Village Farms International Inc Earnings Call
Apr 04, 2017 AM EDT
Thomson Reuters StreetEvents Event Transcript
E D I T E D V E R S I O N
VFF.TO - Village Farms International Inc
Village Farms International Inc Earnings Call
Apr 04, 2017 / 03:30PM GMT
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Corporate Participants
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* Michael A. DeGiglio
Village Farms International, Inc. - CEO, President and Director
* Stephen C. Ruffini
Village Farms International, Inc. - CFO, EVP, Company Secretary and Director
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Conference Call Participants
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* Blake Pelham
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Presentation
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Operator [1]
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Good morning, ladies and gentlemen, and welcome to the Village Farms Announces Year-end 2016 Results conference call. (Operator Instructions) Note that the conference is being recorded on Tuesday, April 4, 2017.
I now would like to turn the conference over to Steve Ruffini, Chief Financial Officer. Please go ahead, sir.
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Stephen C. Ruffini, Village Farms International, Inc. - CFO, EVP, Company Secretary and Director [2]
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Thank you. Before we begin today, I need to read the forward-looking statement disclaimer. At the onset of today's call, the company notes that our discussion may contain certain statements that include forward-looking information. Accordingly, we refer you to the company's most recently filed MD&A under the heading Forward Looking Statements, which, amongst other things, identifies material factors that could cause actual results to differ materially from any forward-looking information. Moreover, any forward-looking information may be based upon certain material factors or assumptions.
And with that, I will turn it over to Mike DeGiglio, our CEO. Mike?
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Michael A. DeGiglio, Village Farms International, Inc. - CEO, President and Director [3]
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Thank you, Steve. Hello everyone. My comments will be somewhat brief. Then I'll turn it over to Steve for a couple of comments and then Q&A. So our core initiatives of 2016 was to increase double-digit growth in revenue and EBITDA; increase penetration with existing customers; open up new accounts both retail and food service, high-end food service segment; launch of multiple new SKUs and 2 new varieties; and continue to explore and enhance our variety innovation research, our growing research and development; growing efficiencies tied to cost reduction and a broader business development effort for multiple term of crops.
Our revenues were close to our objective, and EBITDA did fall short due to lower-than-anticipated yield in our British Columbia, Canadian assets last year. Continued pricing pressure in core products, especially in the tomato and cucumber segments had downward pressure. That capacity is still increasing mainly in Canada and Mexico for export to the USA. Additionally, new capacity is somewhat added in the U.S. last year and this year. And expectation is -- my expectation was that this would slow, but I don't see any tangible sign of increased capacity being reduced yet. But due to our innovation of our new product varieties, we were able to increase our overall tomato pricing 2%, but not to the degree we budgeted. The integration of the 65 new acres up in Ontario for Great Northern went as expected for the first full year, and it's off to a good start this year.
We were successful in increasing our market share and customers with the Leamington flag tweaking our crop mix for 2017. We find ourselves better positioned with that mix going forward. Our product launch has received good traction in 2016, and we have 2 new exclusive varieties for a launch in later part of 2017 that we're quite excited about.
We continue to focus, as always, on cost of production. And we realized a 4% reduction in overall cost of production for Village Farms-owned assets over the prior year. This is strong accomplishment, and we'll continue to press forward here to lower our cost with technology and efficiency and anticipate doing so going forward.
We increased our marketing and sales in 2016, and we wanted to build a platform for a broader foundation, as we anticipate increasing our market share going forward.
Our unique GATES technology had its best year yet. We are very excited and confident about this technology moving forward that will allow us to grow pretty much in any environment on the planet.
In summary, continued retail consolidation, unwarranted capacity growth by competition, who clearly do not understand the market; growth in the discount retail grocers segment. The combination of these will continue to put pricing pressure, we believe, going forward. That said, we continue to aggressively explore different alternative crops to diversify not only our product portfolio, but the markets we operate in.
I'll be answering any questions you may have for us. Steve, you want to add some comments?
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Stephen C. Ruffini, Village Farms International, Inc. - CFO, EVP, Company Secretary and Director [4]
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Yes. To add some color to that, as Mike mentioned, in 2016, we actually increased our average selling price for tomatoes by 2% over 2015, which is solely attributable to our increasing focus on specialty and exclusive varieties, which have a higher price point. As Mike also mentioned, the industry continues to experience pricing pressure, particularly on the larger varieties of tomatoes, particularly TOV and beefsteak.
In 2016, if we experienced the same average price on those 2 varieties as we did in 2015, it would have added $3.5 million to our 2016 EBITDA results. Our bio asset as of December 31, 2016 was lower by $1.6 million versus the same figure December 31, 2015. That's primarily due to lower 2017 pricing versus lower -- versus January 2016, which was a particularly strong month for pricing in most years due to the issues, the overall tomato supply that some of our partners had with respect to the negative impact of El Niño in 2016.
In early 2017, the weather was particularly good for tomato growers in places like Florida. So there was an abundant supply in '17 versus 2016, the lower 2017 prices were expected. It wasn't unexpected by Village Farms. We did achieve our budgeted numbers. In the later part of -- or the Q1 of 2017, we have achieved higher pricing than we did in the later part of Q1 of 2016. Hopefully that trend continues into the first quarter of -- into the second quarter of 2017.
As Mike mentioned, an item that's seemingly lost in our results is our lower production costs of 4% year-on-year. That's particularly impressive in light of the fact that we are growing a higher percentage of higher cost specialty tomatoes. And as Mike mentioned, the crop issues we experienced at our Canadian facilities did incur incremental management cost to try to mitigate those crop issues. So bringing our costs down in that environment last year 4% was particularly impressive, and I expect and have seen that trend continue in the first quarter of 2017.
As Mike mentioned, going forward, we continue to focus on initiatives of lowering our costs as well as the growth initiatives of looking at alternative crops, which management believes have higher margins. Those alternative crops will not impact our 2017 results, but we expect long term if we're successful that they will bolster our financial results in future years.
And with that, operator, we will turn it over to any questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) And your first question will be from Blake Pelham at Raymond James.
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Blake Pelham, [2]
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Just curious like the crop issues, did they impact the fourth quarter results as well?
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Stephen C. Ruffini, Village Farms International, Inc. - CFO, EVP, Company Secretary and Director [3]
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Yes, our volume was down in Canada, particularly on the TOV and the beefsteak due to the crazy root issue in particular. So that did impact our revenues and our bottom line. We just didn't have as much product as we had in '16 as we had in '15 on those 2 varieties.
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Blake Pelham, [4]
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Okay. And on the specialty crops, can you elaborate at all?
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Michael A. DeGiglio, Village Farms International, Inc. - CEO, President and Director [5]
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We're looking at an array both -- probably can't elaborate too much, but we're looking at a diversified portfolio of products.
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Operator [6]
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(Operator Instructions) And at this time Mr. Ruffini, it appears we have no other questions, sir.
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Stephen C. Ruffini, Village Farms International, Inc. - CFO, EVP, Company Secretary and Director [7]
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Okay. Thanks, everyone, for attending today and if anybody is having additional questions, Mike and I are available, if anybody has any additional questions offline. Thank you.
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Michael A. DeGiglio, Village Farms International, Inc. - CEO, President and Director [8]
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All right. Thank you all. And thanks for your interest in Village Farms.
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Operator [9]
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Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.
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