TORONTO, CANADA – November 10, 2015 – Difference Capital Financial Inc. (“DCF” or the “Company”) (TSX:DCF) (TSX:DCF.DB), today reports its unaudited financial results for the quarter ended September 30, 2015.
Third Quarter Highlights:
- Net gain from investments and marketable securities of $7.4 million compared to net loss of $9.6 million in the same quarter last year;
- Net income of $3.8 million or $0.11 per share compared to a net loss of $12.0 million or $0.31 per share in Q3 2014;
- Net asset value per share increased to $1.83 from $1.72 at June 30, 2015;
- The Company sold its majority interest in WG Ltd. (“World Gaming”), resulting in $6.3 million gain for the quarter;
- Cash at the end of September 30, 2015 was approximately $20 million;
- The Company announced a substantial issuer bid to repurchase $12.0 million principal amount of its 8% July 31, 2016 convertible debentures, which was fully taken up and paid for subsequent to quarter-end at a purchase price of $880 per $1,000 principal amount of the debentures plus accrued interest, resulting in cash outflow of $10.8 million;
- Subsequent to quarter-end, the Company sold its US$5.0 investment in convertible debentures of Infraredx, Inc. (“Infraredx”), for approximately the same amount.
“We made significant progress this quarter in strengthening and positioning the portfolio for growth,” states Tom Astle, Chief Investment Officer of DCF. “The recent sale of World Gaming and Infraredx significantly reduced our exposure to earlier-stage holdings and boosted our cash position. Many of our later-stage investments continue to progress well and our IPO capable and public positions now represent over 55% of the portfolio. While capital markets have cooled somewhat, they remain open and M&A opportunities continue to look strong.”
“I am very pleased by the initiatives we have taken to address the particularly challenging investment files this team inherited in the summer of 2014,” says Henry Kneis, Chief Executive Officer of DCF. “We have stabilized the portfolio, and I feel highly confident about our current valuations and the opportunities to realize positive monetizations going forward. Our most challenging privately held investments now represent in aggregate only 5% of assets.”
“We continue to prudently manage our liquidity and, where desirable, de-lever our balance sheet,” Mr. Kneis adds. “To date, we have repurchased a total of $20.5 million, or 37%, of our original $56.1 million principal amount of convertible debentures issued, leaving us with $35.6 million debentures currently outstanding. By making these debenture repurchases at a discount to maturity value, DCF has earned a cumulative gain of $3.1 million. The Company has also saved an aggregate of $5.2 million in interest costs that it would have otherwise incurred over the remaining term to maturity of such debentures. Management and the board of directors are committed to dealing with the remaining debentures in a manner that is non-dilutive to shareholders, and we still have 2 ¾ years in which to do so. As of today’s date, cash plus distribution receivable from World Gaming remains at a strong level of over $19 million, even after the recent significant debenture repurchase.”
|(figures are in $’000 except per share amounts and shares outstanding)||Q3 2015||Q2 2015||Q3 2014|
|Net realized gain (loss) on investments and marketable securities||$(19,248)||$346||$340|
|Net unrealized gain (loss) on investments and marketable securities||26,650||(1,925)||(9,958)|
|Net income (loss)||3,823||(5,231)||(12,046)|
|Basic and fully diluted earnings per share||$0.11||$(0.14)||$(0.31)|
|Net asset value||65,817||61,994||91,998|
|Net asset value per share||$1.83||$1.72||$2.40|
Third Quarter Financial Results
Net income for the quarter ended September 30, 2015 was $3.8 million, or $0.11 per share, compared to a net loss of $12.0 million, or $0.31 per share, for the quarter ended September 30, 2014 and a net loss of $5.2 million, or $0.14 per share, for the quarter ended June 30, 2015.
During the quarter, World Gaming, a DCF portfolio company, sold its operational assets to Cineplex Inc. (“Cineplex”). As part of the transaction, Cineplex paid US$10 million to acquire the assets in exchange for 80% ownership of the new company, and will invest an additional US$5 million to expand the business model. In connection with the transaction, DCF expects to receive approximately $6.6 million, net of transaction costs. In addition, DCF will continue to hold a small indirect equity interest in the new company going forward. The transaction resulted in a net overall gain for the Company during the quarter, shown as a net change in unrealized appreciation offset by realized capital losses, as further discussed below.
For the three months ended September 30, 2015, the Company recognized $19.2 million of net realized capital losses, primarily from the World Gaming transaction. During the same period last year, net realized gains on investments and marketable securities were $0.3 million.
The Company recorded $26.7 million of net unrealized gain on investments and marketable securities during the third quarter of 2015, compared to $10.0 million of net unrealized loss in the third quarter of 2014. The net unrealized gain recorded during the quarter was primarily due to the reversal of previously unrealized loss on its investment in World Gaming that was realized when it was sold. In addition, the Company marked up its investments in Infraredx, based on the expected proceeds from the sale of Infraredx debentures subsequent to quarter-end, and Ethoca, based on the valuation established from the most recent round of financing completed by Ethoca. These gains were partially offset by mark-downs on some of our early-stage private investments.
Other income decreased from $2.2 million for the three months ended September 30, 2014 to $0.6 million for the three months ended September 30, 2015. The decrease in other income was primarily due to lower interest and dividend income totaling $0.6 million, down from $1.6 million in the same period of 2014, due to smaller holdings of convertible debentures and debentures.
Total expenses during the quarter ended September 30, 2015 were $4.2 million compared to $4.6 million for the quarter ended September 30, 2014. Included in total expenses during the quarter was a non-recurring $1.4 million transaction cost related to the World Gaming sale. Similarly, total expenses in the same period last year were also impacted by non-recurring professional fees associated with Diversified Royalty Corp. (formerly known as Benev Capital Inc.) and the Lignol Energy Corporation receivership proceedings.
Please refer to the section regarding forward-looking statements which form an integral part of this release. The unaudited financial statements and Management’s Discussion and Analysis for September 30, 2015, are available on the Company’s website at http://www.differencecapital.com and on SEDAR at http://www.sedar.com.
About Difference Capital Financial Inc.
Difference Capital Financial Inc. invests in and advises growth companies. We leverage our capital market expertise to help unlock value in technology, media and healthcare companies as they approach important milestones in their business lifecycle. Difference Capital Financial Inc.’s common shares and convertible debentures are traded on the Toronto Stock Exchange under the symbols “DCF” and “DCF.DB,” respectively.
Caution Regarding Forward-Looking Statements
Certain statements contained in this press release may be deemed “forward-looking statements.” Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” “projects,” “potential,” “scheduled,” and similar expressions, or that events or conditions “will,” “would,” “may,” “could” or “should” occur. Although DCF believes that the expectations reflected in those forward-looking statements are reasonable, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon. These statements speak only as of the date of this press release. DCF undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable law.
 Net asset value is a non-IFRS financial measure and is calculated by subtracting the aggregate fair value of the liabilities of the Company from the aggregate fair value of the assets divided by the number of common shares outstanding as at a specific date. The term net asset value per share does not have any standardized meaning according to IFRS and therefore may not be comparable to similar measures presented by other companies.