MFC Bancorp Ltd. Reports Results For The Three And Nine Months Ended September 30, 2017
NEW YORK, Nov. 14, 2017 /PRNewswire/ -- MFC Bancorp Ltd. (the "Company" or "MFC") (NYSE: MFCB) announces its results for the three and nine months ended September 30, 2017 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.)
For almost two years, we have focused our efforts on rationalizing unprofitable and marginally profitable businesses and geographies, reducing our structural cost profile, and reallocating capital to merchant banking projects.
We have made significant progress on this strategy, reducing our inventories since September 2015 by approximately $268 million, selling numerous non-core subsidiaries, and closing offices and business lines which were not generating a sufficient return. In addition, we have reduced our structural cost profile, though we continue to make incremental improvements to reduce expenses.
As part of this process, we have restructured our balance sheet and repositioned the group with the following actions:
- We expanded our merchant banking active in Europe by hiring highly qualified senior individuals in the finance and banking sector.
- Deleveraged through reducing short-term bank borrowings by 27% from $95.4 million at December 31, 2016 to $69.2 million at September 30, 2017, and reducing total debt by 36% from $116.8 million at December 31, 2016 to $75.2 million at September 30, 2017.
- We are relocating our commercial operations to Dublin, Ireland. Ireland is a progressive financial center with many attractive attributes, and Dublin will be MFC Bancorp's footprint to our European business going forward. With Dublin as the center of our commercial operations, we plan to expand our international footprint.
MFC now operates as an international merchant bank providing financial services and committing proprietary capital to promising enterprises and investing to capture opportunities for our own account. We seek businesses or assets with intrinsic values not properly reflected in pricing. Our activities are not passive, as we seek projects where our financial expertise and management can add or unlock value.
FINANCIAL RESULTS FOR THE FIRST NINE MONTHS OF 2017
Total revenues for the nine months ended September 30, 2017 decreased to $235.7 million from $944.9 million in the same period of 2016. Total revenues for the three months ended September 30, 2017 decreased to $57.3 million from $257.4 million in the same period of 2016. The decline in revenue was primarily due to the sale of non-core subsidiaries in the fourth quarter of 2016 and the first quarter of 2017, the reduction of inventories and our decision to exit certain product lines and geographies, partially offset by revenues from prior claims made by us for royalty underpayments.
Selling, General and Administrative Expenses for the nine months ended September 30, 2017 decreased by more than 40% from $62.9 million in the same period of 2016 to $37.3 million as a result of the sale of non-core subsidiaries, exiting business lines, office closures, and structural cost reductions. For the three months ended September 30, 2017, selling, general and administrative expenses declined by 54% to $9.4 million from $20.2 million in the same period of 2016.
Income tax expense (other than resource property revenue taxes) for the nine months ended September 30, 2017 was $2.4 million compared to $2.7 million in the prior year period. Our income tax paid in cash, excluding resource property revenue taxes, during the nine months ended September 30, 2017 was $1.9 million, compared to $2.2 million in the same period of 2016. We had income tax expense (other than resource property revenue taxes) for the three months ended September 30, 2017 of $1.9 million, compared to a recovery of $0.2 million in the prior year period. Our income tax paid in cash, excluding resource property revenue taxes, during the three months ended September 30, 2017 was $0.3 million, compared to $0.1 million in the same period of 2016.
Net loss (attributable to our shareholders) for the first nine months of 2017 was $14.0 million, or $1.11 per share on a diluted basis, compared to $8.7 million, or $0.69 per share on a diluted basis for the same period of 2016. Net loss for the current nine month period was primarily due to lower margins on our commodities runoff businesses and inventories, and other expenses related to office closures, personnel reduction, litigation and the costs related to the plan of arrangement completed in the third quarter of 2017 (the "Arrangement"). Per share amounts for prior periods in this press release have been restated to reflect the share consolidation and split under the Arrangement.
Operating EBITDA
Operating EBITDA is defined as earnings 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.
The following is a reconciliation of our net loss to Operating (loss) EBITDA for the three months ended September 30, 2017 and 2016:
| OPERATING EBITDA |
Three months Ended September 30, |
|
| (In thousands) |
2017 |
2016 |
| Net loss(1) |
$ (6,986) |
$ (7,452) |
| Income tax expense (recovery) |
3,179 |
(85) |
| Finance costs |
2,044 |
5,319 |
| Amortization, depreciation and depletion |
1,468 |
4,980 |
| Operating (loss) EBITDA |
$ (295) |
$ 2,762 |
| ______________ |
||
| Note: |
||
| (1) Includes net income attributable to non-controlling interests. |
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Trade Receivables
Our balance sheet continues to reflect trade receivables of $93.1 million due from our former customer that filed for insolvency in 2016. As with any legal process, there is uncertainty as to the timing and amounts of proceeds, but we continue to diligently exercise our rights in connection with such receivables in order to maximize recoveries, and we are also pursuing other alternatives to rationalize these interests.
Financial Highlights
The following table highlights selected figures on our financial position as at September 30, 2017 and December 31, 2016:
| FINANCIAL POSITION (In thousands, except ratios and per share amount) |
September 30, 2017 |
December 31, 2017 |
| Cash and cash equivalents |
$ 63,090 |
$ 120,676 |
| Short-term securities |
5,075 |
5,018 |
| Trade receivables |
127,917 |
135,962 |
| Tax receivables |
11,709 |
11,743 |
| Other receivables |
37,820 |
35,251 |
| Inventories |
8,633 |
31,954 |
| Total current assets |
260,928 |
400,954 |
| Total current liabilities |
121,945 |
214,676 |
| Working capital |
138,983 |
186,278 |
| Current ratio(1) |
2.14 |
1.87 |
| Acid-test ratio(2) |
2.02 |
1.68 |
| Total assets |
504,616 |
650,338 |
| Short-term bank borrowings |
69,248 |
95,416 |
| Total long-term debt |
75,150 |
116,813 |
| Long-term debt-to-equity(1) |
0.17 |
0.25 |
| Total liabilities |
198,627 |
320,908 |
| Shareholders' equity |
303,902 |
327,520 |
| Net book value per share |
24.24 |
25.94 |
| ______________ |
||
| 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. |
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| (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). |
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Appointment of New Auditors
We are pleased to announce the appointment of Moore Stephens LLP as MFC's new independent auditors. Moore Stephens is a global accountancy and consultancy network with its headquarters in London, England. Since Moore Stephens was founded a century ago, Moore Stephens has grown to be one of the largest international accounting and consulting groups worldwide.
The Company's former auditors, PricewaterhouseCoopers LLP, resigned voluntarily and there were no unresolved disagreements between the Company and PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures. We thank PricewaterhouseCoopers LLP for their service over the previous three years.
Stakeholder Communications
Management welcomes any questions you may have and looks forward to discussing our operations, results and plans with stakeholders. Further:
- all stakeholders are encouraged to read our entire management's discussion and analysis and our unaudited financial statements for the three and nine months ended September 30, 2017 (the "Quarterly Report"), which are included in the Company's Form 6-K of today's date, for a greater understanding of our business and operations; and
- any 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 our senior management. Questions may also be emailed to Rene Randall at [email protected].
President's Comments
Michael Smith, President and CEO of the Company, commented: "The first nine months of 2017 reflect our continued repositioning, with losses from the rationalization of certain businesses and geographies overshadowing progress we have made growing our merchant banking operations. While we are disappointed that this restructuring has taken so much time, we continue to make progress towards our goal of ultimately returning to an adequate return profile for the entire group."
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 and strategies, future business prospects, the exercise of our rights to recover trade receivables 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; (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) operating hazards; and (x) 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 is set out in the "Risk Factors" section of our Quarterly Report and in our 2016 annual report on Form 20-F filed with the Securities and Exchange Commission and Canadian securities regulators.
SOURCE MFC Bancorp Ltd.
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