Sprott | 2020 Annual Report
Contrarian. Innovative. Aligned.
A Global Leader in
Precious Metals Investments
Sprott provides investors with access to highly-differentiated
precious metals strategies.
We are specialists. Our in-depth knowledge, experience and
relationships separate us from the generalists. Sprott’s specialized
investment products include innovative physical bullion trusts,
managed equities, mining ETFs, as well as private equity and debt
strategies. We also partner with natural resource companies to
help meet their capital needs through our brokerage and resource
lending activities. Sprott is a global asset manager with offices
in Toronto, New York and London. Sprott’s common shares are
listed on the New York Stock Exchange and the Toronto Stock
Exchange under the symbol “SII”.
Table of Contents
Letter to shareholders
Management's Discussion and Analysis
Management's Responsibility for Financial Reporting
Independent Auditors' Report
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
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(cid:4)
Management's Discussion and Analysis
Years ended December 31, 2020 and 2019
3
Forward looking statements
Certain statements in this Management's Discussion & Analysis ("MD&A"), and in particular the "Business Performance Highlights" section and "Outlook" section,
contain forward-looking information and forward-looking statements (collectively referred to herein as the "Forward-Looking Statements") within the meaning of
applicable Canadian and U.S. securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should",
"believe", "plans", "intends" and similar expressions are intended to identify Forward-Looking Statements. In particular, but without limiting the forgoing, this
MD&A contains Forward-Looking Statements pertaining to: (i) the belief that distortion in financial asset valuations is now so extreme that there has never been a
stronger argument for investors to hold non-correlated assets, such as precious metals and their related equities, in their portfolios; (ii) the belief that there will be a
rotation of investor capital into precious metal equities; (iii) the commitment to extend the company’s reach by increasing our presence in key markets such as Europe
and Asia; (iv) the expectation of expanding the client base with the launch of complementary new investment strategies in 2021; (v) the belief that 2021 will be a
great year for the company, as it continues to strive to be the world’s leading precious metals investment firm; (vi) continued strength in global precious metals pricing
and mining equities markets throughout 2021; (vii) anticipation of flat-to-lower AUM in our lending segment as capital calls into new lending LPs are offset by capital
distributions from older lending LPs that will be wound up later in the year, including the expectation of crystallized material carried interest gains from those LPs;
(viii) anticipation of mining sector equity origination and M&A activity to remain constructive in 2021; (ix) at a consolidated level, the belief that the aforementioned
segment level results will lead to another strong year for Sprott Inc. as far as continued earnings growth and strong operating margins; (x) expectation of the effects
of COVID-19, and in particular, world government responses thereto via fiscal and monetary policy, will continue to be highly constructive to precious metals markets;
and (xi) the declaration, payment and designation of dividends and confidence that our business will support the dividend level without impacting our ability to fund
future growth initiatives.
Although the Company believes that the Forward-Looking Statements are reasonable, they are not guarantees of future results, performance or achievements. A
number of factors or assumptions have been used to develop the Forward-Looking Statements, including: (i) the impact of increasing competition in each business in
which the Company operates will not be material; (ii) quality management will be available; (iii) the effects of regulation and tax laws of governmental agencies will
be consistent with the current environment; and (iv) those assumptions disclosed herein under the heading "Critical Accounting Estimates, Judgments and Changes in
Accounting Policies". Actual results, performance or achievements could vary materially from those expressed or implied by the Forward-Looking Statements should
assumptions underlying the Forward-Looking Statements prove incorrect or should one or more risks or other factors materialize, including: (i) difficult market
conditions; (ii) poor investment performance; (iii) failure to continue to retain and attract quality staff; (iv) employee errors or misconduct resulting in regulatory
sanctions or reputational harm; (v) performance fee fluctuations; (vi) a business segment or another counterparty failing to pay its financial obligation; (vii) failure of
the Company to meet its demand for cash or fund obligations as they come due; (viii) changes in the investment management industry; (ix) failure to implement
effective information security policies, procedures and capabilities; (x) lack of investment opportunities; (xi) risks related to regulatory compliance; (xii) failure to
manage risks appropriately; (xiii) failure to deal appropriately with conflicts of interest; (xiv) competitive pressures; (xv) corporate growth which may be difficult to
sustain and may place significant demands on existing administrative, operational and financial resources; (xvi) failure to comply with privacy laws; (xvii) failure to
successfully implement succession planning; (xviii) foreign exchange risk relating to the relative value of the U.S. dollar; (xix) litigation risk; (xx) failure to develop
effective business resiliency plans; (xxi) failure to obtain or maintain sufficient insurance coverage on favourable economic terms; (xxii) historical financial information
being not necessarily indicative of future performance; (xxiii) the market price of common shares of the Company may fluctuate widely and rapidly; (xxiv) risks relating
to the Company’s investment products; (xxv) risks relating to the Company's proprietary investments; (xxvi) risks relating to the Company's lending business; (xxvii)
risks relating to the Company’s brokerage business; (xxviii) those risks described under the heading "Risk Factors" in the Company’s annual information form dated
February 25, 2021; and (xxix) those risks described under the headings "Managing Risk: Financial" and "Managing Risk: Non-Financial" in this MD&A. In addition,
the payment of dividends is not guaranteed and the amount and timing of any dividends payable by the Company will be at the discretion of the Board of Directors of
the Company and will be established on the basis of the Company’s earnings, the satisfaction of solvency tests imposed by applicable corporate law for the
declaration and payment of dividends, and other relevant factors. The Forward-Looking Statements speak only as of the date hereof, unless otherwise specifically
noted, and the Company does not assume any obligation to publicly update any Forward-Looking Statements, whether as a result of new information, future events
or otherwise, except as may be expressly required by applicable securities laws.
Management's discussion and analysis
This MD&A of financial condition and results of operations, dated February 25, 2021, presents an analysis of the consolidated
financial condition of the Company and its subsidiaries as at December 31, 2020, compared with December 31, 2019, and the
consolidated results of operations for the three and twelve months ended December 31, 2020, compared with the three and twelve
months ended December 31, 2019. The board of directors approved this MD&A on February 25, 2021. All note references in this
MD&A are to the notes to the Company's December 31, 2020 audited annual consolidated financial statements ("annual financial
statements"), unless otherwise noted. The Company was incorporated under the Business Corporations Act (Ontario) on February 13,
2008.
Presentation of financial information
The financial statements, including the required comparative information, have been prepared in accordance with International
Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). Financial results,
including related historical comparatives contained in this MD&A, unless otherwise specified herein, are based on the annual financial
statements. While the Company’s functional currency is the Canadian dollar, its presentation currency has changed to US dollars
effective January 1, 2020, with the prior period figures restated accordingly. We believe the US dollar better reflects the Company’s
consolidated financial position and results of operations given the materiality of revenues denominated in US dollars that further
increased in 2020 with the January 17, 2020 close of the Tocqueville Asset Management gold strategies acquisition (the
"Acquisition"). Accordingly, all dollar references in this MD&A are in US dollars, unless otherwise specified. The use of the term "prior
period" refers to the three and twelve months ended December 31, 2019.
4
Key performance indicators (non-IFRS financial measures)
The Company measures the success of its business using a number of key performance indicators that are not measurements in
accordance with IFRS and should not be considered as an alternative to net income (loss) or any other measure of performance
under IFRS. Non-IFRS financial measures do not have a standardized meaning prescribed by IFRS and are therefore unlikely to
be comparable to similar measures presented by other issuers. Our key performance indicators are discussed below:
Assets under management
Assets under management ("AUM") refers to the total net assets managed by the Company through its various investment
product offerings, managed accounts and managed companies.
Net inflows
Net inflows (consisting of net sales, capital calls and fee earning capital commitments) result in changes to AUM and are
described individually below:
Net sales
Fund sales (net of redemptions), including 'at-the-market' transactions and secondary offerings of our physical trusts and
new 'creations' of ETF units, are a key performance indicator as new assets being managed will lead to higher management
fees and can potentially lead to increased carried interest and performance fee generation (as applicable) given that AUM is
also the basis upon which carried interest and performance fees are calculated.
Capital calls and commitments
Capital calls into our lending LPs are a key source of AUM creation, and ultimately, earnings for the Company. Once capital
is called into our lending LPs, it is included within the AUM of the Company as it will now earn a management fee (NOTE: it
is possible for some forms of committed capital to earn a commitment fee despite being uncalled, in which case, it will also
be included in AUM at that time). Conversely, once loans in our lending LPs are repaid, capital may be returned to investors
in the form of a distribution, thereby reducing our AUM ("capital distributions").
Net fees
Management fees (net of trailer and sub-advisor fees) and carried interest and performance fees (net of carried interest and
performance fee payouts) are key revenue indicators as they represent the net revenue contribution after directly associated
costs that we generate from our AUM.
Net commissions
Commissions, net of commission expenses, arise primarily from the transaction based service offerings of our brokerage
segment.
Net compensation
Net compensation excludes commissions, carried interest and performance fee payouts, which are presented net of their related
revenues in this MD&A, and severance and new hire accruals which are non-recurring.
Total shareholder return
Total shareholder return is the financial gain (loss) that results from the change in the Company's share price, plus any dividends
paid over the period.
Return on capital
Return on capital is calculated as adjusted base EBITDA, plus gain (loss) on investments divided by capital stock plus
outstanding loan facility.
5
EBITDA, adjusted EBITDA, adjusted base EBITDA and operating margin
EBITDA in its most basic form is defined as earnings before interest expense, income taxes, depreciation and amortization.
EBITDA is a measure commonly used in the investment industry by management, investors and investment analysts in
understanding and comparing results by factoring out the impact of different financing methods, capital structures, amortization
techniques and income tax rates between companies in the same industry. While other companies, investors or investment
analysts may not utilize the same method of calculating EBITDA (or adjustments thereto), the Company believes its adjusted
base EBITDA metric, in particular, results in a better comparison of the Company's underlying operations against its peers and a
better indicator of recurring results from operations as compared to other non-IFRS financial measures.
Neither EBITDA, adjusted EBITDA or adjusted base EBITDA have standardized meaning under IFRS. Consequently, they should
not be considered in isolation, nor should they be used in substitute for measures of performance prepared in accordance with
IFRS.
The following table outlines how our EBITDA, Adjusted EBITDA and Adjusted base EBITDA measures are determined:
(in thousands $)
Net income for the periods
Adjustments:
Interest expense
Provision for income taxes
Depreciation and amortization
EBITDA
Other adjustments:
(Gain) loss on investments (1)
Non-cash stock-based compensation
Other expenses (2)
Adjusted EBITDA
Other adjustments:
3 months ended
12 months ended
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
6,720
1,445
26,978
10,209
331
2,561
1,023
10,635
3,089
1,307
4,266
19,297
269
948
1,254
3,916
1,422
648
2,274
8,260
1,237
7,684
4,052
1,036
2,741
3,795
39,951
17,781
(5,109)
2,835
11,035
48,712
1,055
3,863
7,123
29,822
Carried interest and performance fees
(10,075)
(1,811)
(10,075)
(1,811)
Carried interest and performance fee related expenses
Adjusted base EBITDA
Operating margin (3)
5,529
14,751
992
7,441
5,529
44,166
992
29,003
51 %
38 %
49 %
38 %
(1) This adjustment removes the income effects of certain gains or losses on short-term investments, co-investments, and digital gold strategies to ensure the reporting objectives
of our EBITDA metric as described above are met.
(2) In addition to the items outlined in Note 5 of the annual financial statements, Other expenses also include severance and new hire accruals of $0.1 million for the 3 months
ended (3 months ended December 31, 2019 - $0.2 million) and $1.3 million for the 12 months ended (12 months ended December 31, 2019 - $1.1 million) and excludes
income attributable to non-controlling interests of $0.3 million for the 3 months ended (3 months ended December 31, 2019 - $Nil) and $0.8 million for the 12 months
ended (12 months ended December 31, 2019 - $Nil) (see Other expenses in Note 5 of the financial statements).
(3) Calculated as adjusted base EBITDA inclusive of depreciation and amortization, and excluding income related to legacy balance sheet loans. This figure is then divided by
revenues before gains (losses) on investments, net of direct costs as applicable.
6
Business overview
Our reportable operating segments are as follows:
Exchange listed products
•
The Company's closed-end physical trusts and exchange traded funds ("ETFs").
Managed equities
•
The Company's alternative investment strategies managed in-house and on a sub-advised basis.
Lending
•
The Company's lending and streaming activities occur through limited partnership vehicles ("lending LPs").
Brokerage
•
The Company's regulated broker-dealer activities (equity origination, corporate advisory, sales and trading).
Corporate
•
Provides the Company's operating segments with capital, balance sheet management and other shared services.
All other segments
•
Contains all non-reportable segments as per IFRS 8, Operating Segments ("IFRS 8"). See Note 14 of the annual
financial statements for further details.
For a detailed account of the underlying principal subsidiaries within our reportable business segments, refer to the Company's Annual Information Form and Note 2 of the
annual financial statements.
7
(cid:32)(cid:41)(cid:54)(cid:42)(cid:51)(cid:54)(cid:49)(cid:37)(cid:50)(cid:39)(cid:41)(cid:1)(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:45)(cid:43)(cid:44)(cid:56)(cid:55)
(cid:31)(cid:59)(cid:64)(cid:51)(cid:64)(cid:53)(cid:59)(cid:51)(cid:62)(cid:1)(cid:58)(cid:59)(cid:57)(cid:58)(cid:62)(cid:59)(cid:57)(cid:58)(cid:70)(cid:69)
+ 88%
AUM
from Dec 31, 2019
2020: $17.4 billion
2019: $9.3 billion
+ 52%
Adjusted base EBITDA
from Dec 31, 2019
+ 224%
AUM
from Dec 31, 2015
2020: $17.4 billion
2015: $5.4 billion
+ 241%
Adjusted base EBITDA
from Dec 31, 2015
+ 4%
Return on capital
from Dec 31, 2019
2020: 11%
2019: 7%
28%
+ 9%
Return on capital
from Dec 31, 2015
2020: 11%
2015: 2%
81%
1-year total shareholder return
as at Dec 31, 2020
5-year total shareholder return
as at Dec 31, 2020
2020: $44.2 million (49% operating margin)
2019: $29 million (38% operating margin)
2020: $44.2 million (49% operating margin)
2015: $13 million (3% operating margin)
Added to TSX Composite and TSX30
Listed on NYSE and raised dividends by 8.7%
Added to TSX Composite and TSX30
Listed on NYSE and raised dividends by 8.7%
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(cid:63)(cid:51)(cid:64)(cid:51)(cid:57)(cid:55)(cid:63)(cid:55)(cid:64)(cid:70)(cid:1) (cid:52)(cid:55)(cid:1) (cid:53)(cid:65)(cid:63)(cid:66)(cid:55)(cid:64)(cid:69)(cid:51)(cid:70)(cid:55)(cid:54)(cid:1) (cid:63)(cid:65)(cid:68)(cid:55)(cid:1) (cid:70)(cid:65)(cid:73)(cid:51)(cid:68)(cid:54)(cid:69)(cid:1) (cid:72)(cid:51)(cid:68)(cid:59)(cid:51)(cid:52)(cid:62)(cid:55)(cid:1) (cid:51)(cid:70)(cid:11)(cid:68)(cid:59)(cid:69)(cid:61)(cid:1) (cid:66)(cid:51)(cid:75)(cid:1) (cid:7)(cid:51)(cid:64)(cid:64)(cid:71)(cid:51)(cid:62)(cid:1) (cid:59)(cid:64)(cid:53)(cid:55)(cid:64)(cid:70)(cid:59)(cid:72)(cid:55)(cid:1) (cid:66)(cid:62)(cid:51)(cid:64)(cid:25)(cid:1) (cid:2)(cid:26)(cid:34)(cid:41)(cid:2)(cid:8)(cid:1) (cid:51)(cid:64)(cid:54)(cid:1) (cid:62)(cid:65)(cid:64)(cid:57)(cid:11)(cid:70)(cid:55)(cid:68)(cid:63)(cid:1) (cid:69)(cid:70)(cid:65)(cid:53)(cid:61)(cid:1)
(cid:59)(cid:64)(cid:53)(cid:55)(cid:64)(cid:70)(cid:59)(cid:72)(cid:55)(cid:69)(cid:1)(cid:7)(cid:62)(cid:65)(cid:64)(cid:57)(cid:11)(cid:70)(cid:55)(cid:68)(cid:63)(cid:1)(cid:59)(cid:64)(cid:53)(cid:55)(cid:64)(cid:70)(cid:59)(cid:72)(cid:55)(cid:1)(cid:66)(cid:62)(cid:51)(cid:64)(cid:25)(cid:1)(cid:2)(cid:37)(cid:45)(cid:34)(cid:41)(cid:2)(cid:8)
(cid:33)(cid:59)(cid:68)(cid:55)(cid:54)(cid:1)(cid:51)(cid:64)(cid:1)(cid:59)(cid:64)(cid:54)(cid:55)(cid:66)(cid:55)(cid:64)(cid:54)(cid:55)(cid:64)(cid:70)(cid:1)(cid:51)(cid:71)(cid:54)(cid:59)(cid:70)(cid:1)(cid:56)(cid:59)(cid:68)(cid:63)(cid:1)(cid:70)(cid:65)(cid:1)(cid:53)(cid:65)(cid:64)(cid:54)(cid:71)(cid:53)(cid:70)(cid:1)(cid:51)(cid:1)(cid:16)(cid:14)(cid:16)(cid:15)(cid:1)(cid:68)(cid:55)(cid:72)(cid:59)(cid:55)(cid:73)(cid:1)(cid:65)(cid:56)(cid:1)(cid:65)(cid:71)(cid:68)(cid:1)(cid:53)(cid:75)(cid:52)(cid:55)(cid:68)(cid:69)(cid:55)(cid:53)(cid:71)(cid:68)(cid:59)(cid:70)(cid:75)(cid:1)(cid:56)(cid:68)(cid:51)(cid:63)(cid:55)(cid:73)(cid:65)(cid:68)(cid:61)(cid:1)(cid:51)(cid:57)(cid:51)(cid:59)(cid:64)(cid:69)(cid:70)(cid:1)(cid:70)(cid:58)(cid:55)(cid:1)(cid:52)(cid:55)(cid:69)(cid:70)(cid:1)(cid:66)(cid:68)(cid:51)(cid:53)(cid:70)(cid:59)(cid:53)(cid:55)(cid:69)(cid:1)(cid:64)(cid:65)(cid:70)(cid:55)(cid:54)(cid:1)
(cid:59)(cid:64)(cid:1)(cid:70)(cid:58)(cid:55)(cid:1)(cid:39)(cid:51)(cid:70)(cid:59)(cid:65)(cid:64)(cid:51)(cid:62)(cid:1)(cid:34)(cid:64)(cid:69)(cid:70)(cid:59)(cid:70)(cid:71)(cid:70)(cid:55)(cid:1)(cid:65)(cid:56)(cid:1)(cid:44)(cid:70)(cid:51)(cid:64)(cid:54)(cid:51)(cid:68)(cid:54)(cid:69)(cid:1)(cid:5)(cid:1)(cid:45)(cid:55)(cid:53)(cid:58)(cid:64)(cid:65)(cid:62)(cid:65)(cid:57)(cid:75)(cid:1)(cid:28)(cid:75)(cid:52)(cid:55)(cid:68)(cid:69)(cid:55)(cid:53)(cid:71)(cid:68)(cid:59)(cid:70)(cid:75)(cid:1)(cid:31)(cid:68)(cid:51)(cid:63)(cid:55)(cid:73)(cid:65)(cid:68)(cid:61)(cid:1)(cid:7)(cid:2)(cid:39)(cid:34)(cid:44)(cid:45)(cid:1)(cid:31)(cid:68)(cid:51)(cid:63)(cid:55)(cid:73)(cid:65)(cid:68)(cid:61)(cid:2)(cid:8)
(cid:10)
Outlook
Our businesses
We anticipate continued strength in global precious metals and mining equities markets throughout 2021, which benefits our
exchange listed products and managed equities segments. However, we anticipate flat-to-lower AUM in our lending segment as
capital calls into new lending LPs are offset by capital distributions from older lending LPs that will be wound up later in the year
(at which time, we would expect to crystallize material carried interest gains from those LPs). On the transactions side of the
business, we anticipate mining sector equity origination and M&A activity to remain constructive in 2021, which benefits our
brokerage segment.
At a consolidated level, we believe the aforementioned segment level results will lead to another strong year for Sprott Inc. in
terms of continued earnings growth and strong operating margins.
Acquisition update
On January 17, 2020, the Company closed on the acquisition of Tocqueville Asset Management's gold fund strategies. The
Acquisition cost was $15 million and contingent consideration up to $35 million was payable over the two years following the
close of the Acquisition, subject to the achievement of certain financial performance conditions.
Subsequent to year-end, Sprott successfully negotiated an amendment to the original terms of the purchase agreement. In lieu
of any contingent consideration entitlement for the 2020 and 2021 fiscal years, the vendor accepted a final payment from Sprott
of $30 million ($27 million in cash and $3 million in Sprott Inc. common shares). This enabled Sprott to lock-in the total
acquisition price and return on investment economics going into 2021 and further enabled Sprott to retain the full benefits of
any additional increase in AUM expected over 2021.
COVID-19 update
The changing economic and market climate as a result of COVID‑19 has led to the Company implementing its business
continuity plan. Our portfolio managers, brokerage professionals, enterprise shared services teams and key outsource service
providers are fully operational. While the exact impacts of COVID-19 over the short and long-term are undeterminable at the
date of this report, management believes the effects of COVID-19 we have witnessed thus far, and in particular, world
government responses thereto via fiscal and monetary policy, will continue to be highly constructive to precious metals markets
as we progress into 2021.
9
Summary financial information
(In thousands $)
Summary income statements
Management fees
Carried interest and performance fees
less: Trailer and sub-advisor fees
less: Carried interest and performance fee payouts
Net fees
Commissions
less: Commission expense
Net commissions
Finance income (1)
Q4
2020
Q3
2020
Q2
2020
Q1
2020
Q4
2019
Q3
2019
Q2
2019
Q1
2019
22,032
10,075
371
5,529
19,934
15,825
15,125
10,685
10,577
9,962
10,195
—
291
—
—
326
—
—
154
—
1,811
966
86
—
50
—
—
67
—
—
—
—
26,207
19,643
15,499
14,971
11,444
10,527
9,895
10,195
6,761
2,788
3,973
1,629
9,386
3,789
5,597
757
6,133
2,377
3,756
656
5,179
1,870
3,309
914
6,599
2,658
3,941
2,481
6,056
2,654
3,402
2,561
600
91
3,293
1,356
1,937
3,435
(408)
93
3,315
1,386
1,929
2,946
5
77
Gain (loss) on investments
(3,089)
4,408
8,142
(4,352)
(1,252)
Other income
Total net revenues
Compensation
949
914
285
113
364
29,669
31,319
28,338
14,955
16,978
17,181
14,952
15,152
20,193
16,280
10,991
10,125
10,269
9,714
7,463
7,801
less: Carried interest and performance fee payouts
less: Commission expense
less: Severance and new hire accruals
5,529
2,788
65
—
—
—
86
—
—
—
3,789
2,377
1,870
2,658
2,654
1,356
1,386
210
358
667
157
168
650
109
Net compensation
11,811
12,281
8,256
7,588
7,368
6,892
5,457
6,306
Severance and new hire accruals
Placement and referral fees
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses (gain)
Total expenses
Net income
Net Iincome per share (2)
Adjusted base EBITDA
Adjusted base EBITDA per share (2)
65
191
2,439
331
1,023
4,528
210
522
358
246
667
86
157
434
168
114
650
251
109
58
2,523
3,049
3,544
2,986
3,175
3,256
3,062
320
992
4,154
350
1,049
2,893
236
988
(1,081)
269
1,254
2,117
297
893
226
819
244
829
(167)
3,051
1,038
20,388
21,002
16,201
12,028
14,585
11,372
13,710
11,646
6,720
0.27
8,704
10,492
0.36
14,751
12,024
0.60
0.49
1,062
0.04
8,187
0.33
1,445
0.06
7,441
0.31
4,336
0.18
7,612
0.31
1,581
0.06
7,032
0.29
2,847
0.12
6,918
0.28
0.43
9,204
0.38
Operating margin
51 %
47 %
49 %
43 %
38 %
36 %
39 %
39 %
Summary balance sheet
Total assets
Total liabilities
Total AUM
Average AUM
377,348
358,300
338,931
318,318
324,943
325,442
338,530
332,504
86,365
81,069
70,818
65,945
53,313
51,774
68,008
54,009
17,390,389
16,259,184
13,893,039
10,734,831
9,252,515
8,548,982
8,103,723
7,909,488
16,719,815
16,705,046
13,216,415
11,007,781
8,932,651
8,608,001
7,898,334
7,887,089
(1) Finance income includes: (1) co-investment income from lending LP units; (2) ancillary income earned directly or indirectly from lending activities; and (3) interest income from
on-balance sheet loans and brokerage client accounts
(2) Per share amounts for periods before May 28, 2020 reflect retrospective treatment of the 10:1 share consolidation.
10
Results of operations
AUM summary
AUM reached a record $17.4 billion as at December 31, 2020, up $1.1 billion (7%) from September 30, 2020 and up $8.1
billion (88%) from December 31, 2019. On a three and twelve months ended basis, we benefited from strong market value
appreciation across most of our fund products. We also benefited from strong inflows in our physical trusts that more than
offset the anticipated redemption experience in our precious metals strategies post-Acquisition (the Acquisition added $1.7
billion of AUM at time of closing).
3 months results
(In millions $)
Exchange listed products
- Physical trusts
- ETFs
Managed equities
- Precious metals strategies
- Other (4)
Lending (5)
Other (6)
Total (7)
12 months results
(In millions $)
Exchange listed products
- Physical trusts
- ETFs
Managed equities
- Precious metals strategies
- Other (4)
Lending (5)
Other (6)
Total (7)
AUM
Sep. 30, 2020
Net
inflows (1)
Market
value
changes
Other (2)
AUM
Dec. 31, 2020
Blended
management
fee rate (3)
11,131
381
11,512
2,447
312
2,759
906
1,082
201
15
216
(9)
—
(9)
94
87
16,259
388
AUM
Dec. 31, 2019
Net
inflows (1)
6,579
252
6,831
601
350
951
783
688
9,253
2,752
61
2,813
(658)
16
(642)
260
226
2,657
519
(14)
505
41
40
81
18
158
762
Market
value
changes
2,520
69
2,589
795
(14)
781
41
413
3,824
—
—
—
—
—
—
(19)
—
(19)
11,851
382
12,233
2,479
352
2,831
999
1,327
17,390
0.39%
0.35%
0.39%
0.79%
0.92%
0.81%
1.05%
0.79%
0.53%
Other (2)
AUM
Dec. 31, 2020
Blended
management
fee rate (3)
—
—
—
1,741
—
1,741
(85)
—
1,656
11,851
382
12,233
2,479
352
2,831
999
1,327
17,390
0.39%
0.35%
0.39%
0.79%
0.92%
0.81%
1.05%
0.79%
0.53%
(1) See 'Net inflows' in the key performance indicators (non-IFRS financial measures) section of this MD&A.
(2) Includes new AUM from fund acquisitions and lost AUM from fund divestitures and capital distributions of our lending LPs.
(3) Management fee rate represents the net amount received by the Company.
(4) Includes institutional managed accounts.
(5) $1.1 billion of committed capital remains uncalled, of which $0.4 billion earns a commitment fee (AUM), and $0.7 billion does not (future AUM).
(6) Includes Sprott Korea Corp., private equity strategy in Sprott Asia and high net worth discretionary managed accounts in the U.S.
(7) No performance fees are earned on exchange listed products. Performance fees are earned on all precious metals strategies (other than bullion funds) based on returns
above relevant benchmarks. Other managed equities strategies primarily earn performance fees on flow-through products. Lending funds earn carried interest calculated as
a pre-determined net profit over a preferred return.
11
Key revenue lines
Management fees
Management fees were $22 million in the quarter, up $11.3 million from the prior period and were $72.9 million on a full year
basis, up $31.5 million. Performance fees finished the year at $10.1 million, up $8.3 million from the prior period. Net fees were
$26.2 million in the quarter, up $14.8 million from the prior period and were $76.3 million on a full year basis, up $34.3
million. The revenue increases in the quarter and on a full year basis were primarily due to strong net inflows and market value
appreciation in our exchange listed products segment. We also benefited from strong market value appreciation and the
addition of new AUM from the Acquisition in our managed equities segment and higher fees in our lending segment.
Net Fees in thousands $
3 months results
Net Fees in thousands $
12 months results
26,207
2,513
2,198
10,047
11,449
Q4 2020
11,444
754
1,388
2,728
6,574
Q4 2019
76,320
5,379
9,366
23,905
37,670
2020
42,061
3,615
5,646
8,319
24,481
2019
Exchange listed products
Managed equities
Lending
Other
Exchange listed products
Managed equities
Lending
Other
Commission revenues
Commission revenues were $6.8 million in the quarter, up $0.2 million (2%) from the prior period and were $27.5 million on a
full year basis, up $8.2 million (43%). Net commissions were $4 million in the quarter, up slightly from the prior period and
were $16.6 million on a full year basis, up $5.4 million (48%). The increase was due to strong equity origination, sales and
trading activities in our brokerage segment throughout the year.
Finance income
Finance income was $1.6 million in the quarter, down $0.9 million (34%) from the prior period and was $4 million on a full year
basis, down $7.5 million (65%). Finance income primarily includes interest income from our co-investments in LP units and
other ancillary income earned directly or indirectly from lending activities. The comparative period finance income also includes
interest income from legacy loans. Lower finance income in the quarter and on a full year basis was primarily due to the
repayment of legacy balance sheet loans.
12
Key expense lines
Compensation
Compensation was $20.2 million in the quarter, up $9.9 million (97%) from the prior period and was $57.6 million on a full
year basis, up $22.3 million (63%). Net compensation was $11.8 million in the quarter, up $4.4 million (60%) from the prior
period and was $39.9 million on a full year basis, up $13.9 million (53%).
Net Compensation in thousands $
3 months results
Net Compensation in thousands $
12 months results
1,684
1,264
4,517
5,392
5,070
11,811
7,368
3,761
5,057
2,343
39,936
20,463
14,956
26,023
15,168
5,463
Q4 2020
Q4 2019
2020
2019
Salaries
AIP
LTIP
Salaries
AIP
LTIP
The increase in the quarter and on a full year basis was primarily due to higher variable at-risk pay relating to the Company's
significantly improved financial performance over the year. Annual adjusted base EBITDA was up 52% year-over-year, consistent
with the 53% increase year-over-year in net compensation. Adjusted base EBITDA, operating margins and net revenue targets
form the basis of the quantitative performance measures used when determining variable at-risk compensation. Higher
compensation was also the result of additional base salaries attributable to new hires from the Acquisition. The Company
reduced its compensation ratio over the last five years (net compensation / net fees & net commissions) from a high of 54% to a
low of 43% in 2020 while correspondingly increasing the proportion of variable at-risk pay (AIP and LTIP) our employees receive
relative to fixed compensation.
Selling, general & administrative ("SG&A")
SG&A was $2.4 million in the quarter, down $0.5 million (18%) from the prior period and was $11.6 million on a full year
basis, down $0.9 million (7%). The decrease in the quarter and on a full year basis was the result of lower marketing and sales
costs relating to travel restrictions due to COVID-19.
13
Earnings
Net income was $6.7 million in the quarter, up $5.3 million from the prior period and was $27 million on a full year basis, up
$16.8 million. Adjusted base EBITDA was $14.8 million in the quarter, up $7.3 million (98%) from the prior period and was
$44.2 million on a full year basis, up $15.2 million (52%). During the quarter and on a full year basis, we benefited from
increased fees due to strong net inflows and market value appreciation in our exchange listed products segment, the
Acquisition and additional market value appreciation in our managed equities segment. We also benefited from increased
commission revenues in our brokerage segment. These increases more than offset lower finance income in our lending
segment and higher variable at-risk compensation on increased revenues, earnings generation and strong operating margins
across the Company.
Additional revenues and expenses
Investment gains on a full year basis were mainly due to market value appreciation of certain equity holdings and co-
investments. These gains were partially offset by unrealized losses on digital gold strategies in the fourth quarter.
Other income was higher mainly due to the consolidation of certain feeder funds. Interest expense, placement and referral
fees were largely flat year-over-year.
Amortization of intangibles was flat from the prior period. Depreciation of property was slightly higher on a full year basis
from the prior period mainly due to increased depreciation expense related to a new lease attributable to the Acquisition.
Other expenses were higher primarily due to the increase in contingent consideration related to the Acquisition.
Balance sheet
Total assets were $377.3 million, up $52.4 million (16%) from December 31, 2019. The increase was primarily due to the
increase in intangible assets related to the Acquisition.
Total liabilities were $86.4 million, up $33.1 million (62%) from December 31, 2019. The increase was primarily due to the
accrual of contingent consideration related to the Acquisition and accrued liabilities related to non-controlling interest.
Total shareholder's equity was $291 million, up $19.4 million (7%) from December 31, 2019.
14
Reportable operating segments
Exchange listed products
(In thousands $)
Summary income statement
Management fees
Other income
Total revenues
Net compensation
Severance and new hire accruals
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income before income taxes
Adjusted base EBITDA
Operating margin
Total AUM
Average AUM
3 and 12 months ended
3 months ended
12 months ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
11,449
1
11,450
1,437
—
553
76
242
994
3,302
8,148
9,497
6,574
21
6,595
1,101
21
939
201
239
320
2,821
3,774
4,575
37,670
10
37,680
5,085
73
2,230
338
940
485
9,151
24,481
47
24,528
3,662
147
3,034
824
952
655
9,274
28,529
30,563
15,254
17,988
81 %
68 %
79 %
73 %
12,233,316
11,786,235
6,831,093
6,741,239
12,233,316
9,914,709
6,831,093
6,261,066
Income before income taxes was $8.1 million in the quarter, up $4.4 million from the prior period and was $28.5 million on a
full year basis, up $13.3 million. Adjusted base EBITDA was $9.5 million in the quarter, up $4.9 million from the prior period
and was $30.6 million on a full year basis, up $12.6 million. Our quarter and full year results benefited from higher average
AUM given strong inflows and market value appreciation in our physical trust products which more than offset higher net
compensation.
15
Managed equities
(In thousands $)
Summary income statement
Management fees
Carried interest and performance fees
less: Trailer and sub-advisor fees
less: Carried interest and performance fee payouts
Net fees
Gain on investments
Other income
Total net revenues
Net compensation
Severance and new hire accruals
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income before income taxes
Adjusted base EBITDA
Operating margin
Total AUM
Average AUM
3 and 12 months ended
3 months ended
12 months ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
5,901
10,075
400
5,529
10,047
1,719
297
12,063
2,287
12
356
200
54
2,579
5,488
6,575
3,288
56 %
2,001
1,811
998
86
2,728
1,176
364
4,268
954
90
613
—
51
20
1,728
2,540
791
32 %
20,621
10,075
1,262
5,529
23,905
9,803
855
34,563
8,234
142
1,726
686
208
4,899
15,895
18,668
10,762
7,805
1,811
1,211
86
8,319
3,558
884
12,761
4,470
90
1,876
—
212
200
6,848
5,913
3,167
53 %
35 %
2,831,023
2,735,878
950,911
907,365
2,831,023
2,649,120
950,911
854,691
Income before income taxes was $6.6 million in the quarter, up $4 million from the prior period and was $18.7 million on a full
year basis, up $12.8 million. Our quarter and full year results benefited from increased management fees from the Acquisition,
higher net performance fees and improved equity valuations in our funds, which more than offset higher net compensation and
higher other expenses resulting from increase in contingent consideration related to the Acquisition. Adjusted base EBITDA was
$3.3 million in the quarter, up $2.5 million from the prior period and was $10.8 million on a full year basis, up $7.6 million. Our
quarter and full year results benefited from increased management fees, which more than offset higher net compensation.
16
Lending
(In thousands $)
Summary income statement
Management fees
Finance income (1)
Gain (loss) on investments
Other income
Total revenues
Net compensation
Severance and new hire accruals
Placement and referral fees
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income before income taxes
Adjusted base EBITDA
Operating margin
Total AUM (2)
Average AUM
3 months ended
12 months ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
2,198
1,629
2,062
185
6,074
1,631
15
41
318
—
1
2,115
4,121
1,953
2,423
61 %
1,388
2,261
(101)
268
3,816
1,256
—
15
222
30
27
1,577
3,127
689
2,459
64 %
9,366
3,838
2,037
268
15,509
5,788
212
192
887
11
53
1,326
8,469
7,040
7,272
5,646
9,962
(1,152)
289
14,745
4,944
61
44
777
61
107
2,230
8,224
6,521
10,725
59 %
56 %
999,037
950,909
783,328
555,868
999,037
880,577
783,328
496,361
(1) Includes: (1) co-investment income from lending LP units held as part of our co-investment portfolio; and (2) interest income from on-balance sheet loans in the prior period.
(2) $1.1 billion of committed capital remains uncalled, of which $0.4 billion earns a commitment fee (AUM), and $0.7 billion does not (future AUM).
3 and 12 months ended
Income before income taxes was $2 million in the quarter, up $1.3 million from the prior period and was $7 million on a full
year basis, up $0.5 million. Adjusted base EBITDA was $2.4 million in the quarter, down slightly from the prior period and was
$7.3 million on a full year basis, down $3.5 million (32%). Income before income taxes benefited from higher management fees
and gains on our co-investments. However, our quarter and full year adjusted base EBITDA results were primarily impacted by
lower finance income given the full repayment of legacy loans in the third quarter of 2019, which more than offset increased
management fees on a full year basis.
17
Brokerage
(In thousands $)
Summary income statement
Commissions
less: Commission expense
Net commissions
Management fees
Finance income
Gain (loss) on investments
Other income
Total net revenues
Net compensation (1)
Severance and new hire accruals
Placement and referral fees
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses (gain)
Total expenses
Income before income taxes
Adjusted base EBITDA
Operating margin
3 months ended
12 months ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
6,882
2,713
4,169
886
—
5
24
5,084
1,859
30
98
1,031
12
145
494
3,669
1,415
2,522
6,261
2,650
3,611
358
220
165
22
4,376
1,667
25
355
835
13
136
24
3,055
1,321
1,756
53 %
41 %
26,705
10,749
15,956
2,168
118
1,590
102
19,934
6,033
680
603
4,151
45
533
660
12,705
18,480
8,024
10,456
1,298
1,461
(113)
82
13,184
6,510
390
673
4,299
58
491
(3)
12,418
7,229
8,052
47 %
766
3,342
24 %
(1) Net compensation is presented excluding commission expense, which is reported net of commission revenue.
3 and 12 months ended
Income before income taxes was $1.4 million in the quarter, up $0.1 million from the prior period and was $7.2 million on a full
year basis, up $6.5 million. Adjusted base EBITDA was $2.5 million in the quarter, up $0.8 million from the prior period and was
$8.1 million on a full year basis, up $4.7 million. Our quarter and full year results benefited from strong equity origination, sales
and trading activities.
18
Corporate
This segment is primarily a cost centre that provides capital, balance sheet management and shared services to the Company's subsidiaries.
(In thousands $)
Summary income statement
Loss on investments
Other income
Total revenues
Net compensation
Severance and new hire accruals
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses (gain)
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
3 and 12 months ended
3 months ended
12 months ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
(6,793)
71
(6,722)
3,987
—
331
43
572
389
5,322
(2,111)
19
(2,092)
1,933
21
366
25
795
(211)
2,929
(7,351)
137
(7,214)
13,036
52
1,699
157
2,286
1,336
18,566
(2,668)
64
(2,604)
5,745
25
1,922
93
2,006
113
9,904
(12,044)
(3,965)
(5,021)
(2,045)
(25,780)
(13,722)
(12,508)
(7,290)
•
Investments losses were primarily due to unrealized losses on our digital gold strategies in the fourth quarter.
• Net compensation increased primarily due to higher variable at-risk compensation on increased revenues, earnings
generation and strong operating margins across the Company, and higher base salaries as a result of the Acquisition.
•
SG&A decreased due to our ongoing multi-year cost containment program.
• Other expenses were primarily due to FX translation movements.
19
Dividends
The following dividends were declared by the Company during the twelve months ended December 31, 2020:
Record date
March 9, 2020 - Regular dividend Q4 2019
May 19, 2020 - Regular dividend Q1 2020
Payment Date
March 24, 2020
June 3, 2020
August 17, 2020 - Regular dividend Q2 2020
September 1, 2020
November 23, 2020 - Regular dividend Q3 2020
December 8, 2020
Dividends (2)
Cash dividend
per share (1)
Total dividend amount
(in thousands $)
CAD$0.30
CAD$0.30
US$0.23
US$0.25
5,387
5,560
5,915
6,378
23,240
(1) Dividends per share in this MD&A for periods before May 28 reflect retrospective treatment of the 10:1 share consolidation.
(2) Subsequent to quarter-end, on February 25, 2021, a regular dividend of US$0.25 per common share was declared for the year ended December 31, 2020.
This dividend is payable on March 23, 2021 to shareholders of record at the close of business on March 8, 2021.
Capital stock
On May 28, 2020, the Company successfully completed a 10:1 common share consolidation. Shareholders received 1 post-
consolidation share for every 10 pre-consolidation shares. All information pertaining to shares and per-share amounts in this
MD&A for periods before May 28 reflect retrospective treatment of this share consolidation.
Including the 0.8 million unvested common shares currently held in the EPSP Trust (December 31, 2019 - 0.9 million), total
capital stock issued and outstanding was 25.6 million (December 31, 2019 - 25.3 million).
Earnings per share for the current and prior periods have been calculated using the weighted average number of shares
outstanding during the respective periods. Basic earnings per share was $0.27 for the quarter and $1.10 on a full year basis
compared to $0.06 and $0.42 in the prior periods respectively. Diluted earnings per share was $0.26 in the quarter and $1.05
on a full year basis compared to $0.06 and $0.40 in the prior periods respectively. Diluted earnings per share reflects the
dilutive effect of in-the-money stock options, unvested shares held in the EPSP Trust and outstanding restricted stock units.
A total of 162,500 stock options are outstanding pursuant to our stock option plan, all of which are exercisable.
20
Liquidity and capital resources
As at December 31, 2020, the Company had $17 million (December 31, 2019 - $15.3 million) outstanding on its credit facility,
all of which is due after 12 months (December 31, 2019 - $3.8 million due within 12 months and $11.5 million due after 12
months).
On November 13, 2020, the Company extended and upsized its previous credit facility to $70 million, up from $61 million at the
time of the extension. Amounts under the new facility may be borrowed under the facility through prime rate loans or bankers’
acceptances. Similar to the previous facility, amounts may also be borrowed in US dollars through base rate loans. As at
December 31, 2020, the Company was in compliance with all covenants, terms and conditions under the credit facility. Key
terms under the credit facility are noted below:
Structure
•
5-year, $70 million revolver with "bullet maturity" December 14, 2025
Interest rate
•
•
Prime rate + 0 bps or;
Banker acceptance rate + 170 bps
Covenant terms
•
•
•
Minimum AUM: 70% of AUM on November 13, 2020
Debt to EBITDA less than or equal to 2.5:1
EBITDA to interest expense more than or equal to 2.5:1
Commitments
Besides the Company's long-term lease agreements, there are commitments to make co-investments in lending LPs arising from
our lending segment or commitments to make investments in the net investments portfolio of the Company. As at December
31, 2020, the Company had $4.6 million in co-investment commitments from the lending segment (December 31, 2019 - $6.6
million).
21
Critical accounting estimates, judgements and changes in accounting policies
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are described below. The
Company based its assumptions and estimates on parameters available when the annual financial statements were prepared.
Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising
beyond the control of the Company. Such changes are reflected in the assumptions and estimates as they occur. The
Company’s significant accounting policies are described in Note 2 of the annual financial statements. Certain of these
accounting policies require management to make key assumptions concerning the future and consider other sources of
estimation uncertainty at the reporting date. These accounting estimates are considered critical because they require subjective
and/or complex judgements that may have a material impact on the value of our assets, liabilities, revenues and expenses.
Critical accounting estimates
Impairment of goodwill and intangible assets
All indefinite life intangible assets and goodwill are assessed for impairment, however, finite life intangibles are only tested for
impairment to the extent indicators of impairment exist at the time of a quarterly assessment. In the case of goodwill and
indefinite life intangibles, this annual test for impairment augments the quarterly impairment indicator assessments. Values
associated with goodwill and intangibles involve estimates and assumptions, including those with respect to future cash inflows
and outflows, discount rates, AUM, net inflows, and asset lives. These estimates require significant judgment regarding market
growth rates, fund flow assumptions, expected margins and costs, which could affect the Company's future results if estimates
of future performance and fair value change.
Fair value of financial instruments
When the fair value of financial assets and financial liabilities recorded in the consolidated balance sheets cannot be derived
from active markets, they are determined using valuation techniques and models. Model inputs are taken from observable
markets where possible, but where this is not feasible, unobservable inputs may be used. These unobservable inputs include,
but are not limited to, projected cash flows, discount rates, comparable recent transactions, volatility of underlying securities in
warrant valuations and extraction recovery rates of mining projects. The use of unobservable inputs can involve significant
judgment and materially affect the reported fair value of financial instruments.
Contingent consideration
The Acquisition necessitated the recognition of contingent consideration for the amounts payable in cash and shares under the
terms of the purchase agreement. The cash settled portion of the contingent consideration was measured at the closing date fair
value, based on management’s estimate of the level of future revenue obtained from the contracts over the contingent
consideration measurement period. The equity settled portion of the contingent consideration was measured at its grant date
fair value in accordance with the requirements of IFRS 2 Share-based Payment. The key judgments utilized in the estimation of
the contingent consideration were fund flow assumptions. As at December 31, 2020, the contingent consideration payable was
updated to reflect current estimates with the resulting adjustment recorded in Other expense.
Significant judgements
Investments in other entities
IFRS 10 Consolidated Financial Statements ("IFRS 10") and IAS 28 Investments in Associates and Joint Ventures ("IAS 28")
provide for the use of judgment in determining whether an investee should be included within the consolidated financial
statements of the Company and on what basis (subsidiary, joint venture, financial instrument or associate). Significant judgment
is applied in evaluating facts and circumstances relevant to the Company and investee, including: (1) the extent of the
Company's direct and indirect interests in the investee; (2) the level of compensation to be received from the investee for
management and other services provided to it; (3) "kick out rights" available to other investors in the investee; and (4) other
indicators of the extent of power that the Company has over the investee.
22
Change in accounting policies
Change in presentation currency
Effective January 1, 2020, the Company changed its presentation currency from Canadian to US dollars to better reflect the
Company's business activities, given the significance of our revenues denominated in US dollars that further increased in 2020
with the January 17, 2020 close of the Acquisition.
The Company followed the guidance of IAS 21 Effects of Changes in Foreign Exchange Rates ("IAS 21") and have applied the
change retroactively. As a result, the Company has restated prior year comparatives, including the January 1 opening balance
sheet as required by IFRS 1 First-time Adoption of International Financial Reporting Standards ("IFRS 1"). The change in
presentation currency had the following effect:
•
•
•
•
Assets and liabilities have been translated at the exchange rate on the respective reporting dates;
Equity transactions have been translated at the historical exchange rate at the date of the transaction;
The statements of operations has been translated at the average exchange rate on the respective reporting dates; and
Exchange differences arising on translation are presented in the Accumulated other comprehensive loss line in
shareholders' equity on the balance sheet.
23
Managing financial risks
Market risk
The Company separates market risk into three categories: price risk, interest rate risk and foreign currency risk.
Price risk
Price risk arises from the possibility that changes in the price of the Company's on and off-balance sheet assets and liabilities
will result in changes in carrying value or recoverable amounts. The Company's revenues are also exposed to price risk since
management fees, carried interests and performance fees are correlated with AUM, which fluctuates with changes in the market
values of the assets in the funds and managed accounts managed by the Company.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will adversely affect the value of, or cash flows from,
financial instrument assets. The Company’s earnings, particularly through its lending segment, are exposed to volatility as a
result of sudden changes in interest rates. Management takes into account a number of factors and is committed to several
processes to ensure that this risk is appropriately managed.
Foreign currency risk
The Company enters into transactions that are denominated primarily in US dollar and Canadian dollar. Foreign currency risk
arises from foreign exchange rate movements that could negatively impact either the carrying value of financial assets and
liabilities or the related cash flows which are denominated in currencies other than the functional currency of the Company and
its subsidiaries. The Company may employ certain hedging strategies to mitigate foreign currency risk.
Credit risk
Credit risk is the risk that a borrower will not honor its commitments and a loss to the Company may result. Credit risk generally
arises in the Company's investments portfolio.
Investments
The Company incurs credit risk when entering into, settling and financing transactions with counterparties. Management takes
into account a number of factors and is committed to several processes to ensure that this risk is appropriately managed.
Other
The majority of accounts receivable relate to management fees, carried interest and performance fees receivable from the funds,
managed accounts and managed companies managed by the Company. These receivables are short-term in nature and any
credit risk associated with them is managed by dealing with counterparties that the Company believes to be creditworthy and by
actively monitoring credit exposure and the financial health of the counterparties.
Liquidity risk
Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due. The
Company's exposure to liquidity risk is minimal as it maintains sufficient levels of liquid assets to meet its obligations as they
come due. Additionally, the Company has access to a $70 million committed line of credit with a major Canadian schedule I
chartered bank. As part of its cash management program, the Company primarily invests in short-term debt securities issued by
the Government of Canada with maturities of less than three months.
24
The Company's exposure to liquidity risk as it relates to our co-investments in lending LPs arises from fluctuations in cash flows
from making capital calls and receiving capital distributions. The Company manages its loan co-investment liquidity risk through
the ongoing monitoring of scheduled capital calls and distributions ("match funding") and through its broader treasury risk
management program and enterprise capital budgeting.
Financial liabilities, including accounts payable and accrued liabilities and compensation and employee bonuses payable, are
short-term in nature and are generally due within a year.
The Company's management team is responsible for reviewing resources to ensure funds are readily available to meet its
financial obligations as they come due, as well as ensuring adequate funds exist to support business strategies and operations
growth. The Company manages liquidity risk by monitoring cash balances on a daily basis and through its broader treasury risk
management program. To meet any liquidity shortfalls, actions taken by the Company could include: slowing its co-investment
activities; adjust or otherwise temporarily suspend AIPs; cut or temporarily suspend its dividend; drawing on the line of credit;
liquidating net investments; and/or issuing common shares.
Concentration risk
A significant portion of the Company's AUM as well as its investments are focused on the natural resource sector, and in
particular, precious metals related investments and transactions. In addition, from time-to-time, certain investment may be
concentrated to a material degree in a single position or group of positions. Management takes into account a number of
factors and is committed to several processes to ensure that this risk is appropriately managed.
Disclosure controls and procedures ("DC&P") and internal control over financial
reporting ("ICFR")
Management is responsible for the design and operational effectiveness of DC&P and ICFR in order to provide reasonable
assurance regarding the disclosure of material information relating to the Company. This includes information required to be
disclosed in the Company's annual filings, interim filings and other reports filed under securities legislation, as well as
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures
(as defined in the applicable U.S. and Canadian securities law), concluded that the Company's DC&P and ICFR were properly
designed and were operating effectively as of December 31, 2020. In addition, there were no material changes to ICFR during
the quarter, and the implementation of our business continuity plan as a result of COVID-19 has not prevented the normal
function of our internal controls.
Managing non-financial risks
Confidentiality of information
Confidentiality is essential to the success of the Company's business, and it strives to consistently maintain the highest
standards of trust, integrity and professionalism. Account information is kept under strict control in compliance with all
applicable laws, and physical, procedural, and electronic safeguards are maintained in order to protect this information from
access by unauthorized parties. The Company keeps the affairs of its clients confidential and does not disclose the identities of
clients (absent expressed client consent to do so). If a prospective client requests a reference, the Company will not provide the
name of an existing client before receiving permission from that client to do so.
25
Conflicts of interest
The Company established a number of policies with respect to employee personal trading. Employees may not trade any of the
securities held or being considered for investment by any of the Company's funds without prior approval. In addition, employees
must receive prior approval before they are permitted to buy or sell securities. Speculative trading is strongly discouraged. All
employees must comply with the Company's Code of Ethics. The code establishes strict rules for professional conduct including
the management of conflicts of interest.
Independent review committee
National Instrument 81-107 - Independent Review Committee for Investment Funds (“NI 81-107”) requires all publicly offered
investment funds to establish an independent review committee ("IRC") to whom all conflicts of interest matters must be
referred for review and approval. The Company established an IRC for its public funds. As required by NI 81-107, the Company
established written policies and procedures for dealing with conflict of interest matters and maintains records in respect of these
matters and provides assistance to the IRC in carrying out its functions. The IRC is comprised of three independent members,
and is subject to requirements to conduct regular assessments and provide reports to the Company and to the holders of
interests in public mutual funds in respect of its functions.
Insurance
The Company maintains appropriate insurance coverage for general business and liability risks as well as insurance coverage
required by regulation. Insurance coverage is reviewed periodically to ensure continued adequacy.
Internal controls and procedures
Several of the Company's subsidiaries operate in regulated environments and are subject to business conduct rules and other
rules and regulations. The Company has internal control policies related to business conduct. They include controls required to
ensure compliance with the rules and regulations of relevant regulatory bodies including the OSC, IIROC, FINRA and the U.S.
Securities and Exchange Commission ("SEC").
Enterprise risk management
The starting point to any enterprise risk management program (“ERM”) is the articulation of a risk appetite, which is the
amount and types of risk we are willing to accept in our pursuit of business objectives. A company’s risk appetite is the bedrock
upon which an ERM framework is established.
Our risk appetite is primarily based on specific regulatory and legal environment considerations; general environmental social
and governance responsibilities (“ESG”); the need for sound capital adequacy and treasury management processes; the
preservation of our positive reputation among current and future stakeholders; the natural expectation of our shareholders that
we take appropriate and reasonable levels of risk in our various business segments to maximize shareholder returns; and our
overall desire to be good corporate citizens as part of our organizational culture and core values. The aforementioned
considerations formed the basis for our risk appetite statements noted below:
•
Regardless of loss probability, we will only accept inherent or residual risks that we have a proven, demonstrable
ability to understand, diligently manage on an ongoing basis and thoroughly consider and balance relative to the
outcomes; and
• Our risk appetite is low around any actions or inactions that could materially jeopardize the company’s reputation, core
values or commitment to its stakeholders. Furthermore, at no point would we ever accept existential inherent or
residual risks, regardless of loss probability.
26
The ERM process involves a comprehensive drill down through the organization to its constituent parts to identify all salient risks
and evaluate them through the lens of our risk appetite. The following is a summary of the ERM steps used to filter
organizational risks through our risk appetite:
•
•
•
•
•
•
•
Identify all major processes within each business segment (and enterprise shared services function supporting them);
Identify materially relevant inherent risks (both quantitative and qualitative), that may arise in each major process area;
Rate each inherent risk (in the absence of internal controls), based on the degree of event probability and impact to the
organization;
Determine our risk tolerance for each inherent risk previously identified and rated;
Identify internal controls in place (or needed) to mitigate the inherent risks down to the appropriate “residual
level” (i.e. determine the post-controls risk rating and compare it to our predetermined risk tolerance level). NOTE: we
stratify our internal controls universe using the “three lines of defense” approach recommended by the Institute of
Internal Auditors prior to evaluating the effectiveness of internal controls;
Compare all residual risk ratings to their corresponding risk tolerance level to ensure the risk is being appropriately
managed (i.e. there are a sufficient number of, and appropriate types of, internal controls in place to manage the risk
in light of our risk tolerance), and if not, take further action;
Test, document and report on the effectiveness of the ERM program in managing risks within the boundaries of our risk
appetite.
COVID-19 risk
The changing economic and market climate as a result of COVID‑19 has led to the Company implementing its business
continuity plan. Our portfolio managers, brokerage professionals, enterprise shared services teams and key outsource service
providers are fully operational. While the exact impacts of COVID-19 over the short and long-term are undeterminable at the
date of this report, management believes the effects of COVID-19 we have witnessed thus far, and in particular, world
government responses thereto via fiscal and monetary policy, will continue to be highly constructive to precious metals markets
as we progress into 2021.
Additional information relating to the Company, including the Company's Annual Information Form is available on EDGAR at www.edgar.com and SEDAR at www.sedar.com
27
Consolidated Financial Statements
Years ended December 31, 2020 and 2019
Management's responsibility for financial reporting
The accompanying consolidated financial statements, which consolidate the financial results of Sprott Inc. (the "Company"),
were prepared by management, who are responsible for the integrity and fairness of all information presented in the
consolidated financial statements and management's discussion and analysis ("MD&A") for the years ended December 31 2020
and 2019. The consolidated financial statements were prepared by management in accordance with International Financial
Reporting Standards. Financial information presented in the MD&A is consistent with that in the consolidated financial
statements.
In management's opinion, the consolidated financial statements have been properly prepared within reasonable limits of
materiality and within the framework of the significant accounting policies summarized in Note 2 of the consolidated financial
statements. Management maintains a system of internal controls to meet its responsibilities for the integrity of the consolidated
financial statements.
The board of directors of the Company appoints the Company's audit and risk management committee annually. Among other
things, the mandate of the audit & risk committee includes the review of the consolidated financial statements of the Company
on a quarterly basis and the recommendation to the board of directors for approval. The audit & risk committee has access to
management and the auditors to review their activities and to discuss the external audit program, internal controls, accounting
policies and financial reporting matters.
KPMG LLP performed an independent audit of the consolidated financial statements, as outlined in the auditors' report
contained herein. KPMG LLP had, and has, full and unrestricted access to management of the Company, the audit & risk
committee and the board of directors to discuss their audit and related findings and have the right to request a meeting in the
absence of management at any time.
Peter Grosskopf
Chief Executive Officer
February 25, 2021
Kevin Hibbert, FCPA, FCA
Chief Financial Officer and Senior Managing Director
29
KPMG LLP
Bay Adelaide Centre
333 Bay Street, Suite 4600
Toronto, ON M5H 2S5
Canada
Tel 416-777-8500
Fax 416-777-8818
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Sprott Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Sprott Inc. and
subsidiaries (“the Company”) as of December 31, 2020 and 2019, and as of January 1,
2019, the related consolidated statements of operations and comprehensive income, cash
flows, and changes in shareholders’ equity for each of the years in the two-year period
ended December 31, 2020, and the related notes (collectively, the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2020 and
2019, and its financial performance and its cash flows for each of the years in the two-year
period ended December 31, 2020, in conformity with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has elected
to change its presentation currency from the Canadian dollar to the U.S. dollar. The
change is as of January 1, 2020, and has been retrospectively applied, and the statement
of financial position as of January 1, 2019, has been included in pursuant to the
requirements of International Financial Reporting Standards.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we
are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
30
Our audits included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
We have served as the Company’s auditor since 2016.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
February 25, 2021
31
Consolidated balance sheets
As at
(In thousands of US dollars)
Assets
Current
Cash and cash equivalents
Fees receivable
Loans receivable
Short-term investments
Other assets
Income taxes recoverable
Total current assets
Loans receivable
Co-investments
Other assets
Property and equipment, net
Intangible assets
Goodwill
Deferred income taxes
Total assets
Liabilities and shareholders' equity
Current
Accounts payable and accrued liabilities
Compensation payable
Obligations related to securities sold short
Loan facility
Income taxes payable
Total current liabilities
Other accrued liabilities
Loan facility
Deferred income taxes
Total liabilities
Shareholders' equity
Capital stock
Contributed surplus
Deficit
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity
Dec. 31
2020
Dec. 31
2019
(Note 2)
Jan. 1
2019
(Note 2)
44,106
21,581
—
9,475
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16,611
155,968
19,149
1,729
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377,348
29,702
15,192
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16,994
4,751
86,365
54,748
8,682
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20,276
16,230
114,078
19,149
4,271
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324,943
23,618
6,912
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4,247
11,486
2,414
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34,637
6,330
11,197
19,580
7,893
1,744
81,381
15,207
56,894
19,175
16,392
108,726
19,149
4,322
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321,246
32,106
6,939
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5,769
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417,758
43,309
(104,484)
(65,600)
290,983
377,348
407,900
43,160
(108,222)
(71,208)
271,630
324,943
407,775
42,964
(95,422)
(81,808)
273,509
321,246
(Notes 3 & 10)
(Note 5)
(Note 4 & 10)
(Note 5 & 10)
(Note 6)
(Note 7)
(Note 7)
(Note 9)
(Note 15)
(Note 15)
(Note 9)
(Note 8)
(Note 8)
Commitments and provisions
(Note 16)
The accompanying notes form part of the consolidated financial statements
"Ron Dewhurst"
Director
"Sharon Ranson, FCPA, FCA"
Director
32
Consolidated statements of operations and comprehensive income
(In thousands of US dollars, except for per share amounts)
Revenues
Management fees
Carried interest and performance fees
Commissions
Finance income
Gain (loss) on investments
Other income
Total revenue
Expenses
Compensation
Trailer and sub-advisor fees
Placement and referral fees
Selling, general and administrative
Interest expense
Amortization of intangibles
Depreciation of property and equipment
Other expenses
Total expenses
Income before income taxes for the year
Provision for income taxes
Net income for the period
Net income per share:
Basic(1)
Diluted(1)
Net income for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Foreign currency translation gain (taxes of $Nil)
Total other comprehensive income
Comprehensive income
The accompanying notes form part of the consolidated financial statements
For the years ended
Dec. 31
2020
Dec. 31
2019
(Note 2)
72,916
10,075
27,459
3,956
5,109
2,261
121,776
57,589
1,142
1,045
11,555
1,237
869
3,183
10,494
87,114
34,662
7,684
26,978
(Note 3, 4 and 5)
(Note 5)
(Note 8)
(Note 7)
(Note 6)
(Note 5)
(Note 9)
(Note 8) $
(Note 8) $
1.10 $
1.05 $
41,419
1,811
19,263
11,423
(1,055)
625
73,486
35,247
1,083
857
12,479
1,036
879
2,916
6,039
60,536
12,950
2,741
10,209
0.42
0.40
26,978
10,209
5,608
5,608
32,586
10,600
10,600
20,809
(1) Amounts reflect retrospective application of the May 28, 2020 share consolidation (see Note 8).
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(In thousands of US dollars)
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Add (deduct) non-cash items:
Loss (gain) on investments
Stock-based compensation
Depreciation and amortization of property, equipment and intangible assets
Deferred income tax expense
Current income tax expense
Other items
Income taxes paid
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Fees receivable
Loans receivable
Other assets
Accounts payable, accrued liabilities and compensation payable
Cash provided by (used in) operating activities
Investing activities
Purchase of investments
Sale of investments
Purchase of property and equipment
Purchase of management contracts
Cash provided (used in) investing activities
Financing activities
Acquisition of common shares for equity incentive plan
Acquisition of common shares under normal course issuer bid
Cash received on exercise of stock options
Repayment of lease liabilities
Contributions from non-controlling interests
Net advances from loan facility
Dividends paid
Cash provided by (used in) financing activities
Effect of foreign exchange on cash balances
Net increase (decrease) in cash and cash equivalents during the period
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the period
Cash and cash equivalents:
Cash
Short-term deposits
The accompanying notes form part of the consolidated financial statements
For the years ended
Dec. 31
2020
Dec. 31
2019
26,978
(5,109)
4,517
4,052
4,681
3,003
1,015
(795)
(12,899)
—
(2,971)
3,767
26,239
(23,634)
19,728
(686)
(12,500)
(17,092)
(2,514)
(2,024)
2,504
(1,904)
3,518
1,074
(23,095)
(22,441)
2,652
(10,642)
54,748
44,106
43,901
205
44,106
(Note 2)
10,209
1,055
5,392
3,795
231
2,510
130
(1,836)
(2,352)
26,404
(5,555)
(6,933)
33,050
(34,197)
37,955
(2,224)
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1,534
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(1,715)
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15,031
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(16,102)
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20,111
34,637
54,748
50,724
4,024
54,748
35
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
1
Corporate information
Sprott Inc. (the "Company") was incorporated under the Business Corporations Act (Ontario) on February 13, 2008. Its
registered office is at Royal Bank Plaza, South Tower, 200 Bay Street, Suite 2600, Toronto, Ontario M5J 2J1.
2 Summary of significant accounting policies
Statement of compliance
These annual audited consolidated financial statements for the years ended December 31, 2020 and 2019 ("financial
statements") have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by
the International Accounting Standards Board ("IASB").
They have been authorized for issue by a resolution of the Board of Directors of the Company on February 25, 2021 and
include all subsequent events up to that date.
Basis of presentation
These financial statements have been prepared on a going concern basis and on a historical cost basis, except for
financial assets and financial liabilities classified as fair value through profit or loss ("FVTPL") or fair value through other
comprehensive income ("FVOCI"), both of which have been measured at fair value. The financial statements are
presented in US dollars and all values are rounded to the nearest thousand ($000), except when indicated otherwise.
Principles of consolidation
These financial statements of the Company are prepared on a consolidated basis so as to include the accounts of all
limited partnerships and corporations the Company is deemed to control under IFRS. Controlled limited partnerships and
corporations ("subsidiaries") are consolidated from the date the Company obtains control. All intercompany balances
with subsidiaries are eliminated upon consolidation. Subsidiary financial statements are prepared over the same
reporting period as the Company and are based on accounting policies consistent with that of the Company.
During the year, the Company commenced consolidation of certain feeder funds due to them becoming material. The
Company records third-party interests in the funds which do not qualify to be equity due to redeemable or limited life
features, as non-controlling interest liabilities. Such interests are initially recognized at fair value, with any changes
recorded as Other expense.
Control exists if the Company has power over the entity, exposure or rights to variable returns from its involvement with
the entity and the ability to use its power over the entity to affect the amount of returns the Company receives. In many,
but not all instances, control will exist when the Company owns more than one half of the voting rights of a
corporation, or is the sole limited and general partner of a limited partnership.
36
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
The Company currently controls the following principal subsidiaries:
•
•
•
•
•
•
Sprott Asset Management LP ("SAM");
Sprott Capital Partners LP ("SCP");
Sprott Asia LP ("Sprott Asia") and Sprott Korea Corporation ("Sprott Korea");
Sprott U.S. Holdings Inc. ("SUSHI"), parent of: (1) Rule Investments Inc. ("RII"); (2) Sprott Global Resource
Investments Ltd. ("SGRIL"); (3) Sprott Asset Management USA Inc. ("SAM US"); and (4) Resource Capital
Investment Corporation ("RCIC"). Collectively, the interests of SUSHI are referred to as "Global" in these
financial statements;
Sprott Resource Lending Corp. ("SRLC"); and
Sprott Inc. 2011 Employee Profit Sharing Plan Trust (the "Trust").
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit with banks and with carrying brokers, which are not subject to
restrictions, and short-term interest bearing notes and treasury bills with a term to maturity of less than three months
from the date of purchase.
Investments
Investments classified as short-term, including equity kickers received as consideration for mining finance transactions
occurring primarily in our lending and brokerage segments, are held with the primary intention of short-term liquidity
and capital management. Investments classified as long-term are primarily joint-venture interests or equity stakes in
companies held for strategic purposes.
Co-investments
Co-investments are investments we make alongside clients of our various fund strategies to demonstrate the
commitment and confidence we have in investment strategies we promote and operate.
Financial instruments
Classification and measurement of financial assets
Financial assets are measured at initial recognition at fair value, and are classified and subsequently measured at FVTPL,
amortized cost or FVOCI.
Financial assets are measured at amortized cost if the contractual terms of the instrument give rise to cash flows that
are solely payments of principal and interest on the principal amount outstanding and it is held within a business model
whose objective is to hold assets to collect contractual cash flows.
Financial assets are measured at FVOCI if the contractual terms of the instrument give rise to cash flows that are solely
for payments of principal and interest on the principal amount outstanding and it is held within a business model whose
objective is to hold assets to collect contractual cash flow and to sell financial assets. For equity instruments that are not
held for trading, the Company may also elect to irrevocably elect, on an investment by investment basis, to present
changes in the fair value of an investment through OCI.
All financial assets that are not measured at amortized cost or FVOCI are measured at FVTPL. This includes all derivative
financial assets the Company may hold.
37
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Valuation of investments
Investments include public equities, share purchase warrants, fixed income securities, mutual fund, private companies
and alternative investment strategies, while co-investments are investments held in the funds managed by the
Company. Public equities, share purchase warrants and fixed income securities are measured at fair value and are
accounted for on a trade-date basis. Mutual fund and alternative investment strategy investments which are valued
using the net asset value per unit of the fund, which represents the underlying net assets at fair values determined using
closing market prices. These investments are generally made in the process of launching a new fund and are redeemed
(if open-end) or sold (if closed-end) as third party investors subscribe. The balance represents the Company's maximum
exposure to loss associated with the investments. Private holdings include private company investments which are
classified as FVTPL and carried at fair value based on the value of the Company's interests in the private companies
determined from financial information provided by management of the private companies, which may include operating
results, subsequent rounds of financing and other appropriate information. Any change in fair value is recognized in
gains (loss) on investments on the consolidated statements of operations and comprehensive income.
Fair value hierarchy
All financial instruments recognized at fair value in the consolidated balance sheets are classified into three fair value
hierarchy levels as follows:
•
•
Level 1: valuation based on quoted prices (unadjusted) observed in active markets for identical assets or
liabilities;
Level 2: valuation techniques based on inputs that are quoted prices of similar instruments in active markets;
quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted
prices used in a valuation model that are observable for that instrument; and inputs that are derived from or
corroborated by observable market data by correlation or other means; and
•
Level 3: valuation techniques with significant unobservable market inputs.
The Company will transfer financial instruments into or out of levels in the fair value hierarchy to the extent the
instrument no longer satisfies the criteria for inclusion in the category in question. Level 3 valuations are prepared by the
Company and reviewed and approved by management at each reporting date. Valuation results, including the
appropriateness of model inputs, are compared to actual market transactions to the extent readily available. Valuations
of level 3 assets are also discussed with the Audit and Risk Management Committee as deemed necessary by the
Company.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported on the consolidated balance sheets if,
and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to
settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
Impairment of financial assets
Expected credit losses are a probability-weighted estimate of future credit losses. Credit losses are measured as the
present value of the difference between the cash flows due to the Company in accordance with the contract and the
cash flows the Company expects to receive.
38
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Loans receivable
Loans receivable are financial assets with fixed or determinable payments that are held solely for payments of principal
and interest on the principal amount outstanding and are held within a business model whose objective is to hold assets
to collect contractual cash flows. Loans receivable are measured at amortized cost.
Fees received for originating loans are considered an integral part of the yield earned on the loan and are recognized in
finance income over the term of the loan using the effective interest method. Fees received may include cash payments
and/or securities in the borrower.
At each reporting date, management assesses the probability of default and the loss given default using economic and
market trends, quoted credit rating of the borrower, market value of the asset, and appraisals, if any, of the security
underlying the loan. The impairment is then classified into three stages:
• Stage 1 - For loans where credit risk has not increased significantly, an impairment is recognized equal to the
credit losses expected to result from defaults occurring over the following twelve months.
• Stage 2 - For loans where credit risk has increased significantly, an impairment is recognized equal to the
credit losses expected to result from defaults occurring over the life of the loan.
• Stage 3 - For loans which are credit impaired, a loss allowance is recognized equal to the expected credit
losses over the expected lifetime of the Loan. Any subsequent recognition of finance income for which an
expected credit loss provision exists, is calculated at the discount rate used in determining the provision,
which may differ from the contractual rate of interest.
Recognition of income and related expenses
The Company receives variable consideration in the form of management fees, which are allocated to distinct time
periods in which the management services are being provided. Management fees are recognized when they are no
longer susceptible to market factors and no longer subject to a significant reversal in revenue.
The Company may also earn variable consideration in the form of carried interest and performance fees. These fees are
recognized when they are no longer susceptible to market factors or subject to significant reversal in revenue, which is
determined subject to agreements in the underlying funds.
Commission income is recognized when the related services are rendered and no longer subject to a significant reversal
in revenue.
Finance income, which includes interest income and co-investment income, is recognized on an accrual basis using the
effective interest method. Under the effective interest method, the interest rate realized is not necessarily the same as
the stated rate in the loan or debenture documents. The effective interest rate is the rate required to discount the future
value of all loan or debenture cash flows to their present value and is adjusted for the receipt of cash and non-cash
items in connection with the loan.
Costs related to obtaining a contract with clients ("placement fees") are amortized on a systematic basis related to the
transfer of services to those clients.
Property and equipment
Property and equipment are recorded at cost and are amortized on a declining balance basis over the expected useful
life which ranges from 1 to 5 years. Leasehold improvements are amortized on a straight-line basis over the term of the
lease. Artwork is not amortized since it does not have a determinable useful life. The residual values, useful life and
methods of amortization for property and equipment are reviewed at each reporting date and adjusted prospectively, if
necessary. Any loss resulting from impairment of property and equipment is expensed in the period the impairment is
identified.
39
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Intangible assets
The useful life of an intangible asset is either finite or indefinite. Intangible assets other than goodwill are recognized
when they are separable or arise from contractual or other legal rights, and have fair values that can be reliably
measured.
Intangible assets that are purchased are measured at the acquisition date and include the fair value of considerations
transfered, and include an estimate for contingent consideration where applicable.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment indicators at
each reporting date, or more frequently if changes in circumstances indicate that the carrying value may be impaired.
Intangible assets with finite lives are only tested for impairment if indicators of impairment exist at the time of an
impairment assessment. The amortization period and the amortization method for an intangible asset with a finite
useful life is reviewed at each reporting date. Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or
method, as appropriate, and are treated as changes in accounting estimates. The amortization expense and any
impairment losses on intangible assets with finite lives are recognized in the consolidated statements of operations.
Intangible assets with indefinite useful lives are not amortized, but are assessed for impairment indicators at each
reporting date, or more frequently if changes in circumstances indicate that the carrying value may be impaired. In
addition to impairment indicator assessments, indefinite life intangibles must be tested annually for impairment. The
indefinite life of an intangible asset is reviewed annually to determine whether the indefinite life continues to be
supportable. If no longer supportable, changes in useful life from indefinite to finite are made prospectively.
Any loss resulting from impairment of intangible assets is expensed in the period the impairment is identified. Any gain
resulting from an impairment reversal of intangible assets is recognized in the period the impairment reversal is
identified but cannot exceed the carrying amount that would have been determined (net of amortization and
impairment) had no impairment loss been recognized for the intangible asset in prior periods.
Business combinations and goodwill
The purchase price of an acquisition accounted for under the acquisition method is allocated based on the fair values of
the net identifiable assets acquired. The excess of the purchase price over the fair values of such identifiable net assets is
recorded as goodwill.
Goodwill, which is measured at cost less any accumulated impairment losses, is not amortized, but rather, is assessed
for impairment indicators at each reporting date, or more frequently if changes in circumstances indicate that the
carrying value may be impaired. In addition to quarterly impairment indicator assessments, goodwill must be tested
annually for impairment. For the purpose of impairment testing, goodwill is allocated to each of the Company's cash
generating units ("CGUs") that are expected to benefit from the acquisition. The recoverable amount of a CGU is
compared to its carrying value plus any goodwill allocated to the CGU. If the recoverable amount of a CGU is less than
its carrying value plus allocated goodwill, an impairment charge is recognized, first against the carrying value of the
goodwill, with any remaining difference being applied against the carrying value of assets contained in the impacted
CGUs. Impairment losses on goodwill are recorded in the consolidated statements of operations and comprehensive
income and cannot be subsequently reversed.
40
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Income taxes
Income tax is comprised of current and deferred tax.
Income tax is recognized in the consolidated statements of operations and comprehensive income except to the extent
that it relates to items recognized directly in other comprehensive income or elsewhere in equity, in which case, the
related taxes are also recognized in other comprehensive income (loss) or elsewhere in equity.
Deferred taxes are recognized using the liability method for temporary differences that exist between the carrying
amounts of assets and liabilities in the consolidated balance sheet and the amounts attributed to such assets and
liabilities for tax purposes. Deferred tax assets and liabilities are determined based on the enacted or substantively
enacted tax rates that are expected to apply when the differences related to the assets or liabilities reported for tax
purposes are expected to reverse in the future. Deferred tax assets are recognized only when it is probable that sufficient
taxable profits will be available or taxable temporary differences reversing in future periods against which deductible
temporary differences may be utilized.
Deferred taxes liabilities are not recognized on the following temporary differences:
• Temporary differences on the initial recognition of assets and liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss;
• Taxable temporary differences related to investments in subsidiaries, associates or joint ventures or joint
operations to the extent they are controlled by the Company and they will not reverse in the foreseeable
future;
• Taxable temporary differences arising on the initial recognition of goodwill.
The Company records a provision for uncertain tax positions if it is probable that the Company will have to make a
payment to tax authorities upon their examination of a tax position. This provision is measured at the Company's best
estimate of the amount expected to be paid. Provisions are reversed to income in the period in which management
assesses they are no longer required or determined by statute.
The measurement of tax assets and liabilities requires an assessment of the potential tax consequences of items that can
only be resolved through agreement with the tax authorities. While the ultimate outcome of such tax audits and
discussions cannot be determined with certainty, management estimates the level of provisions required for both current
and deferred taxes.
Share-based payments
The Company uses the fair value method to account for equity settled share-based payments with employees and
directors. Compensation expense is determined using the Black‑Scholes option valuation model for stock options.
Compensation expense for the share incentive program is determined based on the fair value of the benefit conferred on
the employee. Compensation expense for deferred stock units ("DSU") is determined based on the value of the
Company's common shares at the time of grant. Compensation expense for earn-out shares is determined using
appropriate valuation models. Compensation expense related to the Company's Employee Profit Sharing Plan is
determined based on the value of the Company's common shares purchased by the Trust as of the grant date.
Compensation expense is recognized over the vesting period with a corresponding increase to contributed surplus other
than for the Company's DSUs where the corresponding increase is to liabilities. Stock options and common shares held
by the Trust vest in installments which require a graded vesting methodology to account for these share-based awards.
On the exercise of stock options for shares, the contributed surplus previously recorded with respect to the exercised
options and the consideration paid is credited to capital stock. On the issuance of the earn-out shares, the contributed
surplus previously recorded with respect to the issued earn-out shares is credited to capital stock. On the vesting of
common shares in the Trust, the contributed surplus previously recorded is credited to capital stock. On the exercise of
DSUs, the liability previously recorded is credited to cash.
41
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Earnings per share
Basic and diluted earnings per share are computed by dividing net income by the weighted average number of common
shares outstanding during the period.
The Company applies the treasury stock method to determine the dilutive impact, if any, of stock options and unvested
shares purchased for the Trust. The treasury stock method determines the number of incremental common shares by
assuming that the number of dilutive securities the Company has granted to employees have been issued.
Lease commitments
The Company recognizes a right-to-use asset and a lease liability as at the lease commencement date. The right-to-use
asset is initially measured at cost and subsequently at cost less any accumulated depreciation and impairment. The
lease liability is initially measured at the present value of future lease payments over the anticipated lease term,
discounted using the Company's incremental borrowing rate. The right-to-use asset is presented in the property and
equipment line of the consolidated balance sheet and the short and long-term portions of the lease liability are
presented in the accounts payable and accrued liabilities line and other accrued liabilities line, respectively, of the
consolidated balance sheet. The Company used the practical expedient when applying IFRS 16, Leases for short-term
leases under 12 months and low-value assets such as IT equipment, with lease payments being expensed as they are
occurred.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to management.
Management is responsible for allocating resources and assessing performance of the operating segments to make
strategic decisions.
Significant accounting judgments and estimates
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are described below. The Company based its assumptions and estimates on parameters available when
these financial statements were prepared. Existing circumstances and assumptions about future developments may
change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected
in the assumptions and estimates as they occur.
Fair value of financial instruments
When the fair value of financial assets and financial liabilities recorded in the consolidated balance sheets cannot be
derived from active markets, they are determined using valuation techniques and models. Model inputs are taken from
observable markets where possible, but where this is not feasible, unobservable inputs may be used. These
unobservable inputs include, but are not limited to, projected cash flows, discount rates, comparable recent
transactions, volatility of underlying securities in warrant valuations and extraction recovery rates of mining projects. The
use of unobservable inputs can involve significant judgment and materially affect the reported fair value of financial
instruments.
Deferred tax assets
Deferred tax assets are recognized for unused tax losses to the extent it is probable that sufficient taxable profit will be
generated in order to utilize the losses. In addition, taxable income is subject to estimation as a portion of performance
fee revenue is an allocation of partnership income. Such allocations involve a certain degree of estimation and income
tax estimates could change as a result of: (1) changes in tax laws and regulations, both domestic and foreign; (2) an
amendment to the calculation of partnership income allocation; or (3) a change in foreign affiliate rules. Significant
management judgment is required to determine the amount of deferred tax assets that can be recognized based on the
likely timing and the level of future taxable profits together with future tax planning strategies.
42
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Investments in other entities
IFRS 10 Consolidated Financial Statements ("IFRS 10") and IAS 28 Investments in Associates and Joint Ventures ("IAS
28") provide for the use of judgment in determining whether an investee should be included within the consolidated
financial statements of the Company and on what basis (subsidiary, joint venture or associate). Significant judgment is
applied in evaluating facts and circumstances relevant to the Company and investee, including: (1) the extent of the
Company's direct and indirect interests in the investee; (2) the level of compensation to be received from the investee for
management and other services provided to it; (3) "kick out rights" available to other investors in the investee; and (4)
other indicators of the extent of power that the Company has over the investee.
Impairment of goodwill and intangible assets
All indefinite life intangible assets and goodwill are assessed for impairment, however, finite life intangibles are only
tested for impairment to the extent indications of impairment exist at time of a quarterly assessment. In the case of
goodwill and indefinite life intangibles, an annual test for impairment augments the quarterly impairment indicator
assessments. Values associated with goodwill and intangibles involve estimates and assumptions, including those with
respect to future cash inflows and outflows, discount rates and asset lives. These estimates require significant judgment
regarding market growth rates, fund flow assumptions, expected margins and costs which could affect the Company's
future results if estimates of future performance and fair value change.
Contingent consideration
The Acquisition necessitated the recognition of contingent consideration for the amounts payable in cash and shares
under the terms of the purchase agreement. The cash settled portion of the contingent consideration was measured at
the closing date fair value, based on management’s estimate of the level of future revenue obtained from the contracts
over the contingent consideration measurement period. The equity settled portion of the contingent consideration was
measured at its grant date fair value in accordance with the requirements of IFRS 2 Share-based Payment. The key
judgments utilized in the estimation of the contingent consideration were fund flow assumptions. As at December 31,
2020, the contingent consideration payable was updated to reflect current estimates with the resulting adjustment
recorded in Other expense.
Foreign currency translation
Accounts in the financial statements of the Company's subsidiaries are measured using their functional currency, being
the currency of the primary economic environment in which the entity operates. The Company's performance is
evaluated and its liquidity is managed in Canadian dollars. Therefore, the Canadian dollar is the functional currency of
the Company. The Canadian dollar is also the functional currency of all its subsidiaries, with the exception of Global
Companies, which uses the U.S. dollar as its functional currency. Accordingly, the assets and liabilities of Global
Companies are translated into Canadian dollars using the rate in effect on the date of the consolidated balance sheets.
Revenue and expenses are translated at the average rate over the reporting period. Foreign currency translation gains
and losses arising from the Company's translation of its net investment in Global companies, including goodwill and the
identified intangible assets, are included in accumulated other comprehensive income or loss as a separate component
within shareholders' equity until there has been a realized reduction in the value of the underlying investment.
43
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Changes in accounting policies
Change in presentation currency
Effective January 1, 2020, the Company changed its presentation currency from Canadian to US dollars to better reflect
the Company's business activities, given the significance of our revenues denominated in US dollars that further
increased in 2020 with the January 17, 2020 close of Tocqueville Asset Management's gold strategies ("the
Acquisition").
The Company followed the guidance of IAS 21 Effects of Changes in Foreign Exchange Rates ("IAS 21") and have
applied the change retroactively. As a result, the Company has restated prior year comparatives, including the January 1
opening balance sheet as required by IFRS 1 First-Time Adoption of International Financial Reporting Standards ("IFRS
1"). The change in presentation currency had the following effect:
• Assets and liabilities have been translated at the exchange rate on the respective reporting dates;
• Equity transactions have been translated at the historical exchange rate at the date of the transaction;
• The statements of operations and comprehensive income have been translated at the average exchange rate
on the respective reporting dates; and
• Exchange differences arising on translation are presented in the accumulated other comprehensive loss line in
shareholders' equity on the balance sheets.
The exchange rates used for prior periods were as follows:
As at reporting date
Average rate for the 3 month ended
Dec. 31,
2019
1.31
1.32
Sep. 30,
2019
1.32
1.32
Jun. 30,
2019
1.31
1.34
Mar. 31,
2019
1.34
1.33
Jan. 1,
2019
1.36
1.32
44
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
3
Short-term investments
Primarily consist of equity investments in public and private entities we receive as consideration during lending,
managed equities and brokerage segment activities (in thousands $):
Public equities and share purchase warrants
Fixed income securities
Private holdings:
- Private investments
- Energy contracts
Total short-term investments
Classification and
measurement criteria
Dec. 31, 2020
Dec. 31, 2019
FVTPL
FVTPL
FVTPL
Non-financial instrument
6,751
731
1,993
—
9,475
10,520
4,220
1,864
891
17,495
Gains and losses on financial assets and liabilities classified at FVTPL are included in the gain (loss) on investments on
the consolidated statements of operations and comprehensive income.
4 Co-investments
Consists of the following (in thousands $):
Co-investments in funds
Total co-investments
Classification and
measurement criteria
Dec. 31, 2020
Dec. 31, 2019
FVTPL
82,467
82,467
55,595
55,595
Gains and losses on co-investments in funds are included in the gain (loss) on investments on the consolidated
statements of operations and comprehensive income.
45
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
5
Other assets, income, expenses and non-controlling interest
Other assets
Consist of the following (in thousands $):
Digital gold strategies(1)
Fund recoveries and investment receivables
Assets attributable to non-controlling interests
Prepaid expenses
Other(2)
Deferred costs related to the Acquisition(3)
Dec. 31, 2020
Dec. 31, 2019
11,518
6,043
3,518
2,316
1,919
—
18,913
5,951
—
4,355
2,231
1,806
Total other assets
33,256
(1) Digital gold strategies are financial instruments classified at FVTPL. Gains and losses are included in gain (loss) on investments on the consolidated statements of operations. These
25,314
investments were reclassified from long-term investments to other assets.
(2) Includes miscellaneous third-party receivables.
(3) Includes legal, proxy and investor relations costs.
Other income
Consist of the following (in thousands $):
Investment income (1)
Income attributable to non-controlling interest
Total other income
(1) Primarily includes miscellaneous investment fund income, syndication and trailer fee income.
Other expenses
Consist of the following (in thousands $):
For the years ended
Dec. 31, 2020
Dec. 31, 2019
1,502
759
2,261
625
—
625
For the years ended
Dec. 31, 2020
Dec. 31, 2019
577
Costs related to energy assets
1,503
Foreign exchange losses
—
Increase in contingent consideration related to the Acquisition
Other (1)
3,959
Total other expenses
6,039
(1) Includes net income attributable to non-controlling interest of $565 thousand and SG&A attributable to non-controlling interest of $194 thousand for the year ended December 31,
798
772
4,717
4,207
10,494
2020 (year ended December 31, 2019 - $Nil) as well as non-recurring professional fees and transaction costs.
46
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Non-controlling interest
Non-controlling interest consist of third-party interest in our consolidated co-investments in funds. The following table
provide a summary of amounts attributable to this non-controlling interest:
Assets
Liabilities - current(1)
Liabilities - long-term(1)
(1) Current and long-term Liabilities attributable to non-controlling interest is included in accounts payable and accrued liabilities and other accrued liabilities respectively
3,518
(640)
(2,878)
—
—
—
Dec. 31, 2020
Dec. 31, 2019
47
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
6
Property and equipment
Consist of the following (in thousands $):
Cost
At Dec. 31, 2018
Additions
Net exchange differences
At Dec. 31, 2019
Additions
Net exchange differences
At Dec. 31, 2020
Accumulated amortization
At Dec. 31, 2018
Depreciation charge for the year
Net exchange differences
At Dec. 31, 2019
Depreciation charge for the year
Net exchange differences
At Dec. 31, 2020
Net book value at:
Dec. 31, 2019
Dec. 31, 2020
Artwork
Furniture
and fixtures
Computer
hardware
and software
Leasehold
improvements
Right of use
assets
Total
7,040
—
312
7,352
—
167
7,519
—
—
—
—
—
—
—
2,321
107
99
2,527
279
70
2,876
(2,288)
(43)
(71)
(2,402)
(68)
(26)
(2,496)
2,613
—
93
2,706
153
71
2,930
(2,099)
(324)
(87)
(2,510)
(205)
(59)
(2,774)
3,077
2,117
138
5,332
254
135
5,721
(1,621)
(926)
(70)
(2,617)
(970)
(133)
(3,720)
—
7,182
302
7,484
2,435
322
10,241
—
(1,623)
(19)
(1,642)
(1,940)
(104)
(3,686)
15,051
9,406
944
25,401
3,121
765
29,287
(6,008)
(2,916)
(247)
(9,171)
(3,183)
(322)
(12,676)
7,352
7,519
125
380
196
156
2,715
2,001
5,842
6,555
16,230
16,611
48
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
7
Goodwill and intangible assets
Consist of the following (in thousands $):
Cost
At Dec. 31, 2018
Additions
Net exchange differences
At Dec. 31, 2019
Additions
Net exchange differences
At Dec 31, 2020
Accumulated amortization
At Dec. 31, 2018
Amortization charge for the year
Net exchange differences
At Dec. 31, 2019
Amortization charge for the year
At Dec 31, 2020
Net book value at:
Dec. 31, 2019
Dec. 31, 2020
Fund
management
contracts
(indefinite life)
Fund
management
contracts
(finite life)
Goodwill
132,251
—
—
132,251
—
—
132,251
(113,102)
—
—
(113,102)
—
(113,102)
97,744
1,376
4,350
103,470
36,107
6,454
146,031
—
—
—
—
—
—
34,768
—
1,540
36,308
—
198
36,506
(23,753)
(879)
(1,068)
(25,700)
(869)
(26,569)
Total
264,763
1,376
5,890
272,029
36,107
6,652
314,788
(136,855)
(879)
(1,068)
(138,802)
(869)
(139,671)
19,149
19,149
103,470
146,031
10,608
9,937
133,227
175,117
49
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Impairment assessment of goodwill
The Company has identified 5 cash generating units ("CGU") as follows:
•
•
•
•
•
Exchange listed products
Managed equities
Lending
Brokerage
Corporate
As at December 31, 2020, the Company had allocated $19.1 million (December 31, 2019 - $19.1 million) of goodwill
on a relative value approach basis to the exchange listed products and managed equities CGUs.
In the normal course, goodwill is tested for impairment once per annum, which for the Company is during the fourth
quarter of each year or earlier if there are indicators of impairment. During the impairment testing process, there was no
impairment in either the exchange listed products or the managed equities CGUs.
Impairment assessment of indefinite life fund management contracts
As at December 31, 2020, the Company had indefinite life intangibles related to fund management contracts of
$146 million (December 31, 2019 - $103.5 million). The addition during the year relates to the Acquisition. The cost of
the intangible asset was recorded at the fair value of consideration transferred of $15 million, including contingent
consideration of $19.3 million (see Note 2) and the acquisition costs directly attributable to the purchase of the
management contracts of $1.8 million (see Note 5). There was no impairment as at December 31, 2020 or 2019.
Impairment assessment of finite life fund management contracts
As at December 31, 2020, the Company had exchange listed fund management contracts within the exchange listed
products CGU of $9.9 million (December 31, 2019 - $10.6 million). There was no impairment as at December 31, 2020
or 2019.
50
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
8
Shareholders' equity
On May 28, 2020, the Company successfully completed a 10:1 common share consolidation. Shareholders received 1
post-consolidation share for every 10 pre-consolidation shares. All information pertaining to shares and per-share
amounts in the financial statements for periods before May 28 reflect retrospective treatment of this share
consolidation.
Capital stock and contributed surplus
The authorized and issued share capital of the Company consists of an unlimited number of common shares, without
par value.
Number
of shares
Stated value
(in thousands $)
At Dec. 31, 2018
Issuance of share capital under dividend reinvestment program
Shares acquired and cancelled under normal course issuer bid
Issuance of share capital on conversion of RSUs
Shares acquired for equity incentive plan
Shares released on vesting of equity incentive plan
At Dec. 31, 2019
Shares acquired for equity incentive plan
Issuance of share capital on purchase of management contracts
Shares released on vesting of equity incentive plan
Issuance of share capital on exercise of stock options
Shares acquired and canceled under normal course issuer bid
Issuance of share capital on conversion of RSUs and other share based considerations
Issuance of share capital under dividend reinvestment program
At Dec. 31, 2020
24,306,233
6,151
(74,060)
81,528
(182,612)
280,399
24,417,639
(128,304)
104,720
248,883
150,000
(112,343)
103,269
5,501
24,789,365
407,775
147
(1,715)
1,654
(4,906)
4,945
407,900
(2,514)
2,500
4,361
5,159
(2,024)
2,231
145
417,758
Contributed surplus consists of: stock option expense; earn-out shares expense; equity incentive plans' expense; and
additional purchase consideration.
At Dec. 31, 2018
Stock-based compensation
Issuance of share capital on conversion of RSUs
Released on vesting of common shares for equity incentive plan
At Dec. 31, 2019
Share-based contingent consideration related to the Acquisition
Shares released on vesting of common shares for equity incentive plan
Shares released on exercise of stock options
Stock-based compensation
Issuance of share capital on conversion of RSUs and other share based considerations
At Dec. 31, 2020
Stated value
(in thousands $)
42,964
5,392
(251)
(4,945)
43,160
4,879
(4,361)
(2,655)
4,517
(2,231)
43,309
51
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Stock option plan
The Company has an option plan (the "Plan") intended to provide incentives to directors, officers and employees of the
Company and its wholly owned subsidiaries. The aggregate number of shares issuable upon the exercise of all options
granted under the Plan and under all other stock-based compensation arrangements including the Trust and Equity
Incentive Plan ("EIP") cannot exceed 10% of the issued and outstanding shares of the Company as at the date of grant.
The options may be granted at a price that is not less than the market price of the Company's common shares at the
time of grant. The options vest annually over a three-year period and may be exercised during a period not to exceed 10
years from the date of grant.
There were 150,000 stock options exercised during the year ended December 31, 2020 (year ended December 31, 2019
- Nil) and 15,000 options expired during the year ended December 31, 2020 (year ended December 31, 2019 - Nil).
There were no stock options issued during the year ended December 31, 2020 (year ended December 31, 2019 - Nil).
For valuing share option grants, the fair value method of accounting is used. The fair value of option grants is
determined using the Black-Scholes option-pricing model, which takes into account the exercise price of the option, the
current share price, the risk-free interest rate, the expected volatility of the share price over the life of the option and
other relevant factors. Compensation cost is recognized over the vesting period, assuming an estimated forfeiture rate,
with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well
as any consideration paid by the option holder is credited to capital stock.
A summary of the changes in the Plan is as follows:
Options outstanding, Dec. 31, 2018
Options exercisable, Dec. 31, 2018
Options outstanding, Dec. 31, 2019
Options exercisable, Dec. 31, 2019
Options exercised during the year ended 2020
Options expired during the year ended 2020
Options outstanding, Dec. 31, 2020
Options exercisable, Dec. 31, 2020
Number of
options
Weighted
average exercise
price (CAD $)
327,500
187,500
327,500
257,500
(150,000)
(15,000)
162,500
162,500
25.70
27.00
25.70
26.00
23.30
66.00
23.61
23.61
Options outstanding and exercisable as at December 31, 2020 are as follows:
Exercise price (CAD $)
23.30
27.30
23.30 to 27.30
Number of
options outstanding
Weighted average
remaining contractual life
(years)
Number of
options exercisable
150,000
12,500
162,500
5.1
5.4
5.1
150,000
12,500
162,500
52
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Equity incentive plan
For employees in Canada, the Trust has been established and the Company will fund the Trust with cash, which will be
used by the trustee to purchase: (1) on the open market, common shares of the Company that will be held in the Trust
until the awards vest and are distributed to eligible members; or (2) from treasury, common shares of the Company that
will be held in the Trust until the awards vest and are distributed to eligible employees; and (3) from time-to-time,
purchases from 2176423 Ontario Ltd., a company controlled by Eric Sprott, pursuant to the terms and conditions of a
previously announced share transaction. For employees in the U.S. under the EIP plan, the Company will allot common
shares of the Company as either: (1) restricted stock; (2) unrestricted stock; or (3) restricted stock units ("RSUs"), the
resulting common shares of which will be issued from treasury.
There were 104,858 RSUs granted during the year ended December 31, 2020 (year ended December 31, 2019 -
69,954). The Trust acquired 128,304 shares in the year ended December 31, 2020 (year ended December 31, 2019 -
182,612 shares).
Common shares held by the Trust, Dec. 31, 2018
Acquired
Released on vesting
Unvested common shares held by the Trust, Dec. 31, 2019
Acquired
Released on vesting
Unvested common shares held by the Trust, Dec. 31, 2020
Number of
common shares
993,225
182,612
(280,399)
895,438
128,304
(248,883)
774,859
Of the $57.6 million compensation expense for the year ended December 31, 2020, $4.5 million relates to stock-based
compensation, details of which are presented in the table below (in thousands $):
Stock option plan
EIP
Total stock-based compensation
For the years ended
Dec. 31, 2020
Dec. 31, 2019
10
4,507
4,517
188
5,204
5,392
53
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Basic and diluted earnings per share
The following table presents the calculation of basic and diluted earnings per common share:
Numerator (in thousands $):
Net income - basic and diluted
Denominator (Number of shares in thousands):
Weighted average number of common shares
Weighted average number of unvested shares purchased by the Trust
Weighted average number of common shares - basic
Weighted average number of dilutive stock options
Weighted average number of unvested shares under EIP
Weighted average number of common shares - diluted
Net income per common share
Basic
Diluted
Capital management
For the years ended
Dec. 31, 2020
Dec. 31, 2019
26,978
10,209
25,464
(976)
24,488
163
1,132
25,783
25,356
(969)
24,387
312
969
25,668
1.10
1.05
0.42
0.40
The Company's objectives when managing capital are:
•
•
•
•
•
to meet regulatory requirements and other contractual obligations;
to safeguard the Company's ability to continue as a going concern so that it can continue to provide returns
for shareholders;
to provide financial flexibility to fund possible acquisitions;
to provide adequate seed capital for the Company's new product offerings; and
to provide an adequate return to shareholders through growth in assets under management, growth in
management fees, carried interest and performance fees and return on the Company's invested capital that
will result in dividend payments to shareholders.
The Company's capital is comprised of equity, including capital stock, contributed surplus, retained earnings (deficit)
and accumulated other comprehensive income (loss). SCP is a member of the Investment Industry Regulatory
Organization of Canada ("IIROC"), SAM is a registrant of the Ontario Securities Commission ("OSC") and the U.S.
Securities and Exchange Commission ("SEC"), SAM US is registered with the SEC and SGRIL is a member of the
Financial Industry Regulatory Authority ("FINRA"). As a result, all of these entities are required to maintain a minimum
level of regulatory capital. To ensure compliance, management monitors regulatory and working capital on a regular
basis. As at December 31, 2020 and 2019, all entities were in compliance with their respective capital requirements.
54
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
9
Income taxes
The major components of income tax expense are as follows (in thousands $):
Current income tax expense (recovery)
Based on taxable income of the current period
Adjustments in respect to previous years
Total current income tax expense
Deferred income tax expense (recovery)
Origination and reversal of temporary differences
Adjustments in respect to previous years
Total deferred income tax expense
Income tax expense reported in the consolidated statements of operations
For the years ended
Dec. 31, 2020
Dec. 31, 2019
2,901
102
3,003
5,373
(692)
4,681
7,684
2,395
115
2,510
231
—
231
2,741
Taxes calculated on the Company's earnings differs from the theoretical amount that would arise using the weighted
average tax rate applicable to earnings of the Company as follows (in thousands $):
Income before income taxes
Tax calculated at domestic tax rates applicable to profits in the respective countries
Tax effects of:
Non-deductible stock-based compensation
Non-taxable capital (gains) and losses
Intangibles
Adjustments in respect of previous periods
Non-capital losses and other temporary differences not benefited previously
Rate differences and other
Tax charge
For the years ended
Dec. 31, 2020
Dec. 31, 2019
34,662
9,324
12,950
3,432
356
841
(458)
(590)
(1,563)
(226)
7,684
107
(47)
87
115
(1,405)
452
2,741
The weighted average statutory tax rate was 26.9% (December 31, 2019 - 26.5%). The Company has $8 million of capital tax losses from prior
years that will begin to expire in 2022. The benefit of these capital losses has not been recognized.
55
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are
recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable
profits is probable. The ability to realize the tax benefits of these losses is dependent upon a number of factors,
including the future profitability of operations in the jurisdictions in which the tax losses arose. The movement in
significant components of the Company's deferred income tax assets and liabilities is as follows (in thousands $):
For the year ended December 31, 2020
Deferred income tax assets
Stock-based compensation
Non-capital and capital losses
Other
Total deferred income tax assets
Deferred income tax liabilities
Fund management contracts
Unrealized gains (losses)
Other
Total deferred income tax liabilities
Net deferred income tax assets (liabilities) (1)
For the year ended December 31, 2019 (2)
Deferred income tax assets
Stock-based compensation
Non-capital losses
Unrealized losses
Other
Total deferred income tax assets
Deferred income tax liabilities
Fund management contracts
Other
Total deferred income tax liabilities
Net deferred income tax assets (1)
Dec. 31, 2019
Recognized in
income
Exchange rate
differences
Dec. 31, 2020
4,117
3,432
247
7,796
6,809
(910)
40
5,939
1,857
(368)
(1,195)
230
(1,333)
2,360
997
(9)
3,348
(4,681)
72
33
(42)
63
277
31
(47)
261
(198)
3,821
2,270
435
6,526
9,446
118
(16)
9,548
(3,022)
Dec. 31, 2018
Recognized in
income
Exchange rate
differences
Dec. 31, 2019
3,349
3,678
283
376
7,686
5,141
514
5,655
606
(372)
604
(143)
695
1,404
(478)
926
162
126
23
14
325
264
4
268
4,117
3,432
910
247
8,706
6,809
40
6,849
1,857
(1) Deferred tax assets of $1.7 million (December 31, 2019 - $4.3 million) and deferred tax liabilities of $4.8 million (December 31, 2019 - $2.4 million) are presented on the balance
2,031
(231)
57
sheet net by legal jurisdiction.
(2) Certain comparative figures have been reclassified to conform with current year presentation
56
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
10 Fair value measurements
The following tables present the Company's recurring fair value measurements within the fair value hierarchy. The
Company did not have non-recurring fair value measurements as at December 31, 2020 and December 31, 2019
(in thousands $).
Short-term investments
Dec. 31, 2020
Level 1
Level 2
Level 3
Total
Public equities and share purchase warrants
Fixed income securities
Private holdings
Total net recurring fair value measurements
5,101
1,379
—
—
731
—
5,101
2,110
271
—
1,993
2,264
6,751
731
1,993
9,475
Dec. 31, 2019
Level 1
Level 2
Level 3
Total
Public equities and share purchase warrants
Fixed income securities
Private holdings
Total net recurring fair value measurements
Co-investments
7,537
—
—
2,983
3,454
—
7,537
6,437
—
766
1,864
2,630
10,520
4,220
1,864
16,604
Dec. 31, 2020
Level 1
Level 2
Level 3
Total
Co-investments in funds
Total net recurring fair value measurements
—
—
76,026
76,026
6,441
6,441
82,467
82,467
Dec. 31, 2019
Level 1
Level 2
Level 3
Total
Co-investments in funds
Total net recurring fair value measurements
—
—
51,065
51,065
4,530
4,530
55,595
55,595
57
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Other assets
Dec. 31, 2020
Level 1
Level 2
Level 3
Total
Digital gold strategies
Total net recurring fair value measurements
—
—
—
—
11,518
11,518
11,518
11,518
Dec. 31, 2019
Level 1
Level 2
Level 3
Total
Digital gold strategies
Total net recurring fair value measurements
—
—
—
—
18,913
18,913
18,913
18,913
The following tables provides a summary of changes in the fair value of Level 3 financial assets (in thousands $):
Short-term investments
Changes in the fair value of Level 3 measurements - Dec. 31 2020
Dec. 31, 2019
Purchases and
reclassifications
Settlements
Share purchase warrants
Private holdings
Fixed income securities
—
1,864
766
2,630
271
—
(783)
(512)
Net unrealized
gains (losses)
included in net
income
Dec. 31, 2020
—
(15)
—
(15)
—
144
17
161
271
1,993
—
2,264
Changes in the fair value of Level 3 measurements - Dec. 31, 2019
Dec. 31, 2018
Purchases and
reclassifications
Settlements
2,075
733
2,808
34
—
34
Net unrealized
gains (losses)
included in net
income
Dec. 31, 2019
(43)
—
(43)
(202)
33
(169)
1,864
766
2,630
Private holdings
Fixed income securities
Co-investments
Changes in the fair value of Level 3 measurements - Dec. 31, 2020
Dec. 31, 2019
Purchases and
reclassifications
Settlements
Net unrealized
gains (losses)
included in net
income
Dec. 31, 2020
Co-investments in funds
4,530
4,530
1,628
1,628
—
—
283
283
6,441
6,441
Changes in the fair value of Level 3 measurements - Dec. 31, 2019
Dec. 31, 2018
Purchases and
reclassifications
Settlements
Net unrealized
gains (losses)
included in net
income
Dec. 31, 2019
Co-investments in funds
3,574
3,574
1,193
1,193
—
—
(237)
(237)
4,530
4,530
58
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Other assets
Changes in the fair value of Level 3 measurements - Dec. 31, 2020
Dec. 31, 2019
Purchases and
reclassifications
Settlements
Net unrealized
gains (losses)
included in net
income
Dec. 31, 2020
Digital gold strategies
18,913
18,913
500
500
—
—
(7,895)
(7,895)
11,518
11,518
Changes in the fair value of Level 3 measurements - Dec. 31, 2019
Dec. 31, 2018
Purchases and
reclassifications
Settlements
Net unrealized
gains (losses)
included in net
income
Dec. 31, 2019
Digital gold strategies
18,285
18,285
2,574
2,574
—
—
(1,946)
(1,946)
18,913
18,913
During the year ended December 31, 2020, the Company transferred public equities of $0.5 million (December 31, 2019 -
$2.5 million) from Level 2 to Level 1 within the fair value hierarchy due to the release of trading restrictions by the issuer. For the
year ended December 31, 2020, the Company purchased level 3 investments of $2.1 million (December 31, 2019 - $3.8 million).
For the year ended December 31, 2020, the Company transferred $Nil million (December 31, 2019 - $0.1 million) from Level 3 to
Level 1 within the fair value hierarchy. For the year ended December 31, 2020, the Company transferred $0.3 million (December 31,
2019 - $Nil) from level 2 to level 3 due to the impact of volatility of the underlying security on the fair value of share purchase
warrants. For the year ended December 31, 2020, the Company transferred $0.8 million (December 31, 2019 - $Nil) from Level 3 to
Level 2 within the fair value hierarchy due to the exercise of a conversion option into equity.
The following table presents the valuation techniques used by the Company in measuring fair values:
Type
Public equities and share purchase
warrants
Alternative funds and private equity
funds
Valuation technique
Fair values are determined using pricing models which incorporate all available market-
observable inputs.
Fair values are based on the last available net asset value.
Fixed income securities
Fair values are based on independent market data providers or third-party broker quotes.
Private holdings (including digital gold
strategies)
Fair values based on variety of valuation techniques, including discounted cash flows,
comparable recent transactions and other techniques used by market participants.
The Company’s Level 3 securities consist of private holdings, private equity funds and fixed income securities of private
companies. The significant unobservable inputs used in these valuation techniques can vary considerably over time, and
include grey market financing prices, discount rates and extraction recovery rates of mining projects. A significant
change in any of these inputs in isolation would result in a material impact in fair value measurement. The potential
impact of a 5% change in the significant unobservable inputs on profit or loss would be approximately $1 million
(December 31, 2019 - $0.9 million).
Financial instruments not carried at fair value
For fees receivable, other assets, accounts payable and accrued liabilities and compensation payable, the carrying
amount represents a reasonable approximation of fair value.
59
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
11 Related party transactions
The remuneration of directors and other key management personnel of the Company for employment services rendered
are as follows (in thousands $):
Fixed salaries and benefits
Variable incentive-based compensation
Share-based compensation
For the years ended
Dec. 31, 2020
Dec. 31, 2019
3,247
8,715
1,817
13,779
2,155
3,405
1,678
7,238
The DSU plan for independent directors of the Company vests annually over a three-year period and may only be settled
in cash upon retirement. DSUs issued in lieu of directors' fees and dividends vest immediately. There were 3,559 DSUs
issued during the year (December 31, 2019 - 12,349).
12 Dividends
The following dividends were declared by the Company during the twelve months ended December 31, 2020:
Record date
March 9, 2020 - Regular dividend Q4 2019
May 19, 2020 - Regular dividend Q1 2020
August 17, 2020 - Regular dividend Q2 2020
November 23, 2020 - Regular dividend Q3 2020
Dividends (2)
Payment Date
March 24, 2020
June 3, 2020
September 1, 2020
December 8, 2020
Cash dividend
per share (1)
Total dividend amount
(in thousands $)
CAD$0.30
CAD$0.30
US$0.23
US$0.25
5,387
5,560
5,915
6,378
23,240
(1) Dividends per share for periods before May 28 reflect retrospective treatment of the 10:1 share consolidation.
(2) Subsequent to year end, on February 25, 2021, a regular dividend of US$0.25 per common share was declared for the quarter ended December
31, 2020. This dividend is payable on March 23, 2021 to shareholders of record at the close of business on March 8, 2021.
60
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
13 Risk management activities
The Company's exposure to market, credit, liquidity, concentration, and COVID-19 risks are described below:
Market risk
Market risk refers to the risk that a change in the level of one or more of market prices, interest rates, foreign exchange
rates, indices, volatilities, correlations or other market factors, such as liquidity, will result in a change in the fair value of
an asset. The Company's financial instruments are classified as FVTPL. Therefore, certain changes in fair value or
permanent impairment, if any, affect reported earnings as they occur. The maximum risk resulting from financial
instruments is determined by the fair value of the financial instruments. The Company manages market risk through
regular monitoring of its proprietary investments and loans receivable. The Company separates market risk into three
categories: price risk, interest rate risk and foreign currency risk.
Price risk
Price risk arises from the possibility that changes in the price of the Company's investments and co-investments will
result in changes in carrying value. If the market values of investments and co-investments classified as FVTPL increased
or decreased by 5%, with all other variables held constant, this would have resulted in an increase or decrease in net
income before tax of approximately $5.2 million for the year (December 31, 2019 - $4.5 million). For more details about
the Company's investments and co-investments, refer to Note 3 and Note 4.
The Company's revenues are also exposed to price risk since management fees, performance fees and carried interests
are correlated with assets under management, which fluctuates with changes in the market values of the assets in the
funds and managed accounts managed by SAM, SRLC, SC, RCIC and SAM US.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will adversely affect the value of, or cash flows
from, financial instrument assets. The Company’s earnings, particularly through its co-investment in lending LPs, are
exposed to volatility as a result of sudden changes in interest rates.
As at December 31, 2020, the Company had $0.7 million of fixed income securities (December 31, 2019 - $4.2 million).
Foreign currency risk
Foreign currency risk arises from foreign exchange rate movements that could negatively impact either the carrying value
of financial assets and liabilities or the related cash flows when translating those balances into the Company's
functional currency, Canadian dollars. The Company's primary foreign currency is the United States dollar ("USD"). The
Company may employ certain hedging strategies to mitigate foreign currency risk.
The Global Companies' assets are all denominated in USD with their translation impact being reported as part of other
comprehensive income in the financial statements. Excluding the impact of the Global Companies, as at December 31,
2020, approximately $74.1 million (December 31, 2019 - $73.7 million) of total Canadian assets were invested in
proprietary investments priced in USD. A total of $12.2 million (December 31, 2019 - $29.7 million) of cash, $8.1
million (December 31, 2019 -$5.7 million) of accounts receivable and $1.5 million (December 31, 2019 - $3.7 million)
of other assets were denominated in USD. As at December 31, 2020, if the exchange rate between USD and the
Canadian dollar increased or decreased by 5%, with all other variables held constant, the increase or decrease in net
income would have been approximately $4.8 million for the year (December 31, 2019 - $5.7 million).
61
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Credit risk
Credit risk is the risk that a borrower will not honour its commitments and a loss to the Company may result.
Loans receivable
The Company incurs credit risk primarily in the on-balance sheet loans of SRLC and through co-investments made in the
lending LPs managed by SRLC. In addition to the relative default probability of SRLC borrowers (both directly via on
balance sheet loans and indirectly via borrowers in the lending LPs we co-invest with), credit risk is also dependent on
loss given default, which can increase credit risk if the values of the underlying assets securing the Company's loans
decline to levels approaching or below the loan amounts. A decrease in commodity prices may delay the development of
the underlying security or business plans of the borrower and will adversely affect the value of the Company's security
against a loan. Additionally, the value of the Company's underlying security in a loan can be negatively affected if the
actual amount or quality of the commodity proves to be less than that originally estimated, or the ability to extract the
commodity proves to be more difficult or more costly than originally estimated. During the loan origination process,
management takes into account a number of factors and is committed to several processes to ensure that this risk is
appropriately mitigated. These include:
• emphasis on first priority and/or secured financings;
• the investigation of the creditworthiness of borrowers;
• the employment of qualified and experienced loan professionals;
• a review of the sufficiency of the borrower’s business plans including plans that will enhance the value of the
underlying security;
• frequent and documented status updates provided on business plans;
• engagement of qualified independent advisors (e.g. lawyers, engineers and geologists) to protect Company
interests;
• legal reviews that are performed to ensure that all due diligence requirements are met prior to funding.
As at December 31, 2020 had no exposure to credit risk via on-balance sheet loans of SRLC (December 31, 2019 -
$Nil). The Company will syndicate loans in certain circumstances if it wishes to reduce its exposure to a borrower or
comply with loan exposure maximums. The Company reviews its policies regarding its lending limits on an ongoing
basis. For precious metal loans, the Company performs the same due diligence procedures as it would for its resource
loans and resource debentures.
Collectability of loans
Besides the above noted measures we take to manage credit risk, the Company will report on credit risk in the notes to
the annual consolidated financial statements and records expected credit loss provisions to ensure that on-balance sheet
loans are recorded at their estimated recoverable amount (i.e. net of impairment risk we believe to exist as at the
balance sheet date and in accordance with IFRS). Actual losses incurred in the on-balance sheet loan portfolio could
differ materially from our provisions. Management takes into account a number of factors and is committed to several
processes to ensure that this risk is appropriately managed.
Net investments
The Company incurs credit risk when entering into, settling and financing various proprietary transactions. As at
December 31, 2020 and 2019, the Company's most significant proprietary investments counterparty was National Bank
Independent Network Inc. ("NBIN"), the carrying broker of SCP, which also acts as a custodian for most of the
Company's proprietary investments. NBIN is registered as an investment dealer subject to regulation by IIROC; as a
result, it is required to maintain minimum levels of regulatory capital at all times.
62
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Other
The majority of accounts receivable relate to management, carried interest and performance fees receivable from the
Funds, managed accounts and managed companies managed by the Company. Credit risk is managed in this regard by
dealing with counterparties that the Company believes to be creditworthy and by actively monitoring credit exposure
and the financial health of the counterparties.
The Global Companies incur credit risk when entering into, settling and financing various proprietary transactions. As at
December 31, 2020 and 2019, the Global Companies' most significant counterparty was RBC Capital Markets, LLC
("RBCCM"), the carrying broker of SGRIL and custodian of the net assets of the Funds managed by RCIC. RBCCM is
registered as a broker-dealer and registered investment advisor subject to regulation by FINRA and the SEC; as a result,
it is required to maintain minimal levels of regulatory capital at all times.
Liquidity risk
Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due.
The Company's exposure to liquidity risk is minimal as it maintains sufficient levels of liquid assets to meet its
obligations as they come due. Additionally, the Company has access to a $70 million committed line of credit with a
major Canadian Schedule I bank. As part of its cash management program, the Company primarily invests in short-term
debt securities issued by the Government of Canada with maturities of less than three months. As at December 31,
2020, the Company had $44.1 million or 12% (December 31, 2019 - $54.7 million or 17%) of its total assets in cash
and cash equivalents. In addition, approximately $35.1 million or 38% (December 31, 2019 - $10.5 million or 14%) of
proprietary investments held by the Company are readily marketable and are recorded at their fair value.
The Company's exposure to liquidity risk as it relates to our co-investments in lending LPs arises from fluctuations in
cash flows from making capital calls and receiving capital distributions. The Company manages its loan co-investment
liquidity risk through the ongoing monitoring of scheduled capital calls and distributions ("match funding") and through
its broader treasury risk management program and enterprise capital budgeting. As at December 31, 2020, the
Company had $4.6 million in co-investment commitments from the Lending segment (December 31, 2019 -
$6.6 million). Financial liabilities, including accounts payable and accrued liabilities and compensation and employee
bonuses payable, are short-term in nature and are generally due within a year.
The following are the remaining contractual maturities of financial liabilities as at December 31, 2020 (in thousands $):
Contractual obligations
Lease obligation
Compensation payable
Operating accounts payable
Contingent consideration
Loan facility
Carrying
Amount
Less
than
1 year
1-3
years
3-5
years
More
than
5 years
7,460
15,192
19,046
20,575
16,994
79,267
2,501
15,192
19,046
10,000
—
4,719
—
—
10,575
—
46,739
15,294
240
—
—
—
16,994
17,234
—
—
—
—
—
—
The Company's management team is responsible for reviewing resources to ensure funds are readily available to meet
its financial obligations as they come due, as well as ensuring adequate funds exist to support business strategies and
operations growth. The Company manages liquidity risk by monitoring cash balances on a daily basis. To meet any
liquidity shortfalls, actions taken by the Company could include: syndicating a portion of its loans; slowing its lending
activities; drawing on the line of credit; liquidating proprietary investments and/or issuing common shares.
63
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
Concentration risk
The majority of the Company's AUM, as well as its proprietary investments and loans receivables are focused on the
natural resource sector, and in particular, precious metals & mining.
COVID-19 risk
The changing economic and market climate as a result of COVID‑19 has led to the Company implementing its business
continuity plan. Our portfolio managers, brokerage professionals, enterprise shared services teams and key outsource
service providers are fully operational. The exact impacts of COVID-19 over the short and long-term are undeterminable
at the date of this report.
64
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
14 Segmented information
For management purposes, the Company is organized into business units based on its products, services and
geographical location and has five reportable segments as follows:
• Exchange listed products (reportable), which provides management services to the Company's closed-end
physical trusts and exchange traded funds ("ETFs"), both of which are actively traded on public securities
exchanges;
• Managed equities (reportable), which provides asset management and sub-advisory services to the
Company's branded funds, fixed-term LPs and managed accounts;
• Lending (reportable), which provides lending and streaming activities through limited partnership vehicles as
well as through direct lending activities using the Company's balance sheet;
• Brokerage (reportable), which includes the activities of our Canadian and U.S. broker-dealers;
• Corporate (reportable), which provides capital, balance sheet management and enterprise shared services to
the Company's subsidiaries;
• All other segments (non-reportable), which do not meet the definition of reportable segments as per IFRS
8.
Management monitors the operating results of its business units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance is evaluated based on earnings before interest
expense, income taxes, amortization and impairment of intangible assets and goodwill, gains and losses on proprietary
investments (as if such gains and losses had not occurred), foreign exchange gains and losses, one time non-recurring
expenses, non-cash and non-recurring stock-based compensation, carried interest and performance fees and carried
interest and performance fee payouts (adjusted base EBITDA).
Adjusted base EBITDA is not a measurement in accordance with IFRS and should not be considered as an alternative to
net income or any other measure of performance under IFRS.
Transfer pricing between operating segments is performed on an arm's length basis in a manner similar to transactions
with third parties.
The following tables present the operations of the Company's segments (in thousands $):
For the year ended December 31, 2020
Total revenue
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
Exchange
listed
products
Managed
equities
37,680
9,151
28,529
30,563
41,354
22,686
18,668
10,762
Lending
Brokerage Corporate
15,509
8,469
7,040
7,272
30,683
23,454
7,229
8,052
(7,214)
18,566
(25,780)
(13,722)
Consolidation,
elimination
and all other
segments
3,764
4,788
(1,024)
1,239
Consolidated
121,776
87,114
34,662
44,166
65
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
For the year ended December 31, 2019
Total revenue
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
Exchange
listed
products
24,528
9,274
15,254
17,988
Managed
equities
Lending
Brokerage Corporate
Consolidation,
elimination
and all other
segments
14,058
14,745
8,145
5,913
3,167
8,224
6,521
10,725
21,208
20,442
766
3,342
(2,604)
9,904
(12,508)
(7,290)
1,551
4,547
(2,996)
1,071
Consolidated
73,486
60,536
12,950
29,003
For geographic reporting purposes, transactions are primarily recorded in the location that corresponds with the
underlying subsidiary's country of domicile that generates the revenue. The following table presents the revenue of the
Company by geographic location (in thousands $):
Canada
United States
For the years ended
Dec. 31, 2020
Dec. 31, 2019
95,962
25,814
121,776
63,375
10,111
73,486
66
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2020 and 2019
15 Loan facility
As at December 31, 2020, the Company had $17 million (December 31, 2019 - $15.3 million) outstanding on its credit
facility, all of which is due after 12 months (December 31, 2019 - $3.8 million due within 12 months and $11.5 million
due after 12 months).
On November 13, 2020, the Company extended and upsized its previous credit facility to $70 million, up from
$61 million at the time of the extension. Amounts under the new facility may be borrowed under the facility through
prime rate loans or bankers’ acceptances. Similar to the previous facility, amounts may also be borrowed in US dollars
through base rate loans. As at December 31, 2020, the Company was in compliance with all covenants, terms and
conditions under the credit facility. Key terms under the credit facility are noted below:
Structure
•
5-year, $70 million revolver with "bullet maturity" December 14, 2025
Interest Rate
•
•
Prime rate + 0 bps or;
Banker acceptance rate + 170 bps
Covenant Terms
•
•
•
Minimum AUM: 70% of AUM on November 13, 2020
Debt to EBITDA less than or equal to 2.5:1
EBITDA to interest expense more than or equal to 2.5:1
16 Commitments and provisions
Besides the Company's long-term lease agreement, there are commitments to make investments in the net investments
portfolio of the Company. As at December 31, 2020, the Company had $4.6 million in co-investment commitments from
the lending segment, all due within one year (December 31, 2019 - $6.6 million).
17 Subsequent events
Subsequent to year-end, the Company successfully negotiated an amendment to the original terms of the purchase
agreement. In lieu of any contingent consideration entitlement for the 2020 and 2021 fiscal years, the vendor accepted
a final payment from the Company of $30 million ($27 million in cash and $3 million in Sprott Inc. common shares). This
enabled the Company to lock-in the total acquisition price and return on investment economics going into 2021 and
further enabled the Company to retain the full benefits of any additional increase in AUM expected over 2021. As a
result of this change, the Company revised the contingent consideration in the first quarter of 2021 and incurred an
expense of $4.4 million. This one-time charge on revision of contingent consideration will be included as part of the
Other expenses line on the consolidated statements of operations and comprehensive income.
67
Corporate Information
Head Office
Sprott Inc.
Royal Bank Plaza, South Tower
200 Bay Street, Suite 2600
Toronto, Ontario M5J 2J1, Canada
T: 416.943.8099
1.855.943.8099
Directors & Officers
Ronald Dewhurst, Chairman
Sharon Ranson, FCPA, FCA, Director
Rosemary Zigrossi, Director
Graham Birch, Director
Rick Rule, Director
Peter Grosskopf, Chief Executive Officer and Director
Whitney George, President
Kevin Hibbert, FCPA, FCA, Chief Financial Officer
Arthur Einav, Corporate Secretary
US Transfer Agent and Registrar
Continental Stock Transfer & Trust Company
1 State Street 30th Floor
New York, NY 10004-1561
212.509.4000
continentalstock.com
Canadian Transfer Agent and Registrar
TMX Equity Transfer Services
200 University Avenue, Suite 300
Toronto, Ontario M5H 4H1
Toll Free: 1.866.393.4891
www.tmxequitytransferservices.com
Legal Counsel
Stikeman Elliot LLP
5300 Commerce Court West
199 Bay Street
Toronto, Ontario M5L 1B9
Auditors
KPMG LLP
Bay Adelaide Centre
333 Bay Street, Suite 4600
Toronto, Ontario M5H 2S5
Investor Relations
Shareholder requests may be directed to Investor
Relations by e-mail at ir@sprott.com or via
telephone at 416.943.8099
or toll free at 1.855.943.8099
Stock Information
Sprott Inc. common shares are traded on the
New York Stock Exchange and Toronto Stock Exchange
under the symbol “SII”
Annual General Meeting
Friday, May 7, 2021 at 12pm
Stikeman Elliot LLP
5300 Commerce Court West
199 Bay Street Toronto, Ontario
M5L 1B9
sprott.com