Grenville Strategic Royalty Corp.
TSX VENTURE : GRC

Grenville Strategic Royalty Corp.

August 18, 2014 18:24 ET

Grenville Strategic Royalty Corp. Announces Second Quarter 2014 Financial Results

TORONTO, ONTARIO--(Marketwired - Aug. 18, 2014) - Grenville Strategic Royalty Corp. (TSX VENTURE:GRC) ("Grenville" or the "Company") is pleased to report its unaudited financial and operating results for the second quarter and first half ended June 30, 2014. This information should be read in conjunction with Grenville's Unaudited Interim Condensed Consolidated Financial Statements and Management's Discussion and Analysis for the three months ended June 30, 2014, available on SEDAR at www.sedar.com. Readers are referred to the cautionary notes regarding Non-IFRS Financial Measures and Forward-Looking Information and Statements at the end of this release. All figures are in Canadian dollars unless otherwise specified.

Second Quarter 2014 Financial and Operating Highlights (stated in Canadian dollars; comparisons are made between the three months ended June 30, 2014 and the period from July 29 to December 31, 2013, unless otherwise noted):

  • Royalty agreements acquired were $6.0 million for the three months ended June 30, 2014, 214 per cent higher than the period from July 29 to December 31, 2013.
  • Subsequent to June 30, 2014, investments in royalty agreements acquired was an additional $6.3 million.
  • Since commencing operations, the aggregate royalty agreements acquired, including new agreements since the end of the second quarter, was $16.9m.
  • Revenues for the quarter were $357,090 compared to $51,952 for the period from July 29 to December 31, 2013, an increase of 687%.
  • Announced a "bought deal" offering for convertible unsecured subordinated debentures for $15 million with an additional overallotment option of $2.25 million, which was subsequently completed in July 2014.

Non IFRS Measures

  • Adjusted EBITDA(1) was $17,446 compared to a loss of $23,844 for the period from July 29 to December 31, 2013, an increase of $41,290.
  • Average royalty payment per million invested(1) in June 2014 was $249,273.

"We were particularly satisfied achieving positive operating cash flows in our first full quarter as a public company," said William (Bill) R. Tharp, President and Chief Executive Officer of Grenville. "Combined with the strongly improved diversification of the portfolio and strong growth in both investment pace and individual deal size, we view the quarter very positively. Financial results for the quarter were generally in line with or ahead of management targets. The average royalty payment per million invested(1), for June 2014 was close to our $250,000 target, which was a solid result as seasonally adjusted revenue is generally lower in the first half of the year than in the second half for most portfolio companies. In addition, the impact of these companies executing on their growth plans, funded by Grenville's investments, is not fully evident in our financial results."

Financial Highlights for the Second Quarter of 2014
(stated in Canadian dollar except for shares outstanding)
Three months ended
June 30, 2014
Six months ended
June 30, 2014
Period July 29, 2013
to December 31, 2013
Revenues $ 357,090 $ 504,161 $ 51,952
Loss before income taxes (224,610) (3,905,856) (108,856)
Basic and diluted loss per share (0.0057) (0.1147) (0.0083)
Adjusted EBITDA (1) 17,446 10,229 (23,844)
Weighted basic average number of shares outstanding 39,269,856 34,039,280 13,052,403
Royalty agreements acquired in period 5,999,500 8,670,715 1,910,000

Revenues

Revenues for the three months ended June 30, 2014 were $357,090 compared to $51,952 for the period from July 29 to December 31, 2013, an increase of 587%. Revenues for the six months ended June 30, 2014 was $504,161, an increase of 870%. Royalty payment income represents 88% and 87% of total revenue for the three months period ended June 30, 2014 and the six months period ended June 30, 2014, respectively, compared to 52.55% for the period from July 29 to December 31, 2013. The increase in royalty payment income was due to additional royalty agreements acquired during the six month period ended June 30, 2014 of $8,670,715 and earning a full period of revenue for the investments of $1,910,000 acquired in 2013.

Operating Expense

Total operating expenses incurred in the statement of comprehensive loss for the three months ended June 30, 2014 were $581,700. Included in the $581,700 was an unrealized foreign exchange loss of $125,950 resulting from the translation of royalty agreements acquired, denominated in US dollars, and a share-based payment expense of $115,510. Both sums were recognized for accounting purposes but do not impact available cash in the immediate future or the cash flow generated by operating activities. Included in operating expenses of $4,410,017, for the six months ended June 30, 2014, was $3,636,197, directly attributable to the reverse take-over completed in February 2014, an unrealized foreign exchange loss of $121,165 and share-based payment expense of $158,517.

Loss before Income Taxes

Reported loss before income taxes was $224,610 (($0.0057) per basic and diluted share) for the three months ended June 30, 2014 compared to a loss of $108,856 (($0.0083) per basic and diluted share) for the period from July 29 to December 31, 2013. The loss in the quarter was attributable to an unrealized foreign exchange loss of $125,950 on the translation of the US$ denominated royalty agreement investments and a share-based payment expense of $115,510, most of which related to 25% of the 2.11 million stock options granted during the period vesting immediately. At June 30, 2014, there was a US$ exposure of $3,608,754, most of which related to royalty agreements acquired denominated in US$s. This US$ exposure is not hedged, as the term of the royalty agreements is perpetual and management does not consider it necessary to hedge as the exposure is undeterminable and there is no impact anticipated on cash flows in the immediate future.

As at
June 30, 2014
As at
December 31, 2013
Cash and cash equivalents $ 7,002,856 $ 593,417
Royalty agreements acquired and loan portfolio 10,380,625 1,890,169
Total assets 18,372,669 3,176,891

Non IFRS Measures

Adjusted EBITDA(1)

The adjusted EBITDA(1) for the three months and six months ended June 30, 2014 is a profit of $17,446 and $10,229, respectively, compared to a loss of $23,844 for the period from July 29 to December 31, 2013.

Average royalty payment per million invested(1)

The average royalty payment per million invested(1) for the month of June 2014 was $249,273. During the current quarter, management modified the calculation to base it on the portfolio rather than calculating it transaction by transaction. The methodology also allows management to present the calculation of the metric relative to our released financial results. Management believes that as the portfolio achieves a greater level of diversification, each month's result will become more closely aligned. Management is pleased with this result, particularly given we are in the first half of the year, where seasonally adjusted revenue is generally lower than in the second half of the year for most portfolio companies. Current results are consistent with management expectations for the mid-point in the year.

Rolling three month average per transaction(1):

As of today's date, the rolling three month average investment per transaction(1) was $1,787,334, compared to $553,333 for the period from July 29 to December 31, 2013, an increase of 323%.

Rolling three month average investment per month(1):

As of today's date, the rolling three month average investment per month(1) was $3,239,434, compared to $553,333 for the period from July 29 to December 31, 2013, an increase of 585%. This measure was initially disclosed by Grenville in its August 15, 2014 press release as "average quarterly invested capital", but which management now describes as "rolling three month average investment per month", to reflect the rolling measurement period. The figure referenced herein for this measure is identical (save for rounding) to the figure provided in the August 15, 2014 release, which release should be read in conjunction with this release.

(1) (refer to the Company's management's discussion and analysis for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS)

About Grenville

Grenville is a Toronto-based company that was formed to provide royalty-based finance solutions by acquiring revenue streams generated by growing industrial and technology businesses. Grenville has identified a large and underserviced finance market for companies generating up to $50 million in revenue, many of which are well managed and generating improving cash flow, but face difficult financing hurdles from traditional debt and equity markets. The non-dilutive royalty financing structure offered by Grenville can be complementary to other financing alternatives or be simple stand-alone capital. Capital can be used in a variety of ways: from working capital needs, to funding acquisitions, buying out minority partners, or just adding a financing alternative to the range of existing capital solutions. The application of Grenville's royalty financing structure into sectors not traditionally serviced by royalty companies represents a new and innovative financing model - Capital Simplified - that has already attracted a considerable number of opportunities with attractive potential returns.

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 statements are not representative of historical facts or information or current condition, but instead represent only Grenville's beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of Grenville's control. Generally, such forward-looking information or 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; 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 Grenville's business and the markets in which it operates; and financial position.
By identifying such information and statements in this manner, Grenville 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 Grenville to be materially different from those expressed or implied by such information and statements. An investment in securities of Grenville 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 Grenville; Grenville's lack of operating history; Grenville's ability to generate sufficient revenues; Grenville's ability to manage future growth; the limited diversification in Grenville's existing investments; dependence on the operations, assets and financial health of investee companies; limited ability to exercise control or direction over investee companies; potential defaults by investee companies and the unsecured nature of Grenville's investments; Grenville's ability to enforce on any default by an investee company; competition with other investment entities; tax matters; Grenville's ability to pay dividends in the future and the timing and amount of those dividends; reliance on key personnel, particularly Grenville's founders; dilution of shareholders' interest through future financings; and general economic and political conditions. Although Grenville has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and 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 document, Grenville 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 Grenville's business and its ability to identify and close new opportunities with new investees are material factors that Grenville 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 will continue to grow moderately over the next 12 to 24 months; that interest rates will not increase dramatically over the next 12 to 24 months; that Grenville's existing investees will continue to make royalty payments to Grenville as and when required; that the businesses of Grenville's investees will not experience material negative results; that Grenville 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; and that Grenville will have the ability to raise required equity and/or debt financing on acceptable terms. Grenville 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, Grenville primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies.

Although Grenville 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.

For additional information with respect to these risks, uncertainties and assumptions, please refer to the "Risk Factors" section of Grenville's annual information form dated April 21, 2014 and the other public filings of Grenville available on SEDAR at www.sedar.com. The forward-looking information contained in this press release is made as of the date hereof, and Grenville does not undertake to update any forward-looking information that is contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward looking information and statements attributable to Grenville or persons acting on its behalf is expressly qualified in its entirety by this notice.

Caution Regarding Non-IFRS Financial Measures - Grenville uses certain measures in this press release which do not have a standardized meaning as prescribed by International Financial Reporting Standards ("IFRS") and are unlikely to be comparable to similar measures presented by other issuers. These non-IFRS measures, including adjusted EBITDA, average royalty payment per million investment, rolling three month average investment per transaction and rolling three month average investment per month have been presented in this press release in order to provide shareholders and potential investors with additional information regarding Grenville, but should not be considered in isolation or as a substitute for, or more meaningful than, measures prepared in accordance with IFRS, such as net income (loss) or cash flow from operating activities. Please refer to the Company's Management's Discussion and Analysis as at and for the three months ended June 30, 2014 for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS.

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

  • Grenville Strategic Royalty Corp.
    William (Bill) R. Tharp
    President and Chief Executive Officer
    (416) 777-0383