Loyalist Group Limited
TSX VENTURE : LOY

Loyalist Group Limited

June 19, 2015 06:00 ET

Loyalist Announces Preliminary Three Year Financial Projections

TORONTO, ONTARIO--(Marketwired - June 19, 2015) - Loyalist Group Limited ("Loyalist" or the "Company") (TSX VENTURE:LOY) is disclosing its preliminary financial projections to all stakeholders in an effort to provide timely and transparent communication as part of the Company's initiatives underway to restore liquidity and strengthen its financial position.

These financial projections commence on July 1, 2015 as the new management team has been in place in their current roles for less than two weeks, and our accounting and finance teams are presently focused on completing regulatory filings.

New management does not intend to provide specific guidance on upcoming financial reporting results for the second quarter ended June 30, 2015. However, management will devote its efforts to issuing the second quarter of 2015 financial results in a timely manner.

"We have already implemented a number of staff reductions at the corporate level which we believe will improve productivity and internal communications, thereby strengthening overall morale. Our next order of business is addressing the near term liquidity needs in order to achieve a positive outcome with our senior lender, which will also enable us to mend strained relationships with our suppliers and employees who have been disappointed with our past approach to managing working capital. This Company has been undercapitalized for some time now, and it has contributed to the poor performance across the organization." said Shawn Klerer, Chief Executive Officer.

THREE YEAR FINANCIAL PROJECTIONS

A key part of new management's path to restore liquidity and strengthen the Company's financial position is to provide stakeholders with preliminary financial projections for a three year period. These projections assume Loyalist has raised sufficient liquidity to operate in the normal course over this period.

Based on a review of internal data and input from various members of accounting, finance, human resources and operations, management has developed the following annual financial projections:

  1. Rationalization Period: Year one - July 1, 2015 to June 30, 2016
    • No changes are made to the current portfolio of school locations and brands. Revenues reflect current activity levels, with no enhancements from new programs. This scenario reflects the focused approach to cost constraint and expense rationalization which is already underway.
    • We have taken a conservative approach to cost reduction and focus only on identifiable discretionary expenses which do not negatively impact normal operations and relationships with customers, suppliers and staff. Approximately $3.7 million of run-rate savings in G&A expense has been identified relative to the Q1/15 annualized G&A expense.
    • A $2 million investment is included in the development of new programs in the second half of year one which is expected to drive revenues from off peak seasonal periods and unused time slots during years two and three. To be conservative, we are including this $2 million investment as incremental G&A expense instead of as a capitalized program development cost.
  1. Stabilization Period: Year two - July 1, 2016 to June 30, 2017
    • Revenues and gross margins are enhanced through more effective yield management (volume, price, country mix) and a partial contribution from the $2 million investment in new programs noted above.
    • Initiatives are undertaken to further reduce and/or eliminate unnecessary expenses.
  1. Growth Period. Year three - July 1, 2017 to June 30, 2018
    • Following stabilization, management believes there is unused capacity in its current base of schools to leverage fixed costs.
    • A full contribution is realized from the $2 million investment in new programs noted above.
(C$000s)
Schools &
July 1, 2015 to June 30, 2016 Corporate Agencies Total
Revenues $ 61,104 $ 12,426 $ 73,530
Direct costs 41,161 8,344 49,505
Gross margin 19,943 4,082 24,025
General & administrative 21,577 3,987 25,563
Incremental development cost 2,120 0 2,120
EBITDA ($ 3,753 ) $ 95 ($ 3,658 )
EBITDA margin % -6.1 % 0.8 % -5.0 %
Schools &
July 1, 2016 to June 30, 2017 Corporate Agencies Total
Revenues $ 73,620 $ 12,474 $ 86,094
Direct costs 45,137 8,377 53,514
Gross margin 28,483 4,097 32,580
General & administrative 21,331 3,612 24,943
Incremental development cost 240 0 240
EBITDA $ 6,912 $ 485 $ 7,397
EBITDA margin % 9.4 % 3.9 % 8.6 %
Schools &
July 1, 2017 to June 30, 2018 Corporate Agencies Total
Revenues $ 90,592 $ 12,538 $ 103,130
Direct costs 52,307 8,421 60,729
Gross margin 38,285 4,116 42,401
General & administrative 21,331 3,612 24,943
Incremental development cost 600 0 600
EBITDA $ 16,354 $ 505 $ 16,859
EBITDA margin % 18.1 % 4.0 % 16.3 %

These preliminary financial projections will be further developed in the months ahead as new management spends additional time performing bottom-up and top-down reviews of all business segments. These projections are on a same school basis and do not assume any acquisitions or dispositions.

NEGOTIATIONS WITH SENIOR CREDIT FACILITY LENDER

Management continues to work closely with the senior lender and is currently negotiating a forbearance agreement. As an update to the press release issued June 15, 2015 regarding management's current discussions with the senior lender, the forbearance period is expected to extend to beyond August 31, 2015 provided that $2.5 million of new liquidity is injected into the Company in July 2015.

This forbearance agreement will document the defaults and will allow the Company to operate in the normal course in the near term. Executing the forbearance agreement will allow the Company to seek new sources of liquidity and to develop a specific plan for the eventual repayment and full discharge of the credit facility.

The forbearance agreement is expected to be executed before the end of June.

NEAR TERM LIQUIDITY PLAN

Management believes that a number of the Company's directors, officers, management, employees and several outside parties are prepared to contribute $2-4 million of new liquidity to the Company in conjunction with execution of the forbearance agreement as noted above. These funds would be firmly committed in order to achieve the best possible outcome prior to finalization of the forbearance agreement.

It is anticipated that this fundraising would be in the form of a non-brokered private placement which results in the least amount of dilution to existing common shareholders yet is an attractive investment to the providers of this new liquidity. Additional details will be provided once key terms and conditions are determined.

About Loyalist

Loyalist owns and operates private English as a Second Language (ESL) Schools, Career Colleges and Community Colleges in Toronto, Vancouver, Victoria and Halifax.

Forward-Looking Information and Statements

This news release includes certain forward-looking information and statements within the meaning of Canadian securities laws. Such forward-looking information and 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 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 includes information relating to the Company's initiatives to restore liquidity and strengthen its financial position and its proposed fundraising efforts. 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.

Any number of important factors could cause actual results to differ materially from these forward-looking statements as well as future results including, but not limited to, risks relating to: the Company's ability to service its outstanding indebtedness and the impact of that indebtedness on the Company's ability to raise additional capital, fund and maintain operations or meet business objectives; the Company's ability to successfully negotiate a forbearance agreement with Bank of Montreal on terms acceptable to the Company; the Company's ability to comply with the terms of any such forbearance agreement and the consequences of any breach or default thereunder; the ability of the Company to raise additional capital or secure alternative financing within the period required; the Company's ability to complete the initiatives referenced in this press release on terms acceptable to the Company or at all; the fact that new management of the Company, including the recently appointed Chief Executive Officer and Chief Financial Officer, have had limited experience with the Company and its operations and have not had sufficient time to fully analyze all facets of the Company's business; the impact of negative or unfavourable rumours in the marketplace on the Company's brands and student enrollment; any of the Company's announced or proposed acquisitions failing to close or becoming delayed before closing; carrying on business and activities in international jurisdiction where Canadian laws do not apply; any loss of certain key personnel; levels of student enrolment; delays in rolling out online education programs; delays to the completion of any planned initiatives or the inability to complete those initiatives; competition in the educational services market; and currency fluctuations. 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 statements, there may be other factors that cause results not to be as anticipated, estimated or intended. 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. Accordingly, readers should not place undue reliance on any forward-looking information or statements contained in this press release.

The forward-looking information contained in this press release is made as of the date hereof, and the Company does not undertake to update any forward-looking information that is contained or referenced herein, whether as a result of new information, future events or otherwise, 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 the 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.

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