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.
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/mfc-industrial-ltd-reports-results-for-the-three-months-ended-march-31-2015-300083970.html
SOURCE MFC Industrial Ltd.