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Loyalist Announces Preliminary 3 Year Financial Projections

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https://www.marketwired.com/press-release/loyalist-announces-preliminary-three-year-financial-projections-tsx-venture-loy-2031313.htm

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.

2. 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.

3. 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.