NEW YORK, March 31, 2017 /PRNewswire/ -- MFC Bancorp Ltd.
(the "Company" or "MFC") (NYSE: MFCB), announces its results for
the year ended December 31, 2016 and
a proposed plan of arrangement that is designed to improve its
corporate structure, reduce expenses and increase its global
exposure 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.)
Review of 2016
The beginning of 2016 presented significant challenges. In
February 2016, one of our customers
filed for insolvency, which was an adjusting subsequent event under
IAS 10, Events after the Reporting Period. This
resulted in our first late filing as a public company and our
recognition of credit losses of more than $50 million in our 2015 financial statements.
But since then we have made progress on our goal to refocus the
Company by exiting product lines and geographies with
unsatisfactory margins in order to reallocate capital to operations
that present higher returns.
To this end, we have:
- reduced our inventories by $213.4
million in 2016 to $32.0
million, representing a reduction of approximately
87%;
- reduced $99.7 million of debt
and borrowings in 2016;
- sold our ferrosilicon production facility and interest in
quartz quarries to Elkem AS. The cash consideration received under
the transaction was approximately equal to net asset value and was
utilized to repay the debt which was incurred to refinance our
initial acquisition;
- exited unprofitable businesses which were generating
unsatisfactory returns in multiple jurisdictions, including
Germany, Luxembourg, certain eastern European countries
and the United States;
- substantially reduced our head count and overhead, with the
number of employees worldwide down from 650 to under 450 at the end
of 2016. To date, more than 50 employees have been given notice of
termination of their employment contracts in 2017;
- allocated resources for the expansion of our merchant
banking business; and
- in the first quarter of 2017, completed the sale of a
non-core commodities trading business that was focused on Latin
America. Pursuant to the transaction, we received total
consideration approximately equal to book value, including 450,000
of our common shares at a deemed price of $1.84 per share.
We will use the proceeds and expected savings 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.
Inventory Reduction
In 2016, we reduced our inventories by $213.4 million, from $245.3 million as at December 31, 2015 to $32.0
million as at December 31,
2016. This was a result of exiting certain product lines and
geographical markets.
The following table highlights the reduction in inventories as
at December 31, 2015 and March 31, June 30,
September 30 and December 31, 2016:
|
|
INVENTORIES (In
thousands)
|
|
December
31, 2015
|
|
March
31, 2016
|
|
June
30, 2016
|
|
September
30, 2016
|
|
December
31, 2016
|
Inventories
|
|
$
245,345
|
|
$
197,406
|
|
$
154,703
|
|
$
29,454
|
|
$
31,954
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Highlights
The following table highlights selected figures on our financial
position as at December 31, 2016 and
December 31, 2015:
FINANCIAL
POSITION
|
December
31, 2016
|
|
December
31, 2015
|
(In thousands, except
ratios and per share amounts)
|
|
|
|
|
|
Cash and cash
equivalents
|
$
120,676
|
|
$ 197,519
|
Short-term
securities
|
5,018
|
|
170
|
Trade
receivables
|
135,962
|
|
151,229
|
Tax
receivables
|
11,743
|
|
11,705
|
Other
receivables
|
35,251
|
|
14,727
|
Inventories
|
31,954
|
|
245,345
|
Total current
assets
|
400,954
|
|
785,850
|
Total current
liabilities
|
214,676
|
|
414,562
|
Working
capital
|
186,278
|
|
371,288
|
Current
ratio(1)
|
1.87
|
|
1.90
|
Acid-test
ratio(2)
|
1.68
|
|
1.17
|
Short-term bank
borrowings
|
95,416
|
|
52,864
|
Total
assets
|
650,338
|
|
977,351
|
Total long-term
debt
|
116,813
|
|
259,038
|
Long-term
debt-to-equity(1)
|
0.25
|
|
0.47
|
Total
liabilities
|
320,908
|
|
608,151
|
Shareholders'
equity
|
327,520
|
|
367,192
|
Net book value per
share
|
5.19
|
|
5.82
|
|
|
Notes:
|
|
(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.
|
(2)
|
The acid-test ratio
is calculated as cash plus account receivables plus short-term
securities, divided by current liabilities (excluding liabilities
related to assets held for sale).
|
Operating EBITDA
Operating EBITDA from continuing operations is defined as
earnings from continuing operations before interest, taxes,
depreciation, depletion, amortization and impairment. Operating
EBITDA 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 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 year ended December 31,
2016, our Operating EBITDA from continuing operations
increased to $10.8 million from a
loss of $26.1 million for the same
period of 2015 and our loss from continuing operations decreased to
$23.7 million for the year ended
December 31, 2016 from a loss of
$244.6 million for the same period of
2015.
The following is a reconciliation of our net loss from
continuing operations to Operating EBITDA (loss) from continuing
operations for the years ended December 31,
2016 and 2015:
OPERATING
EBITDA (loss) from continuing operations
|
Years Ended
December 31,
|
(In
thousands)
|
2016
|
|
2015
|
|
|
|
(Re-presented)
|
|
|
|
|
Net loss from
continuing operations(1)
|
$ (23,720)
|
|
$
(244,602)(2)
|
(Reversal) recognition
of impairment losses on resource properties
|
(8,566)
|
|
235,875
|
Income tax expense
(recovery)
|
7,014
|
|
(46,193)
|
Finance
costs
|
24,102
|
|
22,329
|
Amortization,
depreciation and depletion
|
11,951
|
|
6,450
|
|
|
|
|
Operating EBITDA (loss) from continuing operations
|
$ 10,781
|
|
$
(26,141)(2)
|
|
|
Notes:
|
|
(1)
|
Includes net income
attributable to non-controlling interests.
|
(2)
|
Includes losses of
$51.4 million related to a customer that filed for insolvency in
February 2016, $9.9 million on long-term off-take agreements
entered into by a subsidiary acquired in 2014, which have since
been terminated.
|
Proposed Plan of Arrangement
The Company also announces that it plans to complete a plan of
arrangement (the "Plan") that is designed to improve its corporate
structure, reduce expenses and increase its global exposure. MFC
Bancorp Ltd., a Canadian company will not change, just the ultimate
parent company. As part of the Plan:
- Share Capital. MFC's stated shareholders' capital will
be reduced by an amount equal to our retained deficit which, as of
December 31, 2016, was $88.9 million and in large part resulted from our
discontinued operations and impairments of assets.
- Share Consolidation/Split. MFC common shares will be
consolidated on a 100 for 1 basis, with any resulting fractional
shares being eliminated and the holders of the same being paid
therefor in cash based upon the weighted average price of the
common shares over the ten trading days immediately prior to the
Plan becoming effective and thereafter such MFC common shares will
be split on a 1 for 20 basis. This will reduce the number of share
outstanding though each shareholder's proportional ownership will
not change and there will be cost savings from reduced
administration expenses.
- Share Exchange. MFC's common shares will be exchanged on
a one-for-one basis for common shares of a new parent company,
which, upon completion of the Plan, will be renamed "MFC Bancorp
Ltd." ("New MFC") and MFC will become a wholly-owned subsidiary of
New MFC. New MFC will be incorporated in the Cayman Islands, where other significant
companies such as Alibaba are also incorporated. Our
existing shareholders will become shareholders of New MFC.
- Our New York Stock Exchange (NYSE) listing under the existing
symbol (MFCB) will be continuous without interruptions or
changes.
Under applicable corporate law, the Plan will require, among
other things, court approval and the approval of 66 2/3% of the
votes cast at the meeting. Shareholders would also be entitled to
exercise dissent rights in connection with the Plan. A shareholder
who dissents from the Plan will be entitled, when the Plan becomes
effective, to be paid in cash the fair value of their common
shares, subject to MFC's right to terminate the Plan in the event
that such dissent rights are exercised with respect to more than a
certain percentage of MFC common shares.
The Company believes that the benefits of the plan are, among
other things:
- Stable and Respected Jurisdiction. The
Cayman Islands is a desirable
jurisdiction for New MFC as it has enjoyed a long history of
political and economic stability and is a well-developed
international business and financial center, with a large number of
public companies organized there.
- More Flexible Corporate Structure. The separation
of the public parent company from its operating businesses will
facilitate future strategic transactions, such as spin-offs and
corporate reorganizations as well as provide additional options for
future financing structures.
- Additional Fiscal Flexibility. By being located in
an international financial center with advantageous tax laws, New
MFC will have enhanced flexibility with respect to fiscal and tax
planning and will be able to take advantage of the favourable
treatment accorded to non-resident exempted companies under Cayman
Islands law. Currently, the Cayman Islands has no
corporate income, dividends or capital gains taxes and no
withholding taxes on distributions to shareholders.
- Reduced Compliance Expenses and Cash Proceeds for Odd Lot
Interest Shareholders. We believe the Plan will reduce
our ongoing administrative costs and allow fractional shareholders
to receive cash for their fractional shares without incurring
brokerage commissions or expenses.
- Enhanced Global Exposure. We are a global company,
with operations spanning internationally and New MFC's jurisdiction
of incorporation of the Cayman
Islands, a recognized international financial center, is
more reflective of the international nature of its
operations. New MFC would also consider a secondary listing
of its shares on a second stock exchange after completion of the
Plan to obtain additional global exposure and liquidity.
The Plan is expected to be completed in 2017 and is subject to
finalization and requisite court, shareholder and board approvals.
Further information regarding the Plan will be included in
materials to be mailed to the Company's shareholders in connection
with the shareholder meeting to be held to approve the Plan.
Update on Management change
In March 2017, we announced that
Michael Smith, our Managing
Director, was appointed as the Company's President and Chief
Executive Officer. Mr. Smith replaced Gerardo Cortina, who resigned as President and
Chief Executive Officer of the Company in order to pursue outside
opportunities. Mr. Cortina will continue with the Company as
a director and on a part-time basis as Vice-President in order to
assist with the transition.
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 December 31, 2016, we had
credit facilities aggregating $430.0
million as follows: (i) we had unsecured revolving credit
facilities aggregating $141.2 million
from banks. The banks generally charge an interest rate at
inter-bank rate plus an interest margin; (ii) we also had revolving
credit facilities aggregating $64.6
million from banks for structured solutions, a special trade
financing. The margin is negotiable when the facility is used;
(iii) we had a specially structured non-recourse factoring
arrangement with a bank up to a credit limit of $198.4 million for our merchant banking
activities. We factor certain of our trade receivables upon
invoicing, at inter-bank rate plus a margin; and (iv) we had
foreign exchange credit facilities of $25.9
million with banks.
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.
President's Comments
Michael Smith, President and CEO
of the Company, commented: "Going forward we will expand our
merchant banking activities. Our plan to exit unsatisfactory
product lines and geographies, significantly reducing our
inventories and receivables and reallocating the capital to more
profitable business units is proceeding well."
Mr. Smith concluded: "We believe these actions and the
announcement of the Plan of Arrangement will help reduce expenses
and ultimately result in an adequate return on our equity."
Stakeholder's Communications
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 audited
financial statements and management's discussion and analysis for
the year ended December 31, 2016 as
set forth in our Annual Report on Form 20-F for the year ended
December 31, 2016 (the "Annual
Report") for a greater understanding of our business and
operations.
- All stakeholders who have questions regarding the information
in the Annual 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 of our senior management.
Questions may also be emailed to Rene
Randall at rrandall@bmgmt.com.
About MFC
MFC is 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
This news release contains statements which are, or may be
deemed to be, "forward‐looking statements" which are
prospective in nature, including, without limitation, statements
regarding the Company's business plans, its strategy to reduce
trade receivables and inventories, the completion and anticipated
benefits of the Plan, future business prospects and any statements
regarding beliefs, expectations or intentions regarding the
future. Forward-looking statements are not based on
historical facts, but rather on current expectations and
projections about future events, and are therefore subject to risks
and uncertainties which could cause actual results to differ
materially from the future results expressed or implied by the
forward-looking statements. Often, but not always, forward-looking
statements can be identified by the use of forward-looking words
such as "plans", "expects" or "does not expect", "is expected",
"scheduled", "estimates", "forecasts", "projects", "intends",
"anticipates" or "does not anticipate", or "believes", or
variations of such words and phrases or statements that certain
actions, events or results "may", "could", "should", "would",
"might" or "will" be taken, occur or be achieved. Such statements
are qualified in their entirety by the inherent risks and
uncertainties surrounding future expectations. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause our actual results, revenues, performance
or achievements to be materially different from any future results,
performance or achievements expressed or implied by the
forward-looking statements. Important factors that could cause our
actual results, revenues, performance or achievements to differ
materially from our expectations include, among other things: (i)
periodic fluctuations in financial results as a result of the
nature of our business; (ii) commodities price volatility; (iii)
economic and market conditions; (iv) competition in our business
segments; (v) our ability to enforce our rights, and recover
expected amounts, related to our insolvent customer through
existing collateral, guarantees, mortgages and other mitigation
securities; (vi) our ability to realize the anticipated benefits of
our acquisitions; (vii) additional risks and uncertainties
resulting from strategic investments, acquisitions or joint
ventures; (viii) counterparty risks related to our trading and
finance activities; (ix) our ability to complete the Plan as
contemplated, or at all, and our ability to realize on the
anticipated benefits of the plan; (x) operating hazards; and (xi)
other factors beyond our control. Such forward-looking
statements should therefore be construed in light of such factors.
Other than in accordance with its legal or regulatory obligations,
the Company is not under any obligation and the Company expressly
disclaims 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 are set out in
our Annual Report on Form 20-F filed with the U.S. Securities and
Exchange Commission and with the Canadian securities
regulators.
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SOURCE MFC Bancorp Ltd.