MFC Industrial Ltd. Reports Results For The Three Months Ended March 31, 2015

May 15, 2015, 06:30 ET from MFC Industrial Ltd.

NEW YORK, May 15, 2015 /PRNewswire/ -- MFC Industrial Ltd. ("MFC" or the "Company") (NYSE: MIL) announces its results for the three months ended March 31, 2015 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 United States dollars unless otherwise stated.)   

HIGHLIGHTS                        

For the first three months of 2015

Revenues increased to $334.5 million for the three months ended March 31, 2015, compared to $231.4 million in the same period in 2014. 

Net income was $6.3 million, or $0.10 per share on a basic and diluted basis, in the first quarter of 2015, compared to $5.8 million, or $0.09 per share on a basic and diluted basis, in the first quarter of 2014.

Operating EBITDA* was $19.6 million for the three months ended March 31, 2015, compared to $17.7 million in same period in 2014.

In 2015, Cliffs Natural Resources Inc. ("Cliffs") closed the Wabush mine. We hold the master lease and will receive minimum payments of C$3.25 million per year until that agreement is terminated. 

We are continuing with our previously announced plan to rationalize certain MFC Energy Corporation ("MFC Energy") assets and return the net proceeds to our shareholders. 

Our goal is to grow and focus on our trade finance and supply chain solutions businesses. To support this vision, we intend to partner with a European bank, which will become our in-house bank, enabling us to expand the services we provide to our customers and improve our profit margins. 



*Note:

Operating EBITDA (defined as earnings before interest, taxes, depreciation, depletion amortization and impairment) is not a measure of financial performance under International Financial Reporting Standards ("IFRS"), has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for performance measures under IFRS. See page II of this Letter to Shareholders for a reconciliation of our net income to Operating EBITDA. For the first quarters of 2015 and 2014 there was no difference between Operating EBITDA and EBITDA.                                 

 

2015 FINANCIAL RESULTS

Revenues for the three months ended March 31, 2015 reached $334.5 million, an increase of 44.6% over the same period in 2014, as a result of organic growth in certain product lines and an overall increase in supply chain revenue due to the consolidation of our recent acquisitions, partially offset by lower natural gas prices and other products and a weaker Euro and Canadian dollar.

Costs of sales and services increased to $303.4 million during the three months ended March 31, 2015 from $197.5 million for the same period in 2014, as a result of the consolidation of our recent acquisitions.      

Selling, general and administrative expenses decreased slightly to $17.3 million for the three months ended March 31, 2015 from $17.4 million for the same period in 2014. This was primarily due to the exchange rate between the United States dollar and the Euro, despite our expansion into new geographies and markets.  As a percentage of gross revenue, selling, general and administrative expenses were 5.2% in the first quarter of 2015, compared to 7.5% in first quarter of 2014.                                                                                                                  

Operating EBITDA for the three months ended March 31, 2015 was $19.6 million versus $17.7 million for the same period in 2014.

OPERATING EBITDA BREAKDOWN

Operating EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization and impairment. Management uses Operating EBITDA as a measurement of the Company's operating results and considers it to be a meaningful supplement to net income as a performance measurement primarily because we incur significant depreciation and depletion from time to time.

The following table reconciles our net income to Operating EBITDA for each of the three months ended March 31, 2015 and 2014:

Operating EBITDA (earnings before interest, taxes, depreciation, depletion, amortization and impairment)
All amounts in thousands


March 31, 2015

March 31, 2014

Net income(1)

$          6,605

$          6,299

Income taxes

3,664

2,513

Finance costs

4,789

3,696

Amortization, depreciation and depletion

4,566

5,185

Operating EBITDA(2)

$        19,624

$        17,693



Notes:

(1) Includes net income attributable to non-controlling interests.


(2) There were no impairments in the first quarters of 2015 or 2014.

 

RESULTS BY OPERATING SEGMENT

As a global supply chain company, we utilize our innovative finance alongside sophisticated customized structured solutions to facilitate the working capital and other requirements of our customers. We also commit our own capital to promising enterprises and invest and otherwise capture investment opportunities for our own account.

Our total revenues by operating segment for each of the three months ended March 31, 2015 and 2014 are broken out in the table below. We report in three segments: global supply chain, trade finance and services, and other.  

REVENUES 
All amounts in thousands


March 31, 2015

March 31, 2014

Global supply chain   

$     326,771

$     221,038

Trade finance and services

1,137

3,268

All other

6,614

7,069

   Total revenues

$     334,522

$     231,375

            

Our income from operations for each of the three months ended March 31, 2015 and 2014 is broken out in the table below:

INCOME FROM OPERATIONS  
All amounts in thousands, except per share amounts


  March 31, 2015

          March 31, 2014

Global supply chain

$     7,339

$     6,836

Trade finance and services

2,300

3,721

All other

630

(1,745)

Income before income taxes

10,269

8,812

Income tax expense

(3,533)

(1,931)

Resource property revenue tax expense

(131)

(582)

Net income attributable to non-controlling interests                   

(291)

(498)

Net income attributable to our shareholders

$     6,314

$      5,801

Earnings per share, basic and  diluted

$       0.10

$        0.09

 

FINANCIAL POSITION

The following table highlights certain selected key numbers and ratios as of March 31, 2015 and December 31, 2014.

FINANCIAL HIGHLIGHTS
All amounts in thousands, except per share amount and ratios


March 31, 2015

December 31, 2014

Cash and cash equivalents 

$        331,282

$        297,294

Securities

226

250

Trade receivables

137,615

161,674

Current assets

837,334

864,804

Total assets

1,365,678

1,458,684

Current liabilities

376,045

379,944

Working capital

461,289

484,860

Current ratio*

2.23

2.28

Total liabilities

707,404

787,248

Shareholders' equity

656,921

670,388

Equity per common share

10.40

10.63



*Note:

The current ratio is calculated as current assets divided by current liabilities.

 

LIQUIDITY

As at March 31, 2015, we had cash and cash equivalents, short-term deposits and securities of $331.7 million

LIQUIDITY 
All amounts in thousands


March 31, 2015

December 31, 2014

Total long-term debt

$      276,888

$      313,124

Less: cash and cash equivalents

(331,282)

(297,294)

(Net cash & cash equivalents) net debt

(54,394)

15,830

Shareholders' equity

656,921

670,388

 

Future Liquidity

We expect that there will be acquisitions of businesses or commitments to projects in the future. To achieve the long-term goals of expanding our assets and earnings, including through acquisitions, capital resources will be required. Depending on the size of a transaction, the capital resources that will be required can be substantial. The necessary resources will be generated from cash flows from operations, cash on hand, borrowings against our assets and sales of proprietary investments.

The long-term debt-to-equity ratio is calculated as long-term debt divided by shareholders' equity.

LONG-TERM DEBT AND DEBT METRICS 
All amounts in thousands, except ratio


March 31,  2015

December 31, 2014

Long-term debt, less current portion

$      227,822

$     256,148

Shareholders' equity

656,921

670,388

Long-term debt-to-equity ratio

0.35

0.38

The decrease in long-term debt as at March 31, 2015 was primarily due to strengthening of the United States dollar against the Euro since December 31, 2014.

Our objectives when managing capital are to continue to match the duration of our assets and liabilities to the extent possible and to maintain a flexible capital structure that optimizes the cost of capital at acceptable risk. We set the amount of capital in proportion to risk.

We actively manage our capital structure and make adjustments to it in accordance to changes in economic conditions.

We maintain various kinds of credit lines and facilities with banks. Most of these facilities are short-term and are used for our day-to-day business and trade financing activities in our global supply chain business. The amounts drawn under such facilities fluctuate with the type and level of transactions being undertaken.

As at March 31, 2015, we had credit facilities aggregating approximately $697.0 million, comprised of: (1) unsecured revolving credit facilities aggregating $346.8 million from banks; (2) revolving credit facilities aggregating $77.7 million from banks for structured solutions; (3) a non-recourse factoring arrangement with a bank for up to a credit limit of $177.8 million for our supply chain business; (4) foreign exchange credit facilities of $56.7 million with banks; and (5) secured revolving credit facilities aggregating $38.0 million. All of these facilities are either renewable on a yearly basis or usable until further notice. It should be noted that these credit facilities are primarily in Euros and are translated to United States dollars for financial reporting purposes.

Working Capital

In 2015, we reduced our inventories and trade receivables. As of March 31, 2015 our trade receivables were $137.6 million and our inventories were $194.2 million, compared to trade receivables of $161.7 million and inventories of $212.6 million as of December 31, 2014.  More than 50% of our inventories have been contracted to be sold at fixed prices, while the remainder is comprised of the raw materials, work-in-progress and finished goods of our production facilities, strategic inventories (such as consignment positions) and goods in transit.   

We actively monitor our working capital and are focused to further improve our financial metrics.         

UPDATE ON OUR INTEREST IN THE WABUSH MINE

We indirectly derive royalty revenue from a mining sub-lease of the lands upon which the Wabush iron ore mine is situated in Newfoundland and Labrador, Canada.

In the first quarter of 2015, Cliffs commenced proceedings under the Companies' Creditors Arrangement Act (Canada) (the "CCAA") with respect to its Canadian operations, including the subsidiary that holds a majority interest in its Wabush mine joint venture.  While the Wabush mine is not directly a party to the CCAA proceedings, the assets comprising the mine have been included in any sales process.

Cliffs is obligated to pay us a minimum lease payment of C$3.25 million per year.  We currently believe that Cliffs will at some point terminate the sub-lease, in which case we, as the landlord, will exercise our step-in rights, which allow us to take back the mine and purchase certain infrastructure onsite.   There can be no assurance as to when and if Cliffs will provide notice of such termination.  

UPDATE ON RECENT CORPORATE DEVELOPMENTS

Hydrocarbon Asset Preservation

As previously announced, we are continuing to preserve our long-term natural gas reserves and ensure that we do not deplete our resources at uneconomic prices. We initiated a program to curtail production at certain of our wells.  To date, this program has focused on our properties in central Alberta that produce a higher mix of natural gas liquids.  We are focused on these properties because, while we are able to effectively hedge natural gas, we are not able to effectively hedge natural gas liquids.  When production at such wells becomes economical, we will resume operations.  We believe that this program is the prudent action in this environment as it will ensure that our natural gas remains in the ground, while maintaining the flexibility to monetize our reserves when attractive pricing resumes. 

In 2015, we began hedging a portion of our natural gas production with AECO based Canadian dollar futures to protect against further price declines in the near-term.  Our intention is to continue this program and hedge additional volumes to preserve our assets and maximize value over the long-term. 

Natural Gas Participation Agreement

We have an agreement with an operator to develop certain properties in the Niton area of Alberta, Canada.  This arrangement provides us with the opportunity to develop our properties at minimal risk and, at the same time, provides a potential source of revenue through royalty and processing arrangements.  Under  the agreement, the operator will spend a minimum of C$50 million to drill at least three net wells per year and a total of twelve net wells (the sum of our factual working interest in each well) during the initial three-year term, which commenced in November 2013.

The operator has drilled and completed seven wells on the lands subject to the participation agreement.  Some of the wells have exceeded expectations for similar wells in this area.  Five of the seven wells are currently producing, and the natural gas from four wells is currently being processed at MFC's facilities with one additional well expected to be tied in shortly.  We have elected to receive the 10% royalty on each producing well.    

Natural Gas Power Plant

We are in the final stages of completing the construction of a 16.5 MW natural gas power project at our gas processing plant near Calgary, Alberta. Upon completion, which is expected be in the second quarter of 2015, the project will supply our processing plant's electrical needs, with excess power being sold into the grid based on Alberta Electricity System Operator's rates.

The Alberta electricity market is fully deregulated, which provides us with the option to run as a peaking power plant, supplying electricity only when volatile prices are at their highest.

Return of Capital

We are in active discussions with parties relating to our previously announced plan to rationalize certain MFC Energy assets and return the net proceeds to shareholders. 

We have no specific timeline to meet these goals.  However, we will implement a process that will enable management of MFC to focus on return on capital actively employed, not return of capital for these natural gas assets, while simultaneously ensuring certainty and stability for all stakeholders and maximizing the value of the distribution(s).  Before making distributions to shareholders, the bank debt that we incurred to refinance the acquisition of these assets will be repaid. 

The following table sets out the natural gas assets that we plan to rationalize along with associated bank debt and decommissioning obligations:

NATURAL GAS ASSETS AND LIABILITIES TO BE RATIONALIZED
All amounts in thousands 


As of March 31, 2015

    Long-term debt

$         (72,918)

Property, plant and equipment

55,299

Resource properties

139,985

Hydrocarbon probable reserves

39,931

Hydrocarbon unproved lands

19,616

Decommissioning obligations

(81,872)

           Net long-term assets

$        100,041

 

We anticipate that an initial distribution to shareholders will be made within eighteen months.  We are pleased to report that this distribution will be classified as return of capital with no withholding tax. 

Redeployment of Capital

We also have certain natural gas assets that are classified as held for sale at March 31, 2015. We intend to rationalize these assets and redeploy the capital in our trade finance business. The following table sets out the assets and liabilities of these properties:

NATURAL GAS ASSETS AND LIABILITIES TO BE MONETIZED FOR REDEPLOYMENT OF CAPITAL
All amounts in thousands


As of March 31, 2015

 Assets held for sale

$          91,147

 Liabilities related to assets held for sale

(13,382)

          Net assets held for sale

$          77,765

 

FISCAL RESPONSIBILITY

We are a company that strives to be fiscally responsible.  The corporate income tax paid in cash was approximately $1.5 million for the three months ended March 31, 2015.  This number includes certain mandatory prepayments in certain jurisdictions that will be recovered upon submission of financial statements for the fiscal year. 

COMMENTS

Gerardo Cortina, President and CEO of the Company, commented: "Our main business today is global supply chain, sourcing and supplying a wide range of products such as metals, alloys, minerals, chemicals and wood products to different industries around the world and providing a wide range of trade finance solutions to both consumers and suppliers.

We are continuing work on our plan to partner with a European bank which would help us to expand our trade finance business into a wide range of new services such as financing, factoring, forfaiting, marketing, and risk management.  An in-house bank will enable us to grow the supply chain solutions we currently offer to our clients. This will not only enhance our business, but enhance our long-standing business relationships with our customers and banks."

Mr. Cortina concluded, "Successful trade finance, efficient to customers and safe for lenders, requires long-standing customer relationships, knowledge and experience in products, markets, country risk, collateral management and credit management. These are our strengths.  This is our competitive advantage.  This is the reason why we are optimistic for our future."

Shareholders are encouraged to read our entire unaudited financial statements and management's discussion and analysis for the three months ended March 31, 2015, filed with the U.S. Securities and Exchange Commission on Form 6-K and Canadian securities regulators today, for a greater understanding of the Company.

Today at 10:00 a.m. EDT (7:00 a.m. PDT), a conference call will be held to review MFC's announcement and results. This call will be broadcast live over the Internet at www.mfcindustrial.com.  An online archive will be available immediately following the call and will continue for seven days. You may also listen to the audio replay by phone by dialing: 1 (877) 344 7529, using conference number 10065947 and international callers dial: 1 (412) 317 0088.

About MFC Industrial Ltd.

MFC is a global supply chain company and is active in a broad spectrum of activities relating to merchant banking, structure financing, logistics, and risk management services regarding various products for producers and consumers around the world

Disclaimer for Forward-Looking Information

Investors are cautioned that MFC has not completed any technical reports, including reserves or resource estimates under Canadian National Instrument 43-101 with respect to the Wabush mine. No final production decision has been made and any decision will be based on studies demonstrating economic and technical viability.

This document contains statements which are, or may be deemed to be, "forward-looking statements" which are prospective in nature, including, without limitation, statements regarding our future plans, our planned expansion projects, implementation of current strategies, our plan to monetize certain oil and gas assets and our plans regarding our interest in the Wabush mine. 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) decisions and activities of operators of our resource interests or any revisions to their current plans and projections, which could be made without notice to us, including the operator's decisions with respect to mine closure and /or termination of the sub-lease; (vi) the availability of commodities for our commodities and resources operations; (vii) the availability of suitable acquisition or merger or other proprietary investment candidates and the availability of financing necessary to complete such acquisitions or development plans; (viii) our ability to realize the anticipated benefits of our acquisitions; (ix) additional risks and uncertainties resulting from strategic investments, acquisitions or joint ventures; (x) counterparty risks related to our trading activities; (xi) the timing and amounts received as a result of our plan to monetize certain oil and gas assets;  (xii) delays in obtaining requisite environmental and other permits or project approvals; (xiii) potential title and litigation risks inherent with the acquisition of distressed assets; (xiv) the availability of services and supplies; (xv) operating hazards; and (xvi) 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 our Management's Discussion and Analysis for the three months ended March 31, 2015, filed with the Canadian securities regulators.

 

SOURCE MFC Industrial Ltd.



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http://www.mfcindustrial.com