Q2 2020 Financial Results TSX: CRWN
FORWARD-LOOKING STATEMENTS This presentation contains certain “forward looking statements” and certain “forward looking information” as defined under applicable Canadian securities laws. Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “continue”, “plans” or similar terminology. Forward-looking statements in this presentation include, but are not limited to, statements with respect to Crown’s future targets, strategic priorities, transaction pipeline, and the Corporation’s business plans and strategy. Forward-looking statements are based on forecasts of future results, estimates of amounts not yet determinable and assumptions that while believed by management to be reasonable, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Forward-looking statements are subject to various risks and uncertainties concerning the specific factors identified in the Crown’s periodic filings with Canadian securities regulators. Crown undertakes no obligation to update forward-looking information except as required by applicable law. Such forward-looking information represents management’s best judgment based on information currently available. No forward-looking statement can be guaranteed and actual future results may vary materially. Accordingly, readers are advised not to place undue reliance on forward-looking statements or information. 2
SPEAKERS & AGENDA Chris Johnson • Q2 Operational & Financial Update President & Chief Executive Officer • Review Strategic Priorities • Business Review • Alternative Corporate Finance • Distributed Power Michael Overvelde Senior Vice President, • Network Services Chief Financial Officer • Q&A 3
Q2 2020 SUMMARY • Special Situations portfolio remains in stable condition overall • Advanced realization process for two Long-Term investments • Transitioning to capital-light business • Solid quarterly Adjusted Funds from Operations (AFFO) of $3.6mm Mid Mid-market highlights underlying health of business com ompanie ies • Expanding new investment platforms Positive market backdrop for Crown’s strategies 4
ALTERNATIVE LENDING Special Situations Investments (Crown Partners Fund) LOANS BY INDUSTRY Business services 9% Manufacturing 3% 11 $218 mm $20 mm Long-Term Investments Diversified Energy 43% 22% Current Currently Average investments invested investment Energy Services 2 $35 mm Technology 16% 10% Current Currently LOANS BY REGION investments invested British Columbia 50% $616 mm 12.9% 21% Alberta 48% First lien Total invested Gross IRR loans across Ontario 20 companies 31% 5
ALTERNATIVE LENDING Loan Risk Ratings Special Situations June 30 March 31 December 31 Se 2020 2020 2019 • Additional $5 million advanced to CareRx Special Situations Financing: Source 3.05 3.05 2.54 (loan now at $27 million) Ferus 3.27 3.27 3.27 • Repayment of $20 million Touchstone loan and partial RBee 3.05 3.05 3.05 Active 2.60 2.60 2.35 repayment of Ferus loan Data Communications 3.50 3.50 3.45 • No material changes in risk ratings Persta 3.38 3.38 3.38 Triple Five 2.87 2.55 2.48 Long-Term Investments VIQ Solutions 2.52 2.52 2.52 Rokstad Power 2.75 2.75 2.69 • Advancing process to realize on Mill Street and CCI Wireless 2.29 2.29 n/a PenEquity loans Centric Health 2.83 2.83 n/a Long-Term Financing: PenEquity 3.97 3.50 2.98 Mill Street 3.00 3.00 2.82 Note : A risk rating of 1.0 is the best possible rating and a 5.0 is the worst possible rating. 6
Q2 2020 FINANCIAL RESULTS TOTAL REVENUE ($MM) INTEREST REVENUE ($MM) Three Months Six Months Ended Ended For the periods ended Jun. 30 ($thousands) 2020 2020 2019 2020 2020 2019 14.6 Revenue: 13.7 19.7 Interest revenue 7,22 7,224 4 5,714 14 14,55 ,557 7 13,677 13.3 Fees and other income 779 779 806 1,116 1,11 2,382 7.2 11.0 Net gain (loss) on 5.7 3,395 3,39 4,436 150 150 (9,073) investments 7.0 Network services 1,868 1,86 – 3,851 3,85 – revenue Total revenue 13 13,26 ,266 6 10,956 19 19,67 ,674 4 6,986 Q2 2019 Q2 2020 YTD 2019 YTD 2020 Q2 2019 Q2 2020 YTD 2019 YTD 2020 7
Q2 2020 FINANCIAL RESULTS • ADJUSTED FUNDS FROM Net loss of $(1.6) million compared with net ADJUSTED FUNDS FROM OPERATIONS ($MM)* OPERATIONS PER SHARE* income of $2.3 million in Q2 2019 $0.82 • Mainly reflecting a $3.9 million provision for 7.8 credit losses, including $3.6 million re: PenEquity (including a partial reversal of interest revenue) • $0.7 million impairment charge on distributed $0.38 power equipment under development 3.6 $0.30 2.9 • AFFO increased strongly for Q2 and $0.21 2.0 YTD periods Q2 2019 Q2 2020 YTD 2019 YTD 2020 Q2 2019 Q2 2020 YTD 2019 YTD 2020 *Non-IFRS measure; refer to reconciliation in Appendix. 8
Q2 2020 FINANCIAL RESULTS TOTAL EQUITY ($MM) TOTAL EQUITY PER SHARE) TOTAL ASSETS ($MM) 324.9 299.7 265.7 97.5 100.0 $10.43 $10.38 93.0 $9.90 YE 2019 Q2 2019 Q2 2020 YE 2019 Q2 2019 Q2 2020 YE 2019 Q2 2019 Q2 2020 $5.9mm paid to shareholders through dividends and share buybacks in TTM 9
Q2 2020 FINANCIAL RESULTS Adjusted Financing Funds from Depreciation Costs Provision Net Asset Income Other Share Dividends Ops* Net Loss Expense for Credit Unrealized Impairment Tax reconciling Repurchases Declared Loss Investment Expense Recovery items Losses TOTAL EQUITY TY TOTAL EQUITY TY Dec. 31, 2019 Jun. 30, 2020 *Non-IFRS measure; refer to reconciliation in Appendix. 10
Strategic Priorities
Expand & Div iversify fy Reposition + Pla latform Balance Sheet Increase market opportunity Capital-light model Focus on recurring revenue assets Source, seed, structure Increase non-investment earnings Improve capital efficiency Increase EPS over the next 12-24 months 12
EXPAND AND DIVERSIFY PLATFORM 2000 2018 2019 Business Corporate Distributed Network Services Finance Power Market Focus Capitalizing on gaps in mid- Addressing the growing need for Addressing the requirement for market corporate lending with lower cost and more predicable high-speed data connectivity to flexible, customized solutions and electricity through onsite power commercial customers in rural or responsive execution. generation solutions. remote areas. Revenue streams Management fees, carried Management fees, share of Operating profit, management interest, investment income from operating partner profit, carried fees (upon fund formation) ownership of fund units interest, investment income from ownership of fund units Target investment $25mm $25mm $25mm Market opportunity >$1.0B >$1.0B >$1.0B 3-year target $500mm assets $500mm assets TBD 13
TRANSITION TO CAPITAL-LIGHT MODEL CAPITAL SOURCES ($MM) 29.6 Total equity Reduce ownership in Lending assets to $25mm Convertible debenture 20.0 Realize on Long-Term investments 93.8 Corporate >$60 mm credit facility Funds available for distribution to be used for strategic investments, CROWN INVESTMENTS ($MM) Capital to redeploy and share buybacks, deleveraging Crown Partners reduce balance sheet 10.2 Fund - Crown trading at <50% of book value 15.5 intensity Long-Term Investments Crown Power 84.5 35.0 Fund WireIE 14
Alternative Corporate Finance
ENABLING ENTREPRENEURS • Event-driven transactions including recapitalizations, growth financings, acquisitions and management buyouts • Alternative to banks and private equity • Competing on customization, responsive execution, reputation • Target companies generate cash flow and have strong leadership teams; revenue of $30mm -$500mm Mid-market Mid com ompanie ies 55+ 55+ $800+ 20 20 year track record private debt million loans to date transactions Large market: 6,000 mid-market companies in Canada 16
STRONG RISK-ADJUSTED RETURNS 2019/2020 IRR Bill Gosling 18% 20 Number of realized investments 14% * Baylin Technologies Canadian Helicopters 24% Touchstone Exploration 16% Solo Liquor neg. 2017/2018 8 Petrowest 18% 6 15% * Marquee 4 Corrosion Service 25% 2 CRH Medical 43% Distinct Infrastructure 20% 20% * Medicure <0% 0-10% 10-20% 20-30% >30% Range of IRR *Does not include potential gains on equity positions ~14% lifetime IRR on all transactions 17
CORPORATE FINANCE: WHAT’S NEXT Medium-Term Short-Term Support current Favorable market cycle portfolio companies $1.0 B + + Add senior debt/uni- Seek liquidity from tranche capacity higher-risk loans Market opportunity Grow and diversify New capital portfolio (institutional + retail) 18
Distributed Power 19
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