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Press release from CNW Group

Element Financial on Target with Growth Strategy Reports Strong Originations and Financial Results for the Nine-Month Period Ended December 31, 2011

Thursday, February 23, 2012

Element Financial on Target with Growth Strategy Reports Strong Originations and Financial Results for the Nine-Month Period Ended December 31, 201118:11 EST Thursday, February 23, 2012/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW./New business volumes reached a total of $278.1 million for the nine-month period ended December 31, 2011, an increase of $231.5 million or 497% over new business volumes originated during the financial year ended March 31, 2011.Total revenues increased to $10.4 million for the nine-month period ended December 31, 2011, an increase of $8.7 million or 501% over the amount reported for the financial year ended March 31, 2011.Loss from operations before non-cash share-based compensation was $0.4 million for the nine-month period ended December 31, 2011, a marked improvement when compared to the loss of $1.3 million incurred during the year ended March 31, 2011and in line with management's expectations.Total assets grew to $416.7 million at December 31, 2011, an increase of $369.6 million or 785% over the amount reported as at March 31, 2011.Term funding facilities increased by $115 million with further increases under negotiation.Strong and robust M&A pipeline.TORONTO, Feb. 23, 2012 /CNW/ - Element Financial Corporation (TSX: EFN) one of Canada's leading independent equipment finance companies, providing equipment financing to owner/operators and to small and medium-sized businesses across North America, today announced financial results for the fourth quarter of calendar 2011 as well as for the nine-month period ended December 31, 2011."The nine-month period ended December 31, 2011 was a transformational period for Element," stated Steven Hudson, Chairman and Chief Executive Officer of Element. "We built an industry leading infrastructure, a capital structure and a portfolio management capacity capable of executing on our multi-billion dollar growth plans. We secured a leading and experienced management team, we expanded our labour force from 15 employees at the beginning of the period to over 80 employees today, we expanded our capital structure by raising $250 million from two separate private placements of common shares, we extended our term funding facilities with life insurance companies by adding a new facility while increasing the total facilities from $80 million to $195 million, we expanded our short term borrowing facilities with a Canadian Schedule 1 Bank to $25 million, and we accessed the public capital market as a result of the going-public transaction and amalgamation with Mira. In addition, Element invested approximately $160 million to acquire the assets and operations of Alter Moneta , providing the Company with a proven lease administration platform which historically has managed a $2+ billion North American lease portfolio. On January 30, 2012, we also announced the formation of Element Capital as a new business unit dedicated to large equipment financing and leasing transaction, including energy related assets, corporate aircraft and helicopters, rail and road transport, as well as large-scale construction equipment. We also have a strong and robust pipeline and are in various stage of discussion with regards to potential M&A opportunities. As a result of these growth initiatives and the additional and increased access to liquidity, Element is well positioned to continue on its growth plan to become a leading independent equipment finance company in North America" added Mr. Hudson.In 2011, in conjunction with the reverse takeover transaction and amalgamation of Element with Mira II Acquisition Corp ("Mira") on December 15, 2011, Element changed its financial year end from March 31 to December 31. Accordingly, the comparative amounts in the condensed consolidated statements of operations and cash flows presented below are as at and for the nine-month period ended December 31, 2011, while the comparative statements as at and for the year ended March 31, 2011 cover the twelve-month period then ended.Basis of presentationThe consolidated financial statements for the nine-month period ended December 31, 2011 have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. For all periods up to and including March 31, 2011, the Company prepared consolidated financial statements in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). With this first time adoption of IFRS, and the transition date of April 1, 2010, all comparative information has been prepared in accordance with IFRS.The selected financial information included in this press release is summary only and should be read in conjunction with the Company's audited consolidated financial statements as at and for the nine-month period ended December 31, 2011, and the notes thereto, and accompanying management discussion and analysis of such results that have been filed on SEDAR at www.sedar.com.Nine-Month Period Ended December 31, 2011 Highlights Include:New business volumes for the nine-month period ended December 31, 2011 increased by $231.5 million or 497% to $278.1 million compared to the $46.6 million reported for the financial year ended March 31, 2011.Total revenue grew to $10.4 million for the nine-month period ended December 31, 2011, an increase of $8.7 million or 501% over the $1.7 million reported for the financial year ended March 31, 2011.Net financial income grew to $5.9 million for the nine-month period ended December 31, 2011, an increase of $5.1 million or 653% compared to the $0.8 million reported for the financial year ended March 31, 2011.Finance receivables grew to $231.5 million as at December 31, 2011, an increase of $193.9 million or 516% compared to the $37.6 million reported as at March 31, 2011.Total assets grew to $416.7 million as at December 31, 2011 compared to the $47.1 million as at March 31, 2011.Shareholders' equity grew to $238.3 million as at December 31, 2011, an increase of $230.3 million over the amount of $8.0 million reported as at March 31, 2011.The portfolio continues to perform extremely well with delinquencies at 0.28% of total finance receivables.Selected Financial InformationThe following table summarizes key selected financial data as at and for the nine-month period ended December 31, 2011, as at and for the year ended March 31, 2011 and as at and for the six-month period ended March 31, 2010:(in $000's for stated values, except ratios and per shareamounts)As at and for thenine-monthperiod endedDecember 31,2011As at and forthe year endedMarch 31,2011As at and forthe six-monthperiod endedMarch 31,2010 $$$Total revenue10,3861,728363Operating loss before transaction costs(1,587)(1,449)(128)Less: Transaction costs5,957--Loss after transaction costs and before taxes(7,544)(1,449)(128)Net loss after taxes(6,071)(1,449)(128)Total assets416,71547,0736,450Finance receivables, net231,53737,5865,095Loan originations119,67146,6042,403Loan acquisition158,474-- 278,14546,6042,403Total  non-current liabilities - Secured borrowings172,51734,6125,379Average outstanding finance receivables168,09917,7825,108Average outstanding debt119,62415,9805,553Number of shares outstanding66,3804,412292Average number of shares outstanding33,3023,92390Total Shareholders' equity238,3418,001379Operating loss before transaction costs per share (basicand diluted)($0.05)($0.37)($1.42)Net loss per share (basic and diluted)($0.18)($0.37)($1.42)Overall Performance HighlightsThe Company's finance receivables portfolio of leases and loans has grown substantially over the last two periods from $5.1 million at March 31, 2010 to $37.6 million at March 31, 2011 to $231.5 million at December 31, 2011. This growth has been achieved as a result of an increase in the level of originations from $2.4 million during the six-month period ended March 31, 2010 to $46.6 million during the financial year ended March 31, 2011, to $119.7 million for the nine-month period ended December 31, 2011. The strong growth in the Company's origination volumes is the result of a combination of factors, including, an expansion of the Company's in-house sales team, geographic representation across Canada and the entry into new vertical markets such as healthcare and golf equipment finance. In addition, the Company acquired $158.5 million of finance receivables pursuant to the Alter Moneta acquisition. As a result, average outstanding finance receivables grew from $17.8 million for the financial year ended March 31, 2011 to $168.1 million for the nine-month period ended December 31, 2011, an increase of 844%. The growth of the Company's originations volumes is expected to continue as the origination team develops a broader base of vendor and direct customer relationships and the Company's brand awareness in the market improves. In order to support this growth and pursue acquisitive opportunities, additional investments were made in an industry leading management team and operating assets.The Company believes that the necessary start up costs associated with its investments in a senior management team and infrastructure have lowered near term earnings. While the Company also expects that its acquisitive growth strategy will dramatically improve operating results going forward, recently adopted IFRS rules will and have required the Company to expense most acquisition-related costs in the period in which these costs are incurred rather than capitalizing such costs as part of the acquired assets. These accounting rules have negatively affected the Company's current period earnings. Once the Company's rapid growth stage is complete, we expect to be a profitable independent lease financing company and believe that our anticipated declining cost of funds and economies of scale will result in significant increases in net income.The Company increased its capitalization by raising a total of $234.2 million net of issuance issue costs, during the nine-month period ended December 31, 2011 from two separate equity private placements and increased its term funding facilities to $195 million as at December 31, 2011 from $80 million as at March 31, 2011. These initiatives have resulted in increasing the Company's available liquidity to $328.0 million as at December 31, 2011 from $58.7 million as at March 31, 2011.Results of Operations - Nine Months Ended December 31, 2011Interest income Interest income on finance receivables was $9.3 million for the nine-month period ended December 31, 2011, an increase of $7.8 million or 520% compared to $1.5 million for the financial year ended March 31, 2011. Overall interest income on finance receivables showed substantial growth, reflecting increased origination volumes and the purchase of financial assets in the Alter Moneta acquisition. Average outstanding assets increased from $17.8 million during the year ended March 31, 2011 to $168.1 million for the nine-month period ended December 31, 20111.The Company's origination volume was $119.7 million during the nine-month period ended December 31, 2011, an increase of $73.1 million, compared to $46.6 million during the financial year ended March 31, 2011, representing an annualized increase of 210%. Continued origination growth is expected as the Company continues to expand its origination platform, continues its expansion into new vertical markets such as healthcare and golf equipment, and develops a broader base of vendor and direct customer relationships along with improved brand awareness in the market.Average yield on finance receivables for the nine-month period ended December 31, 2011 was 7.40% compared to 8.62% for the financial year ended March 31, 2011. The decrease in average yields was primarily related to the purchase of the Alter Moneta asset portfolio and a change in the mix of receivables as the Company added new verticals in golf equipment and healthcare equipment where yields are lower. However, this lower yield has been offset by a reduction in the Company's cost of borrowing. Overall, average yield spreads continue to meet the Company's expectations.Interest ExpenseInterest expense was $3.3 million for the nine-month period ended December 31, 2011, an increase of $2.5 million or 312% compared to $0.8 million for the financial year ended March 31, 2011. The increase was primarily the result of an increase in the average outstanding debt of $119.6 million for the nine-month period ended December 31, 2011 compared to $16.0 million for the year ended March 31, 2011 as the Company's secured borrowings increased to sustain the growth in origination volumes.The Company's annualized average cost of borrowing has decreased from 4.97% for the financial year ended March 31, 2011 to 3.64% for the nine-month period ended December 31, 2011. The decrease in annualized average cost of borrowing reflects the lower interest rates associated with the term funding facilities compared to previous borrowing rates, and the terms of the Canadian trust facility financing the Alter Moneta acquisition, which has lower rates than our the term funding facilities.Operating ExpensesOperating expenses were $6.3 million for the nine-month period ended December 31, 2011, an increase of $4.2 million or 201% compared to $2.1 million for the financial year ended March 31, 2011. This increase reflects the additional investments made by the Company in its infrastructure and labour force as it positions itself for future growth. Additional one-time costs related to the acquisition and integration of the assets acquired from Alter Moneta also contributed to the increase during the period.  Operating expenses as a percentage of average finance assets were 5.02% for the nine-month period ended December 31, 2011, a marked improvement compared to 11.82% for the financial year ended March 31, 2011, reflecting the growing asset level and its impact on fixed operating costs. It is expected that these costs as a percentage of average assets will continue to decline in the future as the Company continues to expand its operations and as fixed operating costs become absorbed by a larger average earning asset base.Transaction costsTransaction costs consist of one-time non-recurring legal, accounting, banking and direct specific compensation expenses incurred by the Company during the nine-month period ended December 31, 2011 in connection with the Alter Moneta acquisition. Under IFRS accounting rules, these one time costs, which would have been previously capitalized as additional goodwill under Canadian GAAP, are now expensed directly to the income statement.Results of Operations - Three-Month Periods ended December 31, 2011 and September 30, 2011The following table sets forth a summary of the Company's results of operations for the three-month periods ended December 31, 2011 and September 30, 2011:(in 000's for stated values, except per unit amounts)Three-month period endedDecember 31,2011Three-monthperiod endedSeptember 30,2011 $$Total revenue5,4553,720Financial expenses2,3901,477Net financial income3,0652,243Operating expenses3,2251,911Net operating (loss) / income from operations before share-based compensation(160)332Share-based compensation506304Net operating (loss) / income from operations(666)28Transaction costs2,9433,014Net loss before taxes(3,609)(2,986)Tax expense (recovery)(391)(1,082)Net loss for the period(3,218)(1,904)Basic and diluted loss per share($0.06)($0.08)ELEMENT FINANCIAL CORPORATIONCONSOLIDATED BALANCE SHEETS[in thousands of Canadian dollars] As atAs at December 31,March 31, 2011 2011  $$   ASSETS  Cash        151,086               4,116Restricted funds          19,678               3,686Finance receivables        231,537             37,586Notes receivable            5,422                  426Accounts receivable and other assets            4,739               1,206Equipment, licenses and leasehold improvements            1,194                    53Deferred income taxes            1,473                   —Goodwill            1,586                   —         416,715             47,073   LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities  Bank indebtedness                  —               1,362Accounts payable and accrued liabilities            5,857                  660Advances from shareholders                  —               3,800Secured borrowings        172,517             33,250Total liabilities        178,374             39,072   Shareholders' equity  Share capital        243,637               9,445Contributed surplus            2,625                  406Deficit           (7,921)            (1,850)Total shareholders' equity        238,341               8,001         416,715             47,073ELEMENT FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS[in thousands of Canadian dollars] Nine-month  period endedYear ended December 31,March 31, 2011 2011  $$   NET INTEREST REVENUE  Interest income - finance receivables9,3291,533Interest expense3,269794 6,060739Provision for credit losses10021 5,960718Amortization of lease origination costs64441Amortization of deferred financing costs46688 4,850589Other revenue  Syndication fees17117Administrative and other fees43578Other interest income605— 1,057195 5,907784   OPERATING EXPENSES  Salaries and benefits4,806972Share-based compensation1,159131Management fees—301General and administrative expenses1,529829 7,4942,233Loss from operations(1,587)(1,449)Transaction costs5,957—Loss before income taxes(7,544)(1,449)Deferred income taxes(1,473)—Net loss for the period(6,071)(1,449)   Basic and diluted loss per share$(0.18)$(0.37)ELEMENT FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY[in thousands of Canadian dollars] SharecapitalContributed surplusDeficitTotal $$$$     Balance, April 1, 2010780—(401)379Net loss for the period——(1,449)(1,449)Shares issued8,665——8,665Share-based compensation      Employee stock options—132—132  Non-employee stock options—274—274Balance, March 31, 20119,445406(1,850)8,001Net loss for the period——(6,071)(6,071)Shares issued234,192——234,192Share-based compensation      Employee stock options—1,159—1,159  Non-employee stock options—571—571  Warrants—489—489Balance, December 31, 2011243,6372,625(7,921)238,341ELEMENT FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS[in thousands of Canadian dollars] Nine-month  period endedYear ended December 31,March 31, 2011 2011  $$   OPERATING ACTIVITIES  Net loss for the period            (6,071)            (1,449)Items not affecting cash    Employee stock options              1,159                  131  Amortization of equipment, licenses and leasehold improvements               253                    16  Amortization of deferred lease costs                  644                    83  Amortization of deferred financing costs                  466                    88  Provisions for credit losses                  100                    21  Deferred income taxes            (1,473)                    —              (4,922)              (1,110)Changes in non-cash operating working capital items    Accounts receivable and other assets            (3,327)           (1,192)  Accounts payable and accrued liabilities              5,089                  481Cash used in operating activities             (3,160)              (1,821)   INVESTING ACTIVITIES  Business acquisition        (160,180)                   —Increase in restricted funds          (15,992)           (2,752)Investment in finance receivables          (37,265)         (32,595)Purchase of equipment and leasehold improvements               (328)                (57)Increase in notes receivable            (4,996)              (426)Deferred financing costs incurred               (995)              (606)Cash used in investing activities        (219,756)            (36,436)   FINANCING ACTIVITIES  Bank indebtedness            (1,362)              1,039Advances from shareholders            (3,800)              3,610Issuance of capital          234,681               8,665Proceeds from secured borrowings          140,367             28,663Cash provided by financing activities          369,886               41,977   Net increase in cash during the period          146,970               3,720Cash, beginning of period              4,116                  396Cash, end of period          151,086                 4,116About Element Financial CorporationElement Financial Corporation is an independent finance company that originates, manages and funds equipment leases. Element Financial Corporation operates in two specific segments of the equipment finance market through Element Capital, a business unit operating in the large ticket equipment leasing segment and Element Finance that, currently originates equipment finance assets within specific segments of the mid-ticket equipment finance market through its four specialized groups: manufacturing and industrial, transportation and construction, healthcare and golf equipment, each of which has national scope and coverage.Forward Looking StatementsThis 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. The forward-looking events and circumstances discussed in this release, including Element's intention to increase its market share, expand strategic vendor relationships, establish a presence in additional equipment verticals, and assess potential acquisition opportunities,  may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting the Company, including risks regarding the equipment finance industry, economic factors and the equity markets generally 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. Readers are referred to the specific risk factors relating to and affecting the Company's business and operations as filed by the Company pursuant to applicable securities laws. 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.   For further information: Investor Contact: Jim MoreVice Chairman & Senior Executive Vice President   (416) 386-1067 ext. 219Jmore@elementfinancial.ca