Growth through sustainable cash flow 2016 AGM

Transcription

1 Growth through sustainable cash flow 2016 AGM June 21, 2016

2 Disclaimer Contents of Presentation This presentation is not, and under no circumstances is to be construed as, a prospectus, advertisement or public offering of any securities of Mosaic Capital Corporation ( Securities ). No securities regulatory authority has reviewed this presentation or assessed the merits of any of the Securities. Any representation to the contrary is an offence. This presentation does not constitute an offer to sell to, or a solicitation of an offer to buy from, anyone in any country or jurisdiction. This presentation should not be construed as legal, tax, business or investment advice. Except as otherwise indicated, the information set forth in this presentation is effective as of the date set forth on the cover page. The information contained in this presentation may change after the date set forth on the cover page and Mosaic Capital Corporation ( Mosaic ) does not undertake any obligation to update such information. Information has been included in this presentation from documents filed with the securities commissions or similar authorities in the Provinces of Canada, except Québec. A copy of the permanent information record may be obtained by accessing the disclosure documents available through the internet on the System for Electronic Document Analysis and Retrieval (SEDAR), which can be accessed at Forward-Looking Information The information and statements in this presentation that are forward-looking involve known and unknown risks and uncertainties that may cause actual results to be materially different from the results or performance expressed or implied by such forwardlooking statements. In particular, this presentation contains forward-looking statements regarding anticipated future financial and operating performance for Mosaic, including as it pertains to organic growth from its existing businesses and deployment of capital into new acquisitions. These statements and information are only predictions and reflect the current beliefs of management with respect to future events. Actual results may differ materially due to a number of risks and uncertainties faced by Mosaic and undue reliance should not be placed on these forward-looking statements. By their nature these forward-looking statements involve assumptions and known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the forward-looking statement will not occur. Some of the assumptions, upon which such forward-looking statements are based, include: future market conditions not being different than anticipated by Mosaic; there will be no material changes to laws, policies and regulations affecting Mosaic and its operations; and the business operations of the operating businesses of Mosaic continuing on a basis consistent with prior years. conditions; the failure of Mosaic to identify acquisition targets or complete announced acquisitions; third parties honouring their contractual obligations with Mosaic and its subsidiaries; results of management's ongoing efforts to sell, re-lease, lease, develop and improve real estate owned and being acquired indirectly by Mosaic through its subsidiaries; the failure to realize the anticipated benefits of Mosaic s recent and future acquisitions; adverse fluctuations in commodity prices; competition for, among other things, capital, equipment and skilled personnel; the inability to generate sufficient cash flow from operations to meet current and future obligations; the inability to obtain required debt and/or equity capital on suitable terms; competition for acquisition targets; supply disruptions; adverse weather conditions; seasonality and fluctuations in results; and limited diversification of Mosaic s subsidiaries. Additional information on these and other factors that could affect the operations or financial results of Mosaic and its subsidiaries are included in disclosure documents filed by Mosaic with the securities regulatory authorities, available under Mosaic s profile on SEDAR ( Historical Information Where information in this presentation is presented for any period prior to May 1, 2011 such information is that of Mosaic Diversified Income Fund, the precursor entity to Mosaic Capital Corporation Further, certain of the risks and uncertainties faced by Mosaic include without limitation: adverse changes in the general economic and business 2

3 What we do Invest our capital as a long term investor in a diversified portfolio of businesses + assets that, as a group, provide stable + non cyclical free cash flow which can grow over time. Sustainable + Growing Free Cash Flow 3

4 Why do we do what we do To provide: Meaningful distributions & growing dividends to our security holders; and An opportunity for capital appreciation through growth in free cash flow per common share 4

5 2015 Experience WTI Price from Income from Operations Q % Purchased Exposure to energy 24% 57% Infrastructure Energy Diversified Sold January 2014 December 2014 December 2015 June

6 Unforced Error February 3,

7 Opportunity DEMOGRAPHICS + DELEVERAGING 7

8 Demand for Yield The TIPS-implied US inflation expectations (breakeven) curve has been flattening rapidly. The chart below shows the spread between the 10yr and the 5yr breakeven rate. Inflation is expected to be lower for longer. 10-Year Breakeven Inflation Rate-5-Year Breakeven Inflation Rate 8

9 Demand for Yield To put the situation into perspective here is the UK 10yr gilt yield since That's right, bond yield history is available that far back. UK 10y Gilt Yield since 1729 The 10yr Bund yield is below 2 basis points - touching zero last week. Germany 10-Year bond Yield Source: Deutsche Bank, GFD 9

10 Demand for Yield The Swiss 30yr government bond yield is now 7 basis points. The 10yr JGB yield also hit a record low, going deeper into negative territory. Switzerland 30-Year Bond Yield Japan 10-Year

11 Demand for Yield Nominal Yields on Government Bonds As of April 30, 2016 As a % of total bonds outstanding $7.85 tn Total Negative Yielding Sovereign Debt. Switzerland 75% Of $79bn Japan 75% Of $7,434bn Germany 70% Of $1,115bn Netherlands 63% Of $358bn Austria 56% Of $229bn France 55% Of $1,427bn Denmark 54% Of $93bn Finland 48% Of $92bn Belgium 46% Of $354bn Sweden 43% Of $71bn 11 Source: Tradeweb, April

12 12 Will lower rates come to Canada

13 Demand for Yield Canada s borrowing binge In 1990 Canadians owed $0.85 for each $1 of disposable income. Today they owe $1.63. At the same time savings have dropped from 12% of income to 3.6% of income today. 13

14 Demand for Yield Household debt in Canada Relative to GDP, Canadians are nearly as indebted as Americans were in 2008 Residential investment as a share of GDP is at a new all-time high Canada residential investment share of nominal GDP Source: Statistics Canada, Ecomagic Source: Statistics Canada, Macquarie Research, June

15 Demand for Yield Household debt in Canada Relative to GDP, Canadians are nearly as indebted as Americans were in 2008 Residential investment as a share of GDP is at a new all-time high Canada residential investment share of nominal GDP Source: Statistics Canada, Ecomagic Source: Statistics Canada, Macquarie Research, June

16 Investment thesis + Possible investment outcome Demand for a secure diversified income stream will increase Greater demand for yield means securities with an income stream may be more valuable 16

17 A history of growth 17

18 Revenue $180 $182 $160 $140 $120 $125 $100 $80 $60 $76 $89 $40 $20 $0 $ Amounts in $millions 18

19 Adjusted EBITDA $25 $20 $17 $18 $21 $20 $15 $10 $5 $5 $ See reconciliation to Non-IFRS Financial Measures in Appendix. Amounts in $millions 19

20 Free Cash Flow Per Share $2.00 $1.80 $1.60 $1.66 $1.78 $1.53 $1.40 $1.33 $1.20 $1.00 $0.80 $0.60 $0.53 $0.40 $0.20 $ See reconciliation to Non-IFRS Financial Measures in Appendix 20

21 Adjusted Return on Common Equity 45% 42% 40% 37% 35% 32% 30% 25% 20% 15% 10% 5% 0% 5% % See reconciliation to Non-IFRS Financial Measures in Appendix 21

22 Acquisition History & Deal Flow Printing Unlimited LP 100% acquired February 10, 2007 Polar Geomatic Solutions LP 90% acquired May 15, 2008 Disposed November 23, 2015 Mosaic began trading on TSXV May 9, 2011 Ambassador Mechanical 75% acquired January 1, 2012 Industrial Scaffold Services 67.5% acquired September 1, 2013 Streamline Mechanical 70% acquired June 1, 2014 Disposed November 1, 2015 Place- Crete Systems LP 67.5% Acquired September 1, Allied Cathodic Services LP 80% acquired September 1, 2007 Remote Waste LP 98% acquired September 1, 2008 Kendall s Supply Ltd. 90% acquired Aug 1, 2012 First West Properties 100% acquired South East Construction 75% acquired November 1,

23 Acquisition History & Deal Flow 250 deals / year management presentations 5-8 LOIs & EOIs Deal flow highlights Deal flow & activity in Alberta & Saskatchewan down 60% 3 main deal sources: Intermediaries high valuation + lots of competition Proprietary Deal Flow working well Buyside retained working well 1-3 deals 23

24 Acquisition History & Deal Flow Increasing acquisition network in Ontario, B.C. and Quebec 24 24

25 Strategy for Acquisitions 2015 & 2016: Repositioning the acquisition focus Canada s landscape: Energy downturn + lofty valuations Expanding regional focus outside of western Canada Increase acquisition size + sophistication Reduce cyclicality Target one to three acquisitions annually 25 25

26 Strategy for Acquisitions Several factors must align: Sustainability. Motivations. Diversity. Striking the balance: Valuation Quality Growth A general history of annual cash flows of $5mm to $10mm Tuck-ins Companies that can dominate their niche and grow 26 26

27 The power of superior diversification 27

28 2016 Q1 Financial Highlights Revenue $45,000 $40,000 $35, % $30, $4.68 $4.83 $25,000 $20,000 $38,416 $40, $15, Q Q $10,000 $5,000 Per Share (diluted) $0 Q Q Amounts in $thousands 28

29 2016 Q1 Financial Highlights EBITDA $6,000 $5, % $0.60 $0.59 $0.59 $4,000 $0.58 $0.58 $0.59 $3,000 $2,000 $4,708 $4,952 $0.57 $0.57 $0.56 $0.57 Q Q $1,000 Per Share (diluted) $0 Q Q See reconciliation to Non-IFRS Financial Measures in Appendix. Amounts in $thousands 29

30 Q Segment Performance Changes from Q Diversified Income from operations - $0.09mm Infrastructure Income from operations + $1.7mm Energy Income from operations - $1.25mm %

31 31 Long History of Paying Distributions Diversified Income Stream Strong Balance Sheet Aligned Management Team

32 A long history of paying distributions 125 consecutive months of distributions* $56.1 million distributed to security holders Annual Distribution per Preferred Security Distributions $1.20 $1.00 $0.92 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $0.80 $0.60 $0.50 $0.40 $0.20 $ *Distributions commenced on February 22, The Preferred Securities currently listed were issued to holders of common shares of First West and to holders of preferred units of Mosaic Diversified Income Fund in May 2011 pursuant to the Arrangement. The above table shows distributions paid on the preferred units of Mosaic Diversified Income Fund from February 2006 to May 2011 and on the Preferred Securities since June 2011.

33 Growing common share dividends $0.12 $ % CAGR* $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.08 $0.08 $0.06 $0.06 $0.06 $0.06 $0.04 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.02 $0.02 $0.00 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 *Compound annual growth rate 33

34 34 Long History of Paying Distributions Diversified Income Stream Strong Balance Sheet Aligned Management Team

35 Geographic and economic diversification Similar characteristics, different industries Allied Cathodic Services L.P. Estevan, SK Ambassador Mechanical Corp. Winnipeg, MB and Regina, SK Industrial Scaffold Services L.P. Crofton, Fort St. John, Kitimat and Victoria, BC Kendall s Supply Ltd. Estevan, SK Mosaic Capital Corp. Calgary, AB Place-Crete Systems L.P. Calgary and St. Albert, AB Printing Unlimited L.P. Fort McMurray, AB Remote Waste L.P. Sexsmith, AB Southeast Construction L.P. Esterhazy, SK

36 Mosaic s Current Portfolio Infrastructure Diversified Energy 36 36

37 37 Long History of Paying Distributions Diversified Income Stream Strong Balance Sheet Aligned Management Team

38 Strong balance sheet Current Assets $89mm Total Assets $196mm Current liabilities $31mm Long term liabilities $4.1mm Undrawn Acquisition Facility $25mm Cash $38mm Working Capital $58mm 38

39 39 Long History of Paying Distributions Diversified Income Stream Strong Balance Sheet Aligned Management Team

40 Experienced and aligned management team Mosaic management owns approximately 47% of outstanding common shares and 3.2% of outstanding preferred securities Harold Kunik President John Mackay Executive Chairman & CEO Allan Fowler CFO Troy Pearce COO William Nurnberger Vice President, Maintenance and Energy Services Bryce Campbell Vice President Gord Boersma Investment Manager Bryan Kereluke Corporate Controller 40

41 41 Long History of Paying Distributions Diversified Income Stream Strong Balance Sheet Aligned Management Team

42 42 Looking ahead

43 Where we are headed To be a leading Canadian listed company when it comes to five year growth in free cash flow per common share and return on common equity 43

44 What the experts are saying TOP 6% RETURN ON COMMON EQUITY 2014 TOP 10% FREE CASH FLOW GROWTH Based on all TSX and TSXV companies where data is available on Bloomberg. Bloomberg has data on approximately 50% of the 3000 companies listed on the TSX and TSXV. 44

45 Opportunity: SME Succession Business Owners Are Getting Older 49% of Canadian SME owners plan to exit their business by 2022 but it will probably be later Number of Business Owners Age s Average y/y % chg Source: Statistics Canada, CIBC 45 45

46 Opportunity: SME Succession Number of Canadian SME Owners Planning to Exit $3.7 trillion in business assets in 550,000 businesses (represents 27% of GDP) s Within 24 Months Within 5 Years Within 10 Years Source: CIBC calculations based on the Leger Marketing Poll (July 2012), Statistics Canada 46 46

47 Mosaic Uniquely Positioned Mosaic Team s Skills + Experience: Acquisitions, Operations, Finance, Legal 10 Years of Mosaic investing 1 Well Funded + Access to Capital 3 Unique Business Model 2 Acquisition Deal Flow Network Across Canada 4 Credibility + Track Record 47

48 Linking Liquidity & Private Business Win for the private entrepreneur Liquidity Succession Legacy Continued participation Win for Mosaic shareholders Liquid exposure to private companies Cash returns Diverse profitable businesses Experienced team Growth across multiple sectors 48 48

49 Build partnerships What Mosaic offers companies that partner with us: Strong equity partner with a long term view to continue the private company s legacy Strategic, business, financial, human resource, management reporting and legal expertise Autonomy to continue to operate the business Strong alignment of interests A peer group of business managers to share ideas and challenges 49

50 Positioned for growth Strong deal flow Strong balance sheet and access to capital The power of superior diversification Patience Focused and aligned management team 50

51 51 Thank you

52 Growth through sustainable cash flow 2016 AGM

53 Thank you John Mackay, CEO Mosaic Capital Corporation Ph: (403) Allan Fowler, CFO Mosaic Capital Corporation Ph: (403)

54 Appendix 54

55 NON-IFRS Definitions Mosaic has historically used various metrics when evaluating its operational and financial performance. Mosaic continually monitors, evaluates and updates these metrics as required to ensure they provide information considered most useful, in the opinion of Mosaic management, to any decision making based on Mosaic's performance. This section defines, quantifies and analyzes the key performance indicators used by management of Mosaic, and referred to elsewhere in this presentation, which are not recognized under International Financial Reporting Standards ("IFRS") and have no standardized meaning prescribed by IFRS. These indicators and measures are therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted EBITDA: is defined as income from continuing operations before income taxes and before (i) gain (loss) on sale of equipment, (ii) non-cash income and expenses, (iii) finance income and expenses, (iv) securities-based compensation expense, and (v) any unusual non-operating one-time items such as acquisition, disposition and reorganization costs. Adjusted EBITDA is used by management to assess Mosaic's normalized cash generated on a consolidated basis and in its operating segments. Adjusted EBITDA is also a performance measure which may be utilized by investors to analyze the cash generated by Mosaic and its operating segments. Free Cash Flow: is defined as Adjusted EBITDA less: (i) non-controlling interests' share of Adjusted EBITDA, (ii) Mosaic's share of current income tax expense and (iii) Mosaic's share of Sustaining Capital Expenditures. Free Cash Flow is a performance measure used by management, and which may be useful to investors, to assess the funds available for (i) the payment of distributions to holders of preferred securities and private yield securities, and dividends to holders of series "A" shares and common shares, (ii) investment in capital expenditures made to grow the enterprise and (iii) new acquisitions and working capital. Sustaining Capital Expenditures: is defined as capital expenditures required to sustain the operations of Mosaic at its current level of operations. It is calculated as total capital expenditures for the period minus growth capital expenditures (capital expenditures which are, as determined in the discretion of management, incurred to grow the enterprise and expected to generate additional Adjusted EBITDA). An example of Sustaining Capital Expenditures would be the replacement of vehicles that have completed their useful life. Adjusted Return on Common Equity: means the percentage that is obtained by dividing: (i) Free Cash Flow less distributions declared to holders of preferred securities and private yield securities, and dividends declared to holders of series "A" shares during the period indicated, by (ii) weighted average common shareholders' equity for the period. Management believes Adjusted Return on Common Equity is a key performance measure as it indicates the return generated by Mosaic on its common equity. Management believes that this measure is most useful and relevant when measured over a twelve-month period. Preferred Distribution Payout Ratio: is a measure that management believes may be useful to investors in assessing the likelihood that Mosaic will be able to continue to pay distributions on its preferred securities and private yield securities and dividends on its series A shares. It is a percentage calculated as: (i) total amount declared (which includes cash paid as well as preferred securities distributed pursuant to the Mosaic distribution reinvestment plan ("DRIP")) to holders of preferred securities, private yield securities and series "A" shares during the period; divided by (ii) Free Cash Flow for the period. Combined Payout Ratio: is a measure that management believes may be useful to investors in assessing the likelihood that Mosaic will be able to continue to pay distributions on its preferred securities and private yield securities, and pay dividends on its series "A" shares and common shares. It is a percentage calculated as: (i) total amount declared (which includes cash paid as well as preferred securities distributed pursuant to the DRIP) to holders of preferred securities, private yield securities, series "A" shares and common shares during the period; divided by (ii) Free Cash Flow for the period. Investors are cautioned that the above non-ifrs measures should not be viewed as an alternative to measures that are recognized under IFRS such as net income or cash from operating activities. The distributions and dividends paid by Mosaic to its security holders are dependent on its cash flow from operating activities with consideration for changes in working capital requirements, investing activities and financing activities. Mosaic's method of calculating the above non-ifrs measures may differ from that of other entities and therefore may not be comparable to measures utilized by them. See "Reconciliations of Non-IFRS Financial Measures". 55

56 Reconciliations of non-ifrs Financial Measures For reconciliation of both Adjusted EBITDA and Free Cash Flow to income from continuing operations before tax, which is the most directly comparable measure under IFRS to each of those non IFRS financial measures, please refer to the following Management s Discussion and Analysis ( MD&A ), copies of which are available on SEDAR at 1. MD&A for the three months ended March 31, 2016; 2. MD&A for the year ended December 31, 2015; 3. MD&A for the year ended December 31, 2014; 4. MD&A for the year ended December 31, 2013; 5. MD&A for the year ended December 31, 2012; and 6. MD&A for the year ended December 31, Adjusted Return on Common Equity compared to IFRS measure - There is no IFRS measure comparable to Adjusted Return on Common Equity. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before income taxes. Accordingly, dividing (i) income from continuing operations before income taxes less distributions/dividends declared to holders of Mosaic preferred securities, private yield securities and series "A" shares, in each case during the twelve-month rolling period ending March 31, 2016, by (ii) weighted average common shareholders' equity for the same period, yields a ratio of 19% ( %), ( %), ( %), ( %). Preferred Distribution Payout Ratio compared to IFRS measure - There is no IFRS measure comparable to Preferred Distribution Payout Ratio. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before income taxes. Accordingly, dividing (i) the total amount of distributions/dividends declared to holders of Mosaic preferred securities, private yield securities and series "A" shares during the period by (ii) income from continuing operations before income taxes for the period, for each of Q and Q1 2015, yields payout ratios of 105% and 208% respectively. Combined Payout Ratio compared to IFRS measure: - There is no IFRS measure comparable to Combined Payout Ratio. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before income taxes. Accordingly, dividing (i) the total amount of distributions/dividends declared during the period to holders of Mosaic preferred securities, private yield securities, series "A" shares and common shares by (ii) income from continuing operations before income taxes for the period, for each of Q and Q1 2015, yields payout ratios of 132% and 268% respectively. 56