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NYSE:MFCB 9.10 +0.02 +0.2% Volume: 1,805 September 20, 2017

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MFC Bancorp Ltd. Reports Results For The Three And Six Months Ended June 30, 2017

08/14/2017

NEW YORK, Aug. 14, 2017 /PRNewswire/ -- MFC Bancorp Ltd. (the "Company" or "MFC") (NYSE: MFCB) announces its results for the three and six months ended June 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 and believe that we have completed the majority of the steps necessary to reposition the Company for the future. However, our balance sheet continues to reflect trade receivables of $101.8 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.

As part of our strategy, we have repositioned the group with the following actions:

  • In July 2017, the former parent of our group of companies ("Old MFC"), MFC Bancorp Ltd. (British Columbia), completed its previously announced plan of arrangement (the "Arrangement"), pursuant to which, among other things, the following transactions were completed effective July 14, 2017:
    • Share Consolidation/Split.  The common shares of Old MFC (the "Old MFC Shares") were consolidated on a 100 for 1 basis, with any resulting fractional shares being eliminated and the registered holders of the same being paid therefor in cash based upon the weighted average price of the Old MFC Shares over the ten trading days immediately prior to the effective date of the Arrangement and, thereafter, such Old MFC Shares were split on a 1 for 20 basis;
    • Share Capital.  Old MFC's stated shareholders' capital was reduced by an amount equal to its retained deficit; and
    • Share Exchange.  Each Old MFC Share outstanding after the completion of the above consolidation and split was exchanged for: (i) one of our common shares of US$0.001 par value each; and (ii) US$0.0001 per share in cash.

As a result of the completion of the Arrangement, MFC Bancorp Ltd., a Cayman Islands corporation, became the new parent company of our group. Its shares commenced trading on the New York Stock Exchange on July 14, 2017 under the symbol "MFCB".

  • We have expanded our merchant banking activities in Europe by hiring qualified senior individuals in the finance and merchant banking sector.
  • We have rationalized our inventories, reducing them by 68% from $32.0 million at December 31, 2016 to $10.1 million at June 30, 2017;
  • In the first quarter of 2017, we completed the sale of a non-core commodities trading business;
  • We have deleveraged by reducing our short-term bank borrowings by 27% from $95.4 million at December 31, 2016 to $70.1 million at June 30, 2017 and by reducing total debt by 35% from $116.8 million at December 31, 2016 to $76.0 million at June 30, 2017; and
  • We established a presence in Dublin, Ireland, a progressive financial center with many attractive attributes. 

FIRST HALF 2017 FINANCIAL RESULTS

The first half of 2017 reflects our continued repositioning, with losses from the rationalization of certain businesses overshadowing the 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. 

Revenues and losses

Total revenues for the first half of 2017 decreased to $178.4 million from $687.5 million in the same period of 2016 primarily as a result of the sale of non-core subsidiaries, the reduction of inventories, our decision to exit certain product lines and, to a lesser extent, the strengthening of the Canadian dollar during the period.

Net loss for the first six months of 2017 was $6.7 million, or $0.11 per share on a diluted basis, compared to a net loss of $0.7 million, or $0.01 per share on a diluted basis for the same period last year. Net loss for the current six month period was primarily due to losses from the rationalization and runoff of product lines and other expenses related to office closures.

Inventory Reduction

In the first six months of 2017, we further reduced our inventories by $21.9 million, from $32.0 million as at December 31, 2016 to $10.1 million as at June 30, 2017. This was primarily a result of exiting certain product lines and geographical markets. From almost $300 million 21 months ago, we have almost entirely rationalized our inventories and from this level we do not expect any further material reductions.

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

INVENTORIES

(In thousands)

June 30,
2016


September 30,
2016


December 31,
2016


March 31,
2017


June 30,
2017

Inventories

$      154,703


$        129,454


$        31,954


$        20,229


$      10,083

Debt Reduction

Our continued proactive balance sheet initiatives have led to a significant reduction in our net debt levels. Our goal has been 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. 

In the first six months of 2017, we reduced our total long-term debt to $76.0 million from $116.8 million as at December 31, 2016 by repaying debts that became due and paying down loans which had financed assets that we have rationalized.

Financial Highlights

The following table highlights selected figures on our financial position as at June 30, 2017 and December 31, 2016:

FINANCIAL POSITION

(In thousands, except ratios and per share amount)

June 30,


December 31,

2017


2016

Cash and cash equivalents

$                  54,535


$             120,676

Short-term securities

5,129


5,018

Trade receivables

132,383


135,962

Tax receivables

11,820


11,743

Other receivables

33,253


35,251

Inventories

10,083


31,954

Total current assets

262,823


400,954

Total current liabilities

115,060


214,676

Working capital

147,763


186,278

Current ratio(1)

2.28


1.87

Acid-test ratio(2)

2.08


1.68

Total assets

516,070


650,338

Short-term bank borrowings

70,089


95,416

Total long-term debt

76,029


116,813

Long-term debt-to-equity(1)

0.19


0.25

Total liabilities

199,876


320,908

Shareholders' equity

315,330


327,520

Net book value per share

5.03


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.

The following is a reconciliation of our net loss to Operating (loss) EBITDA for the three months ended June 30, 2017 and 2016:

OPERATING EBITDA

Three months Ended June 30,

(In thousands)

2017


2016




     (Re-presented(1))

Net loss(2)

$                  (4,371)


$                   (396)

Income tax expense (recovery)

(822)


2,049

Finance costs

1,902


4,566

Amortization, depreciation and depletion

1,726


1,727

                Operating (loss) EBITDA

$                  (1,565)


$                 7,946

___________




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.

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 June 30, 2017, we had credit facilities aggregating $146.8 million, as follows: (i) we had unsecured revolving credit facilities aggregating $70.2 million, from banks. The banks generally charge an interest rate at inter-bank rate plus an interest margin; (ii) we had revolving credit facilities aggregating $27.4 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 $42.3 million, for our finance and supply chain activities. We factor certain of our trade receivable accounts upon invoicing, at inter-bank rate plus a margin; and (iv) we had foreign exchange credit facilities of $6.9 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.

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: "We believe we have made progress towards repositioning our Company to create long-term value, having significantly reduced inventories, rationalized non-core businesses and reduced our cost structure. Our balance sheet continues to be impacted by trade receivables, which we are working diligently to recover. We look forward to updating stakeholders as we make further progress."

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 six months ended June 30, 2017 (the "Quarterly Report"), copies of which are available under the Company's profile at www.sedar.com or www.sec.gov 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 to book a conference call with our 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 ForwardLooking Information

This news release contains statements which are, or may be deemed to be, "forwardlooking 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 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) 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.

View original content:http://www.prnewswire.com/news-releases/mfc-bancorp-ltd-reports-results-for-the-three-and-six-months-ended-june-30-2017-300503511.html

SOURCE MFC Bancorp Ltd.

MFC Bancorp Ltd., 1 (844) 331 3343, Rene Randall, rrandall@bmgmt.com

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