFRS 7 Financial Instruments: Disclosures In December 2011, the IASB amended IAS 32 Financial Instruments: Presentation clarifying the requirements for offsetting financial assets and financial liabilities. As a result, the IASB also amended IFRS 7 Financial Instruments: Disclosures. Currently, IAS 32 requires an entity to offset a financial asset and financial liability only when the entity currently has a legally enforceable right to offset and intends to settle on a net basis or realize the asset and settle the liability simultaneously. The amendment clarifies that the right of offset must be available today and legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency, or bankruptcy. The amended disclosures require more extensive disclosure than are currently required under IFRS. The disclosures focus on quantitative information regarding financial instruments that are offset in the statement of financial position, as well as financial instruments that are subject to master netting or similar arrangements whether they are offset or not. Changes to IAS 32 are retrospectively applied with an effective date of annual periods beginning on or after January 1, The offsetting disclosures in IFRS 7 are effective for annual periods beginning on or after January 1, Amendment to IAS 19 Employee Benefits In June 2011, the IASB amended IAS 19 Employee Benefits significantly changing the recognition and measurement of defined benefit pension and post-retirement expense, and to the disclosure of all employee benefits. Actuarial gains and losses are renamed remeasurements and recognized immediately in other comprehensive income. Remeasurements are not recycled through the statement of income and retained earnings in subsequent periods. Past service costs are recognized in the period of a plan amendment. The annual expense for a defined benefit plan is computed based on the application of the discount rate to the net defined benefit plan asset or liability. IAS 19 also impacts the presentation of pension expense as benefit costs split between (i) the cost of benefits accrued in the current period (service cost) and benefit changes (past service cost, settlements and curtailments); and (ii) finance - 8 -