GRENVILLE STRATEGIC ROYALTY CORP. INVESTOR PRESENTATION May 31, 2016

Transcription

1 GRENVILLE STRATEGIC ROYALTY CORP. INVESTOR PRESENTATION May 31, 2016 Steven Parry, CEO Annie Theriault, Managing Director Grenville Strategic Royalty Corp. was recognized as a TSX Venture 50 TM company in TSX Venture 50 is a trade-mark of TSX Inc. and is used under license.

2 FORWARD LOOKING INFORMATION This corporate presentation and documents incorporated by reference contain certain forward-looking information within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as plans, expects or does not expect, is expected, budget, scheduled, estimates, forecasts, intends, anticipates or does not anticipate, or believes, or variations of such words and phrases or may contain statements that certain actions, events or results may, could, would, might or will be taken, will continue, will occur or will be achieved. The forward-looking information contained herein may include, but is not limited to, information with respect to: prospective financial performance; including the Company s opinion regarding the current and future performance of its portfolio, expenses and operations; anticipated cash needs and need for additional financing; anticipated funding sources; future growth plans; royalty acquisition targets and proposed or completed royalty transactions; estimated operating costs; estimated market drivers and demand; business prospects and strategy; anticipated trends and challenges in the Company s business and the markets in which it operates; the amount and timing of the payment of dividends by the Company; and the Company s financial position. By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements. An investment in securities of the Company is speculative and subject to a number of risks including, without limitation, risks relating to: the need for additional financing; the Company's ability to pay dividends in the future and the timing and amount of those dividends; the relative speculative and illiquid nature of an investment in the Company; the volatility of the Company s share price; the Company s limited operating history; the Company's ability to generate sufficient revenues; the Company's ability to manage future growth; the limited diversification in the Company's existing investments and the concentration of a significant amount of the Company's invested capital in a small number of investments; the Company's ability to negotiate additional royalty purchases from new investee companies; the Company's dependence on the operations, assets and financial health of its investee companies; the Company's limited ability to exercise control or direction over investee companies; potential defaults by investee companies and the unsecured nature of the Company's investments; the Company's ability to enforce on any default by an investee company; competition with other investment entities; tax matters, including the potential impact of the Foreign Account Tax Compliance Act on the Company; the potential impact of the Company being classified as a Passive Foreign Investment Company; reliance on key personnel, particularly the Company's founders; dilution of shareholders interest through future financings; changes to the Company's accounting policies and methods; and general economic and political conditions; as well as the risks discussed under the heading "Risk Factors" on pages 16 to 22 of the Annual Information Form of the Company dated February 11, 2015 and the risks discussed herein. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in the forwardlooking information and forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. In connection with the forward-looking information and forward-looking statements contained in this corporate presentation, the Company has made certain assumptions. Assumptions about the performance of the Canadian and U.S. economies over the next 24 months and how that will affect the Company's business and its ability to identify and close new opportunities with new investees are material factors that the Company considered when setting its strategic priorities and objectives, and its outlook for its business. Key assumptions include, but are not limited to: assumptions that the Canadian and U.S. economies relevant to the Company s investment focus will remain relatively stable over the next 12 to 24 months; that interest rates will not increase dramatically over the next 12 to 24 months; that the Company's existing investees will continue to make royalty payments to the Company as and when required; that the businesses of the Company's investees will not experience material negative results; that the Company will continue to grow its portfolio in a manner similar to what has already been established; that tax rates and tax laws will not change significantly in Canada and the U.S.; that more small to medium private and public companies will continue to require access to alternative sources of capital; that the Company will have the ability to raise required equity and/or debt financing on acceptable terms; and that the Company will have sufficient free cash flow to pay dividends. The Company has also assumed that access to the capital markets will remain relatively stable, that the capital markets will perform with normal levels of volatility and that the Canadian dollar will not have a high amount of volatility relative to the U.S. dollar. In determining expectations for economic growth, the Company primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies. Although the Company believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forwardlooking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. The forward-looking information and forward-looking statements contained in this corporate presentation are made as of the date of this corporate presentation, and the Company does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward-looking information and statements attributable to the Company or persons acting on its behalf is expressly qualified in its entirety by this notice. NON-IFRS MEASURES This corporate presentation also refers to certain key performance indicators, including EBITDA, Adjusted EBITDA, free cash flow, average royalty payment per million invested, twelve month total royalty income moving average and weighted average royalty rate to assist in assessing the Company s financial performance. EBITDA, Adjusted EBITDA, average royalty payment per million invested, twelve month total royalty income moving average, and weighted average royalty rate, (the Non-IFRS Measures ) are financial measures used in this corporate presentation that are not standard measures under IFRS. The Company s method of calculating the Non-IFRS Measures may differ from the methods used by other issuers. Therefore, the Company s Non-IFRS measures may not be comparable to similar measures presented by other issuers. See section Definition of Non-IFRS Measures in the management s discussion and analysis of the Company for the three months ended March 31, 2016,, which are available on SEDAR at for an explanation of how these measures are calculated. These Non-IFRS measures should only be interpreted in conjunction with the most interim condensed consolidated financial statements of the Company for the three months ended March 31, 2016, which are available on SEDAR at 2

3 WE ARE A ROYALTY INVESTMENT COMPANY Our Target Market» SMEs (1) 3+ years of historical revenues» Operating within the technology, industrial technology and services sectors» Up to $50 million in revenues Our Structure» 25% cash payment per year» VC-like returns on buyouts» Structured to compete with equity Our Revenue» Royalty payments» Interest payments» Contract Buyouts (1) SMEs: small-to-medium private & public companies 3

4 TEAM Investment Committee Steve Parry, Chief Executive Officer 14 year investment career with BHP Billiton and Californiabased venture capital firm NGEN Partners as a Managing Director; currently Chair at Dirtt Environmental Solutions (TSX:DRT) Team Kevin Jarrett, VP, Investments Stephanie Tadros, VP, Investments Darlene Deruchie, Controller Leslie Melvin, Communications Donnacha Rahill, FCA, Chief Financial Officer Over 20 years of experience in multi-national senior finance positions including 10+ years acting as CFO for companies in the financial services industry Annie Theriault, Managing Director Over 10 years of experience leading investments in private companies and managing billion dollar portfolios of hedge fund assets Robb McLarty, Managing Director 20 years of cross-border investing and operating experience in venture capital and tech start-ups, including NGEN Partners, Ziff Brothers Investments and Bill-Me-Later 4

5 HIGH RETURNS BENEFIT SHAREHOLDERS Our Model Create a diversified portfolio of small and medium businesses with > 30% Gross Margins Our Market 33 Million US Small and Medium Businesses with <100 Employees 61% Not successful in obtaining bank loans Generates 90% gross margins and over 75% EBITDA margins Royalty Finance Opportunity 5

6 BUSINESS MODEL GENERATING TOP RETURNS Cost of Capital Pricing 12% 25%+ How we do it:» Focus on growing companies in an underserviced market» Focus on technology, industrial/tech and services companies 6

7 ROYALTY INVESTMENT, AN EXAMPLE Annual revenue $ % 0m Capital deployed $ 1 FIRST m Royalty rate» For every $1m invested we generate $250k per annum in recurring payments» Contract Buyouts generate the greater of $2m per $1m invested or 80% of the equity value YEAR ROYALTY PAYMENTS $ 250k 7

8 CONTRACT BUYOUTS: A MATERIAL SOURCE OF CAPITAL» Significant positive impact on revenue» Intermittent, but expected in the long-term» $15.9M in cumulative cash generated from contract buyouts Investee Investment Cumulative Cash (royalties + buyouts) IRR Cash on Cash Wmode $1.0 $ % 3.15x DS Handling $1.0 $1.7 67% 1.65x INOVx $2.1 $2.7 23% 1.27x Above Security $3.0 $ % 2.15x 4tell Solutions $1.1 $1.9 39% 1.70x Total $9.15 $ % 1.83x 8

9 CAD $ (Millions) CASH GENERATING PORTFOLIO» Nearly $63 Million in cash deployed across 75 investments in 31 companies» Over 44% of cash returned in 2.5 years» Cash generated through royalty payment income, interest and contract buyouts supports the dividend 70.0 Cash Generation since Inception 60.0 $62.9 Million $27.6 Million Q Q Q Q Q Q Q Q Cumulative Cash Deployed Cumulative Cash Generated 9

10 DIVERSIFIED PORTFOLIO» Disciplined portfolio management > Results in predictable performance and resiliency Companies funded to date 31 Total investments 75 Industrial - 23% Industrial/Tech - 19% Tech - 29% Services - 19% Retail - 10% High Growth - 15% Stable Growth - 43% FIRST YEAR ROYALTY Hybrid Growth PAYMENTS - 43% Capital invested $ 63 m Cyclical - 40% Neutral - 35% Defensive - 25% in USD - 71% in CAD - 29% 10

11 WHERE WE ARE GOING Focus on higher return generating instruments SUCCESSES:» Tech» Industrial Tech» Services Generate growing payment streams and high return contract buyouts Generate stable payment streams CHALLENGES:» Industrials» Retail Tend to have poorer performance due to lower enterprise value 11

12 Portfolio IRR HIGH RETURN ON INVESTMENT» Impressive IRR above 30% in 2015 inclusive of contract buyouts» Quarter on quarter growth in revenue from ongoing investments» Income significantly supplemented by gains on contract buyouts 35.00% Portfolio IRR Over Time 30.00% 32.14% 25.00% 20.00% 15.00% 21.91% 23.29% 10.00% 5.00% 0.00% Q1 12

13 AMONG TOP PERFORMING ROYALTY PEERS» Yields highest returns among highly profitable industry peers 35.00% 30.00% 33% 25.00% 28% 27% 20.00% 15.00% 10.00% 5.00% 22% 18% 16% 14% 13% 14% 14% 11% 11% 12% 10% 9% 23% 19% 19% 0.00% Grenville Alaris Silver Wheaton Franco-Nevada Diversified Input Investment Yield Royalty Return on Equity Royalty Return on Total Capital Grenville (1) Alaris Silver Wheaton Franco-Nevada Diversified (2) Input (3)(4) Annualized Q Royalty Income 14,572,507 97,010, ,044, ,000,000 27,656,000 20,782,648 Fair Value of Investments at Q ,777, ,314,743 5,398,111,000 3,749,500, ,147,000 88,808,805 Investment Yield 33.29% 14.34% 13.89% 14.08% 9.73% 23.40% Total Equity at Q ,228, ,626,773 2,799,548,000 4,669,200, ,319, ,159,036 "Return on Equity" (5) 28.45% 15.71% 26.79% 11.31% 11.56% 18.87% Total Capital at Q ,902, ,993,448 4,170,548,000 4,669,200, ,760, ,159,036 "Return on Capital" (5) 21.78% 13.23% 17.98% 11.31% 9.38% 18.87% (1) Income Inclusive of Realized Gains on Contract Buyouts (assumes same as 2015) (2) Investments Recorded at Historical Cost rather than Fair Value (3) Income is Recorded as Net Sales (4) March 31, 2016 data not available Dec. 31, 2015 being used 13 (5) "ROE" and "ROC" metrics are using annualized royalty income as a numerator rather than net operating income traditionally used for these metrics

14 CAD $ (Millions) % of Portfolio CAD $ (Millions) PORTFOLIO PERFORMANCE PROFILE Q Portfolio Performance Loss Off Target On Target Above Target Bought Out Performance Over Time % 90% 80% 70% 60% 50% Q Q Q Q Q Q % 30% 20% 10% 0% Q Q Q Q Q Q Loss Off Target On Target Above Target Bought Out Loss Off Target On Target Above Target Bought Out 14

15 CAPITAL STRUCTURE Shares outstanding (1) 106,271,795 Warrants & Options 8,279,623 Convertible Debenture ($17.25M, $0.92 conversion) 18,750,000 Fully diluted 133,301,418 Symbol Market Cap. (1) TSX-V : GRC $39.8 million Officer & Directors 12,255,418 (or 9.19%) 1. As of June 6, 2016 ALIGNED & COMMITTED Key management is escrowed until late 2018: Committed to building long-term value 15

16 US INVESTORS Some Canadian investments are classified as Passive Foreign Investment Companies, or PFICs under IRS regulations. Such investments require filing of certain forms with annual taxes for some investors for optimum tax treatment. While Grenville has made no determination if it is a PFIC, Grenville will, on request of a US shareholder, provide the information required should a shareholder determine that such a classification would be advisable for its personal circumstances. Investors should seek professional advice for all investments. 16

17 CORPORATE INFORMATION Board of Directors Catherine McLeod-Seltzer Paul Sweeney Gaston Tano Andrea Zaradic Paul De Luca Steven Parry Investment Committee STEVEN PARRY Founder & Chief Executive Officer DONNACHA RAHILL Chief Financial Officer ANNIE THERIAULT Managing Director ROBB MCLARTY Managing Director Investment Staff Kevin Jarrett, VP, Investments Stephanie Tadros, VP, Investments Darlene Deruchie, Controller Leslie Melvin, Communications Legal Counsel OWENS WRIGHT LLP Toronto, ON Independent Registered Public Accounting Firm GOODMANS & ASSOCIATES LLP Toronto, ON Corporate Headquarters 220 Bay St., Suite 550 Toronto, ON M5J 2W4 Tel: Securities Listing and Website TSX-V: GRC (Common Stock) TSX-V: GRC.DB (Debenture) Investor Relations Leslie Melvin Share Transfer Agent Computershare Research Coverage Raymond James National Bank Financial Cormark Securities Haywood Securities Laurentian Bank Securities 17

18 CONTACT US For more information, please contact: Steve Parry CEO Phone: (416) Cell: (647) Annie Theriault Managing Director Phone: (416) Cell: (647) Leslie Melvin Investor Relations Manager Phone: (416)