Vitarich Corporation (PSE: VITA)

The Company was founded by brothers Felicianom Lorenzo, and Pablo Sarmiento in 1950 as Philippine American Milling Co. (PAMCO). Eventually, PAMCO moved to a modern feed plant in Marilao, Bulacan and adopted the “Vitarich” trade name. In 1962, Vitarich Corporation was incorporated.

Vitarich Corporation (the “Company”, VITA) has three primary products, feeds, pangasius, and dressed chicken. VITA’s other source of income is toll milling, toll hatching, and rentals of hatcheries and plants.

VITA’s feed products consist of broiler feeds, layer feeds, hog feeds, and aqua feeds. The Company cultures Pangasius or commonly known as dory fish and sells it as live, gutted and chilled, sausage, franks, dory balls, dory rolls, siomai, shanghai, skinless longaniza and embutido. Dressed chicken can mean fully dressed or gallantina (dressed chicken with head, feet, and entrails intact). The Company’s dressed chicken products are sold at unbranded basis through middlemen.

The Company incurred losses in 2011, 2010, and 2009 for 233.8 million (mm), 207.1 mm, and 230 mm respectively. The Company’s operational difficulties began when the Company’s dollar denominated debt was bloated during the Asian financial crisis. On May 31, 2007, the Company entered into a rehabilitation plan (Plan). The Plan provides, among others, the following:

A. A modified debt restructuring scheme for a period not exceeding 15 years ;
B. Payment of interest to all the Company’s creditors on the following basis:

C. Implementation of certain programs as indicated in the Receiver’s Report, particularly the change in the feeds distribution system by adopting the Farmers Enterprise System;

D. Implementation of the Plan will be reviewed on the 5th year to determine whether the effects of the Farmers Enterprise System are favorable and whether at that time, the finances of the Company could already sustain payments of increased interest rates from Year 6 onwards;

E. Also in Year 5, the creditors may be given the option to avail of Receiver’s Payment and Capital Note so that 50% of the debt will be paid on a graduated scale as set out under the rehabilitation plan, without interest, but payment may be accelerated so that the debt can be paid in 5 years at the rate of 20% per year, and the remaining 50% thereof may be converted into 40% of the outstanding capital stock of the Company.

Items A and B above is understandable where the terms are extended for a specified interest rate. Item C is a suggestion of a business strategy that creditors hope will improve VITA’s profitability. Item D is a review whether the strategy was successful or not. Item E states that creditors will have an option to have 50% of the restructured debt accelerated to be paid in 5 years at a rate of 20% per year (see illustration that follows). The remaining 50% may be converted to 40% of the outstanding capital stock of the Company.

To illustrate the acceleration option:

A debt of P 1,000,000 will be accelerated to be paid for 5 years at a rate of 20% per year.

Why would anybody be interested in investing in VITA? It may be because of VITA’s operating assets. VITA has the following feedmill capacity:

VITA’s dressing plant capacities (birds per hour) are 4,350, 1,200, and 1,500 for Luzon, Visayas, and Mindanao respectively.

Hatcheries capacity (eggs per year) is 9.9 million, 14.1 million, and 6.3 million for Luzon, Visayas, and Mindanao respectively.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.


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