Mr. Ravi Sood reports

FERONIA INC. REPORTS Q3 2014 RESULTS

Feronia Inc. has released its unaudited financial results for the three and nine months ended Sept. 30, 2014. All amounts in this release are expressed in U.S. dollars unless otherwise indicated.

Third quarter 2014 highlights

• Produced 3,071 tonnes of crude palm oil (CPO) (Q3 2013: 1,694 tonnes) from 16,725 tonnes of fruit (Q3 2013: 9,280 tonnes), a year-over-year increase of 81 per cent;
• Revenue of $2.9-million (Q3 2013: $2.3-million), including from the sale of:
  • 3,040 tonnes of CPO at an average price of $766 per tonne (Q3 2013: 2,560 tonnes at $827 per tonne);
  • 196 tonnes of palm kernel oil (PKO) at an average price of $1,097 per tonne (Q3 2013: 193 tonnes at $784 per tonne).
• Fresh fruit bunch (FFB) yield of 1.7 tonnes per hectare (Q3 2013: 1.6 tonnes per hectare);
• Oil extraction rate (OER) of 18.36 per cent (Q3 2013: 18.25 per cent);
• Replanted 1,396 hectares of oil palm (Q3 2013: 1,996 hectares);
• Production at Yaligimba significantly improved as rehabilitation continues;
• Appointment of new chief executive officer, Xavier De Carniere;
• Net loss attributable to Feronia was $5.6-million, or 10 cents per share, compared with a loss of $2.9-million, or 10 cents per share, in Q3 2013.

Subsequent events

• 4,536 hectares of oil palm has been replanted in the year to date;
• New collective agreement addressing pay, benefits, and other terms and conditions of employment signed on Nov. 13, 2014, with the six unions which represent the company's over 3,600 employees of its palm oil business;
• Partnership with MASS Design Group to assess and redesign the social infrastructure announced on Nov. 20, 2014.

Gross losses in the quarter were up $1,352,000 compared with the same period last year. This increase was largely due to cost of sales in 2013 benefiting from a credit of $1.2-million resulting from the reversal of a CPO inventory provision. In the nine months ended Sept. 30, 2014, gross losses increased $2,067,000 to $3,336,000 (2013: $1,269,000). Of this, $850,000 was due to the benefit from a credit from the reversal of the inventory provision made at the end of 2012. The remainder of the increase was driven by higher production levels in 2014 which is largely due to the recommencement of production from the company's Yaligimba plantation. As a result of the high percentage of immature and young palms in the company's plantations, the average yield per hectare is low and the cost of production currently exceeds revenue. As the plantations mature and more hectares come into production, the company's cost of production on a per-tonne basis is expected to decline substantially.

During Q3 2014, the company produced 16,725 tonnes of FFB and 3,071 tonnes of CPO, representing an improvement against Q3 2013 of 80 per cent and 81 per cent, respectively. For the nine months ended Sept. 30, 2014, the company produced 52,214 tonnes of FFB and 9,582 tonnes of CPO, representing an improvement against the corresponding period in 2013 of 52 per cent and 50 per cent, respectively. The majority of the improvements relate to production from Yaligimba which made no contribution during the same time period in 2013.

The company is now seeing the benefits of the rehabilitation work, primarily focused on improving access for harvesting, being carried out at Yaligimba, with CPO production per hectare for Q3 2014 in line with that at Lokutu.

Although the company realized lower FFB yields for the nine months ended Sept. 30, 2014 (5.4 tonnes/hectare), than during the nine months ended Sept. 30, 2013 (5.8 tonnes/hectare), quarter-on-quarter improvements are being derived from the rehabilitation work being undertaken at Yaligimba and the company expects Yaligimba to soon match Lokutu in per-hectare productivity.

There are three factors which currently restrict overall performance:

1. Young age profile of plantation -- Of the palms harvested in the nine months ended Sept. 30, 2014, 10.7 per cent was in its first year of production and therefore low yielding. The large percentage of immature palms in the company's plantations will continue to negatively impact its average yield for the next several years. Normal course maturation of plantations will result in substantially improving yields over time. Moreover, management is increasing its focus on fertilization of young palms to improve early yields.
2. Processing capacity limitations at the Lokutu mill -- The bottleneck will be removed by the installation of a new boiler expected in the first half of 2015.
3. Nutrient deficiencies at Boteka plantation continued to impact yields -- Fertilizer, ground limestone and guano are being applied to correct the deficiencies, and, combined with a normal course fertilizer and soil maintenance regime, the company anticipates improvements in yields in 2015.

Replanting of oil palms commenced in March, 2014, in line with rainfall patterns, with 1,396 hectares planted in Q3 2014 (Q3 2013: 1,996 hectares) and 3,255 hectares replanted as at Sept. 30, 2014 (Sept. 30, 2013: 4,448 hectares). As at Nov. 28, 2014, the company had replanted 4,536 hectares in the current year and in excess of 15,000 hectares since it acquired PHC in 2009. As at Nov. 28, 2014, Feronia's oil palm nurseries were sufficiently stocked to complete the company's planned 2015 replanting target of 3,500 hectares.

Due to the additional rehabilitation work required at Yaligimba and the resulting redeployment of the work force, the company has revised its replanting target for 2014 from 5,000 hectares to 4,500 hectares. Having met the target, replanting has now stopped.

Ravi Sood, chairman of Feronia, commented: "We have seen a significant improvement in performance at Yaligimba during the quarter as the extensive rehabilitation work being carried out enables increased production. Against the backdrop of our increasing production, we are very pleased to see several new palm oil consumers commence operation in the Democratic Republic of the Congo, a positive reflection of the large and growing domestic demand. We are starting to see a positive impact on pricing and expect this trend to continue.

"Although we continue to experience normal course challenges typical of our industry, we are seeing our aggressive planting and rehabilitation program translate into increased production, efficiencies and economies of scale. We expect this trend to accelerate in the coming years as our large and expanding portfolio of young palms mature and increasingly contribute to improving volumes and declining production costs."

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