All amounts in Canadian dollars unless otherwise indicated.
Continued Corporate Plan to Restore and Build Shareholder
Value
The Corporation is committed to restoring and building
shareholder value and intends to do so, by: (i) prudently growing
the loan portfolio, (ii) actively managing the loan portfolio to
minimize realized losses and with a goal to maximize recovery of
the non-cash loan loss provisions recorded to date, (iii) maximize
the cash-flow and value of businesses consolidated, (iv) prudently
increasing leverage, including seeking external source of financing
at the subsidiary level, (v) enhancing the management team as
appropriate, and (vi) considering other transactions that could
support and / or benefit the Corporation's plan.
- The pipeline of potential borrowers on a gross basis is
currently $2.2 billion. If presented
on a basis consistent with past reporting parameters, the pipeline
measure at December 31, 2017 was
$1.35 billion, and currently stands
at $1.4 billion with two signed back
term sheets totaling US$150
million.
- The Company extended the maturities of its senior debt and
bridge facilities: (i) the senior debt to the earlier of
March 31, 2019 and the date when a
privatization transaction closes; and (ii) bridge facility to the
earlier of April 30, 2019 and the day
following the repayment of its senior dent in full, but no earlier
than January 1, 2019.
- Turnaround plans at subsidiaries namely C&C Wood Products
Inc. and Bluberi Gaming Technologies Inc. are taking hold and
positioning each to expect further benefits from new management and
products in 2018 and 2019.
- Total revenue of $165.8 million
in 2017 increased 3.5% ($5.7 million)
from 2016, primarily due to the elimination of interest revenue
offset by revenue from the three consolidated businesses.
- Net loss of $218.5 million for
2017 compared to income of $1.2
million in the prior year due primarily to higher provision
for loan losses and impairments, which are virtually all non-cash,
and lower interest revenue in the current year due to effect of
consolidation of businesses acquired. During Q4-2017, the Company
recorded a provision for loan loss of $131.9
million on one specific loan concentrated in the energy
sector. Please refer to the Highlights section of the MD&A for
more details.
- Loss of $4.32 per share (diluted)
for 2017 compared to earnings of $0.02 per share (diluted) in 2016.
- As at December 20, 2017, the
Company had completed and purchased 2,495,839 million Common Shares
pursuant to the NCIB at a weighted average price of $13.03 per common share for approximately
$32.5 million.
TORONTO, April 2, 2018 /CNW/ - Callidus Capital
Corporation (TSX:CBL) (the "Company" or "Callidus") today announced
its audited financial and operating results for the full year and
fourth quarter ended December 31,
2017.
Financial Highlights
|
|
|
|
For Three Months
Ended
|
Year
Ended
|
($ 000s unless
otherwise indicated)
|
Dec 31,
2017
|
Sept 30,
2017
|
Dec 31,
2016
|
Dec 31,
2017
|
Dec 31,
2016
|
Net loans receivable
(before derecognition), end of period
|
247,306
|
482,896
|
1,029,122
|
247,306
|
1,029,122
|
Gross loans
receivable (before derecognition), end of period
(1)
|
1,046,983
|
1,038,592
|
1,313,994
|
1,046,983
|
1,313,994
|
Average loan
portfolio outstanding (1)
|
1,055,468
|
1,024,383
|
1,282,593
|
1,081,937
|
1,218,691
|
Gross yield (%)
(1)
|
10.8%
|
10.7%
|
20.1%
|
13.9%
|
19.5%
|
Total
revenues(2)
|
52,808
|
54,539
|
39,978
|
165,810
|
160,065
|
Net interest margin
(%) (1)
|
1.9%
|
2.5%
|
11.1%
|
4.0%
|
11.7%
|
Net (loss)
income
|
(171,599)
|
(17,569)
|
(58,542)
|
(218,486)
|
1,153
|
Earnings per share
(diluted)
|
($3.37)
|
($0.35)
|
($1.16)
|
($4.32)
|
$0.02
|
Unrecognized non-IFRS
yield enhancements, end of period(1)
|
75,000
|
112,700
|
123,500
|
75,000
|
123,500
|
Recognized yield
enhancements(3)
|
900
|
900
|
(23,800)
|
6,700
|
14,400
|
Leverage ratio
(%)(1)
|
37.3%
|
37.1%
|
40.4%
|
37.3%
|
40.4%
|
|
|
(1)
|
Refer to
"Forward-Looking and Non-IFRS Measures" in this press
release. These financial measures are not recognized measures
under IFRS and do not have a standardized meaning prescribed by
IFRS. Therefore, they may not be comparable to similar
measures used by other issuers.
|
(2)
|
Certain comparative
figures have been reclassified to conform with current period
presentation.
|
(3)
|
Recognized yield
enhancements are recorded in the statement of income before
derecognition in total revenues (2017: $9.8 million) and in loss on
derivative assets associated with loans (2017: loss of $3.1
million).
|
(4)
|
Income statement data
is after derecognition, unless otherwise indicated.
|
Business Update (As at April 2,
2017)
Loan Portfolio – The Company's loan pipeline, measured on
a gross basis, is currently approximately $2.2 billion. If presented on a basis
consistent with past reporting parameters, the pipeline measure at
December 31, 2017 was $1.35 billion and currently stands at
$1.4 billion, with two signed back
term sheets totaling approximately US$150
million. As a result of ongoing, continuous process
changes and improvements, the Company revised its measure of its
loan pipeline of potential borrowers, to include what was
internally categorized as lower probability in order to present
what Management believes is a more appropriate measure of
opportunities being pursued and a better reflection of the size of
the addressable market. The Company made this revision as
there have been instances of migration of opportunities within the
pipeline from lower to higher probability categories and vice
versa.
As previously disclosed, the Company has term sheets of
approximately US$150 million signed
back by prospective borrowers which is included in the
estimated pipeline number and is the subject of ongoing due
diligence. As previously disclosed, Callidus undertakes
extensive due diligence before closing on a loan transaction and
there can be no assurance that the results of the due diligence
will be satisfactory to Callidus.
The Company has observed an increase in the prospects and deal
pipeline, an encouraging sign given the goal to re-start growth,
however, the Company continues to maintain a cautious approach in
reviewing potential prospects. During 2017, after Callidus
announced restarting growth, it closed and funded two new loans
representing approximately $54
million of facilities.
Net loans receivable post-derecognition decreased from year-end
due to the full repayment of 7 loans totaling $380 million partially offset by the funding of
existing loans and the origination of two new loans in the current
year. In addition, the Company recognized businesses acquired
as a result of loan enforcement proceedings which led to the
acquisition of Bluberi Gaming Technologies Inc. in the first
quarter of 2017, Otto Industries North America Inc. in the second
quarter of 2017, and C&C Resources Inc. in the fourth quarter
of 2017. Upon those acquisitions, the associated loans of
approximately $325 million were
removed from loans receivable and those companies' financial
results were consolidated in the Company's financial
statements.
Acquired Subsidiary Companies - Newton Glassman, Executive Chairman and Chief
Executive Officer of Callidus Capital said "As an asset based
lender, Callidus extends loans initially based on the collateral
available to support them. During 2017 three businesses were
removed from the loan portfolio and consolidated on our statements
as we took action in order to protect our collateral in each of
those loans."
"We have strengthened, and in some cases replaced the management
teams at what are now our subsidiaries and have been working with
them to implement strategic decisions and execute new business
plans as part of their respective turnarounds. While the
acquired companies are at various stages in said turnarounds, we
are pleased in particular with the progress to date achieved at
C&C Resources ("C&C"), a forestry products company, and at
Bluberi Gaming Technologies, a gaming company."
"After completing a strategic capital investment program C&C
is well positioned to benefit from record commodity prices for
dimensional lumber. A new CEO has been brought in to expand
C&C's existing products along with a line of new value-added,
engineered wood products that would redefine and improve both
revenue and EBITDA by employing lower grade output from sawmills as
the inputs for its value added process. Importantly, these
value added products would not be subject to current U.S. softwood
lumber duties. C&C's new management team is also
investigating opportunities to improve efficiency and increase
lumber recovery across all mills through a reasonable capital
expenditure program."
"Bluberi's rehabilitation is also well underway having
introduced new products in the second half of 2017, revamped the
product line and made changes to management. For
example, Bluberi launched a new slot machine box/game hybrid in the
fourth quarter of 2017 which has been well received based on
channel checks with customers. The prototype of another
premium product was introduced at the Global Gaming Expo industry
trade show in October 2017. It is now in late stage
development and we expect this will drive revenue growth starting
in 2019. In addition, Bluberi has invested resources in both
internal development and external acquisitions to improve and grow
its game library. We anticipate the positive financial impact
of these investments will be reflected in Bluberi's 2018 and 2019
results in what industry analysts have estimated is a growing
market. Bluberi is now moving towards more revenue sharing
arrangements as opposed to outright sales in an effort to increase
value."
"As part of our recapitalization and refinancing strategy, we
are now seeking or will shortly begin the process of seeking
external financing at the subsidiary level for both C&C and
Bluberi to provide a source of low cost capital to supplement the
operational turnarounds of each of these businesses."
Yield Enhancements and Provision for Loan Losses – At
December 31, 2017, the total
recognized yield enhancements taken into income over the year
totalled approximately $6.7
million.
Non-cash provision for loan losses of $217.4 million (2016 - $134.3 million) was recorded in the statements of
income for the current year. The vast majority of the
provision was recognized in Q4-2017 related to a non-cash provision
for loan loss of $131.9 million on
one specific loan concentrated in the energy sector.
The Company believes that as a result of certain events
that culminated in Q4-2017, it was appropriate for the Company
to record a non-cash $131.9 million provision for loan loss on
this specific loan. These events included sanctions imposed
by the U.S. and Canadian governments prohibiting certain types
of business activity in the South American country where the
borrower has significant commercial interests; a default on
sovereign bonds and subsequent sovereign rating downgrade of the
same country; and the nation's military appearing to have assumed
management control of the borrower's main customer (a
state-owned oil and gas company). Assuming valuation
parameters remain unchanged, should the borrower's project
proceed and it successfully secures follow-on business at the
end of its contract, the increase in the value could result in
the gross loans receivable being more than fully repaid in whole,
with a complete reversal of the non-cash $131.9 million provision. Assuming valuation
parameters remain unchanged, should the contract not proceed,
the gross loans receivable outstanding to the borrower would be
impaired by a further $64 million as
at December 31, 2017. Please refer to the Highlights
section of the MD&A for more details.
During the current quarter, the Company recognized a recovery of
$23.9 million (2016 - $32 million) under the Catalyst guarantee due to
the recognition of specific loan loss provisions in the year.
Normal Course Issuer Bid – In January 2017, Callidus commenced a normal course
issuer bid ("NCIB") with respect to the common shares (see news
release dated January 25,
2017). As at December 20, 2017,
the Company had completed and purchased 2,495,839 million Common
Shares pursuant to the NCIB at a weighted average price of
$13.03 per common share for
approximately $32.5
million.
Liquidity and Changes to Credit Facility – The
Corporation's primary sources of short-term liquidity are cash and
cash equivalents and undrawn credit facilities. Assuming a
continued participation rate for Catalyst Fund V of 75% which
Catalyst has assured the Company, total liquidity as at
December 31, 2017 would be able to
support approximately $300 million of
new loans. In addition, as businesses acquired through loan
enforcement proceedings are rehabilitated, we will pursue
opportunities to monetize and/or gain liquidity from those
businesses, particularly when we believe capital may be deployed in
opportunities that will generate superior returns. Timing of
these monetizations is uncertain and will be assessed on a case by
case basis, taking into account performance of each business and
the macro-economic conditions impacting the sector in which it
operates.
In March 2017, the Company
extended the maturity of its senior debt from March 31, 2017 to the earlier of September 30, 2017 and the date when the
privatization closes. In September
2017, the Company extended the maturity of its senior debt
from September 30, 2017 to the
earlier of March 31, 2018 and the
date when the privatization transaction closes. In
March 2018, the maturity of its
senior debt was extended to the earlier of March 31, 2019 and the date when the
privatization transaction closes. All terms other than $15.5 million of scheduled amortization in the
year and potential cash sweeps, remain unchanged. In March 2017, the Company extended the maturity of
its subordinated bridge facility from April
30, 2017 to October 31,
2017. In October 2017, the
Company extended the maturity of its revolving unsecured
subordinated bridge facility to the earlier of April 30, 2018 and the day following the
repayment of its senior debt in full. In March 2018, the Company extended the maturity
date of its revolving unsecured subordinated bridge facility to the
earlier of April 30, 2019 and the day
following the repayment of its senior debt in full, but no earlier
than January 1, 2019. All other terms
remain substantially unchanged.
Privatization Process – The Company continues to pursue a
privatization and has no material facts or changes to report.
Forward-Looking and Non-IFRS Statements
Certain
statements made herein contain forward-looking information.
Although Callidus believes these statements to be reasonable, the
assumptions upon which they are based may prove to be
incorrect. Furthermore, the forward-looking statements
contained in this press release are made as at the date of this
press release and Callidus does not undertake any obligation to
update or revise any of the included forward-looking statements,
whether as a result of new information, future events or otherwise,
except as may be required by applicable securities laws.
The following table outlines certain significant forward-looking
statements contained in this release and provides the material
assumptions used to develop such forward-looking statements and
material risk factors that could cause actual results to differ
materially from the forward looking statements.
Forward-looking
Statement
|
Fair value of
controlling interest in a subsidiary expected to be recognized into
income upon disposition is estimated at $75.0 million as at
December 31, 2017.
|
Assumptions
|
The valuation
technique used a discounted cash flow with the following
significant unobservable inputs and estimates:
(1) Risk adjusted
discount rate: 24.1% (avg. of two rates: 16.4% (core operations)
and 31.7% (growth operations)
(2) Long term growth
rate: 2.5%
(3) Annual average
EBITDA: $59.1
million
(4) Bluberi obtains
required licenses and successfully enters key North American
markets where it does not have operations.
|
Risk
Factors
|
Significant risk
factors that could cause actual results to differ materially from
the estimates used in the valuation include: (1) Bluberi's ability
to achieve the forecasted EBITDA targets; (2) competitor risk and
unexpected changes in working capital requirements; (3) the
possibility that Bluberi may not receive the regulatory approval
required to sell games into key, new North American markets; (4)
delays in the creation of a regulatory framework in a key targeted
South American
country.
A 10% decrease
or increase in the cashflows would result in a yield enhancement
range between $54.4 million to $93.7 million.
|
Significant
Future
Events/Milestone
Assumptions to
Support the Top End
of the Valuations
|
(1) Bluberi is able
to achieve forecasted results; (2) regulatory approval is obtained
in key new markets; (3) Bluberi is able to successfully procure
contract manufacturing to meet demand; (4) working capital to meet
demand is funded by Callidus (or other 3rd party); (5) the
slot machines to be deployed meet the standards of the growing
customer base; (6) a targeted South American country legislates and
creates a regulatory framework for the gaming industry by 2019 and
Bluberi is able to achieve forecasted results in the
region.
|
Updates for
the
Current Year
|
(1) Callidus obtained
control of the underlying borrower; (2) negotiations on the royalty
agreement between Bluberi and a gaming company were completed; (3)
successfully developed and launched a new gaming cabinet; (4)
materially increased game library; and (5) completed reorganization
of corporate structure to streamline the licensing
process.
|
Management uses both IFRS and non-IFRS measures to monitor and
assess the operating performance of the Company's operations.
Throughout this press release, Management uses the following terms
and ratios which do not have a standardized meaning under IFRS and
are unlikely to be comparable to similar measures presented by
other organizations:
Average loan portfolio outstanding is calculated before
derecognition for the annual periods using daily loan balances
outstanding. The average loan portfolio outstanding grosses
up the loans receivable for (i) businesses acquired, (ii) the
allowance for loan losses, and (iii) discounted facilities.
This information is presented to enable readers to see, at a
glance, trends in the size of the loan portfolio.
Gross yield is defined as total revenues before
derecognition divided by the average loan portfolio outstanding
after adjusting for loans classified as businesses acquired.
While gross yield is sensitive to non-recurring fees and yield
enhancements earned (for example, as a result of early repayment),
the Company has included this information as it believes the
information to be instructive given the frequency of receipt of
non-recurring fees and enables readers to see, at a glance, trends
in the yield of the loan portfolio.
Gross loans receivable is defined as the sum of (i) the
aggregate amount of loans receivable on the relevant date, (ii) the
loan loss allowance on such date, (iii) the book value of
businesses acquired as they appear on the balance sheet, and (iv)
discounts on loan acquisitions. The following is a
reconciliation, before and after derecognition, of gross loans
receivable to net loans receivable in the Statement of Financial
Position and a summary of gross loans receivable as at December 31, 2017 and December 31, 2016.
|
|
|
|
|
|
After
Derecognition
|
Before
Derecognition
|
After
Derecognition
|
Before
Derecognition
|
($ 000s)
|
December 31,
2017
|
December 31,
2017
|
December 31,
2016
|
December 31,
2016
|
Loan
facilities
|
$
|
1,096,888
|
$
|
1,146,510
|
$
|
1,176,642
|
$
|
1,421,771
|
Gross loans
receivable
|
1,022,193
|
1,046,983
|
1,100,304
|
1,313,994
|
Less: Discounted
facilities
|
(7,575)
|
(7,575)
|
(7,575)
|
(7,575)
|
Less: Allowance for
loan losses
|
(358,217)
|
(359,079)
|
(164,973)
|
(166,732)
|
Less: Impairment on
goodwill and businesses acquired(1)
|
(57,421)
|
(57,421)
|
(19,359)
|
(19,359)
|
Less: Businesses
acquired(1)
|
(375,602)
|
(375,602)
|
(91,206)
|
(91,206)
|
Net loans
receivable
|
$
|
223,378
|
$
|
247,306
|
$
|
817,191
|
$
|
1,029,122
|
(1)
|
Businesses acquired
are presented in the statement of financial position by their
respective assets and liabilities.
|
Return on equity ("ROE") is defined as net income after
derecognition divided by quarterly average shareholders'
equity. Return on equity is a profitability measure that
presents the annualized net income as a percentage of the capital
deployed to earn the income.
Yield enhancement is defined as a component of a lending
arrangement that Callidus negotiates in addition to the fees and
interest rate called for in the original loan agreement including
but not limited to additional fees, profit participation
arrangements and equity and equity like instruments. Should a
value be determined for the enhancement and depending on its
contractual nature, the related amount may be recognized in the
statement of comprehensive income as a part of interest income, fee
income or gain/loss on derivative assets associated with loans, may
be recognized as an available-for-sale equity interest with value
changes recorded in other comprehensive income/loss ("recognized
yield enhancements"), or, may be unrecognized, which includes yield
enhancements related to controlling interests ("unrecognized
non-IFRS yield enhancements"), depending on the appropriate
accounting treatment under IFRS.
Leverage ratio is defined as total debt (net of
unrestricted cash and cash equivalents) divided by gross loans
receivable before derecognition. Total debt consists of the
senior debt, revolving credit facilities, collateralized loan
obligation and subordinated bridge facility.
The non-IFRS measures should not be considered as the sole
measure of the Corporation's performance and should not be
considered in isolation from, or as a substitute for, analysis of
the Corporation's financial statements.
About Callidus Capital Corporation
Established in
2003, Callidus Capital Corporation is a Canadian company
that specializes in innovative and creative financing solutions for
companies that are unable to obtain adequate financing from
conventional lending institutions. Unlike conventional lending
institutions who demand a long list of covenants and make credit
decisions based on cash flow and projections, Callidus credit
facilities have few, if any, covenants and are based on the value
of the borrower's assets, its enterprise value and borrowing needs.
Callidus employs a proprietary system of monitoring collateral and
exercising control over the cash inflows and outflows of each
borrower, enabling Callidus to very effectively manage risk of
loss. Further information is available on our
website, www.calliduscapital.ca.
Conference Call
Callidus will host a conference call
to discuss the 2017 full year and fourth quarter results
on Tuesday, April 3, 2018 at 8.30 a.m. Eastern
Time. The dial in number for the call is (647) 427-7450 or
(888) 231-8191 (reference number: 1488996). A taped replay of
the call will be available until April 10,
2018 at (416) 849-0833 or (855) 859-2056 (reference
number: 1488996).
SOURCE Callidus Capital Corporation