Village Farms International, Inc (VFF)

By Alexandra Bédard

Louis-Emile Beaudoin Ahmed Al-Own

Summary

• Description

• IPO

• Rights Offering

• Corporate Structure

• Dividend Policy

• Important Events

• Ratio Analysis

• Financial Planning

Description

• One of the largest North American producers of hydroponically grown beefsteak and cherry tomatoes and tomatoes on-the-vine.

• Operates four greenhouses covering nearly 230 acres. • Purchases and sells tomatoes, sweet peppers, and English seedless

cucumbers grown by other greenhouses.

• Selling under the Village Farms and Home Choice brand names. • Located in Marfa and Fort Davis, Texas, and Delta, British Columbia. • Product available year-round throughout the US, Canada, and

Mexico. • Incorporated in 2009

Top Competitors • BC Hot House Foods Inc

• Eurofresh Inc

• Wilson Farm, Inc.

Industry

• Agricultural Products

• Sector: Consumer Goods

Raising Capital & Capital Structure

• Initial Public Offering: • The company went public under the income trust structure as an

unincorporated open-ended limited trust known as Hot House Growers Income Fund. (VEG.UN) on December 19th 2003

• Underwriters of the offering:

• TD Securities Inc., RBC Dominion Securities Inc., National Bank Financial Inc., HSBC Securities (Canada) Inc., Canaccord Capital Corporation, and Raymond James Ltd.

• 70%-75% of the common shares issued.

• Retained interest of 20-25% held by HHGI Holdings Co.

• Exactitude depends on the extent of the exercise of the over-allotment option.

• Initial Public Offering: • Issuance of 6,602,509 units at 10$/unit

• Over-Allotment option for 471,607 additional units.

• Total Units issued for the IPO = 7,074,160 units for 75%of the common shares.

Price to the

public

Underwrit

er Fees

Proceeds to the

Fund

Per Unit $10.00 $0.60 $9.40

Total $66,025,090 $3,961,505 $62,063,585

Total (Over-

Allotment

Exercised) $70,741,160 $4,244,470 $66,496,690

Raising Capital & Capital Structure

• Restructuration: • In August of 2006 they announce the acquisition with Village

Farms and the restructuration and renaming of the Hot House Growers Income Fund into the Village Farms Income Fund.

• Rights Offering: November 23rd 2006

• Issued to holders of its outstanding ordinary units transferable rights to subscribe for and purchase an aggregate of 3,623,189 units at 2.76$/unit.

• Each holder is issued one Right for each ordinary Unit held.

• Each right entitles the holder to subscribe to for 0.512 Ordinary Units.

• As of Dec.31st 2006 Village Farms income fund had 10,697,305 units outstanding.

Raising Capital & Capital Structure

• In December of 2008

• 2,358,040 Class C shares (the 25% original retained interest) were converted into fund units.

• 385 Participating Preferred Shares (one time share-based compensation) converted into fund units.

• With the original 10,697,305 outstanding units already issued, this sums up to 13,440,345 units by the 2008 year end.

Raising Capital & Capital Structure

• Conversion from Income Fund Structure to Corporate Structure as of Dec.31st 2009.

• Every trust unit held is converted to a common share of the corporation.

• U.S. Holdings subscribes for 25,267,000 special shares.

• In 2010, 5,993,049 special shares were converted into common shares

• In 2012, the remaining 19,273,951 special shares were converted into common shares.

• Total up to date outstanding common shares of Village Farms International, Inc. = 38,707,345 shares.

Raising Capital & Capital Structure

Variations over year

2014: - COGS increased to 89,65% relatively to sales - 9% decrease in the average selling price of tomatoes - Change in biological asset (Fair value method) - Peak period: next quarter 2012-2013: - The storm makes comparison difficult over year to year - Higher gross profit arising from the recovery of the loss 2010-2011: - Net profit usually arround 3- 3,5%

Competitors

• Mostly Private companies

• Many recorded a negative profit (BC hot house Food, Dole, Chiquita)

Ratio Analysis Liquidity Ratios:

2014: - Acquired Maxim Power (B.C) for approximately 5,2 Millions cash. - Capital expenditures of $6,117 for the six months ended June 30,2014

related to the repair costs to one Texas greenhouses.

Ratio Analysis Financial Leverage

January to June,30 2014 - Retained earning decreased by $774 due to the loss in the first two quarter

- Peak period is during summer months, F/S should improve in the next quarter

Ratio Analysis Asset management

2012: - A hail storm closed three of the Texas facilities

(Can’t compare the asset management for 2014: year-end on December 30,2014)

Ratio Analysis Profitability and Market Ratio

Dupont Analysis:

2013 Financial Planning • Increase in Sales by 3% between 2013-2012 due to a 25% increase in the average selling price of tomatoes, a 10% increase in the average selling pepper price and a 10% increase in cucumber price.

• Decrease of COGS by 6% between 2013-2012 due to lower purchases of supply partner product and lower transportation costs offset by higher costs at Village Farms owned cucumbers and the Permian Basin facility having a higher cost of production than the Marfa facility was in production until the hail storm of May 2012.

• Decrease in Income tax of 1% between 2013-2013 • Lead to a surplus of around $29,037.67 Due to high insurance proceeds • They kept $15,867.00 in cash • They invested $4,615 in PPE and $590 in other assets

• Paid $2,948 worth of Payable • Paid back $6,247 worth of net Long term loans

(Numbers expressed in Thousands)

Maxim Power

• July 17, 2014 - Village Farms International, Inc. announced that it has closed its previously announced acquisition of Maxim Power (B.C.) Inc.

• The deal was worth approximately CAD $5.2 million

• On July 31,2014- Village Farms took a loan of CAD $3.0 million with Bank of Montreal to partly finance the acquisition.

• This Acquisition will decrease Village Farms’ long term dependence on natural gas.

2015 Financial Planning

• With 0% increase in sales

• Expect a $10,599.70 Surplus

• With 3% increase in sales

• Expect a $11,861.96 Surplus

• With 20% increase in sales

• Expect a $19,009.44 Surplus

• With a 5% decrease in sales

• Expect a $8,497.27 Surplus

• With a 30% decrease in sales

• Expect a $2,014.91 Deficit

Village farms Risks Risks Relating to the Company • Product Pricing • Maintain Profitability • Risks Inherent in the Agricultural Business • Natural Disasters • Vulnerability to Rising Energy Costs • Competition • Labour • Foreign Exchange Exposure • Key Executives • Uninsured and Underinsured Losses • Environmental, Health and Safety Risk • Governmental Regulations • Risks Associated with Cross Border Trade • Growth • Accounting Estimates • Retail Consolidation • Product Liability • Technological Advances • Transportation Disruptions • Dependence Upon Credit Facilities • Risks of Regulatory Change • Substantial Common Shares held by Village Farms Owners Risks Related to Tax • Potential U.S. Permanent Establishment of VF Canada GP, VFCLP and VFF • Advances by VF Operations Canada Inc. to U.S. Holdings • Transfer Pricing • U.S. Real Property Holding Corporation

Reduce Risk

2015:

• Internal growth rate average over last 5 years = 15.18%

• Sustainable Growth Rate = 16.88%

• By 2015 we expect the Marfa, Texas greenhouse to have recovered , which we expect will lead to an increase in sales by 3%

• Increase in sales by 3% will lead to an surplus of $11,861.96

Reduce product pricing risk and interest rate risk

• Diversify inventory to reduce pricing risk

• Invest part of the surplus of $7,861.96 in Eggplants and biological assets

• Use the rest of the surplus $4,000 to pay off some debt and reduce interest risk

Ratios 2015

Questions?!

Sources

• http://www.villagefarms.com/InvestorRelations/FinancialReports.aspx • http://www.villagefarms.com/images/pdf/financialReports/2013MDA.p

df • http://www.villagefarms.com/images/pdf/investorPressReleases/press

Release081314.pdf • http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuer

No=00029410 • https://ca.finance.yahoo.com/q/ks?s=VFF.TO • http://www.mergentonline.com/companydetail.php?compnumber=107

885&pagetype=synopsis • http://investing.businessweek.com/research/stocks/snapshot/snapshot

.asp?ticker=VFF:CN • http://investors.morningstar.com/ownership/shareholders-

overview.html?t=VFF&region=CAN&culture=en-US