Grey Horse Corporation
TSX : GHC

Grey Horse Corporation

May 15, 2008 07:30 ET

Grey Horse Reports First Quarter 2008 Results

13th consecutive profitable quarter

TORONTO, ONTARIO--(Marketwire - May 15, 2008) - Grey Horse Corporation (TSX:GHC) ("Grey Horse" or "the Corporation"), a Canadian financial services company serving the corporate and institutional market, reported today strong financial results for the three months ended March 31, 2008.

Financial Highlights (all amounts, except per-share, are in $ 000s unless otherwise stated) The following unaudited information was determined in accordance with Canadian Generally Accepted Accounting Principles, except for EBITDA (Earnings Before Income Taxes, Depreciation and Amortization) and Return on Equity (Net income divided by the average of opening and closing shareholders' equity), which do not have any standardized meaning prescribed by Canadian GAAP and may not be comparable to similar measures presented by other issuers. However, the Corporation believes that these are viewed by financial analysts and investors as key measures of certain aspects of its performance. They should not be considered as an alternative to cash flows from operating activities nor to any other measures of performance presented in accordance with Canadian GAAP.



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3 months ended Mar. 31
2008 2007
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Revenue $ 3,589 $ 3,505
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Revenue Growth 2% 52%
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EBITDA $ 602 $ 1,093
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Net income and comprehensive income $ 270 $ 586
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Net income & comprehensive income (decline) growth (54%) 78%
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Earnings per share, basic $ 0.04 $ 0.09
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Earnings per share, diluted $ 0.04 $ 0.09
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Diluted earnings per share growth (56%) 57%
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Return on equity (annualized) 6% 20%
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Cash and cash equivalents at year end $ 10,371 $ 5,667
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Overall results for this quarter fell below management's expectations. As with many enterprises in the financial services industry during the quarter, the Corporation's results were negatively affected by weak capital market conditions, in particular by a low volume of equity-raising activities. However, the Corporation continued to advance its core business during the quarter and to invest in support anticipated continued growth. The negative impact on the Corporation's results does not reflect any problems with the quality, reliability or attractiveness of its services, and assuming a recovery in market conditions, management expects that revenue and net income growth in future periods will again continue at a stronger rate.

While the Corporation's core transfer agency business continued to acquire additional customers, prevailing market conditions resulted in a significant decrease in its corporate trust business (notably as a result of the absence of the large volume margin income transactions occurring in the first quarter of 2007) with the effect that revenue increased by 2% or $84.1. Net income decreased by $315.9 or 54%, reflecting the relatively low growth in revenue during the quarter and the increased administrative costs resulting from the Corporation's investment in personnel and infrastructure during 2007. Basic and diluted earnings per share decreased by 5 cents or 56% to 4 cents per share while EBITDA decreased by $490.7 or 45% and Return on Equity decreased from 20% to 6%.

Grey Horse President and CEO Kevin Reed said, "First quarter results were well below expectations, but in line with prevailing capital market conditions. We are however encouraged with client acquisitions having met our objectives, and with the investment in key personnel and infrastructure."

Paul G. Smith, Grey Horse's Executive Vice President and Chief Financial Officer remarked, "First quarter results this year were certainly uncharacteristic of Grey Horse's typically excellent performance over recent past years. However, financial resources remain more than sufficient to execute Grey Horse's business plan."

Grey Horse's Consolidated Financial Statements and Management's Discussion and Analysis for the three months ended March 31, 2008 can be found in the Company's filings on SEDAR at www.sedar.com and on the Corporation's website at www.greyhorsecorp.com.

Quarterly Conference Call

Grey Horse will hold a conference call on Thursday, May 15, 2008 at 9AM Eastern Daylight Time to discuss its first-quarter operating and financial results and answer questions. Participants can listen to the call by dialling 416-641-6136 or 866-300-7687.

About Grey Horse

Through its wholly owned subsidiaries, Grey Horse provides transfer agent, corporate trust, corporate secretary, foreign exchange and limited market dealer services to corporations in North American capital markets. Learn more at www.greyhorsecorp.com.

Certain information included in this press release may be forward-looking and involve risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Factors that might cause a difference include, but are not limited to, competitive developments, risks associated with Grey Horse's growth, the state of the financial markets, regulatory risks and other factors. Unless otherwise required by applicable securities laws, Grey Horse disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about potential factors that could affect Grey Horse's financial and business results is included in public documents Grey Horse files from time to time with Canadian securities regulatory authorities.

GREY HORSE CORPORATION

Management's Discussion and Analysis (MD&A)

First Quarter Ended March 31, 2008

(all amounts, except per-share amounts, are in $ 000s unless otherwise stated)

This MD&A has been prepared with reference to National Instrument 51-102 "Continuous Disclosure Obligations" of the Canadian Securities Administrators ("NI 51-102"), and should be read in conjunction with the Corporation's unaudited interim consolidated financial statements for the three months ended March 31, 2008, its audited consolidated financial statements and notes for the fiscal period ended December 31, 2007, and its MD&A for the year ended December 31, 2007. Except as otherwise indicated, all financial information in this MD&A is determined in accordance with Canadian Generally Accepted Accounting Principles (GAAP), and all dollar amounts referred to herein are in Canadian dollars. The information in this MD&A is current to May 13, 2008.

Forward-Looking Statements

This MD&A contains forward-looking statements that are based on the Corporation's expectations, estimates and projections regarding its business and the economic environment in which it operates. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. The key risks that could cause actual outcomes and results to differ from those expressed in the forward-looking statements are listed on page 10 of the Company's MD&A for the year ended December 31, 2007, filed on SEDAR on February 27, 2008.

Therefore, actual outcomes and results may differ materially from those expressed in these forward-looking statements and readers should not place undue reliance on such statements.

Where forward-looking information is set out in this MD&A, the Corporation will also set out the material risk factors or assumptions used to develop the forward-looking information. Forward-looking information will be updated as required pursuant to the requirements of NI 51-102.

Overall Performance

Overall results for this quarter fell below management's expectations. As with many enterprises in the financial services industry during the quarter, the Corporation's results were negatively affected by weak capital market conditions, in particular by a low volume of equity-raising activities. However, the Corporation continued to advance its core business during the quarter and to invest in support of anticipated continued growth. The negative impact on the Corporation's results does not reflect any problems with the quality, reliability or attractiveness of its services, and assuming a recovery in market conditions, management expects that revenue and net income growth in future periods will again continue at a stronger rate.

Key Performance Measures (compared with the first quarter of 2007)

Revenue increased $84.1 or 2%. While the Corporation's core transfer agency business continued to acquire additional customers, prevailing market conditions resulted in a decrease in its corporate trust business, notably as a result of the absence of the large volume margin income transactions occurring in the first quarter of 2007. Management has previously stated its target of achieving 25% annual growth in revenues to the end of 2008, and will continue to strive to attain it.(1)

Net income decreased by $315.9 or 54%, reflecting the relatively low growth in revenue during the quarter, compared to the increased administrative costs resulting from the Corporation's investment in its infrastructure during 2007. Management has previously stated its target of achieving 30% annual growth in net income to the end of 2008, and will continue to strive to attain it.(2)

Basic and diluted earnings per share decreased by 5 cents or 56% to 4 cents per share.

Earnings before income taxes, depreciation and amortization (EBITDA) decreased by $490.7 or 45%.(3)

Annualized Return on Equity decreased from 20% to 6%.(4)

Description of the Business

There were no significant changes in the Corporation's business from the information provided on pages 3 and 4 of its MD&A for the year ended December 31, 2007.

(1) This objective represents a goal held by management in running the business and is not intended to represent prospective results of operations based on assumptions about future economic conditions and courses of action.

(2) This objective represents a goal held by management in running the business and is not intended to represent prospective results of operations based on assumptions about future economic conditions and courses of action.

(3) EBITDA (Earnings Before Income Taxes, Depreciation and Amortisation and, for 2008, the loss on disposal of assets incurred during the first quarter) and Return on Equity (net income divided by the average of opening and closing shareholders' equity) do not have any standardized meaning prescribed by Canadian GAAP and may not be comparable to similar measures presented by other issuers. These measures are commonly tracked by financial analysts and investors and are also used as an indication of the Corporation's ability to invest in property, plant and equipment, and to raise and service debt. These measures should not be considered as an alternative to cash flows from operating activities nor to any other measures of performance presented in accordance with Canadian GAAP.

(4) Refer to the previous footnote for a discussion on Return on Equity. The 6% figure is calculated as follows: Net income for the quarter / ((Jan 1, 2008 shareholders' equity + March 31, 2008 shareholders' equity) / 2 ) x 4



Results of Operations

Revenue
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Three months Three months
ended ended Year on Year
March 31, March 31,
Type of Financial Service 2008 2007 Change
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Transfer agent 2,730 2,507 223
Corporate trust 622 863 (241)
Corporate compliance 129 110 19
Foreign exchange 15 25 (10)
Limited market dealer 93 0 93
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Total Grey Horse 3,589 3,505 84
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The following factors explain the changes in revenue from 2007 to 2008:

Transfer agent - increase of $223.1 or 9%

The Corporation continued to acquire new customers for its core business. However, the growth in transfer agency revenue was slowed by weak market conditions, in particular by a low level of equity-raising activities by the Corporation's customers, resulting in a decrease in average revenue per customer.

Corporate trust - decrease of $240.3 or 28%

The revenues of the trust business can be skewed by a small number of large transactions, which in turn depend on fluctuations in capital market activities and other unpredictable factors. This was evidenced by the performance during this quarter. In particular, there was no equivalent in 2008 for large volume margin income transactions occurring in the first quarter of 2007.

The Corporation's corporate compliance, foreign exchange and limited market dealer operations continued to make progress, but were similarly affected by overall market conditions, by the lack of large volume transactions in this quarter and by staffing issues.



Selling, general and administrative expenses:
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Three months Three months
ended ended Year on Year
March 31, March 31,
2008 2007 Change
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Recoverable operating expenses 713 593 120
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Staffing costs 1,359 956 403
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Rent 164 103 61
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Other selling, general and
administration 751 760 (9)
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Total selling, general and
administrative expenses 2,987 2,412 575
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Selling, general and administrative expenses increased overall by $574.8 or 24%, reflecting in particular the increase in the number of staff and the opening of new offices during 2007. The increase in staffing costs per se were part of a planned expansion (as were the opening of new offices) that management believes adds depth to the Corporation and places it in excellent stead for a recovery in market conditions. Recoverable operating expenses consists of expenses incurred primarily in providing transfer agent services (mainly costs of stationery, mailing, courier services and of the Corporation's value added services) and increased generally in line with the increase in transfer agent revenues.

Net income and earnings per share

Given the factors discussed above, net income decreased by $315.9 or 54% compared with the first quarter of 2007. Basic and diluted earnings per share each decreased by 5 cents or 56%.



Financial Condition and Liquidity

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Three months Three months Year on
ended ended Year
March 31, 2008 March 31, 2007 Change
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Cash flow from operating
activities (685) 841 (1,526)
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Cash flow from investing
activities (772) 10 (782)
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Cash flow from financing
activities (451) (388) (63)
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As at As at
March 31, 2008 December 31, 2007 Change
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Working capital 9,261 11,054 (1,793)
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Cash and cash equivalents 10,371 12,278 (1,908)
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The Corporation's cash at March 31, 2008 decreased by $1,907.6 to $10,370.7 compared with the figure at December 31, 2007. The largest factor underlying the decrease in cash flow from operating activities was the Corporation's first quarter payment of the income taxes ($1,233.2) accrued on its 2007 net income. Additionally, $772.3 was expended under the normal course issuer bid (discussed below and in the MD&A as at December 31, 2007). The Corporation also invested $450.6 in capital assets, primarily leasehold improvements relating to the additional office space acquired in Toronto at the beginning of the year.

Normal Course Issuer Bid

During the period the Corporation repurchased 214,200 common shares for cancellation at an average price of $8.63 dollars per share for total costs of $1,847.7 of which $1,075.5 was accrued as payable at March 31, 2008. Pursuant to the terms of its notice of intention filed on January 17, 2008, the Corporation may repurchase an additional 119,561 shares under the bid at the then prevailing market price, up to January 20, 2009.

Capital resources

Overall, the Corporation believes that current resources continue to be sufficient to execute its business plan. It may, however, require further capital from time to time to pursue strategic initiatives.

The Bank of Montreal provides the parent company, Grey Horse Corporation ("Grey Horse"), and its main operating subsidiary, Equity Transfer & Trust Company ("ETT"), with an operating line of credit of up to $750.0 subject to certain terms and conditions. As at March 31, 2008, no amount was outstanding against the line of credit.

Regulatory requirements

As part of the regulatory requirements of its trust status, ETT must maintain certain capital adequacy ratios, which are regularly reviewed by the Office of the Superintendent of Financial Institutions (OSFI). At March 31, 2008, ETT was in compliance with all of the required ratios, which includes maintaining tangible assets (i.e. total assets not including intangibles or goodwill) sufficient to meet a minimum regulatory capital balance of $3,000.0. At March 31, 2008, ETT exceeded this minimum by $2,228.4 compared with $4,514.7 at December 31, 2007. This difference is primarily attributable to a dividend of $2,500.0 declared and paid by ETT to Grey Horse during the quarter.

Segregated funds

Segregated funds represent funds held in connection with various corporate trust services. The Corporation held $154.5 million in such funds at March 31, 2008 compared with $94.0 million at the end of 2007. As described above, the corporate trust business is highly variable and the volume of activity can vary significantly.

Transactions with Related Parties

During the quarter ended March 31, 2008 the Corporation was charged $43.7 by a law firm, a partner of which is a director of the Corporation, and approximately $59.0 by directors or companies related to directors and officers for consulting and professional services and brokerage commissions on insurance premiums. At March 31, 2008, $37.9 and $0.2 respectively remained outstanding relating to these charges. Transactions with related parties were conducted on terms that approximate market value and are measured at the exchange amounts. Further information is provided in note 10 to the Corporation's unaudited interim financial statements for the three months ended March 31, 2008.



Summary of Quarterly Results

The following tables set out financial performance highlights for the past
eight quarters:

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3 months 3 months 3 months 3 months
Mar. 31, Dec. 31, Sep. 30, Jun. 30,
2008 2007 2007 2007
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Revenue 3,589 4,055 3,576 6,504
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Selling, general and administrative
expenses 2,987 3,001 2,636 3,949
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EBITDA 602 1,053 940 2,555
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Interest, amortization expenses and
loss on foreign exchange 146 95 130 178
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Income before income taxes 456 958 810 2,377
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Taxes (current and future) 185 328 319 889
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Net income and comprehensive income 270 630 492 1,488
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Earnings per share, basic 0.04 0.09 0.08 0.24
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Earnings per share, diluted 0.04 0.09 0.07 0.23
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Cash and cash equivalents, end of
period 10,371 12,278 11,554 7,754
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Assets 19,891 21,446 20,409 17,350
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Long-term liabilities 426 432 454 453
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Dividends - - - -
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-------------------------------------
3 months 3 months 3 months 3 months
Mar. 31, Dec. 31, Sep. 30, Jun. 30,
2007 2006 2006 2006
----------------------------------------------------------------------------
Revenue 3,505 2,825 2,397 3,736
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Selling, general and administrative
expenses 2,412 2,222 1,734 2,537
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EBITDA 1,093 603 663 1,199
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Interest, amortization expenses and
loss on foreign exchange 118 109 111 706
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Income before income taxes 975 494 552 493
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Taxes (current and future) 389 118 210 204
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Net income and comprehensive income 586 377 343 289
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Earnings per share, basic 0.09 0.06 0.06 0.06
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Earnings per share, diluted 0.09 0.06 0.05 0.05
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Cash and cash equivalents, end of
period 5,667 5,205 4,166 3,622
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Assets 14,585 13,714 12,521 12,563
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Long-term liabilities 455 436 392 391
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Dividends - - - -
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The only significant factor causing variations over the quarters, in addition to those discussed earlier in this MD&A and in the MD&A for the year ended December 31, 2007, is the inherent seasonality of the transfer agent business. Most companies have fiscal year ends in December and, therefore, hold their annual general meetings between April and June, during the Corporation's second quarter. The Corporation earns a significant portion of its revenue from services provided in connection with such meetings and therefore tends to experience a peak of revenue in this quarter. This also manifests itself in a relatively higher balance of deferred revenue at the end of the first quarter.

Disclosure Controls and Procedures

Disclosure controls and procedures within the Corporation are designed to provide reasonable assurance that all relevant information is identified to its Disclosure Committee so as to ensure that appropriate and timely decisions are made regarding public disclosure. There were no material changes in the Corporation's disclosure controls and procedures during the quarter.

Internal Controls over Financial Reporting

Internal controls over financial reporting ("ICFR") are designed to provide reasonable assurance regarding the reliability of the Corporation's financial reporting and the preparation of financial statements in compliance with Canadian generally accepted accounting principles. However, an effective internal control system, no matter how well designed, has inherent limitations -including the possibility of the circumvention or overriding of controls - and, therefore, can only provide reasonable assurance as to financial statement preparation.

During the quarter, management continued to implement the initiatives described in the Corporation's December 31, 2007 MD&A, in particular to complete the transition of control over its information technology operations from an external supplier. Except for these ongoing enhancements, there were no material changes in the Corporation's ICFR during the quarter.

Disclosure of Outstanding Share Data

The Corporation's shares trade on the Toronto Stock Exchange under the symbol GHC. The Corporation is authorized to issue an unlimited number of no par value common shares. On May 13, 2008, GHC had 6,429,825 shares outstanding and 758,422 stock options with a weighted average exercise price of $5.05 expiring from December 2, 2009 to September 25, 2016.

Outlook

Despite the challenges experienced during the quarter, management believes that the Corporation is increasingly well-positioned to implement its key strategies. While some elements of its business will always be challenged at times of volatile and uncertain market conditions, the Corporation's relatively more predictable core businesses continued to grow, and management believes its investments in its infrastructure, such as senior staff and information technology, will prove their value in the future.

Additional Information

Additional information relating to the Corporation, including its most recent Annual Information Form, is available on its website at www.greyhorsecapital.com and on the SEDAR website at www.sedar.com.

The Toronto Stock Exchange has neither approved nor disapproved the contents of this press release.

Contact Information

  • Grey Horse Corporation
    Kevin Reed
    President & CEO
    (416) 361-0930
    or
    Grey Horse Corporation
    Paul G. Smith
    EVP & CFO
    (416) 361-0930
    Website: www.greyhorsecapital.com