After tax adjusted operating income increases 21% over Q1 to $10.5
million or $0.08 per share
-
Origination volumes increased 34% over the previous quarter to $398
million
-
Commercial finance volumes (Element Finance) increase 10% in Canada and
88% in the US
-
Corporate finance volumes (Element Capital) increase 69% over the
previous quarter to $86.6 million
-
Fleet management volumes (Element Fleet) increase 36% over the previous
quarter to $80.4 million
-
After tax adjusted operating income per share was $0.08 versus $0.08 for
the previous period
-
Total assets increased by 43% over the immediately previous quarter to
$2.5 billion from both organic growth and the acquisition of the GE
Fleet portfolio.
TORONTO, Aug. 13, 2013 /CNW/ - Element Financial Corporation (TSX:EFN)
("Element" or "the Company"), one of North America's leading
independent equipment finance companies, today reported financial
results for the three and six month periods ending June 30, 2013
showing strong growth in origination volumes across all of the
Company's business verticals. New originations increased 34% to $397.9
million for the three month period versus $296.3 million in the
previous period.
Financial revenue increased to $33.96 million versus $31.84 million in
the previous period generating net financial income of $24.7 million
versus $22.8 million in the previous period. Adjusted operating
expenses were $10.3 million for the period versus $10.8 million in the
previous period resulting in adjusted operating income of $14.5 million
for the current three month period versus $12.0 million for the
previous period. After tax adjusted operating income was $10.5 million
or $0.08 per share for the current period versus $$8.6 million or $0.08
per share for the previous period. Total assets increased 43% to $2.5
billion at the end of the period versus $1.8 billion at the end of the
previous period and book value per share increased to $5.67 versus
$4.75 reported at the end of the previous period.
Element Finance accounted for $230.9 million or 58% of the $397.9
million originated during the period. Element Capital accounted for
$86.6 million or 22% of the new business volume while Element Fleet
originated $80.4 million or 20% of the period's new business volume.
The acquisition of the GE Fleet portfolio also added a further $488.7
million to the Company's portfolio of finance assets during the period.
Finance receivables increased 45.9% to $2.1 billion at the end of the
period versus $1.5 billion reported at the end of the previous period.
Average finance receivables for the period were $1.5 billion versus
$1.4 billion for the previous period. The slight increase resulted
from the acquisition of the GE Fleet portfolio on the last day of the
quarter.
On June 18th, the Company closed a $300.6 million private placement bought deal
equity financing and on June 28th used proceeds from this financing to close the acquisition of GE
Capital Canada's Canadian fleet management business and portfolio (the
"GE Fleet portfolio") of $488.7 finance receivables. During the period
the Company also announced that it had commenced funding through the
previously announced Element Equipment Finance Fund with the purchase
of US$48.5 million of unrated notes by a US-based investment management
firm.
"We've seen strong originations across all our business verticals during
the period with a notable increase in our US business which originated
$64.2 million of new business volume in Q2," said Steven Hudson,
Element's Chairman and CEO. "Even after backing out approximately $7
million of volume related to one-time transactions, I'm pleased to see
that this business, which we acquired in December of last year, is
tracking in line with expectations. We are also on track with our plans
for the integration of the Canadian fleet management business that we
acquired from GE Capital during the period and continue to expect to
deliver on the anticipated earnings accretion from this transaction,"
noted Mr. Hudson.
Delinquencies continue to perform as expected and represented 0.15% of
total finance receivables as at June 30, 2013 compared to 0.28% as at
March 31, 2013. The improvement resulted from the acquisition of the GE
Fleet portfolio which had lower delinquency rates than the average
portfolio.
Element's financial leverage ratio increased slightly to 1.75:1 at the
end of the second quarter from 1.73:1 at the end of the previous
period. Average leverage during the period declined from 2.36:1 in the
first quarter to 1.72:1 in the second quarter resulting mainly from the
issuance of additional equity in two separate tranches in March and
June of this year. "We remain focused on delivering the continued
quality growth to our balance sheet that will bring us in line with our
target leverage ratio," said Steven Hudson.
The weighted average number of shares outstanding during the period,
including special warrants, increased to 129.4 million from 107.7
million in the previous period. At the end of the period, the company
had 155.1 million shares outstanding including special warrants.
Selected Financial Information and Financial Ratios
The following table summarizes key financial data to be read in
conjunction with the consolidated financial statements of the Company
as at and for the three and six month periods ended June 30, 2013
|
|
|
|
As at and for the three months ended
|
As at and for the six months ended
|
|
|
|
June 30,
2013
|
March 31,
2013
|
June 30,
2012
|
June 30,
2013
|
June 30,
2012
|
(in $000's for stated values, except ratios and
per share amounts)
|
|
$
|
$
|
$
|
$
|
$
|
After tax adjusted operating income (loss)
per share (basic and diluted) (1)
|
|
0.08
|
0.08
|
0.02
|
0.16
|
0.03
|
|
Financial revenue (1)
|
|
33,960
|
31,838
|
7,445
|
65,798
|
12,978
|
|
Adjusted operating income (1)
|
|
14,497
|
12,043
|
1,936
|
26,540
|
2,840
|
|
After tax adjusted operating income (1)
|
|
10,451
|
8,644
|
1,421
|
19,095
|
2,084
|
|
Income/(loss) before taxes
|
|
(14,164)
|
7,252
|
(7,686)
|
(6,912)
|
(7,702)
|
|
Net income/(loss)
|
|
(13,882)
|
4,685
|
(5,795)
|
(9,197)
|
(6,056)
|
|
Total assets
|
|
2,533,370
|
1,766,353
|
1,006,397
|
2,533,370
|
1,006,397
|
|
Finance Receivables, net
|
|
2,143,133
|
1,468,639
|
809,891
|
2,143,133
|
809,891
|
Loan originations
|
|
|
|
|
|
|
|
|
New originations
|
|
397,896
|
296,251
|
79,406
|
694,147
|
236,012
|
|
|
Loan acquisition
|
|
488,692
|
84,043
|
457,085
|
572,735
|
457,085
|
|
Secured borrowings
|
|
1,539,011
|
1,033,181
|
627,916
|
1,539,011
|
627,916
|
Average finance
receivables
|
|
1,546,145
|
1,396,197
|
360,745
|
1,471,585
|
304,976
|
|
Average debt outstanding
|
|
1,093,655
|
1,085,630
|
205,973
|
1,089,666
|
182,476
|
Number of Shares outstanding
(including Special Warrants)
|
|
155,116
|
125,414
|
82,980
|
155,116
|
82,980
|
Weighted average number of
shares outstanding (including
Special Warrants)
|
|
129,362
|
107,711
|
71,916
|
118,597
|
69,133
|
|
Total Shareholders' equity
|
|
879,560
|
595,913
|
312,756
|
879,560
|
312,756
|
Average total shareholders'
equity
|
|
635,079
|
460,946
|
264,914
|
548,494
|
251,602
|
The following table provides a reconciliation of non-IFRS to IFRS
measures related to the Company:
|
|
|
As at and for the three months ended
|
As at and for the six months ended
|
|
$ thousands (except % and per share amounts)
|
|
June 30, 2013
|
March 31, 2013
|
June 30, 2012
|
June 30, 2013
|
June 30, 2012
|
|
Reported and adjusted income measures
|
|
|
|
|
|
|
|
Net income (loss)
|
A
|
(13,882)
|
4,685
|
(5,795)
|
(9,197)
|
(6,056)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
2,818
|
1,452
|
572
|
4,270
|
1,492
|
|
|
Amortization of intangible assets from
acquisitions
|
|
343
|
339
|
—
|
682
|
—
|
|
|
Integration costs
|
|
5,000
|
3,000
|
2,750
|
8,000
|
2,750
|
|
|
Transaction costs
|
|
20,500
|
—
|
6,300
|
20,500
|
6,300
|
|
|
Provision (recovery) of income taxes
|
|
(282)
|
2,567
|
(1,891)
|
2,285
|
(1,646)
|
|
Adjusted operating income
|
B
|
14,497
|
12,043
|
1,936
|
26,540
|
2,840
|
Provision for taxes applicable to adjusted
operating income
|
|
(4,046)
|
(3,399)
|
(515)
|
(7,445)
|
(756)
|
|
After tax adjusted operating income
|
C
|
10,451
|
8,644
|
1,421
|
19,095
|
2,084
|
Selected statement of financial position
amounts
|
|
|
|
|
|
|
Finance receivables, before allowance for credit
losses
|
D
|
2,154,106
|
1,478,649
|
813,773
|
2,154,106
|
813,773
|
|
Allowance for credit losses
|
E
|
10,973
|
10,010
|
3,882
|
10,973
|
3,882
|
|
Finance receivables, net
|
F
|
2,143,133
|
1,468,639
|
809,891
|
2,143,133
|
809,891
|
|
|
Average finance receivables, net
|
G
|
1,546,145
|
1,396,197
|
360,745
|
1,471,585
|
304,976
|
|
Secured borrowings
|
H
|
1,539,011
|
1,033,181
|
627,916
|
1,539,011
|
627,916
|
|
|
Average Secured Borrowings
|
I
|
1,093,655
|
1,085,630
|
205,973
|
1,089,666
|
182,476
|
|
Total shareholders' equity
|
J
|
879,560
|
595,913
|
312,756
|
879,560
|
312,756
|
|
|
Average shareholders' equity
|
K
|
635,079
|
460,946
|
264,914
|
548,494
|
251,602
|
|
Key annualized operating ratios
|
|
|
|
|
|
|
|
Financial leverage ratio
|
H/J
|
1.75
|
1.73
|
2.00
|
1.75
|
2.00
|
Allowance for credit losses as a percentage of
finance receivables
|
E/D
|
0.51%
|
0.68%
|
0.48%
|
0.51%
|
0.48%
|
Adjusted operating income on average
shareholders' equity
|
B/K
|
9.13%
|
10.45%
|
2.92%
|
9.68%
|
2.26%
|
Adjusted operating income on
average finance receivables
|
B/G
|
3.75%
|
3.45%
|
2.15%
|
3.61%
|
1.80%
|
After-tax adjusted operating income on average
shareholders' equity
|
C/K
|
6.58%
|
7.50%
|
2.15%
|
6.96%
|
1.66%
|
After-tax adjusted operating income on average
finance receivables
|
C/G
|
2.70%
|
2.48%
|
1.58%
|
2.60%
|
1.37%
|
|
Per share information
|
|
|
|
|
|
|
Number of shares outstanding (including special
warrants)
|
L
|
155,116
|
125,414
|
82,980
|
155,116
|
82,980
|
|
Weighted average number of shares outstanding
|
M
|
129,362
|
107,711
|
71,916
|
118,597
|
69,133
|
Net income (loss) per share [basic and
diluted]
|
A/M
|
(0.11)
|
0.04
|
(0.08)
|
(0.08)
|
(0.09)
|
After-tax adjusted operating income per
share [basic and diluted]
|
C/M
|
0.08
|
0.08
|
0.02
|
0.16
|
0.03
|
|
Book value per share
|
J/L
|
5.67
|
4.75
|
3.76
|
5.67
|
3.76
|
Results of Operations for the three-month periods ended June 30, 2013,
March 31, 2013 and June 30, 2012
|
|
|
For the three-month periods ended
|
|
|
June 30, 2013
|
March 31, 2013
|
June 30, 2012
|
|
(in 000's for stated values, except per unit amounts)
|
$
|
$
|
$
|
Net Financial Income
Interest income
|
29,165
|
26,444
|
7,037
|
|
Interest expense
|
9,212
|
9,043
|
2,086
|
|
Net interest income before provision for credit loss
|
19,953
|
17,401
|
4,951
|
|
Provision for credit losses
|
1,099
|
1,571
|
39
|
|
Net interest income
|
18,854
|
15,830
|
4,912
|
|
Other revenue items
|
5,894
|
6,965
|
447
|
|
Net Financial Income
|
24,748
|
22,795
|
5,359
|
|
Operating Expenses
|
|
|
|
|
Salaries, wages and benefits
|
7,994
|
7,162
|
2,265
|
|
General and administration expenses
|
2,257
|
3,590
|
1,158
|
|
Share-based compensation
|
2,818
|
1,452
|
572
|
|
|
13,069
|
12,204
|
3,995
|
|
Business acquisition costs
|
|
|
|
|
Amortization of intangibles from acquisition
|
343
|
339
|
—
|
|
Integration costs
|
5,000
|
3,000
|
2,750
|
|
Transaction costs
|
20,500
|
—
|
6,300
|
|
|
25,843
|
3,339
|
9,050
|
|
Net income/(loss) before taxes
|
(14,164)
|
7,252
|
(7,686)
|
|
Tax expense/(recovery)
|
(282)
|
2,567
|
(1,891)
|
|
Net income/(loss) for the period
|
(13,882)
|
4,685
|
(5,795)
|
|
|
|
|
|
|
Earnings per Share - basic
|
($0.11)
|
$0.04
|
($0.08)
|
Results of Operations for the six-month periods ended June 30, 2013 and
June 30, 2012
|
|
For the six-month periods ended
|
|
|
|
June 30, 2013
|
June 30, 2012
|
|
(in 000's for stated values, except per unit amounts)
|
|
$
|
$
|
Net Financial Income
Interest income
|
|
55,609
|
12,430
|
|
Interest expense
|
|
18,255
|
3,649
|
|
Net interest income before provision for credit loss
|
|
37,354
|
8,781
|
|
Provision for credit losses
|
|
2,670
|
330
|
|
Net interest income
|
|
34,684
|
8,451
|
|
Other revenue items
|
|
12,859
|
878
|
|
Net Financial Income
|
|
47,543
|
9,329
|
|
Operating Expenses
|
|
|
|
|
Salaries, wages and benefits
|
|
15,156
|
4,133
|
|
General and administration expenses
|
|
5,847
|
2,356
|
|
Share-based compensation
|
|
4,270
|
1,492
|
|
|
|
25,273
|
7,981
|
|
Business acquisition costs
|
|
|
|
|
Amortization of intangibles from acquisition
|
|
682
|
—
|
|
Integration costs
|
|
8,000
|
2,750
|
|
Transaction costs
|
|
20,500
|
6,300
|
|
|
|
29,182
|
9,050
|
|
Net income/(loss) before taxes
|
|
(6,912)
|
(7,702)
|
|
Tax expense/(recovery)
|
|
2,285
|
(1,646)
|
|
Net income/(loss) for the period
|
|
(9,197)
|
(6,056)
|
|
|
|
|
|
|
Loss per Share - basic
|
|
($0.08)
|
($0.09)
|
The Company continued to execute on its growth plan and strategy during
the quarter ended June 30, 2013 and is reporting improved performance
from operations (net income before business acquisition costs and
taxes) both over the comparable period of the previous year and the
immediate previous quarter. The improved performance is in part the
result of the acquisition of TLS, CoActiv and NexCap that were
completed on June 30, 2012, November 30, 2012 and January 18, 2013,
respectively, and their integration into the Company.
The Company is reporting a net loss of $13.9 million for the quarter
ended June 30, 2013 compared to a loss of $5.8 million for the same
comparative quarter ended June 30, 2012 and compared to a net income of
$4.7 million reported during the previous quarter ended March 31, 2013.
The net loss being reported is the direct consequence of the inclusion
of business acquisition costs for $25.8 million related to the GE
Portfolio acquisition completed during the current quarter. Business
acquisition costs will continue to provide volatility to the net income
of the Company as it continues on its acquisitive path.
As indicated previously, management believes that adjusted operating
income (the Company had previously referred to this non-IFRS measure as
operating income) is the most appropriate operating measure of the
Company's performance as it excludes non-cash items related to
share-based compensation and business acquisition costs which do not
relate to sustainable operating activities. The Company is reporting
adjusted operating income of $0.08 per share for the quarter ended June
30, 2013 compared to $0.02 per share for the quarter ended June 30,
2012 and $0.08 per share for the immediate preceding quarter ended
March 31, 2013 on a total average number of shares outstanding of 129.4
million during the quarter ended June 30, 2013, compared to 107.7
million shares outstanding for the quarter ended March 31, 2013.
Adjusted operating income for the three month period ended June 30, 2013
was $14.5 million, an increase of $12.6 million or 648.8% over the
amount reported during the comparative quarter ended June 30, 2012 or
an increase of $2.5 million or 20.4% over the amount reported during
the immediate previous quarter ended March 31, 2013. The increase over
the quarter ended March 31, 2013 reflects impact of the continued
impact of the organic growth on the Company's finance receivable
portfolio. Management believes that readers should focus on the
adjusted operating income as the better performance indicator as it
removes the adverse non-recurring impacts associated with acquisition
transaction accounting under IFRS.
Adjusted operating income on average receivable was 3.75% during the
quarter ended June 30, 2013 compared to 2.15% for the quarter ended
June 30, 2012 and 3.45% for the prior quarter ended March 31, 2013,
reflecting the substantial improvement of the Company's performance
year over year and quarter over quarter resulting from a larger balance
sheet and from integration initiatives.
Financial revenue for the three month period ended June 30, 2013 was
$34.0 million, an increase of $26.5 million or 356.2% over the amount
of $7.4 million reported during the quarter ended June 30, 2012, and an
increase of $2.1 million or 6.7% over the amount of $31.8 million
reported during the immediate preceding quarter ended March 31, 2013.
These increases result from increases in average finance receivables
outstanding during the periods which grew to $1,546.1 million during
quarter ended June 30, 2013, from $360.7 million during the quarter
ended June 30, 2012 and from $1,396.2 million during the immediate
preceding quarter ended March 31, 2013. Finance receivables have
increased to $2,143.1 million as at June 30, 2013 compared to $809.9
million as at June 30, 2012 and $1,468.6 million at March 31, 2013
reflecting respective increases of 164.6% and 45.9% resulting from a
combination of (i) the acquisition of TLS on June 29, 2012, (ii) the
acquisition of CoActiv on November 30, 2012, (iii) the acquisition of
NexCap on January 18, 2013, (iv) the acquisition of GE Portfolio on
June 28, 2013, and (v) the continued organic growth in originations
which reached a total of $397.9 million during the quarter ended June
30, 2013, compared to $296.3 million during the immediate preceding
quarter ended March 31, 2013 and compared to originations of $79.4
million during the quarter ended June 30, 2012.
Gross average yield was 9.07% for the quarter ended June 30, 2013
compared to 9.57% for the immediate preceding quarter ended March 31,
2013 and 8.30% for the comparable quarter ended June 30, 2012. A proper
comparison against the results for the quarter ended June 30, 2012 is
not meaningful as a result of the numerous acquisitions completed
subsequent to that comparative quarter and the resulting different mix
of businesses. The decrease in gross yields of 0.50% compared to the
immediate preceding quarter ended March 31, 2013 was impacted from a
decrease in other non-interest revenues during the quarter ended June
30, 2013. Other non-interest revenue is primarily ancillary service
revenues and will fluctuate period to period based on the number of
transactions and is not necessarily correlated to average finance
receivables.
Interest expense were $9.2 million for the quarter ended June 30, 2013
compared to $2.1 million for the quarter ended June 30, 2012 and $9.0
million for the immediate preceding quarter ended March 31, 2013,
reflecting respective increases of $7.1 million and $0.2 million. These
increases are the result of increases in the average outstanding debt
during the periods which increased to $1,093.7 million during the
quarter ended June 30, 2013 from $1,085.6 million during the quarter
ended March 31, 2013 and $206.0 million during the quarter ended June
30, 2012. The average cost of borrowing has however remained relatively
stable at 3.37% for the quarter ended June 30, 2013 versus 3.33% for
the immediate preceding quarter ended March 31, 2013 reflecting, a
change in mix of borrowings and new debt structures entered into during
the period. The average cost of borrowing has decreased from the 4.05%
reported for the comparative quarter ended June 30, 2012 reflecting the
general improvement in borrowing costs as the Company continues its
expansion and is able to negotiate better rates.
Operating expenses were $13.1 million for the quarter ended June 30,
2013, compared to $4.0 million for the comparative period in 2012, and
$12.2 million for the prior quarter ended March 31, 2013. Adjusted
operating expenses were $10.3 million for the quarter ended June 30,
2013 compared to $10.8 million for the immediate preceding quarter
ended March 31, 2013 and $3.4 million for the quarter ended June 30,
2012 reflecting a reduction of 5% over the amount reported during the
previous quarter ended March 31, 2013 and an increase of 199.5% over
the amount reported during the comparative period ended June 30, 2012
reflecting respectively improved operating efficiencies and growth in
the business activities
Share-based compensation, which consists of non-cash expenses related to
the fair value of options granted under the Company stock option plan
and deferred share units issued ("DSU") granted during the period, was
$2.8 million during the three months ended June 30, 2013 compared to
$1.5 million during the three months ended March 31, 2013 and $0.6
million reported in the comparative quarter ended June 30, 2012. The
increase is directly attributed to the additional grant of options and
the increasing estimated fair value of those options as the Company
continues to expand and its share price also continues to grow.
Business acquisition costs, which consist of the amortization of certain
acquired intangibles from the acquisition of TLS, and transaction and
integration costs associated with the GE Portfolio acquisition were
$25.8 million during the quarter ended June 30, 2013. As we have noted
previously, these types of expenses will continue to negatively impact
the Company's performance going forward as it continues on its growth
plan and where such costs will continue to be expensed as incurred
under IFRS.
Net loss before income taxes for the three months ended June 30, 2013
was $14.2 million compared to net loss before taxes of $7.7 million
reported for the three months ended June 30, 2012 and net income before
income taxes of $7.3 million reported in the immediate preceding
quarter ended March 31, 2013. The net loss before income taxes for the
three months ended June 30, 2013 was negatively impacted by the
one-time transaction and integration costs associated with the
acquisition of the GE Portfolio. The net income before income taxes
during the quarter ended March 31, 2013 was impacted by integration
costs associated with the acquisition NexCap during that quarter.
Consolidated Financial Position
The following table sets forth a summary of the Company's consolidated
financial position as at March 31, 2013 and December 31, 2012:
|
|
|
|
As at
|
|
|
June 30,
2013
|
March 31,
2013
|
December 31,
2012
|
(in 000's for stated values, except per
unit amounts)
|
$
|
$
|
$
|
|
|
|
|
|
|
Cash
|
41,534
|
68,442
|
9,997
|
|
Restricted cash
|
64,142
|
53,092
|
51,279
|
|
Finance receivables
|
2,143,133
|
1,468,639
|
1,294,591
|
|
Deferred tax assets
|
25,272
|
18,018
|
16,152
|
|
Non-portfolio assets
|
259,289
|
158,162
|
136,873
|
|
Total assets
|
2,533,370
|
1,766,353
|
1,508,892
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
83,883
|
106,727
|
70,057
|
|
Secured borrowings
|
1,539,011
|
1,033,181
|
989,128
|
|
Derivative financial instruments
|
2,562
|
1,134
|
645
|
|
Deferred tax liabilities
|
28,354
|
29,398
|
25,637
|
|
Total liabilities
|
1,653,810
|
1,170,440
|
1,085,467
|
|
Shareholders' equity
|
879,560
|
595,913
|
423,425
|
|
Total liabilities and shareholders' equity
|
2,533,370
|
1,766,353
|
1,508,892
|
About Element Financial Corporation
With total assets of approximately $2.5 billion, Element Financial
Corporation is one of North America's leading independent equipment
finance companies. Element operates across North America in three
verticals of the equipment finance market - Element Capital provides
large ticket equipment leasing, Element Finance serves the mid-ticket
equipment finance market and Element Fleet provides vehicle fleet
leasing and management solutions.
Forward Looking Statements
This release includes forward-looking statements regarding Element and
its business. Such statements are based on the current expectations and
views of future events of Element's management. In some cases the
forward-looking statements can be identified by words or phrases such
as "may", "will", "expect", "plan", "anticipate", "intend",
"potential", "estimate", "believe" or the negative of these terms, or
other similar expressions intended to identify forward-looking
statements. The forward-looking events and circumstances discussed in
this release may not occur and could differ materially as a result of
known and unknown risk factors and uncertainties affecting the company.
No forward-looking statement can be guaranteed. Forward-looking
statements and information by their nature are based on assumptions and
involve known and unknown risks, uncertainties and other factors which
may cause our actual results, performance or achievements, or industry
results, to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statement or information. Accordingly, readers should
not place undue reliance on any forward-looking statements or
information. Except as required by applicable securities laws,
forward-looking statements speak only as of the date on which they are
made and Element undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new information,
future events, or otherwise.
SOURCE: Element Financial Corporation
