Grenville Strategic Royalty Corp.
TSX VENTURE : GRC

Grenville Strategic Royalty Corp.

April 26, 2016 21:41 ET

CORRECTION: Grenville Strategic Royalty Announces 2015 Fourth Quarter and Year End Results

Records Adjusted EBITDA of $10.8m and cash flow generation of $7.3 million for 2015

Challenging SME market conditions expected to impact first quarter 2016 results

Implements IFRS 9 to allow fair value reporting of investments

Announces Management Changes

TORONTO, ONTARIO--(Marketwired - April 26, 2016) - A correction is being issued with respect to the Grenville Strategic Royalty Corp. news release that was issued April 26, 2016 at 18:39 ET. The links that were in the "Average Royalty Payment per Million Invested" and "Portfolio Performance Profile" sections were incorrect. The complete and corrected release follows.

Grenville Strategic Royalty Corp. (TSX VENTURE:GRC) ("Grenville" or the "Company") today announced its financial and operating results for the three-month and twelve-month periods ended December 31, 2015. Financial references are in Canadian dollars unless otherwise specified.

2015 Full Year Financial Highlights

(Comparisons made between fiscal 2015 and fiscal 2014 results)

  • Royalty Payment Income of $8,274,301, an increase of 211%
  • Realized gains on Contract Buyouts were $4,550,099
  • Adjusted EBITDA(1) of $10,760,875, an increase of 2,100%
  • Free Cash Flow(1) of $7,349,954, an increase of 685%

2015 Fourth Quarter Financial Highlights

(Comparisons made between fiscal Q4 2015 and fiscal Q4 2014 results)

  • Royalty Payment Income of $2,359,048 an increase of 72%
  • Adjusted EBITDA(1) of $4,221,253
  • Free Cash Flow(1) of $3,739,658, an increase of 207%
  • Realized gains on Contract Buyouts were $2,353,457

2015 Fourth Quarter Portfolio Highlights

  • Average royalty payment per million invested(1) was $219,482 for December 2015
  • Including Contract Buyouts, average revenue per million invested of $365,477 for the rolling twelve-month period ended December 31, 2015
  • Royalty agreements, follow-on financings and new loans acquired were $14,411,025 million for Q4 2015, for an aggregate net value of acquired royalties and loans since inception to the end of Q4 2015 to $57,173,223
  • Successful closing of three Contract Buyouts in Q4 2015, consisting of Above Security, INOVx and 4Tell Solutions, totaling $9.5 million

2016 First Quarter Outlook

  • Expected Royalty Payment Income between $2.3 and $2.5 million
  • Expected Unrealized Foreign Exchange Loss between $2.3 million and $2.6 million
  • The Company could be required to record an unrealized loss in fair value of approximately 50% on $3.7 million of the capital it deployed in follow-on investments during Q1 2016 by the time it reports Q1 2016 results
  • The Company will continue to monitor the appropriate dividend level on a monthly basis based on the Company's performance.

Financial Highlights

Canadian dollars Three months ended
December 31,
Twelve months ended
December 31,
2015 2014 2015 2014
Revenues* $ 964,798 $ 1,535,246 $ 12,127,179 $ 2,944,791
Royalty Payment Income and Interest Income Earned 2,481,828 1,378,885 8,445,246 2,693,981
Adjusted EBITDA(1) 4,221,253 (61,451 ) 10,760,875 490,357
Free cash flow(1) 3,739,658 1,217,407 7,349,954 936,690
Profit/(Loss) for the period (671,616 ) (80,461 ) 5,167,286 (3,457,760 )
Basic Earnings/(Loss) per share (0.0067 ) (0.0014 ) 0.0578 (0.0700 )
Diluted Earnings/(Loss) per share (0.0067 ) (0.0014 ) 0.0535 (0.0700 )
Royalty agreements and promissory notes acquired in period 14,411,025 4,511,400 32,541,055 22,722,168
* The Company adopted IFRS 9 effective January 1, 2015 and has elected not to restate the 2014 numbers using IFRS 9 meaning that the information presented for 2014 is not comparable to the information presented for 2015 under IFRS 9.

IFRS 9 Adoption

The Company has 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 IRS 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 amortized cost basis at the time the capital was deployed.

For a full description of the impact of adopting IFRS 9, please see the Company's management's discussion and analysis and financial statements filed on SEDAR available at www.sedar.com.

Revenues

Revenues were $964,798 and $12,127,179 for the three-month period (Q4 2015) and twelve-month period (FY 2015) ended December 31, 2015, respectively. With the adoption of IFRS 9, revenue for the 2015 periods is not comparable to the 2014 periods. Revenues for Q4 2015 and FY 2015 include changes in realized and unrealized foreign exchange as well as unrealized changes in the fair value of royalty agreements acquired and promissory notes receivable. Revenues were $1,535,246 and $2,944,791 for the three-month and twelve-month periods ended December 31, 2014, respectively.

Royalty Payment Income and Interest Income Earned

Royalty payment income plus interest income earned was $2,481,828 and $8,445,246 for Q4 2015 and FY 2015, respectively, up from $1,378,885 and $2,693,981 for the corresponding periods in 2014. Management believes that the growing core of portfolio companies will continue to contribute income on a regular basis as the portfolio matures.

Contract Buyout Income

Realized net gains on Contract Buyouts were $2,353,457 and $4,550,099 for Q4 2015 and YTD 2015, respectively, compared to nil last year. Management believes Contract Buyouts will contribute to revenue on a regular basis as the portfolio matures, but will fluctuate more than regular monthly portfolio cash flows received from the portfolio. As of December 31, 2015, the Company has generated $13.5 million in Contract Buyouts since its inception, all of which were recorded in FY 2015. Based on current market conditions, management does not anticipate Contract Buyouts to reach this level in 2016.

Operating Expense

Total operating expenses were $1,468,561 and $3,382,504 for Q4 2015 and FY 2015, respectively, compared with $218,916 and $4,660,620 for the corresponding periods in 2014. Operating expenses include employee bonus expense of $475,000 and $525,000 for the Q4 and FY 2015, respectively, compared to nil and nil in the corresponding periods in 2014. The 2014 periods include net foreign exchange gains of $445,963 and $693,789 in the Q4 2014 and FY 2014 periods as well as $3,636,197 of expenses directly attributable to the RTO in the FY 2014 period.

Adjusted EBITDA(1)

Adjusted EBITDA(1) was $4,221,253 and $10,760,875 for Q4 2015 and FY 2015, respectively, compared to $(61,451) and $490,357 for corresponding periods in 2014. The increases were due to increased royalty payment income as a result of new royalty agreements acquired in 2015, and those acquired during the course of 2014 which contributed for an entire period in 2015, as well as the Contract Buyouts mentioned above.

Free Cash Flow(1)

Free cash flow(1) was $3,739,658 and $7,349,954 for Q4 2015 and FY 2015, respectively, compared to $1,217,407 and $936,690 for the corresponding periods in 2014. The increases were due to increased royalty payment income as a result of new royalty agreements acquired in 2015 and 2014, as well as the Contract Buyouts, each of which were referenced above.

Income (loss) After Taxes

Income (loss) after taxes was $(671,616) and $5,167,286 for Q4 and FY 2015, respectively. With the adoption of IFRS 9, income (loss) after taxes for the 2015 periods is not comparable to the 2014 periods. Income (loss) after taxes was $(80,461) and $(3,457,760) for the three-month and twelve-month periods ended December 31, 2014, respectively.

Dividend Strategy

Grenville returned dividends to its shareholders of $1,409,173 for the three-month period ended December 31, 2015 and $4,051,243 for the Year Ended December 31st, 2015. Since the end of the year, Grenville has further returned $2,429,070 in additional dividends to shareholders.

Average Royalty Payment per Million Invested(1)

The average royalty payment per million invested(1) for the month of December 2015 was $219,482. The change reflects the impact of the broader economic conditions on the SME market.

The rolling twelve-month average royalty payment per month invested(1) was $365,477 for the period ended December 31, 2015.

To view the bar graph accompanying this press release, please visit the following link: http://media3.marketwire.com/docs/1052155a.jpg.

Portfolio Performance Profile

On a quarterly basis, the Company carries out a portfolio performance review of the portfolio of royalty agreements acquired and promissory notes. As of December 31, 2015, 85.6% of the investment portfolio has generated returns equal to or in excess of Grenville's pricing level of 25%. As of December 31, 2015, as a percentage of total portfolio value the Contract Buyout category was 23.2%, the Above Target category was 7.8% and the On Target category was 54.6%. Due to the movement of $5,321,270 of invested capital into the Off Target category during the three-month period ended December 31, 2015, the Off Target category as a percentage of total portfolio value increased to 14.4%. An outline of the portfolio for the periods ended December 31, and September 30, for 2015 and December 31, 2014, is as follows*:

http://media3.marketwire.com/docs/1052155b.jpg

*: 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.

Management Changes and Outlook

While Q4 was the seventh consecutive record quarter in company history, management and the Board have determined that results for Q1 will be lower than the prior quarter, the combined results of declining macro economic conditions for small companies, particularly in Canada, and individual company performance changes and no contract buyouts.

Management estimates the royalty and interest earned for the three-months ended March 31, 2016 will be approximately in the range of $2.3 to $2.5 million. Under IFRS 9, there will be an expected non-cash foreign exchange loss in the range of $2.3 to $2.6 million, effectively offsetting the royalty payment income and interest income earned. The expected unrealized foreign exchange loss reflects the strengthening of the Canadian dollar against the United States dollar by 8.5 cents during the period.

Since the end of the year, Grenville deployed $5.8 million in follow-on investments. These follow-on investments, made to support investees experiencing difficult financing markets, included $3.7 million related to investments across which Grenville recorded a non-cash reduction of 50% in the recorded value under IFRS 9 as of December 31, 2015. If a similar reduction needs to be recognized for these follow-on investments under IFRS 9 as of March 31, 2016, it would further reduce the revenues reported for the three month period ended March 31, 2016.

The overall payout ratio including contract buyouts was 55% at the end of 2015. The unpredictability of buyouts requires a refocus on working towards the sustainability of the dividend based solely on predictable free cash flow. This will include an increased focus on cost reduction and work on the health of the existing portfolio, in addition to prudent additional investments.

With respect to management, co-founder Mr. William R. Tharp will be resigning as President, CEO and Director of the company effective April 26, 2016 to pursue other interests. Mr. Steven E. Parry has assumed the role of President, CEO and will step down as Board Chair. He is replaced as Board Chair by Ms. Catherine McLeod-Seltzer.

"We would like to acknowledge Bill for his significant contribution to Grenville's success and wish him the best in his future endeavours," said Catherine McLeod-Seltzer, Chair of Grenville's Board of Directors.

Mr. Parry, CEO of Grenville, commented, "Over the past three years we have built a diverse portfolio of investments capable of generating more than $800,000 in monthly revenues to Grenville, a remarkable achievement. We have the ability to monetize investments for significant shareholder returns that augment the traditional royalty stream and materially improve IRR. Collectively, these two sources of cash flow have already generated inbound cash equal to more than 40% of our capital base in 33 months. We have achieved this by raising capital at a cost of 12% and reinvesting that capital at 25%. This spread gives us the cash flow to invest in the SME marketplace."

"As a small organization it is vital we remain nimble, to counteract adverse market trends. One of the key levers we can use is our ability to select companies we continue to support with capital and other resources and eliminate investments in companies where returns are less promising. The IFRS 9 conversion and the excellent results from 2015 give us an opportunity to make the fair value decisions reported today. Our focus going forward will be on our core of high performing royalty assets, on reducing operating expenses and additional new investments. We are confident we can materially improve our payout ratio with the tools that are available to us," continued Mr. Parry.

Grenville's financial statements and management's discussion and analysis for the three- and twelve-month periods ended December 31, 2015 are filed on SEDAR at www.sedar.com and also available on Grenville's website at www.grenvillesrc.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, Wednesday, April 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 81901363. The replay recording will be available until 11:59 p.m. Eastern Time, May 10, 2016.

An audio recording of the conference call will be also available on the investors' page of Grenville's website at grenvillesrc.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.

Forward-Looking Information and Statements

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 Company's ability to pay dividends in the future and the timing and amount of those dividends; 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 and the concentration of a significant amount of the Company's invested capital in a small number of 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; reliance on key personnel, particularly the Company's founders; dilution of shareholders' interest through future financings; changes to the Company's accounting policies and methods; 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.

Contact Information

  • Wilcox Group
    Mat Wilcox
    416-899-4300