TORONTO, ONTARIO -- (Marketwired) -- 03/02/16 --
-- Total earning assets increase to $20.5 billion at year end from $9.03
billion at the end of 2014
-- Total earning assets at yearend dominated by the US market at 73% while
Canada declines to 16%
-- Originations increased to $2.54 billion in Q4-2015 versus $1.89 billion
in Q3-2015
-- Fleet management fees increase to $101.3 million in Q4-2015 versus $53.7
million in Q3-2015
-- Pre-tax adjusted return on average common equity increased to 12.6% in
Q4-2015 versus 11.2% in Q3-2015
-- Portfolio quality remains strong with arrears at 0.16% of finance
receivables versus 0.20% at the end of Q3-2015
-- Tangible leverage increased to 4.57:1 at December 31, 2015 from 3.72:1
at the end of previous year
Element Financial Corporation (TSX: EFN) ("Element" or the "Company"), one of North America's leading equipment finance companies, today reported financial results for the three-months and year ending December 31, 2015. For the three months ended December 31, 2015 after tax adjusted operating income was $143.5 million or $0.35 per share (basic), exceeding consensus estimates, versus $55.4 million or $0.19 per share for the same period last year. Free operating cash flow was $161.5 million, or $0.40 per share, compared to $71.8 million, or $0.25 per share for the same period last year.
"This quarter provides investors with a first look at Element's Fleet management business with the acquired GE portfolio fully loaded into these results," noted Bradley Nullmeyer, Element's President. "The process of integrating the acquired GE fleet operations is now well advanced and we are pleased report that we now expect to achieve US$100 million of savings from this integration. As a result, our Fleet business enters 2016 with an adjusted ROAA of 3.2% and is on track to exit the year at 4% plus," added Mr. Nullmeyer.
Overall, new originations amounted to $2.5 billion for the three-month period ended December 31, 2015 representing a 47 percent increase over the $1.7 billion reported for the same period last year. Fleet Management accounted for $1,620 million of Q4 originations, while the Rail Finance vertical contributed $198 million. Aviation Finance accounted for $306 million of Q4 originations, while the Commercial & Vendor vertical accounted for $422 million. Full year origination volumes amounted to $7.7 billion, which was well ahead of plan with respect to the Company's previous full-year guidance of $6.5 billion of new originations during 2015, and represented an increase of 63 percent over the prior year.
Financial revenue for the three-month period ended December 31, 2015 was $409.2 million, or 8.3 percent of average earning assets versus, $175.7 million or 8.2 percent of average earning assets in the same period last year. Management fees and other revenue included in financial revenue amounted to $123.9 million during the fourth quarter of 2015 versus $54.8 million in the same period last year, representing an increase of 126 percent.
Interest expense was $119.5 million for the three-month period ended December 31, 2015 compared to $50.0 million for the same period last year. The average cost of borrowing was 2.69 percent during Q4-2015 versus 2.53 percent reported during the previous quarter and 2.66 percent for the same period last year. The cost increase, in each case, was due to the use of more expensive acquisition bank financing to fund the purchase of the GE Fleet operations in September 2015, with less expensive and permanent financing for these assets put in place during late December 2016.
Net financial income for the three-month period ended December 31, 2015 was $289.7 million versus $125.7 million for the same period last year. Adjusted operating expenses for the three-month period ended December 31, 2015 were $128.2 million, or 2.61 percent of average earning assets, versus $53.8 million, or 2.52 percent of average earning assets, in the same period last year with the relative cost increase largely due to the higher cost base of Fleet to provide services that generate service fee income in addition to net yields from leasing activities.
Total earning assets increased to $20.5 billion as at December 31, 2015 versus $19.3 billion as at the end of the preceding quarter and $9.0 billion as at the end of the same period last year. The year-over-year increase was due largely to the acquisition of the GE Fleet operations during Q3, 2015, representing $7.8 billion of earning assets.
Total debt increased to $18.7 billion as at December 31, 2015 from $17.4 billion as at September 30, 2015 and $8.1 billion as at December 31, 2014. The Company's tangible leverage ratio increased in line with our strategic objective of increasing return on equity to 4.57:1 as at December 31, 2015 versus 4.53:1 as at September 30, 2015, and from 3.72:1 as at the prior year end.
Using a discount rate of 6.5 percent, the Company estimates that the present value of its deferral of cash income tax liabilities for the next 12 plus years represents additional unleveraged value of $4.50 per share.
"I am extremely pleased with the reception received from all of our stakeholders to the announcement we made last month that we are separating Element into two stand-alone public entities," noted Steven Hudson, Element's Chief Executive Officer. "From this process will emerge the world's largest publicly traded fleet management company with stable growth, pristine credit quality and recurring high-margin fee income as well as a high-growth commercial finance business that will transition by the end of the year to an asset management business with a strong investment-grade balance sheet," added Mr. Hudson.
Dividends Declared
The Company's Board of Directors has authorized and declared a quarterly dividend of $0.025 per outstanding common share of Element for the first quarter of 2016. The dividend will be paid on April 15, 2016 to shareholders of record at the close of business on March 31, 2016. These dividends are designated to be eligible dividends for purposes of section 89(1) of the Income Tax Act (Canada).
The Company's Board of Directors also declared the following dividends on Element's preferred shares:
-- A quarterly dividend of $0.4125 per outstanding Cumulative 5-Year Rate
Reset Preferred Share, Series A (TSX: EFN.PR.A) payable on March 31,
2016 to shareholders of record on the close of business on March 17,
2016. The dividend payment is for the quarterly period up to but
excluding March 31, 2016.
-- A quarterly dividend of $0.40625 per outstanding Cumulative 5-Year Rate
Reset Preferred Share, Series C (TSX: EFN.PR.C) payable on March 31,
2016 to shareholders of record on the close of business on March 17,
2016. The dividend payment is for the quarterly period up to but
excluding March 31, 2016.
-- A quarterly dividend of $0.40 per outstanding Cumulative 5-Year Rate
Reset Preferred Share, Series E (TSX: EFN.PR.E) payable on March 31,
2016 to shareholders of record on the close of business on March 17,
2016. The dividend payment is for the quarterly period up to but
excluding March 31, 2016.
-- A quarterly dividend of $0.40625 per outstanding Cumulative 5-Year Rate
Reset Preferred Share, Series G (TSX: EFN.PR.G) payable on March 31,
2016 to shareholders of record on the close of business on March 17,
2016. The dividend payment is for the quarterly period up to but
excluding March 31, 2016.
These dividends are designated to be eligible dividends for purposes of section 89(1) of the Income Tax Act (Canada).
Conference Call
A conference call to discuss the results with analysts will be held on Wednesday, March 2, 2016 at 5:00 p.m. Eastern Time. The conference call can be accessed by dialing the following numbers:
North America Toll-Free: 1-866-696-5910 passcode 8146137 Local: 416-695-7806 passcode 8146137 International: https://www.confsolutions.ca/ILT?oss=7P1R8666965910
A series of presentation slides will be referenced by management during the conference call. These slides will be available on the Company's website in advance of the conference call and may be accessed at http://www.elementcorp.com/investors/presentations-1.
The conference call will be recorded and can be accessed until April 1, 2016 by dialing 1-800-408-3053 or 905-694-9451 and entering the pass code 1939049.
Non-IFRS Measures
The Company's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and the accounting policies we adopted in accordance with IFRS.
The Company believes that certain Non-IFRS Measures can be useful to investors because they provide a means by which investors can evaluate the Company's underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business of a given period. Throughout this Press Release, management used a number of terms and ratios which do not have a standardized meaning under IFRS and are unlikely to be comparable to similar measures presented by other organizations. A full description of these measures can be found in the Management Discussion & Analysis that accompanies the financial statements for the year and quarter ended December 31, 2015.
The following table provide a reconciliation of non-IFRS to IFRS measures related to the Company:
As at and for the three months ended
----------------------------------------------------------------------------
$ thousands (except % and December 31, September 30, December 31,
per share amounts) 2015 2015 2014
----------------------------------------------------------------------------
Reported and adjusted
income measures
Net income (loss) A 104,433 (4,656) 47,064
Adjustments:
Amortization of
debenture synthetic
discount 2,955 2,906 1,445
Share-based
compensation 9,449 8,774 6,135
Amortization of
intangible assets from
acquisitions 16,445 4,972 7,840
Transaction and
integration costs 34,747 128,068 3,346
Provision (recovery) of
income taxes (6,491) (32,943) 6,008
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Adjusted operating income B 161,538 107,121 71,838
Provision for taxes
applicable to adjusted
operating income C (18,060) (19,948) (16,393)
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After-tax adjusted
operating income D=B-C 143,478 87,173 55,445
Cumulative preferred
share dividends during
the period Y 8,912 8,904 6,109
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After-tax adjusted
operating income
attributable to common D1=
shareholders D-Y 134,566 78,269 49,336
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Selected cash flow
amounts
Adjusted operating income
before income taxes B 161,538 107,121 71,838
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Selected statement of
financial position
amounts
Finance receivables,
before allowance for
credit losses E 17,589,087 16,371,356 8,482,904
Allowance for credit
losses F 33,791 24,135 16,915
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Earning assets
Net investment in
finance receivable G 16,199,530 15,174,976 7,749,260
Equipment under
operating leases H 4,126,553 3,991,195 1,279,670
Investment in managed
fund H1 143,936 138,788 -
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Total earning assets I=G+H+H1 20,470,019 19,304,959 9,028,930
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Average earning assets,
net J 19,636,834 12,997,240 8,543,386
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Goodwill and intangible
assets K 2,245,298 2,152,541 863,008
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Accounts payable and
accrued liabilities L 654,638 660,578 368,113
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Secured borrowings M 17,862,038 16,576,204 7,751,395
Unsecured convertible
debentures N 836,472 831,916 303,147
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Total debt O=M+N 18,698,510 17,408,120 8,054,542
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Average debt P 17,803,601 11,645,733 7,536,131
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Total shareholders'
equity Q 5,717,555 5,377,345 2,830,951
Preferred shares R 533,656 533,635 365,113
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Common shareholders'
equity S=Q-R 5,183,899 4,843,710 2,465,838
Average common
shareholders' equity T 4,857,497 3,500,993 2,406,023
Average total
shareholders' equity U 5,391,140 4,034,893 2,771,135
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As at and for the year ended
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$ thousands (except % and December 31, December 31,
per share amounts) 2015 2014
----------------------------------------------------------------------------
Reported and adjusted
income measures
Net income (loss) 174,431 54,069
Adjustments:
Amortization of
debenture synthetic
discount 9,289 2,863
Share-based
compensation 34,197 18,851
Amortization of
intangible assets from
acquisitions 31,362 10,447
Transaction and
integration costs 203,283 99,141
Provision (recovery) of
income taxes (16,749) 4,099
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Adjusted operating income 435,813 189,470
Provision for taxes
applicable to adjusted
operating income (76,237) (41,085)
----------------------------------------------------------------------------
After-tax adjusted
operating income 359,576 148,385
Cumulative preferred
share dividends during
the period 31,047 18,935
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After-tax adjusted
operating income
attributable to common
shareholders 328,529 129,450
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Selected cash flow
amounts
Adjusted operating income
before income taxes 435,813 189,470
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Selected statement of
financial position
amounts
Finance receivables,
before allowance for
credit losses 17,589,087 8,482,904
Allowance for credit
losses 33,791 16,915
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Earning assets
Net investment in
finance receivable 16,199,530 7,749,260
Equipment under
operating leases 4,126,553 1,279,670
Investment in managed
fund 143,936 -
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Total earning assets 20,470,019 9,028,930
----------------------------------------------------------------------------
Average earning assets,
net 13,056,842 5,888,922
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Goodwill and intangible
assets 2,245,298 863,008
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Accounts payable and
accrued liabilities 654,638 368,113
----------------------------------------------------------------------------
Secured borrowings 17,862,038 7,751,395
Unsecured convertible
debentures 836,472 303,147
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Total debt 18,698,510 8,054,542
----------------------------------------------------------------------------
Average debt 11,840,871 4,779,722
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Total shareholders'
equity 5,717,555 2,830,951
Preferred shares 533,656 365,113
----------------------------------------------------------------------------
Common shareholders'
equity 5,183,899 2,465,838
Average common
shareholders' equity 3,417,151 1,840,665
Average total
shareholders' equity 3,882,088 2,121,399
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Non-IFRS and IFRS Key Annualized Operating Ratios and per Share Information:
----------------------------------------------------------------------------
As at and for the three months
ended
----------------------------------------------------------------------------
December September December
$ thousands (except % and per share 31, 30, 31,
amounts) 2015 2015 2014
----------------------------------------------------------------------------
Free operating cashflow per share
(basic) (B-Y)/W $ 0.40 $ 0.32 $ 0.25
After-tax adjusted operating income
per share (basic) (1) (D1)/W $ 0.35 $ 0.26 $ 0.19
After-tax proforma diluted adjusted
operating income per share (D1+Z)/X $ 0.33 $ 0.25 $ 0.18
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Key annualized operating ratios
Leverage ratios
Financial leverage ratio O/Q 3.27 3.24 2.85
Tangible leverage ratio 4.57 4.53 3.72
Average financial leverage ratio P/U 3.30 2.89 2.72
Average tangible leverage ratio 4.72 3.59 3.60
Other key operating ratios
Allowance for credit losses as a
percentage of finance receivables F/E 0.19% 0.15% 0.20%
Adjusted operating income on average
common shareholders' equity (B-Y)/T 12.57% 11.22% 10.93%
Adjusted operating income on average
earning assets B/J 3.30% 3.30% 3.36%
After-tax adjusted operating income
on average common shareholders'
equity (D-Y)/T 11.08% 8.94% 8.20%
After-tax adjusted operating income
on average earning assets D/J 2.92% 2.68% 2.60%
Per share information
Number of shares outstanding
(including special warrants) V 386,135 385,798 264,059
Weighted average number of shares
outstanding (basic) W 385,930 305,073 264,057
Proforma diluted average number of
shares outstanding X 435,469 356,149 269,431
Cumulative preferred share dividends
during the period Y $ 8,912 $ 8,904 $ 6,109
Other effects of dilution adjusted
operating income basis Z $ 9,600 $ 9,029 $ -
Net income (loss) per share (basic) (A-Y)/W $ 0.25 $ (0.04) $ 0.16
Net income (loss) per share
(diluted) $ 0.24 $ (0.04) $ 0.15
Book value per share S/V $ 13.43 $ 12.56 $ 9.34
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As at and for the year ended
----------------------------------------------------------------------------
$ thousands (except % and per share December 31, December 31,
amounts) 2015 2014
----------------------------------------------------------------------------
Free operating cashflow per share
(basic) $ 1.33 $ 0.76
After-tax adjusted operating income
per share (basic) (1) $ 1.08 $ 0.57
After-tax proforma diluted adjusted
operating income per share $ 1.04 $ 0.56
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Key annualized operating ratios
Leverage ratios
Financial leverage ratio 3.27 2.85
Tangible leverage ratio 4.57 3.72
Average financial leverage ratio 3.05 2.25
Average tangible leverage ratio 4.06 2.60
Other key operating ratios
Allowance for credit losses as a
percentage of finance receivables 0.19% 0.20%
Adjusted operating income on average
common shareholders' equity 11.85% 9.26%
Adjusted operating income on average
earning assets 3.34% 3.22%
After-tax adjusted operating income
on average common shareholders'
equity 9.61% 7.03%
After-tax adjusted operating income
on average earning assets 2.75% 2.52%
Per share information
Number of shares outstanding
(including special warrants) 386,135 264,059
Weighted average number of shares
outstanding (basic) 305,230 225,289
Proforma diluted average number of
shares outstanding 344,906 230,663
Cumulative preferred share dividends
during the period $ 31,047 $ 18,935
Other effects of dilution adjusted
operating income basis $ 28,520 $ -
Net income (loss) per share (basic) $ 0.47 $ 0.16
Net income (loss) per share
(diluted) $ 0.46 $ 0.15
Book value per share $ 13.43 $ 9.34
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(1) For the period ended September 30, 2015, adjusted for the timing of the
closing of the GE Fleet Operations in Mexico, Australia and New Zealand,
the Company would report adjusted operating income per share of $0.28.
Quarterly Selected Financial Information and Financial Ratios
The following tables summarize key financial data and key operating ratios for the three-month periods ended December 31, 2015, September 30, 2015 and December 31, 2014:
As at and for the three months ended
----------------------------------------------------------------------------
December 31, September 30, December 31,
2015 2015 2014
(in $000's for stated values, $ $ $
except ratios and per share
amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
After tax adjusted operating
income (loss) per share (basic) 0.35 0.26 0.19
(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Free operating cash flows per
share (basic) (1) 0.40 0.32 0.25
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial revenue (1) 409,240 258,521 175,703
----------------------------------------------------------------------------
Adjusted operating income (1) 161,538 107,121 71,838
----------------------------------------------------------------------------
After tax adjusted operating
income (1) 143,478 87,173 55,445
----------------------------------------------------------------------------
Income before taxes 97,942 (37,599) 53,072
----------------------------------------------------------------------------
Net income 104,433 (4,656) 47,064
----------------------------------------------------------------------------
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Total assets 25,163,345 23,572,478 11,290,502
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Net investment in finance
receivables 16,199,530 15,174,976 7,749,260
Equipment under operating leases 4,126,553 3,991,195 1,279,670
Investment in managed fund 143,936 138,788 -
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Total earning assets 20,470,019 19,304,959 9,028,930
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total finance assets 21,835,861 20,482,756 9,745,659
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----------------------------------------------------------------------------
New originations 2,544,870 1,889,951 1,665,765
----------------------------------------------------------------------------
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Finance receivables and equipment
under operating lease from
acquisitions (2) - 7,785,499 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Secured borrowings 17,862,038 16,576,204 7,751,395
Convertible debentures 836,472 831,916 303,147
----------------------------------------------------------------------------
Total debt 18,698,510 17,408,120 8,054,542
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Average finance receivables (1) 15,589,686 10,808,794 7,396,499
Average equipment under operating
leases (1) 3,906,412 2,051,627 1,146,887
Average investment in managed fund 140,736 136,819 -
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Average earning assets (1) 19,636,834 12,997,240 8,543,386
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average debt outstanding (1) 17,803,601 11,645,733 7,536,131
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----------------------------------------------------------------------------
Number of shares outstanding
(including special warrants) 386,135 385,798 264,059
Weighted average number of shares
outstanding (including special
warrants) (basic) 385,930 305,073 264,057
Total shareholders' equity 5,717,555 5,377,345 2,830,951
Average common shareholders'
equity (1) 4,857,497 3,500,993 2,406,023
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Earnings per share (basic) 0.25 (0.04) 0.16
Earnings per share (diluted) 0.24 (0.04) 0.15
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For additional information, see "Description of Non-IFRS Measures"
(1) section.
Three months ended September 30, 2015, relates to the estimated fair
value assigned to finance receivables equipment under operating lease
(2) from the acquisition of the GE Fleet Operations on August 31, 2015 and
September 30, 2015.
The following table summarizes key operating ratios as at and for the three months ended:
As at and for the three-months ended
----------------------------------------------------------------------------
December 31, September 30, December 31,
2015 2015 2014
----------------------------------------------------------------------------
Leverage ratios
Standard Leverage (2) (3)
- Financial leverage ratio 3.27 3.24 2.85
- Average financial leverage
ratio 3.30 2.89 2.72
Bank Covenant (2) (4)
- Tangible leverage ratio 4.57 4.53 3.72
- Average tangible leverage
ratio 4.72 3.59 3.60
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Other ratios and yields
Allowance for credit losses as a
percentage of finance
receivables (2) 0.19% 0.15% 0.20%
Annualized credit loss provision
as a percentage of average
finance receivables (2) 0.19% 0.17% 0.12%
Portfolio average remaining life
(in months, excluding equipment
under operating leases) (2) 24.9 24.2 24.8
Adjusted operating income on
average common shareholders'
equity (2) 12.57% 11.22% 10.93%
Adjusted operating income on
average earning assets (2) 3.30% 3.30% 3.36%
After-tax adjusted operating
income on average common
shareholders' equity (2) 11.08% 8.94% 8.20%
After-tax adjusted operating
income on average earning assets
(2) 2.92% 2.68% 2.60%
Book value per share $ 13.43 $ 12.56 $ 9.34
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(1) All are ratios presented on an annualized basis.
(2) For additional information, see "Description of Non-IFRS Measures"
section.
(3) Financial leverage ratio is computed as total debt (the sum of secured
borrowings and extendible convertible debentures) divided by total
shareholders' equity.
(4) Computed under bank covenant.
Annual Selected Financial Information and Financial Ratios
The following table summarizes key financial data as at and for the year ended December 31, 2015:
As at and
As at and As at and As at and As at and for the
for the for the for the for the nine-months
year ended year ended year ended year ended ended
----------------------------------------------------------------------------
December December December December December
31, 31, 31, 31, 31,
2015 2014 2013 2012 2011
(in $000's for $ $ $ $ $
stated values,
except ratios and
per share amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
After tax adjusted
operating income
(loss) per share 1.08 0.57 0.34 0.14 (0.01)
(basic) (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Free operating cash
flows per share 1.33 0.76 0.47 0.19 (0.01)
(basic) (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial revenue
(1) 1,062,820 474,323 163,117 53,006 10,386
----------------------------------------------------------------------------
Adjusted operating
income (1) 435,813 189,470 65,261 14,910 (428)
----------------------------------------------------------------------------
After tax adjusted
operating income
(1) 359,576 148,385 47,680 10,941 (1,034)
----------------------------------------------------------------------------
Income before taxes 157,682 58,168 4,846 (11,370) (7,544)
----------------------------------------------------------------------------
Net income 174,431 54,069 (1,650) (6,420) (6,071)
----------------------------------------------------------------------------
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Total assets 25,163,345 11,290,502 3,454,653 1,508,892 416,715
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net investment in
finance receivables 16,199,530 7,749,260 2,739,445 1,300,003 231,183
Equipment under
operating leases 4,126,553 1,279,670 239,055 - -
Investment in
managed fund 143,936 - - - -
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Total earning assets 20,470,019 9,028,930 2,978,500 1,300,003 231,183
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total finance assets 21,835,861 9,745,659 3,002,283 1,314,617 231,537
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New originations 7,693,308 4,717,146 2,101,755 689,330 119,671
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance receivables
and equipment under
operating lease
from acquisitions
(2) 7,785,499 4,298,224 573,008 756,236 158,474
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----------------------------------------------------------------------------
Secured borrowings 17,862,038 7,751,395 1,893,910 989,128 172,517
Convertible
debentures 836,472 303,147 - - -
----------------------------------------------------------------------------
Total debt 18,698,510 8,054,542 1,893,910 989,128 172,517
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average finance
receivables (1) 10,734,243 5,027,425 1,879,729 629,485 168,099
Average equipment
under operating
leases (1) 2,250,018 861,497 14,049 - -
Average investment
in managed fund 72,581 - - - -
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Average earning
assets (1) 13,056,842 5,888,922 1,893,778 629,485 168,099
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average debt
outstanding (1) 11,840,871 4,779,722 1,381,880 453,356 119,624
----------------------------------------------------------------------------
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Number of shares
outstanding
(including special
warrants) 386,135 264,059 188,935 102,542 66,380
Weighted average
number of shares
outstanding
(including special
warrants) (basic) 305,230 225,289 138,423 78,132 33,302
Total shareholders'
equity 5,717,555 2,830,951 1,446,656 423,425 238,341
Average common
shareholders'
equity (1) 3,417,151 1,840,665 736,981 300,807 91,687
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Common share
dividends declared
per share 0.025 - - - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share
(basic) 0.47 0.16 (0.01) (0.08) (0.18)
Earnings per share
(diluted) 0.46 0.15 (0.01) (0.08) (0.18)
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(1) For additional information, see "Description of Non-IFRS Measures"
section.
(2) For December 31, 2015 -Fair value assigned to the finance assets from
the acquisition of GE Fleet Operations on August 31, 2015 and September
30, 2015.
The following table summarizes key operating ratios as at and for the year ended:
As at and for the year ended
----------------------------------------------------------------------------
December 31, December 31,
2015 2014
----------------------------------------------------------------------------
Leverage ratios
Standard Leverage (1) (2)
- Financial leverage ratio 3.27 2.85
- Average financial leverage ratio 3.05 2.25
Bank Covenant (1) (3)
- Tangible leverage ratio 4.57 3.72
- Average tangible leverage ratio 4.06 2.60
----------------------------------------------------------------------------
Other ratios and yields
Allowance for credit losses as a percentage of
finance receivables (1) 0.19% 0.20%
Annualized credit loss provision as a
percentage of average finance receivables (1) 0.17% 0.26%
Portfolio average remaining life (in months,
excluding equipment under operating leases)
(1) 24.9 24.8
Adjusted operating income on average common
shareholders' equity (1) 11.85% 9.26%
Adjusted operating income on average earning
assets (1) 3.34% 3.22%
After-tax adjusted operating income on average
common shareholders' equity (1) 9.61% 7.03%
After-tax adjusted operating income on average
earning assets (1) 2.75% 2.52%
Book value per share (1) $13.43 $9.34
----------------------------------------------------------------------------
(1) For additional information, see "Description of Non-IFRS Measures"
section.
(2) Financial leverage ratio is computed as total debt (the sum of secured
borrowings and extendible convertible debentures) divided by total
shareholders' equity.
(3) Computed under bank covenant.
Results of Operations - For the three months ended December 31, 2015, September 30, 2015 and December 31, 2014, and the twelve months ended December 31, 2015 and 2014
The following table sets forth a summary of the Company's results of operations for the three months ended December 31, 2015, September 30, 2015 and December 31, 2014 and twelve months ended December 31, 2015 and 2014:
For the three-month periods
ended For the year ended
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December September December December December
31, 30, 31, 31, 31,
2015 2015 2014 2015 2014
(in 000's for stated
values, except per unit
amounts) $ $ $ $ $
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Net Financial Income
Interest income 217,254 161,210 102,527 609,578 298,868
Rental revenue, net (1) 75,406 36,173 20,664 166,152 62,645
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Total interest income and
rental revenue, net 292,660 197,383 123,191 775,730 361,513
Interest expense 119,521 73,590 50,046 304,821 140,383
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Net interest income and
rental revenue, net
before provision for
credit losses 173,139 123,793 73,145 470,909 221,130
Provision for credit
losses 7,360 4,770 2,268 18,641 12,945
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Net interest income and
rental revenue, net 165,779 119,023 70,877 452,268 208,185
Management fees and other
revenues 123,940 65,908 54,780 305,731 125,755
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Net financial income 289,719 184,931 125,657 757,999 333,940
Operating Expenses
Salaries, wages and
benefits 70,386 45,251 32,835 186,051 91,251
General and
administration expenses 57,795 32,559 20,984 136,135 53,219
Amortization of debenture
synthetic discount 2,955 2,906 1,445 9,289 2,863
Share-based compensation 9,449 8,774 6,135 34,197 18,851
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140,585 89,490 61,399 365,672 166,184
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Business acquisition
costs
Amortization of
intangibles from
acquisition 16,445 4,972 7,840 31,362 10,447
Transaction and
integration costs 34,747 128,068 3,346 203,283 99,141
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51,192 133,040 11,186 234,645 109,588
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Net income before taxes 97,942 (37,599) 53,072 157,682 58,168
Tax expense (6,491) (32,943) 6,008 (16,749) 4,099
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Net income for the period 104,433 (4,656) 47,064 174,431 54,069
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Earnings per share
(basic) 0.25 (0.04) 0.16 0.47 0.16
Earnings per share
(diluted) 0.24 (0.04) 0.15 0.46 0.15
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(1) Rental revenue, net is equal to rental income earned on equipment under
operating leases, less depreciation on equipment under operating leases.
Overall Performance Highlights for the Three-Months Ended December 31, 2015
The Company's earning assets, consisting of the Company's net investment in finance receivables, equipment under operating leases and investment in managed fund, have grown substantially during the period to December 31, 2015 to $20,470.0 million from $9,028.9 million reported at December 31, 2014. The growth over December 31, 2014 is primarily due to the combined effect of the acquisition of the GE Fleet Operations in August and September 2015, which contributed $7,785.5 million of finance receivables and equipment under operating leases, total new originations for the year in the amount of $7,693.3 million, helped by the large contribution of the Trinity vendor program and origination volume contributed by PHH Arval, net of repayments, syndication activities, amortization of equipment under operating leases and changes in foreign exchange rates of $4,027.6 million. Please refer to note 26 of the Company's Consolidated Financial Statements as at and for the year ended December 31, 2015 for a detailed roll-forward of finance receivables and equipment under operating leases during the year.
Net income before income taxes for the three months ended December 31, 2015 was $97.9 million compared to a net income before income taxes of $53.1 million reported for the three months ended December 31, 2014 and net loss before income taxes of $37.6 million reported in the immediately preceding quarter. The loss in the immediately preceding quarter is the result of the transaction and integration costs incurred in the current quarter related to the acquisition of the GE Fleet Operations.
As indicated previously, management believes that adjusted operating income, a Non-IFRS Measure, 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 maintaining operating activities. Adjusted operating income for the three month period ended December 31, 2015 was $161.5 million, an increase of $89.7 million or 124.9% over the amount reported during the comparative quarter ended December 31, 2014 and an increase of $54.4 million or 50.8% over the amount reported during the immediately preceding quarter ended September 30, 2015. The increase over the comparative quarter ended December 31, 2014 and the immediately preceding quarter, is primarily the result of the acquisition of the GE Fleet Operations on August 31, 2015 and September 30, 2015, and of strong organic growth in the intervening periods.
As indicated previously, Management also believes that Free Operating Cash Flows and Free Operating Cash Flows per Share as described in the Non-IFRS Measures section of this MD&A are a key statistics to properly assess the operating performances of the Company to mostly reflect the substantial value being created by the very long deferral of cash income taxes and the investment value produced by that deferral. Thus, while the Company is reporting after-tax adjusted operating income per share (basic) of $0.35 for the three months ended December 31, 2015, free operating cash flows per share (basic) reaches $0.40, compared to $0.19 and $0.25, respectively, for the comparative three months ended December 31, 2014, and $0.26 and $0.32, respectively, for the immediately preceding quarter ended September 30, 2015.
Overall Performance Highlights for the Year Ended December 31, 2015
The Company's earning assets, consisting of the Company's net investment in finance receivables, equipment under operating leases and investment in managed fund, have grown substantially during the period to December 31, 2015 to $20,470.0 million from $9,028.9 million reported at December 31, 2014. The growth over December 31, 2014 is primarily due to the combined effect of the acquisition of the GE Fleet Operations in August and September 2015, which contributed $7,785.5 million of finance receivables and equipment under operating leases, total new originations for the year in the amount of $7,693.3 million, helped by the large contribution of the Trinity vendor program and origination volume contributed by PHH Arval and the GE Fleet Operations, net of repayments, syndication activities, amortization of equipment under operating leases and changes in foreign exchange rates of $4,027.6 million. Please refer to note 26 of the Company's Consolidated Financial Statements as at and for the year ended December 31, 2015 for a detailed roll-forward of finance receivables and equipment under operating leases during the year.
Net income before income taxes was $157.7 million for the year ended December 31, 2015 compared to $58.2 million for the prior year resulting from a substantial growth in total finance receivable and equipment under operating leases during the year from both organic originations and from the GE Fleet Operations acquisition net of an increase of $125.0 million from increased business acquisition costs related to the acquisition of the GE Fleet Operations during the third quarter of 2015.
As indicated previously, management believes that adjusted 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 maintaining operating activities. Adjusted operating income for the year ended December 31, 2015 was $435.8 million, an increase of $246.3 million or 130.0% over the amount reported during the comparative year ended December 31, 2014. The increase over the comparative period ended December 31, 2014 is primarily the result of the acquisition of the PHH Arval on July 7, 2014 and the GE US Fleet Operations during Q3 2015, and strong organic growth.
As indicated previously, Management also believes that Free Operating Cash Flows and Free Operating Cash Flows per Share as described in the Non-IFRS Measures section of this MD&A are key statistics to properly assess the operating performances of the Company to mostly reflect the substantial value being created by the very long deferral of cash income taxes and the investment value produced by that deferral. Thus, while the Company is reporting after-tax adjusted operating income per share of $1.08 for the year ended December 31, 2015, free operating cash flows per share reaches $1.33 per share, compared to $0.57 and $0.76, respectively, for the comparative year ended December 31, 2014.
Consolidated Financial Position
The following table sets forth a summary of the Company's consolidated financial position as of the dates presented:
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December 31, September 30, December 31,
2015 2015 2014
(in 000's for stated values,
except per unit amounts) $ $ $
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Cash 61,007 47,459 66,869
Restricted cash 619,870 466,540 443,238
Finance receivables 17,555,296 16,347,221 8,465,989
Equipment under operating leases 4,126,553 3,991,195 1,279,670
Investment in managed fund 154,012 144,340 -
Derivative financial instruments 18,114 15,831 5,746
Deferred tax assets 142,563 135,870 39,405
Other non-portfolio assets 2,485,930 2,424,022 989,585
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Total assets 25,163,345 23,572,478 11,290,502
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Accounts payable and accrued
liabilities 654,638 660,578 368,113
Secured borrowings 17,862,038 16,576,204 7,751,395
Convertible debentures 836,472 831,916 303,147
Derivative financial instruments 33,359 65,066 11,196
Deferred tax liabilities 59,283 61,369 25,700
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Total liabilities 19,445,790 18,195,133 8,459,551
Shareholders' equity 5,717,555 5,377,345 2,830,951
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Total liabilities and
shareholders' equity 25,163,345 23,572,478 11,290,502
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Element's audited financial statements and related management discussion and analysis as at and for the year ended December 31, 2015 have been filed on SEDAR (www.sedar.com).
About Element Financial Corporation
With total assets of $25.2 billion, Element Financial Corporation is one of North America's leading fleet management and equipment finance companies. Element operates across North America in four verticals of the equipment finance market (Fleet Management, Rail Finance, Commercial & Vendor Finance, and Aviation Finance) and in Australia and New Zealand in the Fleet Management business.
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, including, among others, statements regarding the integration and financial impact of the acquisition of various fleet management businesses from GE Capital, new originations in the current quarter, the anticipated pipeline of prospective transactions, and purchases of portfolios of finance assets. 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 Element, including risks regarding the equipment finance industry, economic factors, risks related to completion of the proposed purchases of portfolios of finance assets, and many other factors beyond the control of Element. 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. A discussion of the material risks and assumptions associated with this outlook can be found in Element's 2015 MD&A, and 2014 Annual Information Form, all of which have been filed on SEDAR and can be accessed at www.sedar.com. 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.
Contacts:
Element Financial Corporation
John Sadler
Senior Vice President
(416) 646-5689
jsadler@elementcorp.com
Element Financial Corporation
Michel Béland
Chief Financial Officer
(416) 646-5680
mbeland@elementcorp.com
