How much is a $1.10 head of lettuce really worth?
Further to our morning conversations, I have worked out some prospective operating metrics for Valcent. I’m happy to share. All this data has been collected directly from the company’s press releases and filings. I’ve then tried to put it all in terms the rest of us can easily understand!
Depending on the type of lettuce and geographic location the cost per head of lettuce is roughly $1.10/head. This number was first presented by Valcent but I’ve confirmed this price point by looking at my local grocer as well as searching Google.
Valcent’s commercial Verticrop should be able to grow a head of lettuce (full cycle) in roughly 40 days. That means that one machine can be fully harvested 9x per year. (365/40 = 9x). Each machine (based on 2008 information) has approximately 1320 growing panels. Depending on the actually crop, growing conditions, etc … this number will change. But as an average for lettuce, Valcent suggests this is a good approximation.
I’ve taken some time to analyze the pictures of Verticrop available on the net. It appears to me that each hydroponic tray, on average, can grow 10 plants. Each panel can grow about 100 plants given the trays are stacked vertically on the panel. With Verticrop’s ability to be harvested 9x per year, we can surmise that each panel can produce 900 heads of lettuce annually. With 1320 panels on each machine, we can then extrapolate that one machine will produce about 1,188,000 heads of lettuce per year. And finally, given the average cost of a head of lettuce is $1.10; we can then figure that one Verticrop machine will produce about $1,306,800 in Revenue.
A few other key operating metrics have been given to us. Valcent suggests that the pre-tax operating profit of a Verticrop machine growing lettuce is $505,000 annually. This represents a 38% operating margin based on the revenue calculation above.
Revenue – Expense = Pretax profit
($1,306,800) ($801,800) ($505,000)
(100%) (61%) (39%)
With that information calculated let’s move on to have a look at the Internal Rate of Return being generated by two projects lasting 10 years;
Project A - Valcent owns and operates a Verticrop
Project B - Valcent sells a Verticrop to a third party
Project A: (Owner/Operator)
Initial Capital Outlay by Valcent = $565,000 (Expense)
Year 1 through 10 Pretax Cashflows = $505,000 (Pretax Profits)
Internal Rate of Return for that project = 89.23%
Wow! This number is confirmed by a press release put out by Valcent. That is a fantastic return. It would then make sense that Valcent builds a few of these for themselves and operates them both for exposure and profit.
Project B: (Sell the Verticrop to a Grower)
Now let’s look at things from the grower’s perspective. I would suggest an internal rate of return of perhaps 30% would entice a grower to adopt Valcent’s technology. If I then work through the numbers backwards, an IRR of 30% will imply an initial capital outlay of $1,550,000 given the same pretax profits of $505,000 in years 1-10.
In other words, Valcent could sell their machine to a grower for $1,550,000 and the grower would still enjoy an internal rate of return on that project of 30%!
Happy Grower, Happy Valcent Shareholder ….
Valcent’s Revenue on this transaction would be $1,550,000 vs. a cost of goods sold of $565,000. That’s a 64% gross profit margin.
Given that Valcent has tax loss carry forwards that can be used up …net of some SG&A costs and perhaps some future interest on operating debt, a healthy portion of those revenues should fall to the bottom line.
The total revenue model will likely be a combination of a) owner operated revenue, b) outright sales, c) servicing revenue.
I’m quite excited about the prospects but one task remains … we must see some revenue generation by any of the means shown above.
Now, to answer my original question about the worth of a head of lettuce …. Well, you know by now that its worth a lot!
Cheers,
upshegrows
