Village Farms International Announces Year End 2014 Results and Adoption of Advance Notice By-Law

TRADING SYMBOL:   The Toronto Stock Exchange:  
Village Farms International, Inc. – VFF

VANCOUVER, March 18, 2015 /CNW/ - Village Farms International, Inc. (the "Company") (TSX: VFF) announced today results for the year ended and quarter ended December 31, 2014.

Conference Call

A conference call will be held March 19, 2015 to discuss the Company's fourth quarter and year end 2014 results.  The conference call will begin at 8:30 a.m. Pacific Standard Time (11:30 a.m. Eastern Standard Time) and will be hosted by Messrs. Michael DeGiglio, Chief Executive Officer, and  Stephen Ruffini, Chief Financial Officer. 

To participate in the conference call, please dial into the conference call a few minutes before the start time:  1-888-390-0605 or 416-764-8609

Michael DeGiglio, Chief Executive Officer, stated "Market conditions strengthened for larger tomato products in the final quarter of 2014, which had experienced poor pricing during the prior quarters of the year. Year on year TOV pricing was down 16%, almost all of it emanating from product out of our Canadian operations, however commencing with the fourth quarter TOV pricing improved and was up 9% over the fourth quarter of 2013.  As previously mentioned pricing in Canada eroded at the beginning of 2014 with certain Mexican suppliers circumventing the US government's suspension agreement, by shipping directly from Mexico to Canada and then back into the US. This action coupled with increased supply and softer demand continued through the third quarter."

"The stronger fourth quarter results were not solely driven by improved pricing but also our advances in providing unique new product offering to our customers, which are exclusive to Village Farms and demonstrated a noteworthy contribution to our results.  As existing competitors have and are expanding capacity, strategic differentiation of our brand remains a continuous improvement priority.  With additional new product launches in 2015 and full ramp up of other 2014 initiatives, such as the acquisition and enhancement of our BC land fill gas cogeneration facility, the completion of another 20 acres of hail damaged facilities last June and the closing of our Dominican Republic operation a return to improved results is anticipated."    

"While improved pricing positively impacted our fourth quarter financial performance, we are disappointed with our overall 2014 operating results. Many of the positive initiatives implemented in 2014, which had tangible positive contributions, were concealed by poor pricing. We remain unwavering in our objectives to deliver a return to pre-hail storm financial results in 2015."

Year to Date Highlights:
(Note amounts in U.S. Dollars) 

  • Started harvesting 20 additional acres from the Marfa facilities in the summer of 2014;
  • Completed acquisition of co-generation facility attached to BC greenhouse facilities in July; and
  • Expanded demand for our exclusive varieties such as Heavenly Villagio Marzano®.

Operational Summary:
(In thousands of U.S. Dollars)

Revenue

Revenue for the year ended December 31, 2014, decreased ($1,020) or (1%), to $136,615 compared to $137,635 for the year ended December 31, 2013.  The decrease in revenue is primarily due to a (7%) decrease in the average selling price of tomatoes, partially offset by a 25% increase in supply partner revenues.  The decrease in tomato prices is mainly due to the weak pricing market of tomatoes-on-vine which are down (16%) over the same period in 2013.  The increase in supply partner revenues is mostly due to an 18% increase in volume and a 13% increase in year on year pepper pricing.

For the year ended December 31, 2014, total tomato pounds sold increased 3% over the comparable period in 2013; pepper pounds sold for the year ended December 31, 2014 increased 13% over the comparable period in 2013 and cucumber pieces sold for year ended December 31, 2014 increased 11% over the comparable period in 2013. 

Cost of Sales

Cost of sales for the year ended December 31, 2014 increased $3,367, or 3%, to $122,730 from $119,363 for the year ended December 31, 2013.  The increase is due to higher volumes of supply partner product, offset by lower costs at Village Farms owned greenhouses. The lower cost of Village Farms direct costs is primarily attributable to the Permian Basin facility that has seen an improvement in cost control and an increase in production.

Insurance proceeds, net

There were no insurance proceeds received in 2014, as the 2012 hail storm claim was settled in September 2013.  For the year ended December 31, 2013, the Company received $15,948 in business interruption insurance proceeds net of recovery costs. 

Change in fair value of biological asset, net

The net change in fair value of biological asset for the year ended December 31, 2014, increased $1,097, to ($125) from ($1,222) for the year ended December 31, 2013.  The increase is due to a lower beginning value on January 1, 2014 versus the January 1, 2013 value and more pounds on vine at December 31, 2014 versus December 31, 2013.  The fair value of the biological asset at December 31, 2014 is $4,698 and was $3,732 at December 31, 2013. 

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2014, increased $508 or 4% to $13,381 from $12,873 for the year ended December 31, 2013.  Overhead cost increases are due to increases in professional fees.

Income from Operations

Income from operations for the year ended December 31, 2014, decreased ($19,145), to $379 from $19,524 for the year ended December 31, 2013.  The decrease is primarily a result of insurance proceeds of $15,948 received in the 2013 period and decreases in the average selling prices for large tomato types.

Adjusted Income (loss) from Operations

Adjusted income (loss) from operations for the year ended December 31, 2014, decreased by ($3,798) to $379 from $4,177 for the year ended December 31, 2013.  The decrease was primarily due to a (7%) decrease in the average selling price of tomatoes as compared to the same period in 2013.  See the adjusted income from operations calculation in "Non-IFRS Measures - Calculation of Adjusted Income from Operations and Adjusted EBITDA".

Interest expense, net

Interest expense, net, for the year ended December 31, 2014, decreased ($1,178) to $2,494 from $3,672 for the year ended December 31, 2013.  The decrease is due to a decrease in the Company's borrowing rate and a lower principal balance.

Other (expense) income

Other income for the year ended December 31, 2014, decreased ($1,141), to an expense of ($1,254) from ($113) for the year ended December 31, 2013.  The decrease was primarily due a loss on sale of assets of ($238) and a non-cash expense of ($887) resulting from derecognizing the thermal energy intangible asset.  The asset was derecognized as a result of the Company acquiring VF Clean Energy, Inc., at which time it became both the buyer and seller of the energy contract.  The accounts in other income are: amortization of intangible assets, gains or losses on foreign exchange, gain on derivatives, loss on sales of assets and other income.

Income Taxes

Income tax expense/(recovery) for the year ended December 31, 2014, was a recovery of ($3,262) compared to an expense of $5,477 for the year ended December 31, 2013.  The change in the provision for income tax between the periods is due to lower income from operations in 2014 versus income from operations in 2013 due to the receipt of insurance proceeds in 2013.

Adjusted Net Income Before Taxes

Adjusted net income for the year ended December 31, 2014, decreased by ($3,100) to ($2,482) from $618 for the year ended December 31, 2013.  The decrease was mostly due to a 7% decrease in the average selling price of tomatoes as compared to the same period in 2013.  See the adjusted net income before taxes calculation in "Non-IFRS Measures - Calculation of Adjusted Income from Operations and Adjusted EBITDA".

Net (Loss) Income

Net (loss) income for the year ended December 31, 2014 decreased ($10,595) to a loss of ($107) from $10,488 for the year ended December 31, 2013.  The decrease is primarily a result of the receipt of insurance proceeds of $15,948 in 2013 and decreases in the average selling price for tomatoes partially offset by a decrease in provision for income taxes.

EBITDA

EBITDA for the year ended December 31, 2014 decreased ($19,538) to $8,674 from $28,212 for the year ended December 31, 2013, primarily as a result of the decrease in insurance proceeds of $15,948 and a 7% decrease in the average selling price of tomatoes as compared to the same period in 2013.  See the EBITDA calculation in "Non-IFRS Measures - Reconciliation of Net Income to EBITDA".

Adjusted EBITDA

Adjusted EBITDA for the year ended December 31, 2014 decreased by ($4,191) to $8,674 from $12,865 for the year ended December 31, 2013.  The decrease was primarily due to a 7% decrease in the average selling price of tomatoes as compared to the same period in 2013.  See the adjusted EBITDA calculation in "Non-IFRS Measures - Calculation of Adjusted Income from Operations and Adjusted EBITDA".

Fourth Quarter 2014 Operating Results Summary:
(Note amounts in U.S. Dollars) 

  • Net sales increased 10% to $34.8 million for the fourth quarter of 2014 compared to $31.7 million for the fourth quarter of 2013;
  • Earnings (loss) per share of $0.06 for the fourth quarter of 2014 versus ($0.03) for the fourth quarter of 2013;
  • Net income (loss) increased $3.6 million to $2.3 million in the fourth quarter of 2014 compared to a loss of ($1.3) million in the fourth quarter of 2013; and
  • EBITDA increased 66% to $4.5 million in the fourth quarter of 2014 compared to $2.4 million in the fourth quarter of 2013.

Operational Summary for the Quarter:

(In thousands of U.S. Dollars)

Net Sales 

Net sales for the three month period ended December 31, 2014 increased by $3,028, or 10% to $34,766 from $31,738 for the three month period ended December 31, 2013.  The increase in net sales is primarily due to an increased average selling price for tomatoes of 13%, an increase in pepper pounds sold of 37%, as well as an increase in cucumber pieces sold of 94%.  The increase in pepper pounds is from external supplies and the increase in cucumber pieces is a result of a 69% increase in the Company's production, and a 141% increase in external supply production.  The increase in supply partner volume is due to additional grower agreements.

The tomato price increase for the three months ended December 31, 2014 was as a result of an increase in the tomato-on-the-vine price of 9% and an increased mix of specialty tomatoes grown by the Company.  For the three months ended December 31, 2014, total tomato pounds sold decreased (7%) from the comparable period in 2013 due to the increase in lower yielding specialty tomatoes.   

Cost of Sales

Cost of sales for the three months ended December 31, 2014 increased by $1,337, or 5%, to $29,204 from $27,867 for the three months ended December 31, 2013.  The increase is due to higher supply partner purchases of 7% over the fourth quarter of 2013.  The Company experienced a decrease in the cost of production per pound at the Company's facilities primarily due to a lower cost at the Permian Basin facility, as it is in its third year of production with a more experienced labour force and enhancements in the technology, which resulted in higher yields from the facility.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three month period ended December 31, 2014 increased $281, to $3,346 from $3,065 for the three month period ended December 31, 2013.  The increase is due to increased professional fees.

Change in Biological Asset

The net change in fair value of biological asset for the three months ended December 31, 2014 increased by $262, to ($624) from ($886) for the three months ended December 31, 2013.  The increase is due to more pounds in the December 31, 2014 period over the same period in 2013.  The fair value of the biological asset at December 31, 2014 is $4,698 and was $3,732 at December 31, 2013. 

Income (Loss) from Operations

Income from operations for the three months ended December 31, 2014, increased by $1,667, to $1,592 from ($75) for the three months ended December 31, 2013.  The increase was primarily the result of increased net sales, an increase in the change in biological asset of $262, offset by increases in cost of sales and selling, general and administrative expenses.

Interest Expense, net

Interest expense, net, for the three month period ended December 31, 2014 decreased by ($235), to $589 from $824 for the three month period ended December 31, 2013.  The decrease is due to a decrease in the Company's borrowing rate and a lower principal balance.

Other (Expense)

Other (expense) for the three months ended December 31, 2014 increased by ($894) to ($905) from an expense of ($11) for the three months ended December 31, 2013.  The increase was due to a non-cash expense of ($887) caused by derecognizing the thermal energy intangible asset.  The asset was derecognized as a result of the Company acquiring VF Clean Energy Inc., as the Company became the buyer and seller of the energy contract. 

Income Taxes

Income tax expense/(recovery) for the three month period ended December 31, 2014 was a recovery of ($2,222) compared to an expense of $415 for the three month period ended December 31, 2013.  The income tax recovery in 2014 as compared to an expense in the same period in 2013 was related to a tax loss realized on the closing of the Company's Dominican Republic operations in this three month period, as well as adjustments to the prior year provision relating to the prior year insurance proceeds.

Net Income (Loss)

Net (loss) income for the three months ended December 31, 2014 increased by $3,645 to $2,320 from a net loss of ($1,325) for the three months ended December 31, 2013.  The increase was the result of an increase in income from operations, a decrease in interest expense of $235 and a change in income tax recovery from an expense of $2,637 offset by an increase in other expense of ($894).

EBITDA

EBITDA for the three month period ended December 31, 2014 increased by 66%, or by $1,775, to $4,468 from $2,693 for the three month period ended December 31, 2013, principally as a result an increase in the selling price of tomatoes in 2014 as compared to the same period in 2013.  See the EBITDA calculation in "Non-IFRS Measures - Reconciliation of Net Income to EBITDA."

Calculation of Adjusted Income from Operations, Adjusted Net Income and Adjusted EBITDA

Adjusted income from operations, adjusted net income before tax and adjusted EBITDA are non-IFRS measures.  Management uses adjusted income from operations and adjusted EBITDA to assist in the evaluation of year over year and quarter over quarter performance, and believes that it will be helpful to investors as a measure of underlying operational results.  These non-IFRS measures are not intended to replace the presentation of the Company's financial results in accordance with IFRS.  The Company's use of the terms adjusted income from operations and adjusted EBITDA may differ from similar measures reported by other companies.  A reconciliation of income from operations and such non-IFRS measures, as EBITDA, are included in the Company's MD&A. 

The Company is showing adjusted income from operations, adjusted net income before tax and adjusted EBITDA to compare operating results excluding the insurance proceeds and asset write-offs related to the hail storm in May 2012.  The adjusted income from operations, adjusted net income before tax and adjusted EBITDA for the three months ended December 31, 2014 and 2013 are unchanged as all hail- storm related transactions ended as at September 30, 2013.

The following table is the calculation of adjusted income from operations:

(in thousands of U.S. dollars)


For the Year ended December 31,



2014


2013


2012

Income from operations


$379


$19,524


$15,130

Less: insurance proceeds


-


(15,948)


(31,231)

Add: inventory write-off


-


-


4,649

Add: asset write-off


-


601


4,352

Adjusted income (loss) from operations


$379


$4,177


($7,100)

 

The following table is the calculation of adjusted net income before taxes:

(in thousands of U.S. dollars)


For the Year ended December 31,



2014


2013


2012

Adjusted net income (loss) from operations


$379


$4,177


($7,100)

Interest expense, net


2,494


3,672


4,329

Foreign exchange loss /(gain)


142


(16)


103

Amortization of intangible


104


103


104

Gain on derivatives


-


(106)


(1,180)

Other income


(117)


(91)


(261)

Settlement of pre-existing relationship


887


-


-

Loss (gain) on sale of assets


238


(3)


(178)



(3,369)


618


($10,017)

Add: Intangible derecognizing


887


-


-

Adjusted income (loss) before taxes


($2,482)


$618


($10,017)

 

The following table is the calculation of net income to adjusted EBITDA:

(in thousands of U.S. dollars)

For the year ended December 31,


2014


2013


2012

Net (loss) income

($107)


$10,488


$7,902

Amortization

7,885


7,314


7,552

Interest expense

2,494


3,672


4,328

Income taxes

(3,262)


5,477


4,311

Change in biological asset

125


1,222


540

Other non-cash items

1,539


39


(796)

EBITDA

8,674


28,212


23,837

Less: insurance proceeds

-


(15,948)


(31,231)

Add: asset write-off

-


601


4,352

Add: inventory write-off

-


-


4,649

Adjusted EBITDA

$8,674


$12,865


$1,607

Adoption of Advance Notice By-Law

The Company announced today that its Board of Directors has approved the adoption of an advance notice by-law (the "Advance Notice By-Law"), which sets out advance notice requirements for director nominations. The Company's By-Law No. 3, which will be filed on SEDAR, is subject to the confirmation of shareholders at the annual and special meeting of the Company's shareholders to be held on June 24, 2015.

Among other things, the Advance Notice By-Law fixes deadlines by which shareholders must submit a notice of director nominations to the Company prior to any annual or special meeting of shareholders where directors are to be elected and sets out the information that a shareholder must include in the notice.

The Advance Notice By-Law provides a transparent process for shareholders to follow for the nomination of directors and sets out a reasonable time frame for the submission of nominees and the accompanying information. The Advance Notice By-Law will help to ensure that all shareholders receive adequate notice of the nominations to be considered at a meeting and can thereby exercise their voting rights in an informed manner. The Advance Notice By-Law is similar to the advance notice by-laws adopted by many other Canadian public companies.

About Village Farms

Village Farms is one of the largest producers, marketers and distributors of premium-quality, greenhouse-grown tomatoes, bell peppers and cucumbers in North America.  This premium product as well as premium product produced under exclusive arrangements with other greenhouse producers is grown in sophisticated, highly efficient and intensive agricultural greenhouse facilities located in British Columbia and Texas.  Product is marketed and distributed under the Village Farms® brand primarily to retail grocers and dedicated fresh food distributors throughout the United States and Canada.  Since its inception, Village Farms has been guided by friendly growing methods, growing produce vegetables 365 days a year from its facilities that are healthier for people and the planet.  Village Farms is Good for the Earth®.

Forward Looking Statements

This press release contains certain "forward looking statements". These statements relate to future events or future performance and reflect the Company's expectations regarding its growth, results of operations, performance, business prospects, opportunities, industry performance and trends and capital availability. These forward looking statements reflect the Company's current internal projections, expectations or beliefs and are based on information currently available to the Company. In some cases, forward looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict" , "potential", "continue" or the negative of these terms or other comparable terminology. A number of factors could cause actual events or results to differ materially from the results discussed in the forward looking statements. In evaluating these statements, you should specifically consider various factors, including, but not limited to, such risks and uncertainties as availability of resource, competitive pressures and changes in market activity, risks associated with U.S. and Canadian sales and foreign exchange, regulatory requirements and all of the other "Risk Factors" set out in the Company's current annual information form and management's discussion and analysis for the year ended December 31, 2014, which is available electronically at www.sedar.com.  Actual results may differ materially from any forward looking statement.  Although the Company believes that the forward looking statements contained in this press release are based upon reasonable assumptions, you cannot be assured that actual results will be consistent with these forward looking statements. These forward looking statements are made as of the date of this press release, and other than as specifically required by applicable law, the Company assumes no obligation to update or revise them to reflect new events or circumstances.

SOURCE Village Farms International, Inc.

For further information: Stephen C. Ruffini, Executive Vice President and Chief Financial Officer, Village Farms International, Inc., (407) 936-1190 ext 340.


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