Counsel Announces 2012 Fiscal Year Results Revenues Increase 75% Over 2011 11 hours ago
TORONTO, March 28, 2013 /CNW/ - Counsel Corporation ("Counsel" or the "Company") (TSX: CXS), a financial services company, today announced net income attributable to shareholders of $10.0 million, or $0.12 per basic and $0.11 per diluted share, for the fiscal year ended December 31, 2012 compared to $25.5 million, or $0.32 per basic and $0.30 per diluted share, in fiscal 2011. 2012 net income attributable to shareholders, excluding a $5.7 million impairment charge taken on the Company's case goods business segment in the fourth quarter, was $14.1 million, or $0.17 per basic and $0.16 per diluted share. For the fourth quarter of 2012, Counsel had net income of $0.7 million ($4.7 million excluding the goodwill impairment charge), or $0.01 ($0.06 excluding the goodwill impairment charge) per basic and diluted share, compared to $23.0 million, or $0.21 per basic and $0.20 per diluted share, in the same period of 2011. Counsel recorded revenues of $32.4 million and $139.5 million for the three and twelve month periods ended December 31, 2012, respectively, compared to $32.3 million and $79.8 million for the respective corresponding periods ended December 31, 2011. All amounts are stated in Canadian dollars, unless noted.
The decrease in net income in both the fourth quarter and full year fiscal 2012 was primarily due to an income tax recovery of $26.3 million recorded in the fourth quarter of fiscal 2011, compared to a recovery of $5.3 million in the fourth quarter of fiscal 2012, as well as the goodwill impairment charge noted above.. (Income from continuing operations before fair value adjustments and income taxes was $10.6 million in fiscal 2012 compared to $2.8 million in 2011.) The year-over-year increase in Counsel's revenues in fiscal 2012 was primarily attributable to having a full year of contributions from Counsel's residential mortgage lending business, Street Capital Financial Corporation ("Street Capital"), which was acquired on May 31, 2011. The mortgage lending business made up approximately 80% of Counsel's 2012 revenues.
"2012 was an exceptional year for Counsel's mortgage lending business," said Allan Silber, Chairman and CEO of Counsel Corporation. "Street Capital sold almost 40% more mortgages than in 2011 and is now one of the top lenders working through the mortgage broker channel. Additionally, the size of its mortgage portfolio increased by 60% during the year, which is an important measure of future success and profitability as the business benefits from higher margin mortgage renewals when its portfolio matures. Looking ahead, we expect to see mortgage renewals grow in importance as Street Capital launched its current business approximately five years ago, which corresponds to the length of term for the bulk of its mortgage loans.
Mortgage Lending Business
Counsel carries on its mortgage lending business through its wholly owned subsidiary Street Capital. The company sources its mortgages solely through a network of independent, high quality mortgage brokers across Canada with whom it has built relationships. The company offers a broad lineup of high ratio and conventional mortgages, predominantly to prime borrowers, and sells the mortgages it underwrites to top-tier financial institutions. Business revenues are almost entirely from the gain on sale of mortgages.
The business generated $17.7 million in after tax income from continuing operations on $111.3 million in revenues in 2012 compared to $8.2 million on $51.8 million in revenues in 2011 (the period from June 1 to December 31, 2011 following its acquisition by Counsel).
The business originated and sold $1.6 billion and $6.0 billion of mortgages in the three and twelve months ended December 31, 2012, compared to $0.6 billion and $3.7 billion in the respective corresponding periods in 2011. The business increased its portfolio of mortgages under administration to $12.0 billion as at December 31, 2012, compared to $10.7 billion at September 30, 2012 and $7.5 billion at December 31, 2011.
In December 2012, Street Capital applied to Canada's Minister of Finance for approval to operate as a federally regulated Schedule I bank with its banking business primarily focused on residential mortgage lending as well as allowing it to expand into consumer lending and related services. Street Capital's application requires approvals from the Office of the Superintendent of Financial Institutions (OSFI) and the Minister of Finance and there is no assurance these will be received. As was noted when the company announced its intention to file the application in September, it is expected the application process will take an extended period of time, likely at least two years. If approved, the bank will carry on business in Canada under the name of Street Capital Bank of Canada in English and Street Capital Banque du Canada in French with its head office being located in Toronto.
In April, 2012, Street Capital entered the near prime segment of the Canadian residential mortgage market, which is comprised of borrowers, such as the self-employed and new immigrants, who may be unable to obtain financing through traditional sources. Near prime mortgages offer potentially higher profit margins as the company can charge higher interest rates than on prime mortgages along with an acceptance fee. The company's strategy is to prudently expand this business over time, but it expects its prime business will account for the vast majority of mortgages originated for the foreseeable future.
Asset Liquidation Business
Counsel's asset liquidation business is carried on by Counsel's 71.3%-owned publically traded subsidiary, Counsel RB Capital Inc. ("CRBCI") through its subsidiaries: Counsel RB Capital LLC ("Counsel RB"), EP USA, LLC ("Equity Partners") and Heritage Global Partners, Inc. ("HGP"). Counsel RB acquires and disposes of distressed and surplus manufacturing facilities primarily in the United States and Canada. HGP, acquired at the end of February 2012, provides industrial auction and asset appraisal services globally. Equity Partners provides M&A advisory services and other advice, arranges for funding in the form of debt refinancing and equity investments, and organizes both going concern and liquidation sales of business assets.
In 2012, income from continuing asset liquidation operations was $1.1 million on $16.1 million in revenues, compared to $5.0 million on $18.9 million in revenues in 2011. 2012 revenues were comprised of the proceeds of asset sales of $7.9 million (2011 - $14.3 million), earnings from equity accounted joint ventures of $2.0 million (2011 - $2.1 million) and commissions and fees of $6.2 million (2011 - $2.5 million). The decrease in revenues in 2012 was primarily due to the sale of a paper mill in New Hampshire in the second quarter of 2011, a significant transaction recorded in asset sales, partially offset by higher commissions and fees in 2012 stemming from the acquisition of HGP in February, 2012. The decrease in income from continuing operations in 2012 was primarily due to higher SG&A expenses, comprised primarily of additional personnel expenses from the acquisition and integration of HGP and costs stemming from the international expansion of the business in order to create additional global opportunities. On October 1, 2012, the business opened three new European-based offices in the UK, Germany and Spain, all led by seasoned industry veterans with expertise in the field of surplus capital asset valuations and dispositions on behalf of many European-based subsidiaries of global entities. These investments were necessary for HGP to successfully compete for forward flow accounts from large, global companies for the disposition of their surplus assets.
On December 31, 2012, Counsel's management contract with Terra Firma Capital Corporation ("Terra Firma") (TSX-V:TII.V - News) ended, pursuant to the Company's announcement in September, 2012 that it was terminating the contract effective at the end of the calendar year. The decision is consistent with Counsel's strategy to focus on its financial services business. Subsequent to year end in January, 2013, the Company paid a special dividend-in-kind (valued at approximately $1.9 million) of its entire holding of common shares in Terra Firma, which represented an approximately 20% stake. Counsel founded Terra Firma in 2007 and was its Manager from the time it began commercial operations in 2008 until December 31, 2012. During this time, Counsel took Terra Firma public and grew it into a profitable real estate finance company.