TORONTO, ONTARIO–(Marketwired – May 27, 2016) – Grenville Strategic Royalty Corp. (TSX VENTURE:GRC) (“Grenville” or the “Company”) today announced its financial and operating results for the three-month period ended March 31, 2016 (“Q1 2016”). Financial references are in Canadian dollars unless otherwise specified.
2016 First Quarter Financial Highlights
(Comparisons made between fiscal Q1 2016 and fiscal Q1 2015 results)
2016 First Quarter Portfolio Highlights
“One month into our review of the business, we have made significant progress on portfolio management and identifying cost reduction measures. Our core holdings continue to generate significant cash flows, despite working capital timing differences which resulted in negative free cash flow for the quarter. With the steps we have taken on cost reduction and portfolio management, we are confident in our free cash flow profile,” said Steve Parry, Chief Executive Officer of Grenville. “We have a high level of confidence that we possess the tools to deliver shareholder returns. The right team is in place to build upon the core holdings within our portfolio.”
Financial Highlights
(1) EBITDA, Adjusted EBITDA, Free cash flow and weighted average royalty rate are non-IFRS measures. Refer to section Definition of Non-IFRS Measures for further explanation and definitions.
(2) The Company adopted IFRS 9 effective January 1, 2015 and the 2015 numbers are presented using IFRS 9 meaning that the information presented for 2015 is comparable to the information presented for 2016 under IFRS 9.
IFRS 9 Adoption
The Company adopted the IFRS 9 accounting standard as of the year ended December 31, 2015. Grenville adopted the standard ahead of the January 1, 2018 deadline, as it believes the practices of IFRS 9 are more aligned with the methods through which the Company manages and evaluates its portfolio and investments. IFRS 9 uses fair value accounting standards to recognize investments, compared to recognizing investments on a cost basis. Fair value accounting is one of the standard accounting practices used by industry and regulators. In Grenville’s view, IFRS 9 provides a higher quality of disclosure as the upside or downside of a specific investment can be recognized on an ongoing basis for each reporting period, providing a more accurate value of the portfolio as of the reporting period rather than the recognizing cost basis of the investment at the time the capital was deployed.
For a full description of impact of adopting IFRS 9, please see the Company’s Management’s Discussion and Analysis and financial statements filed on SEDAR at www.sedar.com.
Revenues
Revenues were $(2,833,000) for the three-month period ended March 31, 2016 (“Q1 2016”) compared to $2,778,000 for the three-months ended March 31, 2015 (“Q1 2015”). With the adoption of IFRS 9, certain non-cash items are now recognized in revenue. Revenues were impacted by a net non-cash amount of $(5,451,000) in Q1 2016 related to $2,919,000 for an unrealized loss from the change in fair value of royalty agreements acquired and promissory notes receivable and $2,532,000 of unrealized foreign exchange loss.
Royalty Payment Income and Interest Income Earned
Royalty payment income plus interest income earned was $2,581,000 in Q1 2016, an increase of $1,076,000 or 72%, from $1,505,000 in the same period last year. The change is primarily due to the increase in the number of royalty agreements and promissory notes acquired since April 2015. Management believes that the growing core of portfolio companies will continue to contribute income on a regular basis as the portfolio matures.
Operating Expense
Total operating expenses were $1,058,000 for Q1 2016, compared with $521,000 for the same period last year. The change is primarily due to increased salary and benefits related to a new managing director, an additional investment team member, and bonuses paid based on 2015 results. Additional extraordinary cost includes a one-time consultancy expense for the IFRS 9 conversion and portfolio fair value valuation reports.
Adjusted EBITDA(1)
Adjusted EBITDA was $1,587,000 in Q1 2016, compared to $1,057,000 for the same period last year. The increase was due to increased royalty payment income of $1,005,000, as a result of $32,695,000 in new royalty agreements acquired since the end of March 2015, partially offset by the increase in operating expenses of $538,000.
Free Cash Flow(1)
The free cash flow was $(639,000) in Q1 2016, compared to $166,000 for the same period last year. The change in free cash flow was primarily due to short-term timing differences, in particular, sales taxes recoverable of $703,000 which was fully recovered in May 2016 and $182,000 of royalty payments due at March 31, 2016 that were paid in early Q2 2016, as well as $500,000 for the 2015 bonuses paid in Q1 2016.
Income (loss) After Taxes
Income (Loss) after taxes was $(3,191,000) in Q1 2016, compared to $1,349,000 in the same period last year. The decrease was due to the aforementioned changes in the fair value of royalty agreements acquired and promissory notes receivable and the unrealized foreign exchange loss during Q1 2016 of $2,919,000 and $2,532,000, respectively.
Assets
Average Royalty Payment per Million Invested(1)
The average royalty payment per million invested(1) for the month of March 2016 was $217,000. Management expects the average royalty payment per million invested for April 2016 to be in the range of $160,000 to $180,000 due to the performance of Compression Generation Services, LLC.
The rolling twelve-month average royalty payment per million invested(1) was $358,000 for the period ended March 31, 2016.
To view the bar graph accompanying this press release, please visit the following link:
http://media3.marketwire.com/docs/1056701-F1.pdf
Portfolio Performance Profile
On a quarterly basis, the Company carries out a performance review of the portfolio. As of March 31, 2016, 81.8% of the portfolio has generated returns equal to or in excess of Grenville’s pricing level of 25%. As of March 31, 2016, as a percentage of total portfolio value, the Contract Buyout category was 21.5%, the Above Target category was 7.2% and the On Target category was 53.1%. The Off Target and Loss categories were 15.0% and 3.2%, respectively. Grenville included $2,141,000 in the Loss category as a result of investments that, in the opinion of management, where the Company has no reasonable prospect of recovering value. An outline of the portfolio for the periods ended March 31, 2016 and December 31, 2015, is as follows*:
To view the graph accompanying this press release, please visit the following link:
http://media3.marketwire.com/docs/1056701-F2.pdf
*:The $amounts stated in the tables above reflect amounts invested in royalty agreements acquired and promissory notes per investee and are not measured or adjusted on a fair value basis as part of the Company’s adoption of IFRS 9.
Outlook
The Company has invested more than $63 million of capital in 31 portfolio companies. Management is building a balanced portfolio targeting a portfolio cash return of 25%.
Grenville’s royalty agreements with its portfolio companies generated Adjusted EBITDA(1) to the Company of approximately $1.6 million for the three-month period ended March 31, 2016. As of May 26, 2016, management estimates the royalty payment income and interest earned for the month of April 2016 will be $0.7 million.
Based on information available as of May 26, 2016, management does not expect any further unrealized losses on the $5.8 million follow-on investments made since the start of 2016 for the three-month period ended June 30, 2016. Operating expenses for Q1 2016, were approximately $330,000 per month, and are estimated to be in the range of $2.7 million to $3.2 million on an annualized basis in Q2 2016 excluding any exceptional one-off expense items.
Grenville’s unique capital offering continues to fill an expansive niche in the North American small to medium enterprise, growth-capital markets. With continued access to funding accretive to shareholder value, management is confident the Company will be able to add new portfolio companies to its existing portfolio holdings. Each new portfolio company added will further diversify and strengthen Grenville’s existing portfolio balance. Management also believes that the revenue contribution per portfolio-company added will be priced at roughly the same rate as existing companies within the portfolio.
Certain information contained herein may be considered to be future oriented financial information or financial outlook under applicable securities laws. The purpose of providing such information in this disclosure is to demonstrate the visibility that the Company has with respect to its revenue streams, and such statements are subject to the risks and assumptions identified under the heading “Forward Looking Information and Statements” below. Readers are cautioned that the information may not be appropriate for other purposes.
Grenville’s financial statements and management’s discussion and analysis for the three-month period ended March 31, 2016 are filed on SEDAR at www.sedar.com and also available on Grenville’s website at www.flowcap.com.
(1)Please refer to the Company’s management’s discussion and analysis for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS.
Conference Call Details
Grenville will host a conference call to discuss these results at 8:00 a.m. Eastern Time, Friday, May 27, 2016. Participants should call(647) 788-4922 or (877) 291-4570 and ask an operator for the Grenville earnings call. Please dial in 10 minutes prior to the call to secure a line. A replay will be available shortly after the call. To access the replay, please dial (416) 621-4642 or (800) 585-8367 and enter access code 13039006. The replay recording will be available until 11:59 p.m. Eastern Time, June 3, 2016.
The 2016 Q1 Update presentation will be posted on the Investor page of the Company’s website at flowcap.com on Friday, May 27, 2016. Management will refer to slides on the presentation, during the conference call.
An audio recording of the conference call will be also available on the Investors page of Grenville’s website at flowcap.com.
About Grenville
Based in Toronto, Grenville is a publicly-traded royalty company that makes investments in established businesses with revenues of up to $50 million dollars. Grenville generates revenues from royalty payments and buyouts from contracts. The non-dilutive royalty financing structure offered by Grenville competes directly with traditional equity to meet the long-term financing needs of companies on more attractive commercial terms. To date, Grenville has announced cash inflows of $27.6 million from $63.0 million invested since its inception.
CONTACT INFORMATION
Grenville Strategic Royalty Corp.
Steven Parry
Chief Executive Officer
(416) 777-0383
This press release contains certain “forward-looking information” within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or may contain statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “will continue”, “will occur” or “will be achieved”. The forward-looking information contained herein may include, but is not limited to, information with respect to: prospective financial performance; including the Company’s opinion regarding the current and future performance of its portfolio, expenses and operations; anticipated cash needs and need for additional financing; anticipated funding sources; future growth plans; royalty acquisition targets and proposed or completed royalty transactions; estimated operating costs; estimated market drivers and demand; business prospects and strategy; anticipated trends and challenges in the Company’s business and the markets in which it operates; the amount and timing of the payment of dividends by the Company; and the Company’s financial position. By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements.
An investment in securities of the Company is speculative and subject to a number of risks including, without limitation, risks relating to: the need for additional financing; the relative speculative and illiquid nature of an investment in the Company; the volatility of the Company’s share price; the Company’s limited operating history; the Company’s ability to generate sufficient revenues; the Company’s ability to manage future growth; the limited diversification in the Company’s existing investments; the Company’s ability to negotiate additional royalty purchases from new investee companies; the Company’s dependence on the operations, assets and financial health of its investee companies; the Company’s limited ability to exercise control or direction over investee companies; potential defaults by investee companies and the unsecured nature of the Company’s investments; the Company’s ability to enforce on any default by an investee company; competition with other investment entities; tax matters, including the potential impact of the Foreign Account Tax Compliance Act on the Company; the potential impact of the Company being classified as a Passive Foreign Investment Company; the Company’s ability to pay dividends in the future and the timing and amount of those dividends; reliance on key personnel, particularly the Company’s founders; dilution of shareholders’ interest through future financings; and general economic and political conditions; as well as the risks discussed under the heading “Risk Factors” on pages 16 to 22 of the Annual Information Form of the Company dated February 11, 2015 and the risks discussed herein. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.
In connection with the forward-looking information and forward-looking statements contained in this press release, the Company has made certain assumptions. Assumptions about the performance of the Canadian and U.S. economies over the next 24 months and how that will affect the Company’s business and its ability to identify and close new opportunities with new investees are material factors that the Company considered when setting its strategic priorities and objectives, and its outlook for its business.
Key assumptions include, but are not limited to: assumptions that the Canadian and U.S. economies relevant to the Company’s investment focus will remain relatively stable over the next 12 to 24 months; that interest rates will not increase dramatically over the next 12 to 24 months; that the Company’s existing investees will continue to make royalty payments to the Company as and when required; that the businesses of the Company’s investees will not experience material negative results; that the Company will continue to grow its portfolio in a manner similar to what has already been established; that tax rates and tax laws will not change significantly in Canada and the U.S.; that more small to medium private and public companies will continue to require access to alternative sources of capital; that the Company will have the ability to raise required equity and/or debt financing on acceptable terms; and that the Company will have sufficient free cash flow to pay dividends. The Company has also assumed that access to the capital markets will remain relatively stable, that the capital markets will perform with normal levels of volatility and that the Canadian dollar will not have a high amount of volatility relative to the U.S. dollar. In determining expectations for economic growth, the Company primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies. Although the Company believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements.
The forward-looking information and forward-looking statements contained in this press release are made as of the date of this press release, and the Company does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward- looking information and statements attributable to the Company or persons acting on its behalf is expressly qualified in its entirety by this notice.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
