Canaccord Financial Inc. Reports First Quarter Fiscal 2013 Results
(All dollar amounts are stated in Canadian dollars unless otherwise indicated)
TORONTO, Aug. 8, 2012 /PRNewswire/ - During the first quarter of fiscal 2013, the quarter ended June 30, 2012, Canaccord Financial Inc. (Canaccord, TSX: CF, LSE: CF.) generated $162.5 million in revenue and recorded a net loss of $20.6 million, or $(0.24) per common share. Excluding significant items(1), a non-IFRS measure, Canaccord recorded a net loss of $16.3 million, or $(0.20) per common share.
"We are making significant progress in capturing the cost synergies we believe are possible through our acquisition of Collins Stewart Hawkpoint, and we're actively engaged in additional cost reduction initiatives aimed at enhancing the efficiency of our operations during this period of market instability. On a combined basis, we're on track to remove over $47 million of annualized costs from our expanded global platform," stated Paul Reynolds , President and CEO of Canaccord Financial Inc. "We are confident our business is well positioned to gain market share in many of our core markets, even while adverse market conditions continue to challenge some of our revenue streams."
First quarter of fiscal 2013 vs. fourth quarter of fiscal 2012
- Revenue of $ 162.5 million, down 9% or $15.2 million from $177.7 million
- Expenses of $ 187.0 million, down 10% or $20.7 million from $207.7 million
- Net loss of $20.6 million compared to a net loss of $31.8 million
- Excluding significant items, net loss of $16.3 million compared to net income of $2.1 million (1)
- Diluted loss per common share of $0.24 compared to diluted loss per common share of $0.42 in the fourth quarter of fiscal 2012
- Excluding significant items, diluted loss per common share of $0.20 compared to diluted earnings per common share (EPS) of $0.02 in the fourth quarter of fiscal 2012(1)
First quarter of fiscal 2013 vs. first quarter of fiscal 2012
- Revenue of $162.5 million, up 2% or $2.7 million from $159.8 million
- Expenses of $187.0 million, up 30% or $43.0 million from $144.0 million
- Net loss of $20.6 million compared to net income of $13.2 million
- Excluding significant items, net loss of $16.3 million compared to net income of $14.1 million (1)
- Diluted loss per common share of $0.24 compared to diluted EPS of $0.16
- Excluding significant items, diluted loss per common share of $0.20 compared to diluted EPS of $0.17(1)
Financial condition at end of first quarter 2013 vs. first quarter 2012
- Cash and cash equivalents balance of $644.0 million, down $66.7 million from $710.7 million
- Working capital of $398.9 million, down $87.1 million from $486.0 million
- Total shareholders' equity of $1.1 billion, up $251.8 million from $848.2 million
- Book value per diluted common share for the period end was $7.90, down 9% or $0.81 from $8.71
- On August 8, 2012, the Board of Directors approved a quarterly dividend of $0.05 per common share payable on September 10, 2012 with a record date of August 24, 2012
- On August 8, 2012, the Board of Directors also approved a cash dividend of $0.34375 per Series A Preferred Share payable on October 1, 2012 with a record date of September 14, 2012, and a cash dividend of $0.359375 per Series C Preferred Share payable on October 1, 2012 to Series C Preferred Shareholders of record as at September 14, 2012
SUMMARY OF OPERATIONS
- On April 10, 2012, $97.5 million of the net proceeds from Canaccord's Series C Preferred Share offering was used to repay a portion of the $150.0 million short term credit facility the Company secured for bridge financing related to the acquisition of Collins Stewart Hawkpoint plc
- The balance of the short term credit facility was repaid in full on May 22, 2012
- On June 7, 2012, Canaccord announced that Dan Daviau was appointed President of Canaccord Genuity Inc. (Canaccord's US capital markets operation) subject to regulatory approval
- Canaccord Genuity led or co-led 17 transactions globally, raising total proceeds of $448.7 million(2) during fiscal Q1/13
- Canaccord Genuity participated in 74 transactions globally, raising total proceeds of $1.9 billion(2) during fiscal Q1/13
- During fiscal Q1/13, Canaccord Genuity led or co-led the following transactions:
- C$115.7 million for Artis Real Estate Investment Trust (REIT) on the TSX
- C$115.0 million for Trez Capital Mortgage Investment Corporation (non-exchange listed)
- C$110.0 million for HealthLease Properties REIT on the TSX
- C$103.6 million for Amaya Gaming Group Inc. on the TSX Venture
- C$100.0 million for Canaccord Financial Inc. on the TSX
- C$68.2 million for Sentry Select Primary Metals Corp. on the TSX
- US$40.0 million for PhotoMedex, Inc. on the NYSE
- C$37.5 million for Badger Daylighting Ltd. on the TSX
- C$30.0 million for Equus Petroleum Plc (non-exchange listed)
- US$29.2 million for Kit Digital Inc. on NASDAQ
- C$28.0 million for Amica Mature Lifestyles Inc. on the TSX
- In Canada, Canaccord Genuity raised $197.5 million for provincial bond issuances and $15.0 million for corporate bond issuances during fiscal Q1/13
- Canaccord Genuity generated advisory revenues of $25.2 million during fiscal Q1/13, an increase of 12% compared to the same quarter last year
- During fiscal Q1/13, Canaccord advised on the following M&A and advisory transactions:
- Syngenta International Inc. on the sale of its Fafard Growing Media Business to Sun Gro Horticulture
- Sunopta Inc. on the sale of Purity Life Natural Health Products to Banyan Capital Partners
- DragonWave Inc. on its acquisition of Nokia Siemens Networks' microwave transport business
- CanGas Solutions on its sale to CanElson Drilling Inc.
- Reliable Energy Ltd. on its sale to Crescent Point Energy Corp.
- ColCan Energy Corp. on its sale to Sintana Energy Inc.
- Viterra's North American livestock feed operations on its sale to Hi-Pro Feeds LP
- Global Radio on its acquisition of GMG Radio
- The Department for International Development (UK government) on the disposal of its 40% stake in Actis LLP to Actis Management
Canaccord Wealth Management (Global)
- Globally, Canaccord Wealth Management generated $57.2 million in revenue. On an operating basis, after expense allocations, the division recorded a net loss of $6.5 million before taxes in Q1/13
- Assets under administration in Canada, and assets under management in the UK and Europe, and Australia, were $26.0 billion at the end of Q1/13(1)
- Canaccord Wealth Management had 47 offices worldwide, as of June 30, 2012
Canaccord Wealth Management (North America and Australia)
- Canaccord Wealth Management generated $37.6 million in revenue and, after expense allocations, recorded a net loss of $7.3 million before taxes in Q1/13
- Assets under administration in Canada were $13.1 billion as at June 30, 2012, down 11% from $14.8 billion at the end of fiscal Q4/12 and down 16% from $15.7 billion at the end of fiscal Q1/12(1)
- Assets under management in Australia were $305 million at the end of fiscal Q1/13 (1)
- Assets under management in Canada (discretionary) were $709 million as at June 30, 2012, up 5% from $677 million at the end of fiscal Q4/12 and up 23% from $575 million at the end of fiscal Q1/12 (1)
- As at June 30, 2012, Canaccord Wealth Management had 269 Advisory Teams(3), an increase of six Advisory Teams from June 30, 2011 and a decrease of 11 from March 31, 2012
- During the first quarter of Canaccord's fiscal year, Canaccord Wealth Management closed two locations operating on the Independent Wealth Management (IWM) platform
- The Simcoe, Ontario, IWM branch closed on June 8, 2012
- One of Canaccord's Toronto, Ontario, branches. This IWM branch closed on June 29, 2012.
- Canaccord Wealth Management had 39 offices across Canada, including 21 operating on the IWM platform, as of June 30, 2012
Canaccord Wealth Management (UK and Europe)
- Collins Stewart Wealth Management generated $19.6 million in revenue and, after expense allocations, recorded net income of $0.8 million before taxes in Q1/13
- Assets under management (discretionary and non-discretionary) were $12.6 billion (£7.9 billion)
- On July 12, 2012, Canaccord held its 2012 Annual General Meeting of shareholders, where all nominated directors were re-elected to the Board
- On July 13, 2012, Canaccord Financial Inc.'s UK listing was graduated from AIM to the LSE main market. (LSE: CF.)
- On July 16, 2012, Canaccord BGF (the Company's Australia and Hong Kong operations) was rebranded Canaccord Genuity and Canaccord Wealth Management to reflect Canaccord's global business divisions
- On August 3, 2012, Canaccord Financial Inc. made an application to the TSX to renew its normal course issuer bid (NCIB).
The non-International Financial Reporting Standards (IFRS) measures presented include assets under administration, assets under management, book value per diluted common share and figures that exclude significant items. Significant items include restructuring costs and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions. Management believes that these non-IFRS measures will allow for a better evaluation of the operating performance of Canaccord's business and facilitate meaningful comparison of results in the current period to those in prior periods and future periods. Figures that exclude significant items provide useful information by excluding certain items that may not be indicative of Canaccord's core operating results. A limitation of utilizing these figures that exclude significant items is that the IFRS accounting effects of these items do in fact reflect the underlying financial results of Canaccord's business; thus, these effects should not be ignored in evaluating and analyzing Canaccord's financial results. Therefore, management believes that Canaccord's IFRS measures of financial performance and the respective non-IFRS measures should be considered together.
Selected financial information excluding significant items
|Three months ended June 30||Quarter-over-|
|(C$ thousands, except % amounts)||2012||2011||quarter change|
|Total revenue per IFRS||$162,549||$159,783||1.7%|
|Total expenses per IFRS||187,048||144,034||29.9%|
|Significant items recorded in Canaccord Genuity|
|Amortization of intangible assets||4,373||930||370.2%|
|Significant items recorded in Canaccord Wealth Management|
|Amortization of intangible assets||998||—||n.m.|
|Total significant items||5,371||930||477.5%|
|Total expenses excluding significant items||181,677||143,104||27.0%|
|Net income (loss) before tax - adjusted||$(19,128)||$16,679||(214.7)%|
|Income taxes (recovery) - adjusted||(2,833)||2,554||(210.9)%|
|Net income (loss) - adjusted||$(16,295)||$14,125||(215.4)%|
|Earnings (loss) per common share - basic, adjusted||$(0.20)||$0.19||(205.3)%|
|Earnings (loss) per common share - diluted, adjusted||$(0.20)||$0.17||(217.6)%|
n.m.: not meaningful
Acquisition Cost Synergies and Cost Reduction Strategy
As discussed at the time of the acquisition of Collins Stewart Hawkpoint plc (CSHP) by Canaccord, the Company believed that the cost base of the combined group could be significantly reduced as a result of combining and rationalizing the common operations and common business units of Canaccord and CSHP. The Company has determined that over $42 million of costs could be eliminated from the combined operations. Details of these cost reductions are provided in the table below. This estimate is based on the cost reductions the Company expects to capture on an annual basis, compared to the cost basis of each of Canaccord and CSHP as separate companies prior to the business combination.
In addition to the cost synergies identified from the acquisition of CSHP, further cost reduction initiatives have been implemented in Canada by the Company which are expected to remove approximately $5.5 million in annual costs from Canaccord's operations. These initiatives are described below:
- Canaccord has restructured its Montréal, Canada, office. Staffing changes from this restructuring led to eliminating 16 positions. In addition, the Company is in the process of consolidating its Montréal office space to reduce leasehold expenses and this is expected to remove approximately $6.6 million of leasehold costs from the business, or $1.2million on an annual basis.
- Subsequent to quarter end, Canaccord implemented a number of staffing reductions in Canada to better align the Company's resources with current market conditions. Approximately 60 full-time and contract positions were removed as a result of this initiative. This restructuring removed approximately $4.3 million of annualized costs from the business.
Summary of expected cost reductions
Global cost reductions (Annualized gross reductions, C$ thousands)
|Restructuring (1)||Other Costs (2)||Total|
|Cost synergies through activities related to the acquisition of CSHP|
|COST REDUCTIONS IMPLEMENTED PRIOR TO JUNE 30, 2012|
|UK & Europe||19,888||6,977||26,865|
FURTHER COST SYNERGIES IDENTIFIED
(Historic cost levels expected to be removed from the business)
|UK & Europe||4,670||1,916||6,586|
|Total expected cost synergies related to the CSHP acquisition||28,011||14,087||42,098|
Other cost reductions
(primarily in Canada)
|Total global cost reductions||$32,311||$15,287||$47,598|
|(1)||Based on annualized salaries|
|(2)||Consists of annualized communications and technology, premises and equipment, and other general and administrative costs.|
|(3)||A total of $6.6 million of costs will be avoided over the 5.5 years that were left on the leasehold agreement.|
Certain costs associated with some of these initiatives have been incurred and recorded prior to June 30, 2012. Additional severance expenses and other costs associated with implementing the cost reduction strategies and restructuring initiatives subsequent to June 30, 2012 will be recorded as they are incurred. Restructuring and operational costs associated with changes implemented in Canada and the US are expected to total approximately $4.4 million, and will be recorded as an expense in the Company's fiscal Q2/13 quarter.
A substantial portion of the restructuring cost reductions outlined
above are in connection with eliminating several positions within
revenue producing business units. In connection with the elimination
of these positions and restructuring of these business units, the
Company is reviewing the compensation structure within these units and
will be adjusting incentive compensation pools and performance bonus
programs as appropriate.
LETTER TO SHAREHOLDERS
Our focus for much of the fiscal first quarter has been on capturing the cost synergies we believe are possible from our acquisition of Collins Stewart Hawkpoint plc (CSHP) and continuing our cost reduction initiatives in other areas of our business. As a result of these combined efforts, over $47.6 million of annualized costs have been, or are in the process of being, removed from our combined operations. This includes $42.1 million of cost reductions by merging the operating platforms of Canaccord and Collins Stewart Hawkpoint, compared to the cost base of Canaccord and CSHP as separate companies prior to the business combination. We are also actively engaged in reducing costs in Canada to better align our business with today's market environment. Approximately $5.5 million of annualized costs are in the process of being removed from our operations as a result of changes to our Canadian business.
Our operating environment continues to be characterized by adverse market conditions - particularly in the small to mid-market resource space - a traditional strength for our company. The results were apparent in several revenue lines during our fiscal first quarter. While we anticipate the ongoing European debt crisis may take many more months to resolve, we remain highly confident our business is optimally positioned to continue capturing market share in many of our core markets. We still view the ongoing economic downturn as an important opportunity to establish new client relationships and expand our existing ones, as other industry participants retrench.
Despite the unfavourable market environment during our fiscal first quarter, revenue increased compared to the previous quarter and the same period last year, to $162.5 million, due mostly to our expanded platform. Expenses also increased as a result of our larger operating base, to $187.0 million, or $181.7 million excluding significant items, which consisted of amortization related to acquisitions. Excluding significant items, Canaccord recorded a net loss of $16.3 million, or $0.20 per diluted common share.
Solid Capital Position
Canaccord's balance sheet remains strong and liquid, and our capital levels continue to be comfortably above our capital requirements. However, to better align our capital priorities with our economic landscape, Canaccord's Board of Directors approved the reduction of our common share dividend to $0.05. We believe this is a prudent measure as global economic uncertainty continues to prolong as a result of ongoing European debt concerns. In the future it is our intent to maintain a base quarterly dividend of $0.05. We would anticipate distributing additional extra dividends of up to 50% of our net profits, subject to board approval. We believe this policy will better reward our shareholders as our business prospects improve.
During the quarter Canaccord successfully completed an issuance of 4,000,000 Series C Preferred Shares that raised $100 million of capital for our business. The proceeds were used to retire all debt the Company took on to facilitate the acquisition of CSHP. Today, the only debt Canaccord holds on its balance sheet is a long-standing $15 million credit facility.
We have also taken the important step of transitioning our UK common share listing from the AIM to the LSE main market - an initiative that reflects our commitment to that market and our growing UK shareholder base. As of July 13, Canaccord's common shares are now dual-listed on the TSX and LSE.
Canaccord's global capital markets division generated $100.5 million of revenue during the fiscal first quarter, a decline from last quarter, due primarily to a significant pull back in underwriting activity, especially within the resource and oil & gas sectors. M&A and advisory activity continued to provide a strong contribution to our business, generating $25.2 million of advisory revenue during the quarter.
We expect that Canaccord's fiscal second quarter will benefit from several large advisory fees as a result of transactions that are on track to close during that quarter, namely Viterra's $7.5 billion acquisition by Glencore, Yellow Media's $1.8 billion debt restructuring, and Extorre Gold Mines' $414 million acquisition by Yamana Gold. We also continue to see opportunities for our expanded advisory practice in the UK. This quarter, our larger UK M&A and advisory team generated more revenue than our UK business did all of last fiscal year. Even more, we're trending to generate another record year of global advisory revenue.
Canaccord's wealth management operations were significantly expanded through the addition of Collins Stewart Wealth Management in the UK and Europe. In addition to this, we're also making investments to enhance our growing wealth management operations in Australia.
In the UK and Europe, Canaccord's wealth management business continued to demonstrate the stability of earnings, generating another profitable quarter. We remain pleased with the performance of this business, even while client trading activity slowed during the quarter due to the market environment and guarded investor sentiment.
In Canada, our wealth management business continues to be adversely affected by the unfavourable market conditions. Traditional transactional activity declined as a result of reduced equity issuances in many of our focus sectors. However, the strength of our wealth management platform was demonstrated again, with assets in fee-based accounts increasing 5% during the fiscal quarter and 23% compared to the same quarter last year.
In Australia, we're continuing to invest in the build out of our wealth management operations. In July we rebranded the retail operations in that region as Canaccord Wealth Management - increasing the prominence of our brand, and underscoring the opportunity we see for wealth management in Australia.
Our priorities for the next several quarters remain focused on achieving the cost and revenue synergies we believe are possible through our expanded global platform, and on improving the operating efficiency of our support departments. We'll also continue with efforts that ensure our clients receive the full value of our integrated global platform, applying our global expertise to differentiate ourselves in all our local markets. We're confident in our market position and in the quality of service we provide our growing client base. And we are committed to demonstrating the value of our platform to all of our stakeholders.
Paul D. Reynolds ,
President & CEO
Canaccord Financial Inc.
ACCESS TO QUARTERLY RESULTS INFORMATION
Interested investors, the media and others may review this quarterly earnings release and supplementary financial information at http://www.canaccordfinancial.com/EN/IR/Pages/default.aspx.
CONFERENCE CALL AND WEBCAST PRESENTATION
Interested parties are invited to listen to Canaccord's first quarter fiscal 2013 results conference call with analysts and institutional investors, via a live webcast or a toll free number. The conference call is scheduled for Thursday, August 9, 2012, at 8:00 a.m. (Pacific Time), 11:00 a.m. (Eastern Time), 4:00 p.m. (UK Time), 11:00 p.m. (China Standard Time), and at 1:00 a.m. (Australia EDT Time) on Friday, August 10, 2012. At that time, senior executives will comment on the results for the first quarter of the fiscal 2013 year and respond to questions from analysts and institutional investors.
The conference call may be accessed live and archived on a listen-only basis via the Internet at: www.canaccordfinancial.com/EN/NewsEvents/Pages/Events.aspx
Analysts and institutional investors can call in via telephone at:
- 647-427-7450 (within Toronto)
- 1-888-231-8191 (toll free outside Toronto)
- 0-800-051-7107 (toll free from the UK)
- 10-800-714-1191 (toll free from Northern China)
- 10-800-140-1195 (toll free from Southern China)
- 1-800-287-011 (toll free from Australia)
Please request to participate in Canaccord Financial's Q1/13 earnings call.
A replay of the conference call can be accessed after 10:00 a.m. (Pacific Time), 1:00 p.m. (Eastern Time) and 6:00 p.m. (UK Time) Thursday, August 9, 2012, and after 1:00 a.m. (China Standard Time) and 3:00 a.m. (Australia EDT Time) on Friday, August 10, 2012 until September 23, 2012 at 416-849-0833 or 1-855-859-2056 by entering passcode 12904912 followed by the pound (#) sign.
ABOUT CANACCORD FINANCIAL INC.
Through its principal subsidiaries, Canaccord Financial Inc. is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: wealth management and global capital markets. Since its establishment in 1950, Canaccord has been driven by an unwavering commitment to building lasting client relationships. We achieve this by generating value for our individual, institutional and corporate clients through comprehensive investment solutions, brokerage services and investment banking services. Canaccord has 60 offices worldwide, including over 40 Wealth Management offices located across Canada, Australia, the UK and Europe. Canaccord Genuity, the Company's international capital markets division, has operations in Canada, the US, the UK, France, Germany, Ireland, Italy, China, Hong Kong, Singapore, Australia and Barbados.
Canaccord Financial Inc. is publicly listed on the Toronto Stock Exchange and the London Stock Exchange (TSX:CF, LSE:CF.).
|None of the information on Canaccord's websites at www.canaccordfinancial.com, www.canaccordgenuity.com, and www.canaccord.com should be considered incorporated herein by reference.|
|1||See Non-IFRS measures|
|2||Source: FP Infomart and Company Information|
|3||Advisory Teams are normally comprised of one or more Investment Advisors (IAs) and their assistants and associates, who together manage a shared set of client accounts. Advisory Teams that are led by, or only include, an IA who has been licensed for less than three years are not included in our Advisory Team count, as it typically takes a new IA approximately three years to build an average-sized book of business|
SOURCE Canaccord Financial Inc.
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