Mr. Michael Rapps reports
CLARKE INC. REPORTS 2017 FOURTH QUARTER AND YEAR END RESULTS
Clarke Inc. has released its results for the three months and year ended Dec. 31, 2017.
Results for the year ended Dec. 31, 2017
Net income of the company for the year ended Dec. 31, 2017, was $3.5-million, compared with net income of $25.4-million in 2016. Net realized and unrealized gains on investments during 2017 were $3.2-million, compared with $20-million in 2016. The company's equity holdings generated dividends of $3.6-million in the year ended Dec. 31, 2017, compared with $3.5-million in 2016. The company's debt and cash holdings generated interest income of $800,000 in the year ended Dec. 31, 2017, compared with $1.7-million in 2016. This decrease is due to the sale of debentures.
Results for the fourth quarter 2017
Net realized and unrealized gains on investments for the fourth quarter of 2017 were $1.1-million, compared with $9.5-million for the same period in 2016. Interest income for the fourth quarter of 2017 was $100,000, compared with $300,000 for the same period in 2016, mainly due to the sale of debentures in 2017. General and administrative expenses during the fourth quarter of 2017 were $400,000 lower than expenses during the same period in 2016. The company had a net loss of $600,000 in the fourth quarter of 2017, compared with net income of $9.4-million in the same period in 2016. This was largely driven by the decrease in unrealized gains on investments during the period compared with the same period in the prior year. Comprehensive income for the fourth quarter was $10.9-million, compared with $11-million for the same period in 2016.
For the three months ended Dec. 31, 2017, Clarke's basic earnings per share were negative four cents, compared with earnings per share of 64 cents for the same period in 2016.
Full-year review and outlook
During 2017, the company's book value per share decreased by 90 cents, or 7.8 per cent. The decrease can be ascribed mainly to: (i) 24 cents per Clarke common share of positive investment performance and net income; (ii) positive 85 cents per common share resulting from the recognition of additional surplus in one of the company's pension plans; and (iii) the payment of a $2 per common share special dividend. The company's book value per common share at the end of the year was $10.71 while its common share price was $10.45.
During 2017, the company received aggregate distributions from its pension plans of $33.4-million. Following the windup of Clarke's Nova Scotia pension plan in the third quarter, Clarke received a distribution of this pension plan's surplus in the amount of $29.6-million. More than $20-million of this distribution was received in cash while approximately $7.3-million is expected to be received following the filing of Clarke's year-end tax return. In the fourth quarter, Clarke received a $3.8-million pretax distribution of surplus from its Quebec pension plan following amendments to the surplus withdrawal rules under the Quebec Supplemental Pension Plans Act. As a result of the new legislation, the company expects to withdraw, on an annual basis, up to 20 per cent of the surplus in its Quebec pension plan in excess of a 105-per-cent solvency ratio. The company expects the next distribution from this pension plan to occur in the first quarter of 2018. These distributions are not included in the company's net income.
At the end of the fourth quarter, Clarke commenced a substantial issuer bid for its common shares. Subsequent to year-end, Clarke repurchased, under this substantial issuer bid, 1,851,579 common shares, or 12.7 per cent of the outstanding common shares for an aggregate purchase price of $19.4-million. The special dividend, normal course share repurchases and substantial issuer bid resulted in Clarke returning $51.5-million to shareholders since the start of 2017.
The company continues to believe that its two core holdings remain undervalued. Holloway Lodging Corp. has seen business levels improve modestly in Western Canada and is performing well throughout the rest of Canada. The company's debt refinancing in May, 2017, materially reduced the company's debt service. Since the third quarter of 2017, Holloway has ramped up its share repurchases, which Clarke believes are being completed at attractive prices. TerraVest Capital Inc. has also seen its business levels improve modestly as a result of improved energy prices. TerraVest completed several acquisitions in recent quarters and Clarke does not believe the full benefits of these acquisitions have been realized. Clarke believes that TerraVest can further optimize its operations and drive additional EBITDA (earnings before interest, taxes, depreciation and amortization) and free cash flow growth, which should cause its valuation to improve further.
During the year, Clarke fully disposed of an energy basket debt security, which resulted in a total return of $2.9-million and an internal rate of return of 30 per cent. The company also began to sell one energy basket equity security but has not fully disposed of this investment. Clarke's two other remaining energy basket securities remain in a loss position but remain undervalued in the company's view.
It remains challenging to find investments that meet Clarke's investment criteria. While some investors may choose to alter their investment strategies or dilute their investment criteria at times like these, the company is not going to do so. Clarke understands the source of its returns over time and it is largely from investments made at times of market or industry dislocation or from company-specific challenges that the company believes it can help rectify. Accordingly, Clarke's bias is to continue returning capital to shareholders until such time as more attractive opportunities present themselves.
Further information about Clarke, including Clarke's consolidated financial statements and management discussion and analysis for the year ended Dec. 31, 2017, is available on SEDAR and the company's website.
Highlights of the consolidated financial statements for the three months and year ended Dec. 31, 2017, compared with the three months and year ended Dec. 31, 2016, are as shown in the attached table.
(in millions of dollars, Three months ended Dec. 31, Year ended Dec. 31,
except per-share amounts) 2017 2016 2017 2016
Realized and unrealized gains on investments 1.1 9.5 3.2 20.2
Dividend income 0.9 0.9 3.6 3.5
Interest income 0.1 0.3 0.8 1.7
Revenue and other income* 0.8 1.4 5.2 7.3
Net income (loss) (0.6) 9.4 3.5 25.4
Comprehensive income 10.9 11.0 15.9 22.9
Basic and diluted EPS (0.04) 0.64 0.24 1.66
Total assets 160.6 177.8 160.6 177.8
Long-term financial liabilities 0.4 1.1 0.4 1.1
Cash dividends declared per share - - 2.00 2.20
Book value per share 10.71 11.61 10.71 11.61
* Revenue and other income includes pension expense/recovery, gains on sale
of fixed assets, foreign exchange gains/losses and service revenue.
Halifax-based Clarke invests in a variety of private and publicly traded businesses and participates actively where necessary to enhance the performance of such businesses and increase its return.
We seek Safe Harbor.
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