TORONTO, June 29 /CNW/ - Northern Financial Corporation (TSX: NFC)
("Northern" or the "Company") today reported its financial results for the
fiscal year ended March 31, 2007 and restated its profit for fiscal 2006. The
Company had a restated profit of $3,325,414 in fiscal 2006 as a result of
revaluing its broker warrant portfolio, or $0.39 per share.
The restated profit in fiscal 2006 resulted from the Company determining,
in consultation with its auditors, that it should use the fair value method in
valuing its broker warrant portfolio. Previously, the Company had been using
the intrinsic value method and applying a conservative discount to the value
of its broker warrants due to the inherent volatility in small capitalization
stocks and their lack of liquidity. The resulting restatement produced an
upward adjustment to the value of the broker warrant portfolio increasing
revenue by $2,711,000. This resulted in restated net income for fiscal 2006 of
$3,325,414, or $0.39 per common share, up from $614,414 or $0.07 per common
In fiscal 2007 Northern determined that its goodwill was impaired and
took a non-cash write down of $3.0 million, recorded a non-cash merchant
banking loss of $2.6 million despite an overall realized gain of $2.8 million
on the investments, and incurred an irregular trading loss of $700,000.
Northern also reduced the carrying value of its investment in Lakeside Steel
Corporation ("Lakeside") by $400,000 by including its share of an estimated
loss at Lakeside as at March 31, 2007. Lakeside is being restructured and if a
restructuring is completed, Northern could realize value for its investment.
Northern reported a $144,198 loss in Jaguar Nickel Inc. ("Jaguar") as its
share of the overall Jaguar loss for the quarter ended March 31, 2007. Taking
into account these writedowns and losses, Northern reported an overall net
loss of $9,087,566 for fiscal 2007 compared to a restated profit of $3,325,414
in fiscal 2006. Income from operations was a loss of $5,518,900 in 2007
compared to a profit of $3,325,414 last year.
The merchant banking loss of $2.6 million occurred by recognizing a
mark-to-market unrealized gain of $5.4 million for certain investments in
fiscal 2006, followed by a sale of the investments in fiscal 2007 for a gain
of $2.8 million, or therefore $2.6 million less than the mark-to-market
unrealized gain which represented the recorded loss for fiscal 2007. Despite
the optics of this loss, Northern has had a very good track record in merchant
banking with each of its eight realized investments being profitable. Northern
has had a total merchant banking gain over the years of $8.9 million, of which
$5.6 million has been realized by Northern. To date Northern's merchant
banking track record has produced an annualized return of 76%.
For several years the Company has carried its goodwill at a value of
$3.0 million on its balance sheet. In fiscal 2007, Northern wrote down the
entire balance of its goodwill.
The Company suffered an irregular trading loss of $700,000 in its
proprietary trading portfolio. Strict trading limits and policies have been
implemented to prevent a reoccurrence.
Despite the goodwill write-down and merchant banking and trading losses,
on an operational basis, Northern's results were quite respectable in that
Northern generated $4.8 million in cash from its operations compared with
$400,000 in fiscal 2006.
The Company is pleased with the expansion of its Private Clients Group
and its Capital Markets Group. Commission revenue of $9,004,016 in fiscal 2007
was up 42% from $6,359,416 in the prior year as the Company expanded its
retail sales force capabilities through the addition of new products and
advisors. During the year Northern opened an office in Brandon, Manitoba and
added retail advisors in our Calgary, Edmonton and Vancouver offices.
Due to the change in the value of the broker warrant portfolio from last
year, which is reported as underwriting revenue, underwriting and advisory
revenue declined $3,134,844 from a restated $12,134,377 in 2006 to $8,999,533
in 2007. In fiscal 2006, the value of the broker warrant portfolio increased
$2,661,000, including the restatement, and in fiscal 2007 decreased $561,000,
resulting in a net change of $3,222,000. Actual underwriting and advisory
revenue and realized broker warrant revenue remained relatively consistent
year over year.
The Company had a trading loss of $1,209,089 in the current year compared
to a gain of $2,359,786 in the prior year. The loss was generated by a limited
number of positions that have since been liquidated. Merchant banking revenue
was a loss of $2,803,950 in fiscal 2007 compared to a gain of $6,439,787 in
the prior year for the reasons noted above. Interest revenue of $1,299,617 was
up 13% from $1,148,436 in 2006.
Total revenue for the year ended March 31, 2007 was $15,313,089 compared
to restated revenue of $28,441,802 in the prior year.
Total expenses for the year ended March 31, 2007, were $20,831,989
compared with expenses of $25,116,388 in the prior year. Brokerage costs
increased to $19,972,950 from $18,788,716 in the prior year as a result of
increased variable compensation, primarily due to increased commission
Interest expense increased to $1,183,323 from $1,028,784 as the balance
of loans outstanding was larger year over year. Merchant banking expenses for
fiscal 2007 were a recovery of $2,339,497, compared to an expense of
$3,735,076 in 2006. This recovery represented a reduction in accrued variable
compensation relating to the decline in value of the merchant banking
investments. The increase in general and administrative expenses is almost
entirely due to the Company's London operations, which have since been closed.
Northern also made two important investments in fiscal 2007, one in
Jaguar and has turned Jaguar into a merchant bank with $27 million in cash and
investments, and the other in Lakeside which is being restructured to create
value for its shareholders.
Northern believes that the actions taken in fiscal 2007, including the
various writedowns, are important to position the Company to improve its
performance in the years ahead. Fiscal 2007 was a platform-shaping year as the
Company has realized an increasing market share in its financings of small cap
companies. Northern identifies and supports unique, distinctive,
underappreciated, undervalued, high quality small cap and micro cap companies.
Northern has a very team-oriented culture with three consistent core values:
total dedication to compliance, clients come first, and we treat our employees
very well. The Company's objective is to produce profitable results that
historically have not been the case, with the exception of the restated profit
for fiscal 2006, as Northern pursued an aggressive acquisition and building
program. The Company believes that it now is in a position to meet this
objective in fiscal 2008.
About Northern Financial Corporation
Northern Financial Corporation wholly owns Northern Securities Inc., a
full service investment dealer that provides financial advisory services to
retail and institutional clients and investment banking services to small
For further information:
For further information: Ann Krallisch, Director, Business Development,
Northern Securities Inc., (416) 644-8113, Fax: (416) 644-0270, e-mail: