NEW YORK, Aug. 15, 2016 /PRNewswire/ -- MFC Bancorp
Ltd. (the "Company") (NYSE: MFCB), a merchant bank with diversified
finance and supply chain operations and other investments,
announces its results for the three and six months ended
June 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 first six months of 2016, our revenues decreased to
$676.2 million from $770.7 million in the same period of 2015, while
our net income from continuing operations for the first half of
2016 decreased to $0.7 million, or
$0.01 per diluted share, from
$11.7 million, or $0.19 per diluted share, in the same period of
2015.
We are disappointed with these results which reflect too much
capital invested in assets which are not generating satisfactory
returns. For this reason, we are rationalizing these
underperforming assets to reinvest the proceeds into projects and
areas that are more productive.
In the first half of 2016, we reduced our inventories by more
than $90.6 million, from $245.3 million to $154.7
million, as a result of exiting certain product lines and
geographical markets, as well as certain strategic changes related
to inventory management. While our trade receivables increased,
partially offsetting this inventory reduction, much of this is a
timing issue which we expect to reverse in the coming quarters as
collections occur.
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 AS ("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 consideration is cash approximately equal to net
asset value, subject to certain adjustments between the parties
related to the profitability of Fesil Rana before closing. Elkem
will also purchase all of our Fesil Rana ferrosilicon inventory for
fair market value upon closing. Closing is subject to customary
closing conditions such as regulatory approvals.
Hemodialysis in China
As a result of our long-term historical success operating in the
medical services business in China, we are pleased to announce that our
wholly owned subsidiary, Mednet Nephrology Group Ltd. ("Mednet"),
is entering the outpatient hemodialysis market in China, the country with the most
diabetics in the world. We believe that this market has
attractive characteristics that we can realize upon, utilizing our
proven strategy of collaborating with medical clinics and other
medical centers.
Despite there being over two million End Stage Renal Disease
("ESRD") patients in China, only
about 300,000 of them undergo regular hemodialysis treatment,
partially as a result of a lack of treatment centers and the China
National Kidney Foundation has estimated a treatment rate of only
15%. Further, the number of ESRD patients is growing.
The number of patients with diabetes and hypertension in
China is increasing sharply.
Hypertension has increased from 160 million to over 300 million
patients since the beginning of the 21st century. Adult
diabetes patient numbers have reached 92.4 million, increasing by
an average of 3,000 new patients per day and 1.2 million new
patients per year. The average life expectancy of an ESRD
patient without dialysis is one to two years, which with
dialysis is increased to five to ten years. It is estimated that
about 10% to 20% of diabetes patients and 10% of hypertension
(abnormally high blood pressure) patients will develop ESRD,
according to the Chinese Center for Disease Control and
Prevention.
Update on Realizations Relating to a Former Customer
As previously reported, one of our customers experienced
financial difficulties and, in the first quarter of 2016, filed for
insolvency. This was an adjusting subsequent event under IAS 10,
Events after the Reporting Period, for our year ended
December 31, 2015 and, as a result,
in connection with the preparation of our audited consolidated
financial statements for the year ended December 31, 2015, we had to determine an
allowance for credit losses against our receivables due from this
former customer and its affiliates and evaluate all other
exposures. As a result, in the fourth quarter of 2015, we recorded
total credit losses and provisions of $51.4
million related to this former customer and its affiliates,
which included an allowance for trade receivables of $10.7 million and provisions of $40.7 million for potential future losses related
to guarantees we provided relating to certain prepayment loans made
by third-party banks to this former customer to finance off-take
contracts for which we were the off-taker. However, we hold various
collateral, including guarantees, mortgages and other mitigation
securities to recover a significant portion of these losses. We are
exercising our rights as we undertake various options to maximize
our recoveries. In the second quarter of 2016, we recognized a gain
of $35.1 million related to this
former customer as a result of recoveries which resulted in the
reversal of previously recognized credit losses. However, to be
prudent, we have taken an unallocated reserve related to this
former customer of $33.3 million.
Financial Highlights
As of June 30, 2016, cash and cash
equivalents increased to $213.5
million from $197.5 million as
of December 31, 2015. We have made
progress in reducing our inventories. Inventories were $154.7 million as of June
30, 2016, compared to $245.3
million as of December 31,
2015. Trade receivables increased from $151.2 million as of December 31, 2015 to $184.4 million as of June
30, 2016. The increase in trade receivables was primarily as
a result of a 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 June 30, 2016 and
December 31, 2015:
|
June
30,
|
|
December
31,
|
|
2016
|
|
2015
|
|
(In
thousands, except ratio and
per share amounts)
|
Cash and cash
equivalents
|
$
213,477
|
|
$
197,519
|
Short-term
securities
|
12,961
|
|
170
|
Trade
receivables
|
184,352
|
|
151,229
|
Tax
receivables
|
19,790
|
|
11,705
|
Other
receivables
|
52,134
|
|
14,727
|
Inventories
|
154,703
|
|
245,345
|
Total current
assets
|
765,508
|
|
785,850
|
Total current
liabilities
|
459,526
|
|
414,562
|
Current
ratio(1)
|
1.67
|
|
1.90
|
Total
assets
|
987,841
|
|
977,351
|
Short-term bank
borrowings
|
184,282
|
|
60,103
|
Long-term
debt
|
236,481
|
|
259,038
|
Long-term
debt-to-equity(1)
|
0.44
|
|
0.47
|
Total
liabilities
|
639,148
|
|
608,151
|
Shareholders'
equity
|
346,329
|
|
367,192
|
Net book value per
share
|
5.48
|
|
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.
|
For the second quarter of 2016, our Operating EBITDA from
continuing operations decreased to $9.1
million from $12.9 million for
the same quarter of 2015.
Operating EBITDA from continuing operations is defined as income
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.
The following is a reconciliation of our income from continuing
operations to Operating EBITDA from continuing operations.
|
Three Months
Ended June
30,
|
|
2016
|
|
2015
|
Operating EBITDA
from continuing operations
|
(In
thousands)
|
Income from
continuing operations(1)
|
$
561
|
|
$
6,065
|
Income tax
expense(2)
|
1,999
|
|
880
|
Finance
costs
|
4,766
|
|
4,562
|
Amortization,
depreciation and depletion
|
1,727
|
|
1,382
|
Operating EBITDA from continuing
operations(3)
|
$
9,053
|
|
$
12,889
|
|
|
|
|
|
Notes:
|
(1)
|
Includes net income
attributable to non-controlling interests.
|
(2)
|
The income tax paid
in cash, excluding resource property revenue taxes, during the
second quarter of 2016 was $0.7 million, compared to $1.1 million
in the same quarter of 2015.
|
(3)
|
There were no
impairments for continuing operations in the three months ended
June 30, 2016 and 2015.
|
Credit Lines and Facilities with Banks
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 finance and supply chain business. The amounts drawn
under such facilities fluctuate with the kind and level of
transactions being undertaken.
As at June 30, 2016, we had credit
facilities aggregating $776.3 million
comprised of: (i) unsecured revolving credit facilities
aggregating $369.6 million from
banks. The banks generally charge an interest rate of inter-bank
rates plus an interest margin; (ii) revolving credit facilities
aggregating $98.6 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 a
credit limit of $244.5 million for
our supply chain activities. We may factor our receivable accounts
upon invoicing at the inter-bank rate plus a margin; (iv) foreign
exchange credit facilities of $37.1
million with banks; and (v) secured revolving credit
facilities aggregating $26.5
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.
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.
Comparison of Book Value to Trading Price of our
Shares
On August 12, 2016, our share
price closed at US$2.23 which
represents a 47% discount to our book value.
|
As at June 30,
2016
|
|
Shareholders' Equity
|
|
Equity Per Share
|
|
Price(1) to Equity
|
|
(In thousands,
except per share and ratio amounts)
|
Working
capital
|
$
305,982
|
|
$
4.85
|
|
|
Long-term debt, less
current portion
|
(153,498)
|
|
(2.43)
|
|
|
Other long-term
assets
|
222,333
|
|
3.52
|
|
|
Other long-term
liabilities(2)
|
(28,488)
|
|
(0.46)
|
|
|
Shareholders'
equity
|
$
346,329
|
|
$
5.48
|
|
0.53
|
|
|
|
|
|
|
Notes:
|
(1)
|
Closing price of
US$2.23 converted to Canadian dollars on August 12, 2016, being
$2.89.
|
(2)
|
Includes
non-controlling interests.
|
One issue that we face is that a small number of shareholders
control approximately fifty five percent (55%) of all of our
shares. This causes our shares to trade with both a minority
discount and a liquidity discount from their intrinsic value. Until
this is resolved, we do not believe that our shares will trade with
any real liquidity, which is a major driver to reducing the
valuation discount. Without liquidity, our shares will not be
attractive to investors except to special interest groups.
We are considering a number of possible actions to resolve this
situation in a way that is beneficial to all of our stakeholders,
and believe that over time our actions will cause the price of our
common shares will merge with intrinsic value.
President's Comments
Gerardo Cortina, President and
CEO of the Company, commented: "I am pleased to announce that to
date we have made substantial progress in our ongoing plan to
rationalize underperforming assets by exiting certain product lines
and geographical markets and reducing capital employed in our
business. In the first six months of the year, we reduced
our inventories by 37% or $90.6
million from $245.3 million to
$154.7 million."
Mr. Cortina concluded, "This will allow us to reallocate capital
into projects and areas that offer substantially higher returns
such as the hemodialysis market in China that we are entering based on the
experience and operating success we had in China over the last 20 years in the medical
field. Outpatient hemodialysis treatment offers very
attractive growth potential as China has more diabetics than other country in
the world."
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 six months ended June 30, 2016 as set forth in our management's
discussion and analysis for the three and six months ended
June 30, 2016 and our unaudited
consolidated financial statements for the three and six months
ended June 30, 2016 (the "Quarterly
Report") 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 or International callers: +1 (604) 662
8873 to book a conference call with members of our senior
management. Questions may also be emailed to Rene Randall at rrandall@bmgmt.com.
About MFC
We are a merchant bank with diversified finance and supply chain
operations and other investments. We commit our own capital to
promising enterprises and invest and otherwise capture investment
opportunities for our own account. We seek to invest in businesses
or assets whose intrinsic value is not properly reflected. Our
investing activities are generally not passive. We actively seek
investments where our financial expertise and management can add or
unlock value.
Disclaimer for
Forward‐Looking 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, the integration of our bank acquisition, 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.
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SOURCE MFC Bancorp Ltd.