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NYSE:MFCB 1.73 -0.08 -4.42% Volume: 60,944 March 22, 2017

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MFC Bancorp Ltd. Reports Results For The Three And Nine Months Ended September 30, 2016

11/15/2016

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

______________

Note:

(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

______________

Notes:

(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





______________

Notes:

(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 ForwardLooking 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.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/mfc-bancorp-ltd-reports-results-for-the-three-and-nine-months-ended-september-30-2016-300362923.html

SOURCE MFC Bancorp Ltd.

Corporate, MFC Bancorp Ltd., Rene Randall, 1 (604) 683 8286 ex 2, rrandall@bmgmt.com, OR Investors, DresnerAllenCaron Inc., Joe Allen, 1 (212) 691 8087, jallen@dresnerallencaron.com

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