Feb. 13, 2015, Toronto - BIOX Corporation is turning its attention to the domestic market where new legislation requires the use of an estimated 240 million litres of bio-based diesel per annum on an average GHG adjusted volume basis.
“The retroactive reinstatement of the biodiesel tax incentive through to the end of 2014 is significant to BIOX as it allows us to recognize approximately US$6.5 million in contingent revenue on product sold during calendar 2014 strengthening our earnings and cash position,” said Kevin Norton, Chief Executive Officer of BIOX Corporation. “However, unlike in previous reinstatements, an extension of the incentive covering calendar 2015 was not included. Lack of clarity on the biodiesel tax incentive for 2015 along with the continued delay in the finalization of the 2014 and issuance of the 2015 Renewable Volume Obligation as part of the RFS2 continue to negatively impact biodiesel pricing. Conversely, the implementation of the Greener Diesel mandate in Ontario and our supply agreement with Shell Canada place us in an ideal position to capitalize on the increased demand we are seeing in our local market. The Ontario mandate and our relationship with Shell are key to diversifying our sales outside of the U.S. market.”
Sales were $27.4 million for the three-month period ended December 31, 2014, compared with $17.3 million in Q1 2014. The change was primarily due to the recognition of approximately US$6.5 million of revenue related to the retroactive reinstatement of the biodiesel tax incentive on December 19, 2014.
Direct expenses were $20.5 million for the three-month period ended December 31, 2014, compared with $16.2 million in Q1 2014. The increase was primarily due to a 47% increase in litres of biodiesel sold during the three-month period ended December 31, 2014 compared with the corresponding period last year, partially offset by lower feedstock costs.
General and administrative expenses were $1.2 million for the three-month period ended December 31, 2014, compared with $1.5 million in Q1 2014.
Operating income was $4.7 million for the three-month period ended December 31, 2014, compared with operating loss of $1.8 million in Q1 2014.
Operating income prior to non-cash items was $5.7 million for the three-month period ended December 31, 2014, compared to operating loss of $0.5 million in Q1 2014.
Net income was $4.3 million or $0.09 per share for the three-month period ended December 31, 2014, compared with net loss of $1.9 million or $0.04 per share in Q1 2014.
The increased operating income, operating income prior to non-cash items, and net income for the three-month period ended December 31, 2014 compared with Q1 2014 were primarily due to the recognition of approximately US$6.5 million of revenue related to the retroactive reinstatement of the biodiesel tax incentive on December 19, 2014.
As at December 31, 2014, BIOX’s available cash position amounted to $6.9 million, which consisted of cash and cash equivalents and short-term investments, compared with $7.2 million at September 30, 2014. Working capital as of December 31, 2014 was $13.7 million compared with $8.4 million at September 30, 2014. The Company believes that its future cash flow from operations combined with its current financial resources should be sufficient to enable BIOX to meet its ongoing requirements for capital expenditures and working capital requirements.
As at December 31, 2014 and February 12, 2015, the Company had 45,710,967 common shares outstanding, as well as outstanding stock options to purchase up to 2,555,000 common shares and share purchase warrants to acquire up to 1,982,143 common shares.
The value of biodiesel and Biomass-based Diesel Renewable Identification Numbers (RINs) continue to be negatively impacted due to the delay in finalizing the 2014 and 2015 Renewable Volume Obligation (RVO). On November 21, 2014, the U.S. Environmental Protection Agency (EPA) announced that it would not complete the final rule for 2014 until sometime in 2015. 2015 RINs traded at approximately $0.86 (or $1.29 per U.S. gallon) as of February 11th, 2015. The final announcement of the RVO levels for 2014 and 2015 will be an important signal for the sustainability of the biodiesel industry in the U.S.
On December 3, 2014, the U.S. House of Representatives voted overwhelmingly to pass a package of tax incentives retroactively for 2014, including the $1.00 per U.S. gallon biodiesel tax incentive which was subsequently passed by the U.S. Senate on December 16, 2014 and signed into law by the President of the United States on December 19, 2014. The reinstatement of the biodiesel tax incentive allows us to collect approximately US$6.5 million in refundable tax credits from our customers and the U.S. Internal Revenue Service related to sales to our customers during calendar 2014. The U.S. biodiesel tax incentive expired for the fourth time on December 31, 2014 and the industry is awaiting clarity on the incentive for 2015. Uncertainty surrounding the renewal of the biodiesel tax incentive could cause continued short term confusion in the market and pricing volatility.
While BIOX has historically sold the majority of its product into the U.S. market, the implementation of the Canadian regulations as described in BIOX’s management’s discussion and analysis for the three-month period ended December 31, 2014 significantly increase the accessible market for its product in Canada. Furthermore, the implementation of a renewable diesel mandate in Ontario on April 1, 2014, provides BIOX with market certainty in its local region, which supports the significant capital investment that it made in the Hamilton facility. Once fully implemented, the regulation requires the use of an estimated 240 million litres of bio-based diesel per annum on an average GHG adjusted volume basis.
BIOX’s inter-terminal pipeline and supply agreement with Shell is an example of how the Company can directly service primary suppliers with a secure supply of biodiesel under the new Canadian and Ontario regulations by the most efficient possible logistics. The supply of biodiesel under this agreement has the potential to become a significant portion of BIOX’s Hamilton production given the implementation of the Ontario mandate and as the Canadian Renewable Fuel Content Regulations extend eastward into Quebec and the Atlantic provinces.
BIOX continues to pursue growth strategies that would expand its business through increasing the volume of biodiesel it produces, controls and distributes in strategic locations throughout North America.
1) Note: Non-IFRS Measures. Operating income prior to non-cash items is defined as operating income or loss less production facility depreciation and amortization, and less depreciation and amortization of furniture, equipment and intangibles and share-based compensation. Management uses this measurement to monitor the operating cash flow of BIOX’s business and believes this information is useful supplemental information to a reader of financial statements. This measurement may not be comparable to similar measures presented by other issuers. Investors are cautioned that operating income (loss) prior to non-cash items should not be construed as an alternative to net income (loss) determined in accordance with IFRS as an indicator of BIOX’s performance.