CALGARY, ALBERTA--(Marketwired - Nov. 8, 2013) -
NOT FOR DISTRIBUTION IN THE UNITED STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW.
Alaris Royalty Corp. ("Alaris" or the "Corporation") (TSX:AD) is pleased to announce the following; (i) a $30,000,0000 contribution to a new Private Company Partner (as defined herein); (ii) an additional US$5,600,000 contribution to Agility Health, LLC; (iii) an operational update relating to its distribution from SHS Services Management LP ("SHS") and; (iv) additions to the Alaris executive team. The net effect of today's announcements is an increase in net cash from operating activities of approximately $0.09 per basic share.
(i) Contribution of $30,000,000 to a New Private Company Partner
Alaris has entered into a subscription agreement and an amended and restated partnership agreement (the "Partnership Agreement") in respect of the S.M. Group International LP / Le Groupe S.M. International s.e.c. (the "S.M. Group LP") pursuant to which Alaris contributed $30,000,000 to the S.M. Group LP (the "S.M. Contribution"). Pursuant to the Partnership Agreement, Alaris made the S.M. Contribution in exchange for a pre-tax annual preferred distribution of $4,800,000 (the "S.M. Distribution") for the first full year after the S.M. Contribution, which represents an expected initial pre-tax return of 16.0%. The S.M. Distribution will be prorated for the remainder of 2013. Commencing on January 1, 2015, the S.M. Distribution will be adjusted annually based on the percentage change in net revenue from the previous fiscal year, subject to a collar of 6%. Closing of the S.M. Contribution took place on November 8, 2013 and was funded with the Corporation's revolving credit facility (the "Facility").
The S.M. Group is a privately owned company founded in 1972 which specializes in the delivery of integrated scientific, engineering and IT solutions dedicated to the areas of buildings, energy, energy efficiency, environment, industry, infrastructure, natural resources, power, security, telecommunications and materials testing. In addition, the S.M. Group operates microbiological and chemical analysis labs in the areas of environmental protection, agriculture, food security and their manufacturing processes, as well as cosmetics and certain pharmaceutical industry products.
Active in more than 30 countries, the S.M. Group has over 1,600 professionals and specialists who are dedicated to delivering innovative and fully integrated solutions to a broad scope of clients including local corporations, multinationals, institutions, as well as government bodies at every level, and state owned enterprises. More information about the S.M. Group can be found on its website at www.groupesm.com.
"We are very pleased to have the S.M. Group as our thirteenth partner. S.M. has shown a long track record of stable cash flow and is very well diversified both in the services it provides, as well as geographically, with operations around the world," said Steve King, President and CEO, Alaris Royalty Corp. "The application of scientific and engineering solutions is a required service and the S.M. Group has shown the ability to operate successfully across a large cross section of industries for hundreds of clients and in more than a dozen countries. For Alaris shareholders, the S.M. Group contribution represented an opportunity to add to our diversification by partnering with a company in an industry we are currently not exposed to. The transaction also adds to our continuing track record of growth in net operating cash flow."
(ii) Additional Contribution of US$5,600,000 to Agility Health, LLC
Alaris is also pleased to announce that it has contributed an additional US$5,600,000 to Agility Health, LLC ("Agility") in exchange for an additional annual distribution in the first full year following the contribution of US$896,000 (the "Additional Agility Contribution" and "Additional Agility Distribution" respectively). The Additional Agility Contribution closed on Oct 24, 2013 with the proceeds being used by Agility to make an acquisition of a provider of cost-containment solutions to leading employers through an array of worksite-based injury prevention and management programs. Total capital contributed to Agility is now US$18,100,000 with annualized distributions now equal to US$2,896,000. The Additional Agility Contribution was funded with Alaris' Facility.
(iii) Operational Update Regarding SHS Services Management LP
Alaris has been working with SHS and Sears Canada ("Sears") on solutions to deal with operational issues SHS has had over the last several months. The transition of taking over the Sears Home Services business has been more challenging and expensive than management of SHS had originally forecast. As a result, both Sears and Alaris have provided temporary financial solutions to help SHS through this transition period.
Part of the temporary financial solution included Alaris foregoing its monthly distribution payment of $208,333 from SHS (the "SHS Distribution") for a period of five months from September 2013 through the January 2014 payment (the "Foregone SHS Distributions") as well as providing a short-term loan of $2,000,000 (the "SHS Loan)(collectively the "Financial Concessions"). In February 2014, assuming SHS has the ability to begin to pay the SHS Distribution, Alaris will start receiving the SHS Distribution again at that time. The SHS Loan was for working capital purposes and is secured against certain assets of SHS. Alaris will collect 7% interest on the SHS Loan while it is outstanding.
As a result of the Financial Concessions Alaris is providing to SHS, the ceiling portion of the 6% collar will be removed from the annual SHS Distribution reset to ensure Alaris has the opportunity to earn back the revenue from the Foregone SHS Distributions. By removing the upper limit of the collar, Alaris would get the full benefit from a turnaround in the sales of SHS when it calculates its annual SHS Distribution reset. Furthermore, the Corporation will receive a 10% net profits interest in SHS, effective from the date SHS generates net profits, as another mechanism to make up for the Financial Concessions Alaris has provided SHS.
The reduction of annual SHS Distributions as a result of the Foregone SHS Distributions equates to approximately $1,040,000 of the $2,500,000 Alaris expected to collect from SHS over the first 12 months following the original contribution. The $1,040,000 of reduced revenue to Alaris is not considered material to Alaris' cash flow and will not affect its dividend payment to its shareholders.
"Alaris prides itself in being a valued long term partner to our private company partners. While SHS has had a difficult transition period relating to the takeover of the national home service business from Sears Canada, the short term concessions from Sears and Alaris will provide SHS the flexibility and time needed to implement its remaining initiatives, which have already begun to be put in place by management of SHS. While any disruption in a distribution stream is difficult, we view this as an important decision for our long term cash flow stream from SHS," said Steve King, President and CEO, Alaris Royalty Corp.
(iv) Executive Placements
Alaris is also pleased to announce the addition of Ms. Amanda Frazer, CA as Vice President Investments and Mr. Michael (Mike) Ervin, LLB as Vice President Legal to the management team. The Corporation has also promoted Ms. Rachel Colabella, LLB, to Chief Legal Officer and Corporate Secretary as well as Mr. Curtis Krawetz to Vice President Investments and Investor Relations.
"Amanda and Mike will add considerably to our management team. Alaris' unique business model has generated rapid growth, particularly over the last three years. Having additional expertise both in the financial due diligence as well as the legal departments will increase our ability to continue with this growth as well as prudently manage our current assets. Alaris has known both of these individuals for several years as they have worked for two of our trusted service providers, so the fit with our company is ideal both from a professional and personal point of view. We welcome Mike and Amanda to the Alaris family," said Steve King, President and CEO, Alaris Royalty Corp.
Ms. Frazer was most recently Senior Manager at EY Transaction Advisory Services where she provided assurance and transaction advisory services to both buy and sell side clients. Amanda has worked on many of the due diligence files for Alaris as an advisor and will strengthen Alaris' internal due diligence process as well as the process of monitoring operational performance of current Private Company Partners. Amanda has been a Chartered Accountant in Canada since 2008 and earned a Bachelor of Applied Business Administration, with a major in accounting, from Mount Royal University.
Mr. Ervin comes to Alaris from the law firm Burnet, Duckworth & Palmer LLP ("BDP") where he worked as a corporate lawyer in BDP's Securities and Mergers and Acquisition group for over 7 years. Mike's practice included advising clients, including Alaris, on public and private financings, mergers and acquisitions, corporate governance matters and general corporate matters. Mike received his Bachelor of Business Administration (with distinction) from the University of Regina in 2003 and his Bachelor of Laws (with distinction) from the University of Alberta in 2006 and was called to the Alberta Bar in 2007.
Net Effect on Alaris' Income Statement and Balance Sheet
The net effect of the S.M. Contribution, Additional Agility Contribution and the Financial Concessions provided to SHS (collectively the "Partner Updates") is a net increase in annualized revenue of approximately $4,700,000, an increase in expenses of approximately $2,200,000 as a result of the increase in interest expense on the debt outstanding following the Partner Updates as well as a slight increase in taxes payable on the increased U.S. income from the Addition Agility Contribution. The net result is an increase in net cash from operating activities of approximately $2,500,000 over the next 12 month period, approximately $0.09 on a per basic share basis. We are estimating our payout ratio to be approximately 77% based on our annualized dividend per share of $1.44 and 28,694,000 basic shares outstanding. Alaris will have approximately $36,000,000 of its $50,100,000 Facility drawn as of November 8, 2013.
The Corporation provides alternative financing for a diversified group of private businesses ("Private Company Partners") in exchange for royalties or distributions from the Private Company Partners, with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. Royalties or distributions from the Private Company Partners are structured as a percentage of a "top line" financial performance measure such as net revenue, gross profit, and same location sales.
SHS operates, at a national level, the Sears installed home improvement business under the brand name, Sears Home Services. The company offerings include products and services such as HVAC (Heating, Ventilation and Air Conditioning), windows, doors, roofing, home décor, gas fireplaces, carpet, and furnace duct cleaning. SHS is headquartered in Markham, Ontario, and employs approximately 650 workers nationwide. SHS provides its services direct to consumer and operates sales and warehousing out of more than 80 Sears retail locations Nationwide as well as 8 other facilities throughout Canada.
Agility and its subsidiaries operate a multi-state network of outpatient rehabilitation clinics and provides contracted services to hospitals, nursing homes and other institutional clients, providing care and treatment for orthopedic-related disorders, sports-related injuries, preventative care, rehabilitation of injured workers, and a variety of other injuries and conditions. In addition, Agility provides a number of ancillary services related to physical rehabilitation, including practice management software systems and custom orthotics. As of October 25, 2013, Agility operates 68 outpatient or onsite rehabilitation locations in 16 states. Agility's contract therapy services business provides rehabilitative services to 41 hospitals and inpatient rehabilitation units, 36 nursing homes, long-term care facilities and other service locations in 13 states.
Non IFRS Measures
Payout Ratio: The term "payout ratio" is a financial measure used in this news release that is not a standard measure under International Financial Reporting Standards. The Corporation's method of calculating payout ratio may differ from the methods used by other issuers. Therefore, the Corporation's payout ratio may not be comparable to similar measures presented by other issuers. Payout ratio means Alaris' annualized dividend payable per share over the next twelve months divided by its expected net cash from operating activities over the next 12 months (after giving effect to the Partner Updates). The payout ratio should only be used in conjunction with the Corporation's annual audited and quarterly reviewed financial statements, which are available on SEDAR at www.sedar.com.
This news release contains forward-looking statements as defined under applicable securities laws. Statements other than statements of historical fact contained in this news release may be forward-looking statements under applicable securities legislation, including, without limitation, management's expectations, intentions and beliefs concerning: the amount of the S.M. Distribution; the return to Alaris on the S.M. Contribution; the amount of the Additional Agility Distribution; the return to Alaris on the Additional Agility Contribution; the anticipated net increase in revenue; the anticipated increase in net cash from operating activities; the estimated payout ratio; the indebtedness under the Facility; the amount and timing of the SHS Distribution re-commencement of payments; and the impact and terms of the Financial Concessions provided to SHS. Many of these statements can be identified by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof. To the extent any forward-looking statements herein constitute a financial outlook, including, without limitation, the estimated increase in net revenue, the estimated increase in net cash from operating activities and estimated payout ratio, they were approved by management as of the date hereof and have been included to provide an understanding with respect to Alaris' financial performance and are subject to the same risks and assumptions disclosed herein. There can be no assurance that the plans, intentions or expectations upon which these forward looking statements are based will occur.
Statements containing forward-looking information by their nature involve numerous assumptions and significant known and unknown facts and uncertainties of both a general and a specific nature. Key assumptions include, but are not limited to assumptions that: the Private Company Partners will continue to grow and may require additional capital from Alaris in the future; the Canadian and U.S. economies will grow moderately over the next 12 to 24 months; interest rates will not rise in a material nature over the next 12 to 24 months; more private companies will require access to alternative sources of capital; and the Corporation will obtain required regulatory approvals on a timely basis. In determining the Corporation's expectations for economic growth, management primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies.
The forward-looking statements contained herein are subject to numerous known and unknown risks that may cause actual results to vary from those set forth in the forward-looking statements, including, but not limited to risks associated with: general economic conditions and changes in the financial markets; risks associated with the Private Company Partners and their respective businesses; a change in the ability of the Private Company Partners to continue to pay Alaris' preferred distributions; a material change in the operations of a Private Company Partner or the industries in which they operate; failure to obtain required regulatory approvals on a timely basis or at all; a failure to realize the anticipated benefits of the S.M. Contribution, Additional Agility Contribution and the Financial Concessions provided to SHS; and changes in legislation and regulations and the interpretations thereof. In addition, the information set forth under the heading "Risk Factors" in the Corporation's Annual Information Form dated March 13, 2013 (a complete copy of which can be found on SEDAR at www.sedar.com) identifies additional factors that could affect the operating results and performance of the Corporation and may cause the actual results of the Corporation to differ materially from those anticipated in forward-looking statements.
As forward-looking statements are subject to risks, uncertainties and assumptions and should not be read as guarantees or assurances of future performance. Accordingly, readers are cautioned not to place undue reliance on any forward-looking information contained in this news release as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Statements containing forward-looking information reflect management's current beliefs and assumptions based on information in its possession on the date of this news release. Although management believes that the assumptions reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations will prove to be correct.
The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this news release are made as of the date of this news release and Alaris does not undertake or assume any obligation to update or revise such statements to reflect new events or circumstances except as expressly required by applicable securities legislation.
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.