NEW YORK, Nov. 15, 2016 /PRNewswire/ -- MFC Bancorp Ltd.
(the "Company") (NYSE: MFCB) announces its results for the three
and nine months ended September 30,
2016 and provides an update on its recent corporate
developments. The Company's financial statements are prepared in
accordance with International Financial Reporting Standards
("IFRS"). (All references to dollar amounts are in Canadian
dollars unless otherwise
stated.)
In the nine months ended September 30,
2016, we continued to make progress on our plan to exit
product lines and geographies with unsatisfactory margins, in order
to reallocate capital to operations that present higher returns,
including our core competencies in merchant banking and
healthcare.
To this end, we have:
- Reduced our inventories by $147.4
million over the 12 months ended September 31, 2016, representing a reduction of
more than 50%;
- Entered into an agreement to sell our ferrosilicon production
facility and interest in quartz quarries to Elkem AS
("Elkem") for cash consideration approximately equal to net asset
value;
- Exited unprofitable businesses which were generating
unsatisfactory returns in multiple jurisdictions, including
Germany, Luxembourg, India, certain eastern European countries and
the United States;
- Reduced our head count and overhead, with the goal to reduce
head count by more than 30% over 2016; and
- Made progress in the expansion of our healthcare business in
China.
In connection with these actions, we estimate that we have
incurred restructuring charges of more than $7 million in the first nine months of 2016.
While such charges negatively impacted our results of operations,
we believe that they will result in cost reductions of more than
$21 million going forward on an
annualized basis, with the first results expected in the first
quarter of 2017.
We will use the proceeds from these actions to reduce our debt
and borrowings, and reallocate capital to more lucrative projects
with the ultimate goal of generating an adequate return on our
shareholders' equity.
Recent Updates:
Inventory Reduction
In the first nine months of 2016, we reduced our inventories by
more than $115.9 million, from
$245.3 million as at December 31, 2015 to $129.5 million as at September 31, 2016. This was primarily a result
of exiting certain product lines and geographical markets and we
expect to continue to reduce inventories substantially over the
remainder of 2016.
|
September
30,
2015
|
|
December31,
2015
|
|
March
31,
2016
|
|
June
30,
2016
|
|
September
30,
2016
|
|
(In
thousands)
|
Inventories
|
$
276,901
|
|
$
245,345
|
|
$
197,406
|
|
$
154,703
|
|
$
129,454
|
Update on the Sale of Fesil Rana Metall AS
In August 2016, we entered into an
agreement to sell our interests in Fesil Rana Metall AS ("Fesil
Rana") (Norwegian ferrosilicon plant) and Nor-kvarts (Spanish
quartz quarries) to Elkem, one of the world's leading companies for
environmentally responsible production of materials such as
silicon, ferrosilicon, foundry alloys, carbon materials and
microsilica. The cash consideration to be received under the
transaction is approximately equal to net asset value, subject to
certain adjustments between the parties related to the
profitability of Fesil Rana before closing. The transaction is
subject to customary conditions, including the receipt of requisite
regulatory approvals, some of which have been received to date. We
currently expect that this transaction will close in the fourth
quarter of 2016.
Natural Gas Assets
As of September 30, 2016, we
reclassified our natural gas assets from discontinued operations to
continuing operations. Natural gas markets remain in a
cyclical downturn and the potential for appreciation of these
assets strongly outweighs the associated risk profile. We will hold
these high quality properties as a core asset going forward.
These assets are currently generating positive cash flows and
are generally a contributor to our net income. However, in the
third quarter of 2016, we recognized an additional $2.4 million of depletion related to prior
quarters in accordance with IFRS requirements of reclassifying a
discontinued operation, which impacted the profitability of these
natural gas assets during the period.
Financial Highlights
As of September 30, 2016, cash and
cash equivalents increased to $238.7
million from $197.5 million as
of December 31, 2015. Inventories
decreased to $129.5 million as of
September 30, 2016 from $245.3 million as of December 31, 2015 as a result of our decision to
exit certain product lines and geographies. Trade receivables
increased from $151.2 million as of
December 31, 2015 to $174.7 million as of September 30, 2016. The increase in trade
receivables was primarily the result of the reduction of
inventories and other factors which we expect to reverse in the
coming quarters. Credit risk from trade receivables is
substantially mitigated through credit insurance, bank guarantees,
letters of credit and other risk mitigation measures.
The following table highlights selected figures on our financial
position as at September 30, 2016 and
December 31, 2015:
|
September
30,
|
|
December
31,
|
|
2016
|
|
2015
|
|
(In thousands,
except ratio and per
share amounts)
|
Cash and cash
equivalents
|
$
238,728
|
|
$
197,519
|
Short-term
securities
|
13,221
|
|
170
|
Trade
receivables
|
174,733
|
|
151,229
|
Tax
receivables
|
16,901
|
|
11,705
|
Other
receivables
|
23,295
|
|
14,727
|
Inventories
|
129,454
|
|
245,345
|
Total current
assets
|
620,056
|
|
785,850
|
Total current
liabilities
|
381,070
|
|
414,562
|
Working
capital
|
238,986
|
|
371,288
|
Current
ratio(1)
|
1.63
|
|
1.90
|
Short-term bank
borrowings
|
151,768
|
|
60,103
|
Total
assets
|
940,479
|
|
977,351
|
Total long-term
debt
|
282,210
|
|
259,038
|
Long-term
debt-to-equity(1)
|
0.51
|
|
0.47
|
Total
liabilities
|
600,538
|
|
608,151
|
Shareholders'
equity
|
338,618
|
|
367,192
|
Net book value per
share
|
5.36
|
|
5.81
|
______________
(1)
|
The current ratio is
calculated as current assets divided by current liabilities and the
long-term debt-to-equity ratio is calculated as long-term debt,
less current portion, divided by shareholders' equity.
|
Operating EBITDA from continuing operations is defined as
earnings from continuing operations before interest, taxes,
depreciation, depletion, amortization and impairment. Operating
EBITDA from continuing operations is a non-IFRS financial measure
and should not be considered in isolation or as a substitute for
performance measures under IFRS. Management uses Operating EBITDA
from continuing operations as a measure of our operating results
and considers it to be a meaningful supplement to net income as a
performance measure, primarily because we incur depreciation and
depletion from time to time.
For the third quarter of 2016, our Operating EBITDA from
continuing operations decreased to $2.8
million from $8.8 million for
the same quarter of 2015 and our loss from continuing operations
decreased to $7.5 million for the
third quarter of 2016 from $207.5
million for the same period of 2015.
The following is a reconciliation of our loss from continuing
operations to Operating EBITDA from continuing operations for the
three months ended September 30,
2016.
|
Three Months
Ended
September
30,
|
|
2016
|
|
2015
|
|
|
|
(Re-presented)
|
|
(In
thousands)
|
Operating EBITDA
from continuing operations
|
|
|
|
Loss from continuing
operations(1)
|
$
(7,452)
|
|
$
(207,551)
|
Income tax
recovery(2)
|
(85)
|
|
(57,180)
|
Finance
costs
|
5,319
|
|
6,111
|
Amortization,
depreciation and depletion
|
4,980
|
|
1,594
|
Impairment of
hydrocarbon and resource properties
|
-
|
|
265,875
|
Operating EBITDA from continuing operations
|
$
2,762
|
|
$
8,849
|
______________
(1)
|
Includes net income
attributable to non-controlling interests.
|
(2)
|
The income tax paid
in cash, excluding resource property revenue taxes, during the
third quarter of 2016 was $0.1 million, compared to $1.0 million in
the same quarter of 2015.
|
The following is a reconciliation of our loss from continuing
operations to Operating EBITDA from continuing operations for the
nine months ended September 30,
2016.
|
Nine Months
Ended
September
30,
|
|
2016
|
|
2015
|
|
|
|
(Re-presented)
|
|
(In
thousands)
|
Operating EBITDA
from continuing operations
|
|
|
|
Loss from continuing
operations(1)
|
$
(7,578)
|
|
$
(196,603)
|
Income tax expense
(recovery)(2)
|
3,517
|
|
(52,943)
|
Finance
costs
|
15,387
|
|
16,452
|
Amortization,
depreciation and depletion
|
8,766
|
|
4,256
|
Impairment of
hydrocarbon and resource properties
|
-
|
|
265,875
|
Operating EBITDA from continuing operations
|
$
20,092
|
|
$
37,037
|
|
|
|
|
______________
(1)
|
Includes net income
attributable to non-controlling interests.
|
(2)
|
The income tax paid
in cash, excluding resource property revenue taxes, during the
first nine months of 2016 was $2.2 million compared to $3.9 million
in the same period of 2015.
|
Credit Lines and Facilities
We established, utilized and maintain various kinds of credit
lines and facilities with banks and insurers. Most of these
facilities are short-term. These facilities are used in our
day-to-day merchant banking business. The amounts drawn under such
facilities fluctuate with the type and level of transactions being
undertaken.
As at September 30, 2016, we had
credit facilities aggregating $623.5
million comprised of: (i) unsecured revolving credit
facilities aggregating $181.7 million
from banks. The banks generally charge an interest rate of
inter-bank rates plus an interest margin; (ii) revolving credit
facilities aggregating $163.5 million
from banks for structured solutions, a special trade financing. The
margin is negotiable when the facility is used; (iii) a
non-recourse specially structured factoring arrangement with a bank
for up to $213.8 million for our
merchant banking activities. We may factor our receivable accounts
upon invoicing at the inter-bank rate plus a margin; (iv) foreign
exchange credit facilities of $37.0
million with banks; and (v) secured revolving credit
facilities aggregating $27.5
million.
All of these facilities are either renewable on a yearly basis
or usable until further notice. Many of our credit facilities are
denominated in Euros and, accordingly, such amounts may fluctuate
when reported in Canadian dollars.
During 2016, we reduced and eliminated certain customer-specific
credit facilities for customers with whom we no longer commercially
transact, as well as certain credit facilities which were
underutilized or in jurisdictions which we are exiting. We continue
to evaluate the benefits of certain facilities that may not have
strategic long-term relevance to our business and priorities going
forward and may modify or eliminate additional facilities in the
future. We do not anticipate that this will have a material
impact on our overall liquidity.
In addition, we have margin lines with availability at multiple
brokers which enable us to hedge industrial products.
President's Comments
Gerardo Cortina, President and
CEO of the Company, commented: "A year ago we made the decision to
exit product lines and geographies with unsatisfactory returns.
To date, we have made substantial progress on this plan
and are in the process of reallocating capital to operations
that present higher returns with the goal of generating an adequate
return to our shareholders."
Stakeholder Communication
Management welcomes any questions you may have and looks forward
to discussing our operations, results and plans with
stakeholders:
- Stakeholders are encouraged to read our entire management's
discussion and analysis for the three and nine months ended
September 30, 2016 and our unaudited
financial statements for the three and nine months ended
September 30, 2016 (the "Quarterly
Report"), which are available under the Company's profile at
www.sedar.com or at www.sec.gov, for a greater understanding of our
business and operations.
- All stakeholders who have questions regarding the information
in the Quarterly Report may call our North American toll free line:
1 (844) 331 3343 (International callers: +1 (604) 662
8873) to book a conference call with one of our senior
management. Questions may also be emailed to Rene Randall at rrandall@bmgmt.com.
About MFC
We are a merchant bank that provides financial services and
facilitates structured trade for corporations and institutions. We
specialize in markets that are not adequately addressed by
traditional sources of supply and finance, with an emphasis on
providing solutions for small and medium sized enterprises. We
operate in multiple geographies and industries.
As a supplement to our operating business, we commit proprietary
capital to assets and projects where intrinsic values are not
properly reflected. These investments can take many forms, and our
activities are generally not passive. The structure of each of
these opportunities is tailored to each individual transaction.
Disclaimer for
Forward‐Looking Information
Certain statements in this news release are forward-looking
statements or forward-looking information, within the meaning of
applicable securities laws, which reflect our expectations
regarding our future growth, results of operations, performance and
business prospects and opportunities. Forward-looking statements
consist of statements that are not purely historical, including
statements regarding our business plans, anticipated future gains
and recoveries, our plans to enter new businesses, our strategy to
reduce trade receivables and inventories and increase
profitability, potential cost reductions from restructuring
actions, the completion of proposed divestitures, future business
prospects and any statements regarding beliefs, expectations or
intentions regarding the future. Generally, these forward-looking
statements can be identified by the use of forward-looking
terminology such as "plans", "expects", "is expected", "budget",
"scheduled", "estimates", "forecasts", "intends", "anticipates",
"believes", variations or comparable language of such words and
phrases or statements that certain actions, events or results
"may", "could", "would", "should", "might" or "will be taken",
"occur" or "be achieved" or the negative connotation thereof.
While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our
current judgment regarding the direction of our business, actual
results will almost always vary, sometimes materially, from any
estimates, predictions, projections, assumptions or other future
performance suggested herein. No assurance can be given that any of
the events anticipated by the forward-looking statements will occur
or, if they do occur, what benefits we will obtain from them. These
forward-looking statements reflect our current views and are based
on certain assumptions and speak only as of the date hereof. These
assumptions, which include our current expectations, estimates and
assumptions about our business and the markets we operate in, the
proposed entry into new markets and businesses, the global economic
environment, interest rates, commodities prices, exchange rates,
our ability to integrate our newly acquired bank and our ability to
satisfy all of the conditions to complete proposed divestitures,
may prove to be incorrect. No forward-looking statement is a
guarantee of future results. A number of risks and uncertainties
could cause our actual results to differ materially from those
expressed or implied by the forward-looking statements, including
those described herein and in our Quarterly Report and 2015 annual
report on Form 20-F. Such forward-looking statements should
therefore be construed in light of such factors. Although we have
attempted to identify important factors that could cause actual
results to differ materially from those contained in
forward-looking statements, there may be other factors that cause
results not to be as anticipated, estimated or intended. Investors
are cautioned not to place undue reliance on these forward-looking
statements. Other than in accordance with our legal or regulatory
obligations, we are not under any obligation and we expressly
disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. Additional information about these and
other assumptions, risks and uncertainties is set out in the "Risk
Factors" section of our Quarterly Report and in our 2015 annual
report on Form 20-F filed with the Securities and Exchange
Commission and Canadian securities regulators.
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SOURCE MFC Bancorp Ltd.