Scully Royalty Ltd.

For the first nine months of 2015, gross revenues from continuing operations increased 10.7% to $1,012.5 million from $914.4 million a year earlier. Cost of sales and services from continuing operations rose to $938.2 million from $844.4 million, and gross margin declined to 7.3% from 7.7%. SG&A from continuing operations fell to $50.0 million from $53.5 million, and operating EBITDA from continuing operations rose 72% to $27.7 million from $16.1 million. Net income attributable to shareholders from continuing operations was $9.2 million, or $0.15 per diluted share, versus a net loss of $0.8 million, or $0.01 per diluted share, in the same period of 2014. Discontinued operations included non-cash impairment losses of $107.2 million on hydrocarbon properties and $183.4 million on iron ore interests, resulting in a net loss from discontinued operations of $289.3 million, or $4.58 per share. Cash and cash equivalents were $298.6 million at September 30, 2015. Trade receivables were $120.4 million, inventories were targeted to be below $175 million by year-end, and management said receivables should be below $100 million by year-end. Short-term bank borrowings were $206.6 million and long-term debt was $202.6 million; shareholder equity was $351.0 million, or $5.56 per share. The company expects regulatory approvals for the bank acquisition before the end of 2015, and it said it does not currently anticipate a return of capital from the resource-asset rationalization.

Gerardo Cortina said the company’s long-term strategy is to move from a commodity-heavy supply chain model toward a premier regulated trade finance institution. He emphasized that the Western European bank acquisition is the key next step, because it would let MFC offer factoring, inventory financing, forfaiting, and other structured finance solutions to its existing global customer base. His tone was candid about the share price and the company’s underperformance, but he repeatedly framed the transition as a necessary reset and said the company is acting prudently on capital and asset sales.

Sam Morrow focused on the numbers behind the turnaround and the cleanup of the balance sheet. He highlighted 9M continuing-revenue growth to $1,012.5 million, gross margin of 7.3%, SG&A down to $50.0 million, and operating EBITDA of $27.7 million, while also noting the $289.3 million discontinued-operations loss tied to $107.2 million of hydrocarbon impairments and $183.4 million of iron ore impairments. He said cash was $298.6 million, receivables were $120.4 million, and the company has already reduced receivables from $207.6 million six quarters ago; management expects more than $50 million of cash generation from inventories and receivables before year-end and is reallocating capital toward the bank transaction.

Analysts pressed management on whether the supply-chain business was weaker, the risk and timing of the bank acquisition, and whether the resource assets could still produce a return of capital. Management said the steel-related business is under pressure from falling prices, oversupply, and competition, and that the bank deal is still expected to close before year-end with no known issues likely to delay it. Questions also focused on buybacks, takeover risk, and shareholder frustration; management said capital is being preserved for the bank, a buyback could be revisited after closing, and the company remains open to strategic alternatives if they make sense.