NEW YORK, Aug. 14, 2015 /PRNewswire/ -- MFC Industrial
Ltd. ("MFC" or the "Company") (NYSE: MIL) announces its results for
the three and six months ended June 30,
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.)
Our gross revenues for the first half of 2015 increased 12.9% to
$709.6 million from $628.7 million in the same period of 2014,
primarily as a result of the consolidation of two acquisitions in
the second quarter of 2014, partially offset by a decrease in
average natural gas prices and the impact of the stronger
United States dollar against the
Euro and Canadian dollar. Our net income increased in the
first half of the year to $13.3
million from $12.9 million in
the first six months of 2014.
While costs of sales and services increased to $649.8 million during the six months ended
June 30, 2015 from $554.8 million for the same period of 2014, gross
margin declined to 7.7% compared to 11.0% in the prior year
period. Again, this was a result of the consolidation of two
acquisitions in the second quarter of 2014 with margin profiles
below our corporate average, as well as lower average natural gas
prices and less income from our iron ore interest.
Selling, general and administrative expenses ("SG&A")
decreased to $36.5 million for the
six months ended June 30, 2015 from
$44.0 million for the same period in
2014, primarily due to the stronger United States dollar versus the Euro and
Canadian dollar, partially offset by investments into new markets
and geographies. The majority of our SG&A is incurred in
Euro and Canadian dollars, and a weakening of these currencies
results in a decline when denominated in US dollars. As a
percentage of gross revenues, selling, general and administrative
expenses were 5.1% in the first six months of 2015, compared to
7.0% in same period of 2014.
For the first half of 2015, our Operating EBITDA decreased by
16.0% to $33.2 million from
$39.5 million for the same period of
2014.
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 the
Company's operating results and considers it to be a meaningful
supplement to net income as a performance measure, 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 six months ended June
30, 2015 and 2014:
OPERATING EBITDA (in
US $ thousands)
|
6/30/15
|
6/30/14
|
Net Income
(1)
|
13,759
|
13,483
|
Income Taxes
(Recovery) Expense
|
(252)
|
5,857
|
Finance
Costs
|
9,054
|
8,777
|
Depreciation,
Depletion and Amortization
|
10,676
|
11,402
|
Operating EBITDA (2)
|
33,237
|
39,519
|
|
|
Notes:
|
(1) Includes net
income attributable to non-controlling interests.
|
|
(2) There were no
impairments in the first six months of 2015 and 2014.
|
Our income attributable to shareholders increased 3.0% to
$13.3 million, or $0.21 per share on a basic and diluted basis, in
the first half of 2015, compared to $12.9
million, or $0.21 per share on
a basic and diluted basis, in the same period of 2014.
These results are unacceptable, and we are working diligently
to execute our strategy, which we believe will return MFC back to
greater profitability growth.
Results by Operating Segment
Our income by operating segment for each of the six months ended
June 30, 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 BY SEGMENT
(in US $ thousands)
|
6/30/15
|
6/30/14
|
Global Supply
Chain
|
693,479
|
605,542
|
Trade Finance and
Services
|
2,558
|
9,377
|
All Other
|
13,561
|
13,792
|
Gross Revenues
|
709,598
|
628,711
|
INCOME (LOSS) BY
SEGMENT
(in US $
thousands)
|
6/30/15
|
6/30/14
|
Global Supply
Chain
|
8,856
|
13,287
|
Trade Finance and
Services
|
5,306
|
11,221
|
All Other
|
-655
|
-5,168
|
Income Before Taxes
|
13,507
|
19,340
|
Income Tax Recovery
(Expense)
|
383
|
-5,275
|
Resource Property
Revenue Tax Expense
|
-131
|
-582
|
Net Income
Attributable to Non-Controlling Interests
|
-495
|
-604
|
Net Income Attributable to Our Shareholders
|
13,264
|
12,879
|
Earnings Per Share,
Basic and Diluted
|
0.21
|
0.21
|
Revenues by Geography and Product
Our revenue by geography and product for each of the six months
ended June 30, 2015 and 2014 are
broken out in the tables below:
GLOBAL SUPPLY CHAIN
REVENUES
|
6/30/15
|
6/30/14
|
Wood
Products
|
21%
|
28%
|
Steel
Products
|
17%
|
14%
|
Minerals, Chemicals
and Alloys
|
40%
|
31%
|
Metals
|
14%
|
10%
|
Energy
|
4%
|
11%
|
Other
|
4%
|
6%
|
GROSS REVENUES BY
GEOGRAPHY
|
6/30/15
|
6/30/14
|
European Union
(excluding Germany)
|
33%
|
22%
|
Germany
|
34%
|
38%
|
Americas
|
19%
|
32%
|
Asia
|
9%
|
4%
|
Europe, Non-European
Union
|
2%
|
2%
|
Africa
|
3%
|
2%
|
Balance Sheet
Cash and cash equivalents were $250.1
million on June 30, 2015,
compared to $297.3 million as of
December 31, 2014. The decrease
in cash was primarily the result of a reduction of short-term
borrowings and debt.
On June 30, 2015, our trade
receivables were $131.0 million and
our inventories were $194.0 million,
compared to trade receivables of $161.7
million and inventories of $212.6
million as of December 31,
2014.
TRADE RECEIVABLES AND
INVENTORIES
(in US $
thousands)
|
6/30/15
|
12/31/14
|
Trade
Receivables
|
130,975
|
161,674
|
Inventories
|
194,003
|
212,577
|
More than 50% of our inventories have been contracted at fixed
prices, while the remainder is comprised of the raw materials,
work-in-progress and finished goods at our production facilities,
strategic inventories (such as consignment positions) and goods in
transit.
Assets held for sale, consisting of certain natural gas assets
and an investment property, were $119.3
million on June 30, 2015,
compared to $131.1 million on
December 31, 2014. The decrease
in assets held for sale was a result of the negative impact of the
higher United States dollar
against the Euro and the Canadian dollar. Liabilities
relating to assets held for sale (decommissioning obligations) were
$12.5 million on June 30, 2015, compared to $15.3 million as at December 31, 2014.
Our short-term bank borrowings decreased to $133.4 million on June 30,
2015 from $161.3 million on
December 31, 2014. Total
long-term debt decreased to $270.2
million on June 30, 2015 from
$313.1 million on December 31, 2014, primarily as a result of
repayments and the negative impact of the higher United States dollar against the Euro.
The following table highlights selected key numbers and ratios
as of June 30, 2015 and December 31, 2014:
FINANCIAL POSITION
(in US $ thousands)
|
6/30/15
|
12/31/14
|
Cash and Cash
Equivalents
|
250,077
|
297,294
|
Securities
|
192
|
250
|
Trade
Receivables
|
130,975
|
161,674
|
Inventories
|
194,003
|
212,577
|
Current
Assets
|
745,289
|
864,804
|
Current
Liabilities
|
283,278
|
379,944
|
Working
Capital
|
462,011
|
484,860
|
Current
Ratio1
|
2.63
|
2.28
|
Total
Assets
|
1,272,110
|
1,458,684
|
Total
Liabilities
|
605,163
|
787,248
|
Shareholders'
Equity
|
666,379
|
670,388
|
Equity Per Common
Share
|
10.55
|
10.63
|
|
|
Note:
|
(1) The current
ratio is calculated as current assets divided by current
liabilities.
|
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 June 30, 2015, we had credit
facilities aggregating approximately $649.4
million, approximately the same on a constant currency basis
since December 31, 2104. These
credit facilities are comprised of: (1) unsecured revolving
credit facilities aggregating $329.7
million from banks; (2) revolving credit facilities
aggregating $76.3 million from banks
for structured solutions; (3) a non-recourse factoring arrangement
with a bank for up to a credit limit of $184.5 million for our supply chain business; and
(4) foreign exchange credit facilities of $58.9 million with banks. All of these facilities
are either renewable on a yearly basis or usable until further
notice.
Iron Ore and Natural Gas
While market conditions are difficult and commodity prices have
declined, one of our greatest challenges is that we have a
significant percentage of our equity allocated to assets that are
simply not contributing to our results. Specifically, our interest
in iron ore and our natural gas production and processing
subsidiaries are both utilizing significant capital without
providing the income for us to generate sufficient returns.
We are diligently working to rationalize these assets in a
responsible and timely manner.
Iron Ore Interest:
We indirectly derive royalty revenue from a mining lease based
on the production of iron ore from the Wabush Ore Mine (the "Mine")
in Labrador, Canada. The
Mine has operated since 1966, historically producing up to six
million tonnes of iron ore concentrates and/or pellets per
year.
The Mine is owned by Cliffs Natural Resources Inc.
("Cliffs"). In the first half of 2015, Cliffs announced that
it had closed all of their Canadian operations, and subsequently
commenced proceedings under the Companies' Creditors Arrangement
Act (Canada) ("CCAA") with respect
to its Canadian operations. CCAA allows financially troubled
corporations the opportunity to restructure their
affairs.
When we are able to terminate the lease, we intend to re-take
the Mine and exercise our contractual right to acquire the Mine
infrastructure and all of the related property. Our
rights may be delayed due to the CCAA filing.
IRON ORE INTEREST (in
US $ thousands)
|
6/30/15
|
Interest in Resource
Properties
|
160,964
|
Deferred Tax
Asset
|
-40,165
|
Net Equity Allocated to the Mine
|
120,799
|
While iron ore prices have declined, it is very important
that we do not have any debt on this property. This
enables us to take a long-term and unencumbered view to evaluate
and exploit this asset.
We believe that the Mine presents an interesting long-term
opportunity and we will continue to be responsible stewards of our
capital when pursuing this project.
Natural Gas Production and Processing Subsidiary:
We are active in the energy sector through the development,
production and processing of natural gas and natural gas liquids at
our subsidiary, MFC Energy, in Alberta, Canada.
In late March, we announced a plan to rationalize our energy
assets and return certain net proceeds to shareholders and redeploy
certain net proceeds in our trade finance business.
MFC ENERGY (in US $
thousands)
|
6/30/15
|
Property, Plant and
Equipment
|
54,738
|
Interest in Resource
Properties
|
132,843
|
Hydrocarbon Probable
Reserves
|
40,600
|
Hydrocarbon Unproved
Lands
|
19,968
|
Gross Assets of MFC Energy
|
248,149
|
Long-Term
Debt
|
-68,053
|
Decommissioning
Obligations
|
-76,791
|
Net Long-Term Assets of MFC Energy
|
103,305
|
|
|
Assets Held for
Sale
|
91,199
|
Liabilities Related
to Assets Held for Sale
|
-12,502
|
Net Assets Held for Sale of MFC Energy
|
78,697
|
While this plan is still ongoing, we have no specified timeline
and will make responsible long-term business decisions in the
interim period.
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 that 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. Importantly, this
preserves the long-term asset value of these
properties.
Additionally, we have been hedging our natural gas production
with Canadian dollar denominated futures based on Alberta market prices. These hedges
protect against further price declines, and our intention is to
continue this program and hedge additional volumes to preserve our
assets and maximize value over the long-term. We currently
have approximately fifteen months of natural gas production hedged
with durations from September 2015 to
March 2017.
Update on Agreement to Acquire a Western European Bank
In June, we announced that we had entered into an agreement to
acquire a licensed bank in Western
Europe, subject to customary closing conditions, such as the
receipt of the regulatory approvals. This will be a major part
of our future. An in-house bank will enable us to grow
the supply chain and structured finance solutions we currently
offer to our customers and suppliers. The Company currently expects
such regulatory approval process to be completed before
year-end.
Alongside this new direction to focus on trade and structured
finance, in July 2015 we announced
that Peter Kellogg and William Horn III stepped down as directors of
MFC. We would like to thank Mr. Kellogg and Mr. Horn for
their guidance and contributions. They left the Company with their
ideas on corporate governance firmly in place. We are now actively
in discussions with a number of potential directors with experience
and expertise in export credit, trade finance and
banking.
Share Price Development
On August 7 2015, MFC shares
closed at $3.41, down 52% since the
beginning of the year. Not only have the industries in which
we participate underperformed the market, but MIL shares have
underperformed those industries.
While our focus is on long-term value creation, we are
disappointed with this recent performance on both a comparative and
absolute basis.
To put this in another perspective, MFC's shareholders' equity
is $666 million, or $10.55 per share, and before including our
interest in an iron ore mine and our natural gas assets, is
approximately $364 million, or
$5.76 per share. Without
considering two of our most significant assets, our common shares
trade at 0.59x book value, which consists mainly of working
capital.
MFC INDUSTRIAL
LTD. AS OF JUNE 30,
2015
|
SHAREHOLDERS'
EQUITY
|
EQUITY PER SHARE
|
SHARE
PRICE (08/07)
|
PRICE /
EQUITY (%)
|
(in US$ thousands, other than per share amounts, share price and
percentages)
|
|
Working Capital
(1)
|
400,616
|
6.34
|
|
|
|
Long-Term
Debt
|
(171,961)
|
(2.72)
|
|
|
|
Other Long-Term
Assets
|
157,873
|
2.50
|
|
|
|
Other Long-Term
Liabilities
|
(22,950)
|
(0.36)
|
|
|
|
Sub-total
|
363,578
|
5.76
|
3.41
|
0.59
|
|
Net Assets Held for
Sale, MFC Energy
|
78,697
|
1.25
|
|
|
|
Net Long-Term Assets,
MFC Energy
|
103,305
|
1.64
|
|
|
|
The Mine
|
120,799
|
1.91
|
|
|
|
Total
|
666,379
|
10.55
|
3.41
|
0.32
|
|
|
|
Note:
|
(1) Not including Net
Assets Held for Sale, MFC Energy
|
We remain confident in our strategy to rationalize certain
assets and leverage our global supply platform with the addition of
regulated trade finance products and services. We believe this will
benefit all of our stakeholders, and over time, our common share
price will converge with its intrinsic value.
Comments
Gerardo Cortina, President and
CEO of the Company, commented: "Our corporate priority is simply to
do good business, ethically. We adhere to prudent and disciplined
policies and practices to provide certainty for our banking
partners, our customers and suppliers. Our employees are our
greatest assets, and we encourage their entrepreneurialism and
advancement through training and experience."
Mr. Cortina concluded, "As we move forward, our goal is to
become a premiere regulated trade finance institution. With
the acquisition of a European bank, we will be able to offer our
customers and suppliers a wider range of structured finance
solutions including factoring, inventory financing, forfaiting,
marketing and other types of risk management and financing
solutions."
Shareholders are encouraged to read our entire unaudited
financial statements and management's discussion and analysis for
the three months ended June 30, 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.
Conference call
Today at 10:00 a.m. EDT, 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. Those without internet access or
unable to pre-register may in by calling: USA toll free 1 (866) 777 2509 or
international dial in 1 (412) 317 5413. 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 10070875 and
international callers dial: 1 (412) 317 0088.
About MFC Industrial Ltd.
MFC is a global integrated trade finance and supply chain
company, which is an end-to-end solutions provider for industrial
companies around the world. MFC is focused on providing
supply chain services and customized structured financial solutions
to industrial customers and suppliers. We do business
internationally in multiple geographic areas and specialize in a
wide range of industrial products that include alloys, metals,
minerals, chemicals and wood products.
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, our plans regarding our interest in
the Wabush mine and proposed
acquisition of a bank. 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, including the operator's decisions with respect to
termination of the Mine 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) our ability to satisfy conditions to the
closing of the bank acquisition; (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 and six months ended June 30,
2015, filed with the Canadian securities regulators.
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/mfc-industrial-ltd-reports-second-quarter-and-six-months-results-for-2015-300128555.html
SOURCE MFC Industrial Ltd.