Cervus Financial Group Inc.

Cervus Financial Group Inc.

March 30, 2006 08:30 ET

Cervus Announces Update of Business Review

TORONTO, ONTARIO--(CCNMatthews - March 30, 2006) - Cervus Financial Group Inc. ("Cervus"), (TSX:CFG), announced today that its Executive Committee has provided an update to the internal review of its operations while at the same time is continuing its discussions with potential strategic partners.

The Company's "Customer for Life" model with the mortgage broker community has achieved the origination of over $1 billion of mortgages by February 2006. However, the future profitability depends upon four principal factors: (a) interest rate spreads; (b) mortgage origination volumes; (c) servicing fees; and (d) operating costs. Spreads are market driven and beyond the control of the Company. The industry is currently experiencing an intense spread compression that has lasted longer than historical experience, although there has been a slight improvement recently and the Company anticipates a more pronounced recovery by the summer of 2006. The Company has more control over origination volumes, and with its established brand, aims to continue taking share in this growing market. Servicing fees are less volatile and management feels it can become a steady source of revenue. Operating costs should be reduced through greater efficiencies and economies of scale.

At January 31, the Company's net cash was approximately $5.8 million and the monthly burn rate was approximately $800 thousand. The Company anticipates that, with new capital, it will be cash flow positive in approximately 18 months and profitable within approximately 30 months given spreads return to an average of 116 basis points (122 is historical norm), volumes continue to grow at a calendar year CAGR of 30% per annum; servicing fees remain constant, and the $20 million of equity is raised.

The Board and management have determined it appropriate for Cervus to raise up to $20 million for working capital purposes which may be raised in two or more separate offerings or private placements. At the same time, the Company has received a number of unsolicited expressions of interest by parties interested in providing financing, making a strategic investment or joint venture with the Company. The Company also requires funds to allow it time to examine the best course of action, to seek and fully explore additional expressions of interest from potential strategic partners, thus allowing it to maximize shareholder value. However, none of the expressions of interest may ultimately prove to be attractive.

The Company has filed on its website (www.cervus.com) and on SEDAR (www.sedar.com) a copy of a document entitled "Investor Presentation" which provides more detail on the update of its business review.

About "Customer for Life"

The Cervus "Customer for Life" model enables the mortgage professional to retain the relationship with the borrower as a customer throughout the life of the mortgage. The compensation model also creates a continued revenue stream in the form of trailer fees, a one time origination fee and a renewal fee every time the customer renews with Cervus. This creates income security for the mortgage professional allowing a long-term relationship to be developed with the borrower. This long-term relationship subsequently gets passed along to the institutional investor of the mortgage security, creating a higher yield long-term investment cash flow stream. The Cervus "Customer for Life" model creates added value relationships for the borrowers, mortgage professionals, institutional investors and for Cervus.

About Cervus

Cervus Financial Group Inc. is a Canadian financial services company created as an industry initiative with leading mortgage broker companies and fixed income investment banks to become a high-yield residential mortgage producer and the largest mortgage broker lender of conventional insured and insurable mortgages in Canada.

Forward-looking (safe harbour) statement

Statements made in this news release that relate to future plans, events or performances are forward-looking statements. Any statement containing words such as "believes," plans," "expects" or "intends" and other statements which are not historical facts contained in this release are forward-looking, and these statements involve risks and uncertainties and are based on current expectations. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements.

Additional information about Cervus is available on SEDAR (www.sedar.com).

The TSX does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Cervus Financial Group Inc.
    Tracey McLaughlin
    Investor Relations
    (416) 861-1315 ext 262
    (416) 861-8484 (FAX)
    Cervus Financial Group Inc.
    Peter Williams
    (416) 861-1315 ext 275
    (416) 861-8484 (FAX)