MANAGEMENT’S DISCUSSION AND ANALYSIS
Nature of Business
We are a merchant bank that provides financial services and facilitates structured trade for corporations and institutions. We specialize in markets that are not adequately addressed by traditional sources of supply and finance, with an emphasis on providing solutions for small and medium sized enterprises. We operate in multiple geographies and participate in industries including manufacturing, natural resources and medical equipment and services.
As a supplement to our operating business, we commit proprietary capital to assets and projects where intrinsic values are not properly reflected. These investments can take many forms, and our activities are generally not passive. The structure of each of these opportunities is tailored to each individual transaction.
Our business is divided into two operating segments: (i) Merchant Banking, which includes our marketing activities, captive supply assets, structured solutions, financial services and proprietary investing activities; and (ii) All Other, which encompasses our corporate and other investments and business interests primarily being its business activities in medical equipment, instruments, supplies and services.
Recent Developments
Plan of Arrangement
On July 14, 2017, Old MFC, the former parent of our group of companies, completed the Arrangement under the
Business Corporations Act
(British Columbia), pursuant to which, among other things, the following transactions were completed:
•
Share Consolidation/Split
. The Old MFC Shares were consolidated on a 100 for 1 basis, with any resulting fractional shares being eliminated and the registered holders of the same being paid therefor in cash based upon the weighted average price of the Old MFC Shares over the ten trading days immediately prior to the effective date of the Arrangement and, thereafter, such Old MFC Shares were split on a 1 for 20 basis;
•
Share Capital
. Old MFC’s stated shareholders’ capital was reduced by an amount equal to its retained deficit; and
•
Share Exchange
. Each Old MFC Share outstanding after the completion of the above consolidation and split was exchanged for: (i) one Common Share; and (ii) US$0.0001 per share in cash.
As a result of the completion of the Arrangement, Old MFC became our subsidiary. The Common Shares commenced trading on the New York Stock Exchange on July 14, 2017 under the symbol “MFCB”.
Reallocation of Resources to More Profitable Operations
In the first half of 2017, we continued to advance our plan, which commenced in 2016, to exit product lines and geographies with unsatisfactory margins in order to reallocate capital to higher return operations, including our merchant banking business. To this end, in 2017, we have, among other things:
•
rationalized our inventories, reducing them by 68% from $32.0 million at December 31, 2016 to $10.1 million at June 30, 2017;
•
deleveraged through reducing our short-term bank borrowings by 27% from $95.4 million at December 31, 2016 to $70.1 million at June 30, 2017;
•
reduced our total debt by 35% from $116.8 million at December 31, 2016 to $76.0 million at June 30, 2017;
•
completed the sale of a non-core commodities trading business; and
•
allocated resources for the expansion of our merchant banking business.
Discussion of Operations
The following discussion and analysis of our financial condition and results of operations for the six and three months ended June 30, 2017 and 2016 should be read in conjunction with our unaudited condensed consolidated financial statements and related notes.
General
We are a merchant bank that provides financial services and facilitates structured trade for corporations and institutions. Our business activities involve customized structured financial solutions and are supported