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Counsel Announces Third Quarter 2012 Results

Monday, November 12, 2012 5:41 PM

Revenues Increase 40%

TORONTO, Nov. 12, 2012 /CNW/ - Counsel Corporation ("Counsel" or the "Company") (TSX: CXS), a financial services company, today announced net income attributable to shareholders of $1.9 million, or $0.02 per basic and diluted share, for the third quarter of 2012 compared to $3.1 million, or $0.04 per basic and diluted share, for the same period in 2011. For the nine months ended September 30, 2012, Counsel had net income of $9.3 million, or $0.11 per basic and diluted share, compared to $2.5 million, or $0.03 per basic and diluted share, in the same period of 2011. The Company recorded revenues of $36.9 million and $107.0 million for the three and nine month periods ended September 30, 2012, respectively, compared to $26.3 million and $47.5 million for the three and nine month periods ended September 30, 2011, respectively. All amounts are stated in Canadian dollars, unless noted.

The significant year-over-year increase in Counsel's revenues and income for the nine months ended September 30, 2012 was primarily attributable to having a full period of contributions from Counsel's mortgage lending business, Street Capital Financial Corporation ("Street Capital"), which was acquired on May 31, 2011. The mortgage lending business has made up approximately 80% of Counsel's year-to-date revenues.

Mortgage Lending Business

Street Capital generated $4.9 million in income from continuing operations in the third quarter of 2012 on $28.9 million in revenues compared to $3.5 million on $19.9 million revenues in the same period of 2011. For the nine months ended September 30, 2012, Street Capital had $16.2 million in income from continuing operations on $85.0 million in revenues (a comparative period is not available as Street Capital was only acquired May 31, 2011). For the three and nine months ended September 30, 2012, Street Capital generated earnings before interest, depreciation, amortization and income taxes of $6.8 million and $22.8 million, respectively.

The company originated and sold $1.7 billion and $4.4 billion of mortgages in the three and nine months ended September 30 (it sold $3.7 billion in the full year 2011), and is now among the top mortgage underwriters operating through the broker channel in Canada. Street Capital increased its portfolio of mortgages under administration to $10.7 billion as at September 30, 2012, compared with $9.5 billion at June 30, 2012 and $6.5 billion at September 30, 2011.

"We are excited about the growth of Street Capital's mortgage portfolio, which has increased about 65% over the past year," said Allan Silber, Counsel's Chairman and CEO. "As this portfolio matures, Street Capital will also be able to benefit from higher margin mortgage renewals."

In September 2012, Street Capital announced its intention to apply 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 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. The company expects 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.

Asset Liquidation Business

Counsel's asset liquidation business is carried on by wholly owned subsidiaries of Counsel's 71.3%-owned publically traded subsidiary, Counsel RB Capital Inc. ("CRBCI"): Counsel RB Capital LLC ("Counsel RB"), EP USA, LLC ("Equity Partners") and Heritage Global Partners, Inc. ("HGP").

In the third quarter of 2012, loss from continuing operations from the asset liquidation business was $0.7 million on $3.2 million in revenues, compared to income from continuing operations of $2.1 million on $2.6 million in revenues in the same quarter in 2011. The increase in revenues is primarily due to a significant increase in commission and fee revenue, stemming from CRBCI's acquisition of its industrial auction division, HGP, in February, 2012. The decrease in income from continuing operations is primarily due to higher SG&A expenses related to additional costs from the acquisition and integration of HGP, costs stemming from the expansion of the business to Latin America and Europe, and a one-time expense of approximately $1.0 million as a result of the issuance of 800,000 shares of CRBCI to its Co-CEOs as consideration for an exclusive, perpetual license to use their names in connection with CRBCI and its affiliates. Also, an income tax recovery of $1.2 million was recorded by the segment in the third quarter of 2011 compared to a recovery of $0.6 million in the third quarter of 2012.

For the nine months ended September 30, 2012, income from continuing operations was $0.3 million on $11.4 million in revenues, versus $4.8 million in income from continuing operations on $16.3 million in revenues in the same period of 2011. The higher revenues in 2011 were mainly due to a significant asset liquidation transaction in the second quarter, specifically the sale of a paper mill in New Hampshire. Asset liquidation earnings in 2012 have been impacted by the incremental costs associated with the integration of HGP and the investment in international expansion (as described below); however, recurring benefits from these initiatives are expected to positively impact future operating results.

In July 2012, CRBCI and HGP entered into an exclusive agreement with Asset Remarketing S. De R.L. de C.V. ("Asset Remarketing") to form a strategic alliance that expands the companies' worldwide operations into key Latin American markets. Asset Remarketing specializes in the monetization of manufacturing assets and related real estate throughout Latin America with branches in Mexico, Costa Rica, the Dominican Republic and Venezuela amongst several others.  On October 1, 2012, CRBCI and HGP opened Heritage Global Partners Europe with 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.


In September 2012, Counsel announced its intention to end its management contract with Terra Firma Capital Corporation ("Terra Firma") (TSX-V: TII) effective December 31, 2012. The decision is consistent with Counsel's strategy to focus on its key operating business platforms: its residential mortgage lending business and asset liquidation business. In addition, the Company decided to distribute its 20.2% shareholding of Terra Firma to shareholders, which meant that the investment had to be reclassified as "held for sale" and recorded at fair value. As a result of the reclassification, the Company recorded a fair value impairment of $0.4 million in the third quarter of 2012 compared to a fair value appreciation in the third quarter of 2011 of $3.6 million. The prior period's fair value appreciation was due to a $3.6 million appreciation in the Company's private equity portfolio, primarily from a foreign exchange gain.

On November 8, 2012, the Company announced a special dividend to shareholders of Counsel of the 6.1 million Terra Firma shares that it owns, which will be paid on January 1, 2013 to Counsel's shareholders of record on December 3, 2012.

Counsel's Management's Discussion and Analysis and Financial Statements for the quarter and nine months ended September 30, 2012 have been filed and will be available on SEDAR (www.sedar.com).

About Counsel Corporation (www.counselcorp.com)

Counsel Corporation (TSX: CXS) is a financial services company that operates through its individually branded businesses in residential mortgage lending, distressed and surplus capital asset transactions and private equity investment.

Forward-Looking Statements

The statements made in this release that are not historical facts contain forward-looking information that involves risks and uncertainties. All statements, other than statements of historical facts, which address Counsel Corporation's expectations, should be considered as forward-looking statements. Such statements are based on knowledge of the environment in which Counsel Corporation currently operates, but because of the factors listed herein, as well as other factors beyond Counsel Corporation's control, actual results may differ materially from the expectations expressed in the forward-looking statements. Important factors that may cause actual results to differ from anticipated results include, but are not limited to, obtaining necessary approvals and other risks detailed from time to time in the Company's securities and other regulatory filings.

Condensed Consolidated Interim Statements of Financial Position
As at September, 2012 and December 31, 2011
(in thousands of Canadian Dollars) (Unaudited)

  Three months ended September 30,   Six months ended September 30,
Revenues 36,884 26,271   107,012 47,509
  Operating costs 21,098 15,027   60,877 29,010
  Selling, general and administrative expense 12,380 7,646   30,365 16,579
  Foreign exchange (gain) loss (119) (64)   (64) (37)
  Depreciation and amortization 604 260   1,356 315
  Interest expense  866 827   2,521 1,717
  Other  4 (5)   (270) (20)
  34,833 23,691   94,785 47,564
Income (loss) before fair value adjustments 2,051 2,580   12,227 (55)
Fair value adjustments  (415) 3,564   756 1,540
Income before income taxes and discontinued operations 1,636 6,144   12,983 1,485
Income tax provision (recovery) 571 (168)   3,428 (1,576)
Income from continuing operations 1,065 6,312   9,555 3,061
Less: Income (loss) attributable to non-controlling interest (699) 3,182   326 755
Income attributable to shareholders 1,764 3,130   9,229 2,306
Income from discontinued operations  91 16   102 195
Less: Income attributable to non-controlling interest - -   - 33
Income attributable to shareholders 91 16   102 162
Net income attributable to shareholders 1,855 3,146   9,331 2,468
Basic and diluted net income per share :          
  Continuing operations 0.02 0.04   0.11 0.03
  Discontinued operations 0.00 0.00   0.00 0.00
Basic and diluted net income per share  0.02 0.04   0.11 0.03
Weighted average number of common shares          
outstanding (in thousands) - basic  and diluted 85,783 85,138   85,433 79,075


The notes contained in the Company's condensed consolidated interim financial statements are an integral part of these statements.

Condensed Consolidated Interim Statements of Operations
For the three months and nine months ended September 30, 2012 and 2011
(in thousands of Canadian Dollars, except per share amounts)

    September 30,
  December 31,
  Current assets        
    Cash and cash equivalents    16,721   15,212
    Marketable securities    113   255
    Mortgages, accounts and deferred interest receivable    23,415   15,643
    Inventory   2,626   3,197
    Prepaid expenses, deposits and deferred charges   6,919   2,262
    Investment held for sale   2,093   -
    Income tax receivable   53   -
    Assets of discontinued operations   116   180
    52,056   36,749
Non-current assets        
    Deferred interest receivable    15,335   12,483
    Deferred charges   23,338   15,880
    Investment properties   3,918   -
    Properties under development    6,750   11,502
    Property, plant and equipment    3,360   3,502
    Interests in joint ventures   1,743   3,514
    Investment in associates   19   2,482
    Portfolio investments   50,845   47,460
    Intangible assets   11,496   6,654
    Goodwill   49,475   44,844
    Deferred income tax assets   26,747   29,271
    Other assets   65   67
Total assets   245,147   214,408
  Current liabilities        
    Accounts payable and accrued liabilities    30,112   21,441
    Customer deposits   201   1,641
    Income taxes payable    -   284
    Current portion of mortgages and loans payable    16,666   8,728
    Liabilities of discontinued operations    589   629
    47,568   32,723
Non-current liabilities        
    Mortgages and loans payable    17,181   20,035
    Convertible debenture   11,926   11,893
    Contingent consideration   11,842   10,715
    Deferred income tax liabilities    8,498   4,463
    Derivative liability   47   131
    Other liabilities   844   2,353
Total liabilities   97,906   82,313
Shareholders' equity    147,241   132,095
Total liabilities and shareholders' equity   245,147   214,408

The notes contained in the Company's condensed consolidated interim financial statements are an integral part of these statements.



SOURCE: Counsel Corporation

Counsel Corporation
Stephen Weintraub
EVP, Secretary & CFO
Tel: (416) 866-3058

The Equicom Group
Tim Foran
Tel: (416) 815-0700 ext. 251

(Source: CNW )
(Source: Quotemedia)


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