MFC Bancorp Ltd. Reports Results For The Three Months Ended March 31, 2017

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May 15, 2017, 07:30 ET

NEW YORK, May 15, 2017 /PRNewswire/ -- MFC Bancorp Ltd. (the "Company" or "MFC") (NYSE: MFCB) announces its results for the three months ended March 31, 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.)

In the first quarter of 2017, we continued to progress our strategy to exit product lines and geographies with unsatisfactory margins, deleverage, and reallocate capital to our merchant banking business.

To this end, since the beginning of 2017, we have:

rationalized our inventories by reducing them by 37% from $32.0 million at December 31, 2016 to $20.2 million at March 31, 2017;

deleveraged through repayment of short-term bank borrowings, reducing them by 29% from $95.4 million at December 31, 2016 to $67.4 million at March 31, 2017;

completed the sale of a non-core commodities trading business;

reduced our total debt by 31% from $116.8 million at December 31, 2016 to $80.3 million at March 31, 2017; and

allocated resources for the expansion of our merchant banking business.

Inventory Reduction

In the first quarter of 2017, we reduced our inventories by $11.7 million, from $32.0 million as at December 31, 2016 to $20.2 million as at March 31, 2017. This was a result of exiting certain product lines and geographical markets.

The following table sets forth our inventories as at March 31, June 30, September 30, and December 31, 2016 and March 31, 2017:

INVENTORIES (In thousands)		March 31, 2016		June 30, 2016		September 30, 2016		December 31, 2016		March 31, 2017
Inventories		$ 197,406		$ 154,703		$ 129,454		$ 31,954		$ 20,229

Debt Reduction

We strive to match our assets and liabilities so that our long-term assets are financed with long-term debt and equity, and our short-term assets are financed with short-term debt and equity. As we streamlined our operations and rationalized underperforming subsidiaries, we have reduced our debt accordingly. In the first quarter of 2017, we reduced our total long-term debt to $80.3 million from $116.8 million as at December 31, 2016 and $282.2 million as of September 30, 2016 by repaying debts that became due and paying down loans which had financed assets which were rationalized.

Financial Highlights

The following table highlights selected figures on our financial position as at March 31, 2017 and December 31, 2016:

FINANCIAL POSITION (In thousands, except ratios and per share amount)	March 31,	December 31,
	2017	2016
Cash and cash equivalents	$ 61,257	$ 120,676
Short-term securities	4,990	5,018
Trade receivables	145,025	135,962
Tax receivables	11,711	11,743
Other receivables	29,297	35,251
Inventories	20,229	31,954
Total current assets	287,392	400,954
Total current liabilities	124,365	214,676
Working capital	163,027	186,278
Current ratio⁽¹⁾	2.31	1.87
Acid-test ratio⁽²⁾	2.04	1.68
Total assets	536,241	650,338
Short-term bank borrowings	67,432	95,416
Total long-term debt	80,279	116,813
Long-term debt-to-equity⁽¹⁾	0.20	0.25
Total liabilities	214,291	320,908
Shareholders' equity	319,695	327,520
Net book value per share	5.10	5.19



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 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.

For the three months ended March 31, 2017, our Operating EBITDA was $5.7 million compared to $9.4 for the same period of 2016.

The following is a reconciliation of our net income (loss) to Operating EBITDA for the three months ended March 31, 2017 and 2016:

OPERATING EBITDA	Three months Ended March 31,
(In thousands)	2017		2016
			(Re-presented⁽¹⁾)
Net (loss) income ⁽²⁾	$ (1,739)	$ 270
Income tax expense	1,611	1,553
Finance costs	3,627	5,502
Amortization, depreciation and depletion	2,220	2,059
Operating EBITDA	$ 5,719	$ 9,384


Notes:
(1)						In connection with the reclassification of our mining interest and hydrocarbon properties to continuing operations in 2016, costs of sales and services have been re-presented for this period.
(2)						Includes net income attributable to non-controlling interests.

Update on the Proposed Plan of Arrangement

On March 31, 2017, we announced our intention to pursue a proposed plan of arrangement (the "Plan") under British Columbia corporate law, pursuant to which, among other things, we would reduce our shareholders' capital by an amount equal to our retained deficit, complete a consolidation, followed by a split, of our common shares and our existing common shares would be exchanged for the shares of a new parent company incorporated under the laws of the Cayman Islands ("New MFC"), which would become the new publicly traded parent company of our group. The Plan is subject to, among other things, finalization and requisite court, shareholder and board approvals. We currently expect to complete the Plan in the late second quarter or early third quarter of 2017.

The Company believes that the benefits of the Plan are, among other things:

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.

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. The Cayman Islands has no corporate income, dividends or capital gains taxes and no withholding taxes on distributions to shareholders.

Reduced Expenses We have a large number of very small shareholders, as such we believe that by eliminating odd lot holders under the Plan, we 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 our 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.

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 March 31, 2017, we had credit facilities aggregating $345.5 million as follows: (i) we had unsecured revolving credit facilities aggregating $69.1 million from banks. The banks generally charge an interest rate at inter-bank rates plus an interest margin; (ii) we also had revolving credit facilities aggregating $52.2 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 the inter-bank rate plus a margin; and (iv) we had foreign exchange credit facilities of $25.8 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.

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 intend to 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 will help reduce expenses and ultimately result in an adequate return on our equity."

Stakeholder Communications

Management welcomes any questions you may have and looks forward to discussing our operations, results and plans with stakeholders and:

all stakeholders are encouraged to read our entire management's discussion and analysis for the three months ended March 31, 2017 and our unaudited financial statements for the three months ended March 31, 2017, 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; and

any stakeholders who have questions regarding the information in our quarterly report for the three months ended March 31, 2017 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].

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 realize the anticipated benefits of our acquisitions; (vi) additional risks and uncertainties resulting from strategic investments, acquisitions or joint ventures; (vi) counterparty risks related to our trading and finance activities; (vii) our ability to complete the Plan as contemplated, or at all, and our ability to realize on the anticipated benefits of the plan; (viii) operating hazards; and (ix) 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 are set forth in our management's discussion and analysis for the three months ended March 31,2017 and our annual report on Form 20-F for the year ended December 31, 2016, each filed with the Securities and Exchange Commission and Canadian securities regulators.

SOURCE MFC Bancorp Ltd.