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Inp corporate presentation dec_2013

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Inp corporate presentation dec_2013

  1. 1. Corporate Presentation December 2013 TSX-V: INP 1 1
  2. 2. Forward Looking Information This Presentation discloses management policies, investment strategies and courses of conduct that may constitute “forward-looking information” within the meaning of applicable Canadian securities legislation. All statements, other than statements of historical fact, included herein may be forward-looking information. Generally, forward-looking information may be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “proposed”, “is expected”, “budgets”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases, or by the use of words or phrases which state that certain actions, events or results may, could, would, or might occur or be achieved. This forward-looking information reflects the Company’s current beliefs and is based on information currently available to the Company and on assumptions the Company believes are reasonable at the time of preparation. These assumptions include, but are not limited to, the actual results of investee’s being equivalent to or better than estimated results by the Company. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. Such risks and other factors may include, but are not limited to: general business, economic, competitive, political and social uncertainties; commodity prices; cyclical nature of the agricultural industry; weather; the early stage development of the farming operations or dishonesty of the streaming partners; reliance on Messrs Emsley, Nystuen, Farquhar, and Burgess, uncertainty in identifying and structuring streaming agreements, liquidity of investments, potential conflicts of interest, failure of the Company to meet targeted returns, limited transferability of Shares, defaulting streaming partners, competition; changes in project parameters as plans continue to be refined; delay or failure to receive board or regulatory approvals; changes in legislation, including environmental legislation affecting the Company and its streaming partners; timing and availability of external financing on acceptable terms; conclusions of economic evaluations; and lack of qualified, skilled labour or loss of key individuals. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there maybe other factors that cause results not to be as anticipated, estimated or intended. Accordingly, readers should not place undue reliance on forwardlooking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws. As a result of these risks and uncertainties, actual events or results and the actual performance of the Company or its business may be materially different from those reflected or contemplated in the forward looking statements or information. Likewise, in considering the prior performance information contained herein, prospective investors should bear in mind that past performance and experience is not necessarily indicative of future results, and there can be no assurance that the Company will achieve comparable results. The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended (the “1933 Act”), or any state securities laws. Accordingly, these securities may not be offered or sold within the United States of America or to a U.S. Person (as such term is defined in Regulation S under the 1933 Act) unless registered under the 1933 Act and applicable state securities laws or an exemption from such registration is available. 2
  3. 3. 1. Input Capital 2. Overview of Canola Industry 3
  4. 4. WHO WE ARE The world’s first agricultural commodity streaming company Innovative source of long-term, non-constraining working capital Aligned with producers to boost yields using industry-leading precision agriculture practices Input Capital provides a platform for significant value creation 4
  5. 5. THE WORLD’S PREMIER AG-STREAMING COMPANY • Input Capital Corporation (“Input Capital” or the “Company”) is the world’s first agricultural commodity streaming company • Input Capital was created to bridge the gap in available funding sources for farm working capital by providing non-constraining long-term working capital aimed at boosting production through precision agronomics • Crop insurance mitigates downside crop yield risk while the negotiated interest in crop production allows Input Capital to participate in any increased crop yield • Canola is the initial focus of Input Capital as it is the most profitable commodity for Canadian farmers with an addressable target market of 50,000+ farmers in Western Canada alone • Management has developed a strong track record in the ag-sector, currently managing a portfolio of $125+ million of farmland rented to 136 farmers, at least 75 of whom are canola producers 5
  6. 6. Management Track Record 100 NOW: Largest farmland investment fund in Canada Diversified $125+ million portfolio of ~117,000 acres of Saskatchewan farmland THEN: Launched first farmland private equity fund in Canada in 2005 $40 million farmland mortgage facility through Farm Credit Canada 80 60 40 20 Thousands of Acres Owned 120 0 2005 2006 2007 2009 Raised $53 million in equity through eight private & public offerings since 2005 136 high quality farming tenants across Saskatchewan 2010 2011 2012 2013 20.2% IRR (net of all fees) since inception in 2005 Real Value Creation Units have appreciated from $18 in 2005 to ~$59 in 2013 Initial investors in Assiniboia have also received $4.93 / unit in cash distributions Management has Created a Leader in Canadian Agriculture Investing Source: Assinoboia Farmland Limited Partnership MD&A 6
  7. 7. Board of Directors & Special Advisor Name Doug Emsley Chairman Highlights • • • • Co-Founder and President of Assiniboia Capital and Palliser Farmland Management Corp. President of Emsley & Associates (2002) Inc., Chairman of Security Resource Group Inc. and Sabre West Oil & Gas Ltd. Board member – Bank of Canada, Public Policy Forum, Saskatchewan Roughriders Football Club, Information Services Corporation (TSX: ISV) Director • • Co-Founder, Vice-President & CFO of Assiniboia Capital and Palliser Farmland Management and President of Nomad Capital Corp. Director of Greenfield Carbon Offsetters Inc., Frontier Centre for Public Policy, and SIM Canada Member of the Regina & District Chamber of Commerce Policy Committee David Laidley • • • Chairman Emeritus, Deloitte Touche LLP (Canada) Director, Aimia Inc., EMCOR Group Inc., ProSep Inc., Bank of Canada, Nautilus Indemnity Holdings Ltd. CPA (Quebec) • • • • President of CropLife Canada and Chairman of Genome Canada, Director of CARE Canada Independent Review Committee – Assiniboia Farmland Limited Partnership Member, Canadian International Food Security Research Fund Scientific Advisory Committee Former Saskatchewan Minister of Agriculture, Finance, Education, and Energy & Mines • • • • • Counsel, Davies Ward Phillips & Vineberg LLP Former Chairman & CEO – Ontario Securities Commission (OSC) Former Chair, Board of Directors, Canadian Employment Insurance Financing Board Member, Investment Advisory Board, Westerkirk Capital Inc. Director & Member, Funds Advisory Board, Invesco Trimark Group of mutual funds • • • • CEO, Morien Resources and Chairman, Delta Gold Director, Sandstorm Gold Ltd., Sandstorm Metals & Energy Ltd. and Delta Gold Ltd. Director, Alaris Royalty Corp. Formerly Vice-Chairman, Cormark Securities, President & CEO of Orion Securities Inc., and Head of Investment Banking, Scotia Capital Inc. Brad Farquhar Independent Director Dr. Lorne Hepworth Independent Director David A. Brown, QC Independent Director Special Advisor: John Budreski Special Advisor 7
  8. 8. Management Name Doug Emsley President, CEO & Chairman of the Board Highlights • • • • Brad Farquhar Executive VP, CFO & Director • • • • • Co-Founder and President of Assiniboia Capital and Palliser Farmland Management Corp. President of Emsley & Associates (2002) Inc., Chairman of Security Resource Group Inc. and Sabre West Oil & Gas Ltd. Board Member – Bank of Canada, Public Policy Forum, Saskatchewan Roughriders Football Club, Greenfield Carbon Offsetters Inc., Information Services Corporation (TSX: ISV) Former Board Member – Royal Utilities Income Fund (TSX) Co-Founder, Vice-President & CFO of Assiniboia Capital and Palliser Farmland Management and President of Nomad Capital Corp. Director of Greenfield Carbon Offsetters Inc., Frontier Centre for Public Policy, and SIM Canada Member of the Regina & District Chamber of Commerce Policy Committee • Gord Nystuen Previously served as VP of Corporate Affairs at SaskPower Former Deputy Minister of Agriculture, Chief of Staff to the Premier of Saskatchewan and Chairman of Saskatchewan Crop Insurance Corporation Partner, Golden Acres Seed Farm & Director of Avena Foods Ltd. • • • Director of Finance & Administration for Assiniboia Capital Corp. and Palliser Farmland Management Corp. Previously served as a senior manager at Deloitte & Touche LLP Director of Saskatchewan Science Centre VP, Market Development Jamie Burgess Director of Finance & Administration 8
  9. 9. Agriculture Industry Fundamentals • Long-term food production must increase to keep pace with needs of a rising population with the U.N. forecasting the global population will grow to 8+ billion within the next decade Long-Term Rising Global Incomes • Economic growth in developing nations (i.e. China, India) fueling demand for more and better food, driving demand for meats and better quality grains Decreasing Arable Land • Decreasing amount of arable farm acreage per capita is increasing pressure on farmers to produce more food from less land by increasing crop yields Recent Interest in Biofuels • Rising interest and production in biofuels increasing demand for all grain products and feedstock commodities Increased Population 9
  10. 10. Canola is a $19.3 Billion Industry in Canada • Canola is a crop that produces pods from which seeds are harvested and crushed to create canola oil and meal • Canola demand is growing for many reasons: The healthy oil • FDA has tentatively ruled to effectively ban the use of trans fats in foods • Canola oil is high in good fats, is trans fat free, contains no cholesterol and is a good source of vitamin E Biofuel feedstock and high quality animal feed • Canola is used as a source of feedstock for biofuel • Canola meal in animal feed is known to increase milk production by one litre, per cow, per day Emerging industrial uses • Including plastics, protein isolates, adhesives and sealants 10
  11. 11. The Opportunity Western Canada’s agriculture sector is significantly undercapitalized and offers excellent, overlooked investment opportunities • Canadian farm assets = $330+ billion with Western Canada accounting for 52% • 50,000+ canola farmers in Canada • Big Market Massive intergenerational transfer of farm assets over the next 10-15 years: Demographically Driven Sector Consolidation • • • Aging Western Canadian farmers – more than 35% over age of 55 (vs. Canada @ 30%) Ongoing consolidation of farming sector • • Underserved Market Expected to be over $30 billion in Saskatchewan alone Many farmers are faced with once-in-a-lifetime expansion opportunities they cannot afford on their own Significant shortage of financing available for working capital in the farming sector that matches the needs and requirements of farmers • Unlimited supply of farmland mortgage capital (FCC - $23 billion book) and leasing capital (i.e. John Deere) • Precision farming is more capital intensive than older, less productive farming methods Source: Statistics Canada 11
  12. 12. INPUT CAPITAL HIGHLIGHTS “Game Changer” for Farmers • Accelerates farm growth and productivity and improves bargaining power with grain handlers and input providers 100% of Current Streams Will Generate Revenue in 2013 • No production delays or capex overruns and close to immediate revenue (unlike many mining streams) Scalable, Diversifiable Model where Key Relationships Create Barriers to Entry • Best in class farming relationships with the largest investor-to-farmer footprint in all of Saskatchewan Strong Risk / Return Profile with Meaningful Future Growth Potential • Excellent return metrics and robust, unlevered operating cash flow generation Strong Board and Management Team with Demonstrated Track Record in Ag-Space • High profile experienced management team 12
  13. 13. Business Process 1. Up Front Payment Up front payments to farmer for a Crop Production Interest 6. New Streaming Contracts Free cash flow reinvested in new streaming contracts for compounding returns 2. Consulting Agrologist Assigned Retain services of a sciencebased agrologist 5. Upside Potential Input Capital receives a share of measured yield improvement on farm resulting from improved agronomy 3. Farmer Grows the Crop The farmer and the agrologist work to grow the best possible crop 4. Crop Payment The farmer delivers Input Capital’s share of crop to established elevators and is paid a fixed price/tonne 13
  14. 14. Risk Management Potential Concerns Mitigating Factors • Geographic diversification • Streaming contracts call for fixed tonnage and are not yield dependent Crop Shortfall (i.e. weather, bad crop, etc.) • Crop Insurance, paid for by the farmer, guarantees 70% of the farmer’s long-term average yield • Science-based agrologist on every farm helps ensure optimum crop yields • Ability to accept other commodities of equal value in lieu of canola • Strong track record with ~$20 million deployed within the first 6 months of operations Capital Deployment • Relationships with farm advisory firms provide thousands of potential clients • Assiniboia Farmland provides a pipeline of 75 canola farmer tenants • Typically-sized deal with each tenant would require over $130 million in capital • Contractual protection on the “use of proceeds” • Strong security covenants embedded into every contract • General Security Agreement on the entire farm Counterparty Risk • Purchase Money Security Interest on inputs used and crops being grown (like a Crop Lien) • Second Mortgage against farmland in many cases • Term life insurance provides an “easy exit” in the event of death of the farm operator 14
  15. 15. Growth Opportunities Other Crops Grown Existing Farm Partners Farms produce other crops that provide ancillary streaming opportunities: • Grains (wheat, barley, oats, durum) • Pulses (lentils, peas, beans) • Oilseeds (mustard, flax) Top-Tier Business Development Team Three well-known and top quality farmers greatly enhance deal generation and processing capabilities: • Previous Saskatchewan Young Farmer of the Year award winners • Strong ambassadors for Input Geographic Expansion Expansion to Northern U.S. states that grow similar crops to Western Canadian farms i.e. ND, SD, MT Expansion to global food companies and overseas farmers that deal in a variety of agricultural commodities 3 million acres Growing marketing channels lead to large deal-flow 6+ million acres 75+ canola farmers Pending strategic relationship 3,000+ farm clients Additional capital to be raised to satisfy farmer demand 15
  16. 16. High Quality Canola Streaming Portfolio • High quality asset base, well-diversified by geography • 10 producing farms in 2013 • Farm range in size from 1,700 – 40,000 acres farmed • Source: Saskatchewan Ministry of Agriculture, Input Capital Most recent contract represents first expansion of Input into Alberta • Operating in a well-established industry in an area of negligible political risk • Existing portfolio provides strong earnings visibility Contract Summary 2014B 2015F 2016F 2017F 2018F 2019F Contract Base Tonnes 13,502 13,377 13,377 13,502 13,527 13,577 In-Year Additions to Base Tonnes 3,650 - - - - - Total Base Tonnes 17,152 13,377 13,377 13,502 13,527 13,577 15% 15% 15% 15% 15% 15% $79.05 $73.13 $73.13 $72.46 $72.32 $72.06 Claim to Bonus Tonnes Average Cash Cost / MT 16
  17. 17. Exposure to Western Canadian Ag Space • Investors are increasingly looking for exposure to the secular tailwinds benefiting the agriculture industry • Opportunities for direct exposure to farming and ownership of physical commodity are restricted or difficult for most investors • International grain trading companies provide limited exposure to the Western Canadian geography and are no longer purely focused on agriculture Accessible to Investors No Debt Farming Canola Futures Grain Trading Companies Input Capital     Commodity Price Exposure     Yield Upside Multiple Expansion No Operating Cost Exposure      17
  18. 18. Benefits to Farmers It is expensive to be poor … we help farmers drive down their cost of capital Buying inputs off peak-season • • 20% - 40% $25 - $30 per acre savings on fertilizer alone, reducing fertilizer costs by 20% to 25% By buying and applying fertilizer in the fall, spring seeding logistics are improved and de-risked Discounts for cash purchases 3% Interest Costs 10% Flexible Crop Marketing Program 6% - 12% Total Savings (Inherent Cost of Capital) 39 - 65% Inputs Crop Revenue Farmer Input Traditional Farming $200/acre $150-$250/acre Leverage to canola price   Input Capital $300/acre $300-$450/acre No crop input overruns  No ongoing capex  Fixed cash costs for life of contract  18
  19. 19. Profile of Target Farmers • Ideal farm has 3,000 – 12,000 acres of land located in dark brown & black soil zones of Manitoba, Saskatchewan, and Alberta • Young farmers who possess the agronomic skills to grow great crops but require capital partners to finance the intergenerational transfer of the farm • Established farmers with large expansion opportunities • Pre-qualified farmers without sufficient working capital to achieve their production goals or potential • Farmers looking to expand significantly without degrading their balance sheets Size of Farm: 4,000 acres Per Acre Capital Required Farmland $1,000+ $4,000,000+ Equipment ~$350 ~$1,400,000 Annual Inputs $200+ $800,000+ Totals $1,550+/acre $6,200,000+ Source Assiniboia Farmland, Iron Search, Input Capital 19
  20. 20. Public Market Summary Capitalization Summary (December 2, 2013) Trading Symbol Recent Public Market Events TSX-V: INP Shares Outstanding 61.20M Fully Diluted Shares 67.16M Price $1.73 Market Capitalization $106M 52 Week Range $1.58 - $2.12 Average Daily Volume ~81,000 Debt $0 Cash Position $41M October 15, 2013 Input took delivery of canola from its first streaming contract, selling 712 tonnes of canola for proceeds of $359,862, or an average net price of $505 per tonne. October 4, 2013 Input announced the closing of a previously announced bought deal public offering and private placement for gross proceeds of $37.5 million. Analyst Coverage Ownership Directors & Management December 1, 2013 In its monthly update for November 2013, Input announced that it has surpassed the $1 million in revenue with recent deliveries. 18.4% Basic, 25.4% FD Catlin Group 19.99% Other Institutional Siddharth Rajeev 12.66% Private Investor Widely Held 4.45% 43.80% Michael Mills Anoop Prihar Spencer Churchill Source: Company Filings & Records, 20
  21. 21. INPUT CAPITAL The world’s first agricultural commodity streaming company Innovative source of long-term, non-constraining working capital Aligned with producers to boost yields using industry-leading agronomic practices Input Capital provides a platform for significant value creation 21
  22. 22. CONTACT INFORMATION Issuer: Input Capital Corp. Ticker Symbol: TSX-V: INP President, CEO & Chairman: Doug Emsley (306) 347-1024 Executive VP, CFO & Director: Brad Farquhar (306) 347-7202 22
  23. 23. 1. Input Capital 2. Overview of Canola Industry 23
  24. 24. Global Canola Production • Canada is one of the largest producing countries of canola and the largest exporter, exporting more than two thirds of global canola • Exports from Canada are driven primarily by demand in China, Japan, Mexico, the U.S., and other parts of Asia • Canola produced in Canada is used for food (oil, animal feed) and industrial products (bio-fuels, lubricants, etc) Global Canola Producers Canada, 24% (14.7mT) Global Canola Exports China, 19% (12mT) Canada, 72% India, 11% (6.9mT) EU-27, 32% (19.9mT) Source: USDA (2012/13) Other, 13% (8mT) Other, 3% Ukraine, 8% Australia, 17% Source: International Grains (2011/12) 24
  25. 25. Canola is Bigger than the Potash Industry • • • • • • • • • • • • Canola is a bigger global market than potash Canola is a bigger export business for Canada than potash Canadian canola exports have been growing at a CAGR of 18.3% over the last 10 years (compared to 13.6% for potash) Canola is Canada’s #7 export to the world (potash is #10) Canadian canola exports have double the market share in global export markets than potash Canadian canola exports to China are 8.5x the value of Canadian potash exports to China Canadian canola exports to China have been growing at a CAGR of 36.4% over the last 10 years (compared to 4.1% for potash) Canola represents 16.0% of all Canadian exports to China (compared to 1.9% for potash) Canola is Canada’s #1 export to China (potash is #12) Canola employs 249,000 Canadians; Potash employs 5,041 Canadians There are three companies providing investment exposure to Canadian potash production: POT, AGU, MOS. They have a combined market cap of $60 billion. In canola, there are 50,000 canola producers, but only one public company – Input Capital Corp Sources: Statistics Canada, Industry Canada Trade Data Online, Potash Corporation of Saskatchewan, Sask Mining Association, Canola Council of Canada 25
  26. 26. Canadian Canola Exports • Canadian exports of canola continue to be driven by demand from Asia and emerging markets with China accounting for the largest share of Canadian exports at 36.3% Volume Growth Rate (Last 5 Years) Canola Rank Among Imports from Canada – Ranked by $ Value (2012) Canola Value as % of Total Value of Goods Imported from Canada (2012) 36.3% 333.0% 1 15.6% Japan 28.2% 21.1% 2 14.4% Mexico 18.1% 35.1% 1 17.8% United Arab Emirates 6.9% 216.6% 1 22.7% USA 5.0% 75.5% 25 0.4% Pakistan 2.7% 48.1% 1 44.5% Bangladesh 1.2% 130.2% 2 15.8% Others 1.5% 129.5% % of Canadian Export Market for Canola (2012) China Country Source: Statistics Canada, as published in the Western Producer, March 21, 2013;; Industry Canada Trade Data Online 26
  27. 27. North American Canola Production • Canada is the largest single producer of canola with production concentrated in Western Canada (specifically, Saskatchewan), consisting of 20+ million acres seeded to canola • There are also approximately 1.7 million seeded acres of canola grown in the north central and south eastern U.S. with North Dakota as the dominant producing region Input Capital Target area Source: Canola Council of Canada, U.S. Canola Association 27
  28. 28. Western Canadian Expansion • The ideal combination of soil organic matter and climate for canola production is found in the Black, Dark Brown, and Dark Gray soils of Western Canada Major Soil Zones of the Prairie Region Source: 28
  29. 29. Canadian Canola Industry • Canada is the dominant exporter of canola to the world with domestic production having increased by ~300% over the last decade Western Canadian Canola Production in Tonnes 16,000 • Canola is one of the world’s most important oilseed crops, and the most profitable commodity for Canadian farmers, representing 25% of all farm cash receipts in the country Saskatchewan Manitoba 14,000 • Canola is grown by 52,000 Canadian farmers with 52% of Canadian canola originating from Saskatchewan Alberta 8,000 12,000 10,000 6,000 4,000 • Canada’s dominant export position of canola creates a natural hedge for pricing • When production falls due to poor crop results, prices tend to rise to compensate for lost tonnage 2,000 0 Source: Canola Council of Canada • For example, when 8 mm acres went unseeded in W. Canada in 2010, canola prices rose from $373/tonne to over $600/tonne 29
  30. 30. Canola Volatility and Prices Canola prices have risen significantly over the last two years driven by increased demand from Asia, the emerging biofuels industry, and the war on trans fats in western economies Historical Canola Prices – 10 Year $700 Canola Monthly Price $600 $500 CAD per Tonne • $400 $300 $200 $100 $2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Canola Council of Canada 30
  31. 31. Value Creation of Agronomics • The average canola in Saskatchewan is typically 25-30 bushels / acre while the yield potential of modern canola varieties, using modern farm practices with optimal weather, is between 6070 bushels/acre • With the right agronomic program, farmers can focus on optimizing the yield potential of their crops through; • Soil & tissue testing • Seed & seed treatments • Seeding precision • Weed control • In-crop operations – perfect timing & application • Crop residue management • Yield goals Source: Canola Council of Canada 31