News Column

Mosaic Capital Corporation Completes Acquisition of Streamline Mechanical, Reports First Quarter 2014 Financial Results and Other Matters

June 2, 2014

Calgary, Alberta CANADA, June 02, 2014 /FSC/ - Mosaic Capital Corporation  (TSX-V Symbols: M and M.PR.A),  ("Mosaic") is pleased to announce the successful completion of its previously announced acquisition of a majority interest in the business being carried on by Streamline Mechanical (1981) Ltd. and Streamline Projects Inc. (combined "Streamline"). Streamline is expected to be immediately accretive to Mosaic's Free Cash Flow and distributable cash per common share. Mosaic has also released its unaudited condensed interim consolidated financial statements for the three months ended March 31, 2014.

Completion of Acquisition

Streamline is a leading provider of site maintenance services and civil construction services to Alberta's energy sector, working with both Canadian and international energy companies.  Streamline is currently engaged in connection with, among others, the Suncor Fort Hills Project and the Syncrude Mildred Lake Mine project. For the year ended September 30th, 2013 Streamline had revenues of approximately $50 million. Management believes that, Streamline will continue to benefit in the coming years from the billions of dollars in construction and maintenance spending in Alberta's Oil Sands due to both the large size and long term nature of these projects.

Established by Doug Bach in 1974 Streamline (www.slmltd.com) has been in business for nearly 40 years and presently has offices in Sherwood Park, Albertaand Fort McMurray, Alberta. Streamline is a recognized name within its industry and is known for its quality work and its safety record. The Company's main services are:

* Energy Infrastructure Civil Construction, including - Excavation - Drainage - Construction of roadways and pads - Maintenance of roadways (including snow removal and dust control) - General site services;



* Mechanical installation services;

* Construction and maintenance of temporary facilities;

* Underground sewer, water, gas and communications infrastructure installation services;

* Manufacturing and installation of potable water and sewage systems;

* Materials management; * Clearing and grubbing; and * Vacuum truck services.



"We are very excited about our partnership with Streamline," commented John Mackay Executive Chairman and CEO. Mr. Mackay added, "Doug Bach, Justin Bach and Leanne Bach have done an excellent job of creating a leading provider of site maintenance services to major oil sands projects in Alberta. Currently approximately $1 billion dollars is spent on oil sands projects every two weeks and the length of projects extends into decades. We are excited to work with the team at Streamline and continue to grow and expand this successful business."

"We are also pleased to announce our first quarter financial results for the period ended March 31, 2014. Our comparative period in 2013 was a particularly high bench mark due to the inclusion of a gain on sale of $2.2 million dollars related to the sale of two warehouses by First West," commented Mr. Mackay. He added, "The extreme cold weather in Canada made for a slow start to the year, however late in the quarter most of our subsidiaries were able to put that behind them and get back to dealing with the backlog of work. Overall we are pleased with how our subsidiaries are operating and have seen activity coming back to historic levels. As we continue to acquire new businesses our seasonality of revenue and cash flow may be reduced. To date we have the strongest deal flow that we have seen in the history of the company and with the addition of our new $25 million acquisition credit line and a strong balance sheet we are well positioned for growth."

First Quarter 2014 Financial and Operational Highlights

* Preferred Security Payout Ratio3 of 74% for the 3 month period ended March 31, 2014;

* The acquisition of a 70% interest in the business being carried on by Streamline for $13.2 million cash including the initial purchase price of $12.6 million and the purchase of some additional assets for $0.6 million, the assumption by the partnership of $4 million of debt and up to $3.5 million in contingent consideration over the next 3 years.

Selected First Quarter 2014 Highlights

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All amounts are  in thousands except %       2014                2013 and share data                                                 (note) ------------------------------------------------------------------------- Revenue                                    $22,613            $21,102 ------------------------------------------------------------------------- Net Income and Comprehensive Income         $1,236             $4,622 ------------------------------------------------------------------------- Adjusted EBITDA(1)                          $3,182             $6,510 ------------------------------------------------------------------------- Cash Flow prior to non-cash                 $2,742             $3,665 working capital       ------------------------------------------------------------------------- Free Cash Flow(2)                           $2,558             $4,893 ------------------------------------------------------------------------- Decrease/increase in  Free  Cash  Flow  per   -48%              +115% common share (diluted) to  the  prior  year quarter ------------------------------------------------------------------------- Adjusted Return on Common Equity(4)            49%                64% -------------------------------------------------------------------------



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Note:

On February 1, 2013 Mosaic announced that its wholly owned subsidiary FWPLP completed the sale of its Decade warehouse located at 1820, 31st Street North and its Braman warehouse located at 2930, 9th Avenue North, both in Lethbridge, Alberta.  The two warehouses were sold for aggregate consideration of $14,700 which resulted in a gain on sale of real estate of $2,249.  This gain resulted in a positive impact on income from continuing operations before tax, Adjusted EBITDA and Free Cash Flow in 2013.  Gains of this nature within the Real Estate segment are unpredictable as to timing of occurrence and magnitude.

RECONCILIATIONS FOR NON-IFRS FINANCIAL MEASURES

Adjusted EBITDA and Free Cash Flow:

The following tables reconcile both Adjusted EBITDA and Free Cash Flow to income from continuing operations before tax, which is the most directly comparable measure under IFRS to each of those non-IFRS financial measures:

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Three

                                                            

months

                                                            

ended

                                                            Mar

31,

                                                                  2013

                                                        2014    

(note)

      -------------------------------------------------------------------

      Income from continuing                           1,528     $5,439       operations before tax                             Amortization                       1,048       640                      Accretion                             21        38                      Securities-based compensation        494       328                      Non-operating items                               (Gain) loss on sale of                               equipment                     -        20                      Finance income                       (31)      (50)                      Finance expense                      122        95       -------------------------------------------------------------------       Adjusted EBITDA                                  $3,182    $6,510       -------------------------------------------------------------------                                                              Three                                                               months                                                                ended                                                               Mar 31,                                                                     2013                                                          2014      (note)       -------------------------------------------------------------------       Adjusted EBITDA                                  $3,182     $6,510                      Non-controlling interest of         (282)      (955)                      Adjusted EBITDA                                          Mosaic's share of current income    (269)      (438)                      tax expense                                                    Mosaic's share of Sustaining         (73)      (224)                      Capital Expenditures                       -------------------------------------------------------------------       FREE CASH FLOW                                   $2,558     $4,893       -------------------------------------------------------------------



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Note:

On February 1, 2013 Mosaic announced that its wholly owned subsidiary FWPLP completed the sale of its Decade warehouse located at 1820, 31st Street North and its Braman warehouse located at 2930, 9th Avenue North, both in Lethbridge, Alberta.  The two warehouses were sold for aggregate consideration of $14,700 which resulted in a gain on sale of real estate of $2,249.  This gain resulted in a positive impact on income from continuing operations before tax, Adjusted EBITDA and Free Cash Flow in 2013.  Gains of this nature within the Real Estate segment are unpredictable as to timing of occurrence and magnitude.

Adjusted Return on Common Equity compared to IFRS measure:

There is no IFRS measure comparable to Adjusted Return on Common Equity. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before tax.  Accordingly, dividing (i) income from continuing operations before tax less distributions/dividends declared to holders of preferred securities and series "A" shares, in each case during the twelve-month rolling period ending March 31, 2014, by (ii) weighted average common shareholders' equity for the same period, yields a ratio of 15% (2013 - 50%) for such twelve-month period.

Preferred Security Payout Ratio compared to IFRS measure:

There is no IFRS measure comparable to Preferred Security Payout Ratio. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before tax.  Accordingly, dividing the total amount of distributions/dividends declared to holders of Mosaic preferred securities and series "A" shares during the period by income from continuing operations before tax for the period, for each of the three months periods ended March 31, 2014 and 2013, yields payout ratios of 123% and 34% respectively.  

Combined Payout Ratio compared to IFRS measure:

There is no IFRS measure comparable to Combined Payout Ratio. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before tax.  Accordingly, dividing the total amount of distributions/dividends declared to holders of Mosaic preferred securities, series "A" shares and common shares during the period by income from continuing operations before tax for the period, for each of the three months periods ended March 31, 2014 and 2013, yields payout ratios of 157% and 39% respectively.

Three-Month Financial Highlights

Revenue for the three months ended March 31, 2014 increased 7% or $1,511 to $22,613 when compared to the same period in 2013, primarily due to the addition of revenue from Industrial Scaffold which was acquired on September 1, 2013.  The above increase was partially offset by a decrease in revenue at Ambassador due to project delays and Manitoba experiencing its coldest winter in 88 years.

Adjusted EBITDA for the three months ended March 31, 2014 decreased 51% or $3,328 to $3,182 when compared to the same period in 2013. The following were the major contributing factors between the periods in 2014 compared to 2013:

* The primary factor was that during the three-month period ended March 31, 2013 the Real Estate segment realized a $2,249 gain as a result of the sale of the two properties in February 2013, and during the three month period ended March 31, 2014 did not realize any gains as no properties were sold during the period.  This accounted for the majority of the decrease in Adjusted EBITDA during the period.

* During the three-month period ended March 31, 2014, Ambassador experienced a slight decrease in income as a result of project delays resulting from adverse weather conditions which accounted for the underutilization of direct labour and increased operating costs during the first part of the quarter.  However, in the month of March 2014 the Company saw work trends for Ambassador improve to reasonable levels. Over the same period Ambassador's backlog has increased from approximately $40,000 to over $60,000.

* During the three-month period ended March 31, 2014, Industrial Scaffold experienced typical winter seasonality, and a delay in starting a project by a client as a result of a 28 day work stoppage by truck drivers servicing Port Metro Vancouver.  Industrial Scaffold was acquired on September 1, 2013 and therefore does not have comparable period results.

Free Cash Flow for the three-month period ended March 31, 2014 decreased 48% or $2,335 to $2,558 when compared to the same period in 2013. The primary reason for this decrease was the Real Estate gain realized in 2013 of $2,249 which accounted for 94% of this decrease. These factors were partially offset by a decrease in the non-controlling interest of Adjusted EBITDA and the reduction of Mosaic's share of current income tax expense.

Non-IFRS Financial Measures

Below are definitions of key performance indicators used by management of Mosaic that are not recognized under IFRS and have no standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other issuers.

(1)Adjusted EBITDA:  is defined as Income from continuing operations before tax and before (i) gain (loss) on sale of equipment; (ii) non-cash expenses such as amortization; (iii) finance income and expenses; (iv) securities compensation expense; and (v) any unusual non-operating one-time items such as acquisition and reorganization costs. Adjusted EBITDA is used by management to assess Mosaic's normalized cash generated on a consolidated basis and in its operating segments. Adjusted EBITDA is also a performance measure which may be utilized by investors to analyze the cash generated by Mosaic and its operating segments.

(2)Free Cash Flow:  is defined as Adjusted EBITDA less (i) non-controlling interest of Adjusted EBITDA; (ii) Mosaic's share of current income tax expense; and (iii) Mosaic's share of the Sustaining Capital Expenditures. Free Cash Flow is a performance measure used by management to summarize the funds available for (i) the payment of distributions to holders of preferred securities, series "A" shares and common shares; (ii) investment in capital expenditures made to grow the enterprise; (iii) new acquisitions and working capital.

Sustaining Capital Expenditures:  is defined as capital expenditures required to sustain the operations of Mosaic at its current level of operations and is calculated by subtracting those capital expenditures which are, as determined in the discretion of management, made to grow the enterprise and expected to generate additional Adjusted EBITDA from total capital expenditures for the period. An example of Sustaining Capital Expenditures would be the replacement of vehicles that have completed their useful life.

(3)Preferred Security Payout Ratio:  means that number, expressed as a percentage, which is the total amount paid (including dividends, cash paid and satisfied by the issuance of preferred securities pursuant to Mosaic's distribution reinvestment plan) to holders of preferred securities and series "A" shares during the period divided by Free Cash Flow for the period. Management believes that this measure may be useful to investors in assessing the likelihood that Mosaic is able to continue to make distributions on preferred securities and series "A" shares.

(4)Adjusted Return on Common Equity: means that number, expressed as a percentage, that is obtained by dividing (i) Free Cash Flow less distributions declared to holders of preferred securities and series "A" shares during the period indicated by (ii) weighted average Common Shareholders' equity for the period. Management believes Adjusted Return on Common Equity is a key performance measure as it indicates the return generated by Mosaic on its common equity.

Restricted Securities Units

In 2013 Mosaic previously conditionally issued, as part of its variable compensation incentive program (the "Plan"), restricted securities units ("RSUs") to its executive officers and certain employees. The RSUs conditionally issued were both RSUs to be settled for common shares as well as RSUs to be settled for preferred securities. The terms of the Plan provide that the RSUs conditionally issued to each Plan participant are subject to cancellation in whole or in part based upon (i) Mosaic's subsequent determination of the actual amount of variable compensation earned by a participant for a fiscal year (which is based upon the attainment of personal performance and corporate performance over the fiscal year), and (ii) certain elections and allocations made by the participant, both of which then determine the number of RSUs which shall remain issued and outstanding to the benefit of the participant. All remaining RSUs conditionally issued to the participant in that fiscal year will then be terminated and cancelled. The RSUs are to be settled on a one-for-one basis for the underlying security.

Mosaic today reports that based upon Mosaic's determination of actual variable compensation entitlements earned by participants under the Plan for the fiscal year 2013, and following certain elections made by the participants, the number of RSUs which remain issued and outstanding in respect of the 2013 issuances are (i) 106,636 RSUs to be settled for 106,636 common shares, each at a settlement price of $6.02 per share, (ii) 4,647 RSUs to be settled for 4,647 common shares, each at a settlement price of $7.82 per share, and (iii) 8,141 RSUs to be settled for 8,141 preferred securities, each at a settlement price of $11.41 per security. The RSUs will vest yearly in three equal tranches with the first tranche vesting immediately.

ABOUT MOSAIC CAPITAL CORPORATION

Mosaic is an investment company based in western Canada that owns a portfolio of established businesses with competitive advantages that have a history of generating cash flow from their operations. Mosaic's objective is to create long term value for our shareholders and business partners and to have that reflected in our share price. We believe that this is achieved by growing free cash flow per share and retained earnings. We do this by acquiring businesses that we understand at attractive prices and we manage our risk through extensive due diligence, creative transaction structuring and working closely with our businesses after acquisition.

FOR FURTHER INFORMATION PLEASE CONTACT:

Tim Taylor Vice President Mosaic Capital Corporation 400, 2424 - 4th Street SW Calgary, AB T2S 2T4 Tel:  (403) 270-4658



Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Forward-Looking Information

This news release contains forward-looking information and statements within the meaning of applicable Canadian securities laws (herein referred to as "forward-looking statements") that involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. All information and statements in this press release which are not statements of historical fact may be forward-looking statements. The words "believe", "expect", "intend", "estimate", "anticipate", "project", "scheduled", and similar expressions, as well as future or conditional verbs such as "will", "should", "would", and "could" often identify forward-looking statements. In particular this news release may contain forward-looking statements regarding anticipated financial and operating performance for Mosaic. Such statements or information, if any, are only predictions and reflect the current beliefs of management with respect to future events and are based on information currently available to management. Actual results and events may differ materially from those contemplated by these forward-looking statements due to these statements being subject to a number of risks and uncertainties. Undue reliance should not be placed on these forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature forward-looking statements involve assumptions and known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, projections and other forward-looking statements will not occur. A number of factors could cause actual results to differ materially from the results stated in the forward-looking statements, including, but not limited to, risks related to: general economic and business conditions; the failure of Mosaic to identify acquisition targets or complete announced acquisitions; third parties honouring their contractual obligations with Mosaic and its subsidiaries; results of management's ongoing efforts to sell, re-lease, lease, develop and improve real estate owned and being acquired indirectly by Mosaic through its subsidiaries; the failure to realize the anticipated benefits of Mosaic's recent and future acquisitions; adverse fluctuations in commodity prices; competition for, among other things, capital, equipment and skilled personnel; the inability to generate sufficient cash flow from operations to meet current and future obligations; the inability to obtain required debt and/or equity capital on suitable terms; competition for acquisition targets; supply disruptions; adverse weather conditions; seasonality and fluctuations in results; and limited diversification of Mosaic's subsidiaries. Should any of the risks or uncertainties facing Mosaic and its subsidiaries materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance, activities or achievements could vary materially from those expressed or implied by the forward-looking statements contained in this news release.

Readers are cautioned that the foregoing list of risks is not exhaustive. Additional information on these and other factors that could affect the operations or financial results of Mosaic and its subsidiaries are included in Mosaic's annual information form for the year ended December 31, 2013 which has been filed under Mosaic's profile on SEDAR (www.sedar.com).

Although Mosaic believes that the expectations represented by any forward-looking-statements contained herein are reasonable based on the information available to them on the date of this news release, management cannot assure investors that actual results, performance or achievements will be consistent with these forward-looking statements. Any forward-looking statements herein contained are made as of the date of this press release and Mosaic does not assume any obligation to update or revise them to reflect new information, events or circumstances, except as required by law.

To view this press release as a PDF file, click onto the following link: http://www.fscwire.com/sites/default/files/news_release_pdf/MosaicJune22014.pdf

Source: Mosaic Capital Corporation (TSXV: M - TSXV: M.PR.A) Maximum News Dissemination by FSCwire. http://www.fscwire.com


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