Canaccord Financial Inc. Reports Second Quarter Fiscal 2012 Results
(All dollar amounts are stated in Canadian dollars unless otherwise indicated)1
TORONTO, Nov. 10, 2011 /PRNewswire/ - During the second quarter of fiscal 2012, the quarter ended September 30, 2011, Canaccord Financial Inc. (Canaccord, TSX: CF, AIM: CF.) generated $119.5 million in revenue and recorded a net loss of $5.3 million, or $0.09 per common share. Acquisition-related expense items totalling $3.9 million, or $3.6 million after tax, were incurred during the quarter, including $1.4 million related to the acquisition of a 50% interest in BGF Equities(2), and $1.5 million associated with due diligence activities for a corporate development opportunity in the UK that Canaccord chose not to pursue. Excluding acquisition-related expense items, a non-IFRS measure, Canaccord recorded a net loss of $1.7 million or $0.05 per common share.(3)
"The investments we've made to expand our M&A and Advisory capabilities and strengthen our wealth management business have helped us generate more consistent earnings contributions from these operations. Still, ongoing global economic uncertainty and market volatility had a considerable impact on issuer confidence and investment banking activity," noted Paul Reynolds, President and CEO of Canaccord Financial Inc. "Our results this quarter reflect the challenging market environment; however, we remain very well capitalized and strategically positioned to expand our global platform and grow our market share."
Second quarter of fiscal 2012 vs. second quarter of fiscal 2011
- Revenue of $119.5 million, down 20% or $29.8 million from $149.3 million
- Expenses of $126.4 million, down 6% or $8.3 million from $134.7 million
- Net loss of $5.3 million compared to net income of $10.3 million
- Return on common equity (ROE) of (2.8)%, down from 6.0% (3)(4)
- Diluted loss per common share of $0.09 compared to diluted earnings per common share (EPS) of $0.12
Excluding acquisition-related expense items(3)(5)
- Expenses of $122.5 million, down 8% or $10.3 million from $132.8 million
- Net loss of $1.7 million compared to net income of $12.1 million
- ROE of (0.9)%, down from 6.9% (3)(4)
- Diluted loss per common share of $0.05 compared to diluted EPS of $0.15 in the second quarter of 2011
Second quarter of fiscal 2012 vs. first quarter of fiscal 2012
- Revenue of $119.5 million, down 25% or $40.3 million from $159.8 million
- Expenses of $126.4 million, down 12% or $17.6 million from $144.0 million
- Net loss of $5.3 million, compared to net income of $13.2 million
- ROE of (2.8)%, down from 7.0%(3)(4)
- Diluted loss per common share of $0.09 compared to diluted EPS of $0.16 in the first quarter of 2012
Excluding acquisition-related expense items(3)(5)
- Expenses of $122.5 million, down 14% or $20.6 million from $143.1 million
- Net loss of $1.7 million compared to net income of $14.1 million
- ROE of (0.9)%, down from 7.3% (3)(4)
- Diluted loss per common share of $0.05 compared to diluted EPS of $0.17 in the first quarter of 2012
First half of fiscal 2012 vs. first half of fiscal 2011
(Six months ended September 30, 2011 vs. six months ended September 30, 2010)
- Revenue of $279.3 million, down 7% or $21.9 million from $301.2 million
- Expenses of $270.4 million, down 3% or $8.6 million from $279.0 million
- Net income of $7.9 million compared to net income of $15.4 million
- ROE of 2.1%, down from 4.9%(3)(4)
- Diluted EPS of $0.07 compared to diluted EPS of $0.19 in the first half of fiscal 2011
Excluding acquisition-related expense items(3)(5)
- Expenses of $265.6 million, up $0.9 million from $264.7 million
- Net income of $12.5 million compared to net income of $26.3 million
- ROE of 3.2%, down from 8.7% (3)(4)
- Diluted EPS of $0.13 compared to diluted EPS of $0.33 in the first half of fiscal 2011
Financial condition at end of second quarter 2012 vs. second quarter 2011
- Cash and cash equivalents balance of $691.1 million, up $54.2 million from $636.9 million
- Working capital of $501.4 million, up $176.3 million from $325.1 million
- Total shareholders' equity of $863.5 million, up $183.0 million from $680.5 million
- Book value per diluted common share for the period end was $8.75, up 9% or $0.70 from $8.05(3)
- On November 10, 2011, the Board of Directors approved a quarterly dividend of $0.10 per common share payable on December 15, 2011 with a record date of December 2, 2011
- On November 10, 2011, the Company also declared a cash dividend of $0.34375 per Series A Preferred Share payable on January 3, 2012 with a record date of December 16, 2011
SUMMARY OF OPERATIONS
- Related to Canaccord Financial Inc.'s June 23, 2011 preferred share offering, on July 7, 2011, the overallotment option of Canaccord's Series A Preferred Share offering was exercised, and 540,000 additional Series A Preferred Shares were issued
- In total, Canaccord Financial Inc. issued 4,540,000 Series A Preferred Shares, raising $113.5 million in gross proceeds
- On August 16, 2011, Canaccord Financial Inc. disclosed, in accordance with UK regulations, that it had held preliminary discussions with Evolution Group PLC (Evolution) regarding a potential offer for the shares of Evolution. Subsequently, on September 8, 2011, Canaccord announced that it would not proceed with an offer.
- Canaccord Genuity led or co-led 16 transactions globally, raising total proceeds of $472 million(6) during fiscal Q2/12
- Canaccord Genuity participated in 95 transactions globally, raising total proceeds of $1.2 billion(6) during fiscal Q2/12
- During fiscal Q2/12, Canaccord Genuity led or co-led the following transactions:
- C$230.0 million offering for Wi-LAN Inc. on the TSX
- C$103.1 million offering for EcoSynthetix Inc. on the TSX
- C$65.1 million offering for Nevada Copper Corp. on the TSX
- C$60.0 million offering for Pinecrest Energy Inc. on the TSX Venture
- C$57.6 million offering for Avion Gold Corporation on the TSX
- C$41.9 million offering for Claymore Silver Bullion Fund on the TSX
- C$38.4 million offering for PNG Gold Corp. on the TSX Venture
- C$33.9 million offering for Galane Gold Mines Ltd. on the TSX Venture
- US$30.4 million offering for Kit Digital Inc. on the NASDAQ
- Canaccord Genuity recorded advisory revenues of $21.7 million during fiscal Q2/12, an increase of 67% compared to the same quarter last year
- During fiscal Q2/12, Canaccord Genuity advised on the following M&A and advisory transactions:
- Alteris Renewables Inc. on its acquisition by Real Goods Solar
- AIM Health Group Inc. on its acquisition by Imperial Capital Group Ltd.
- Premier Gold Mines Limited on its acquisition of Goldstone Resources Inc.
- ChemGenex Pharmaceuticals Limited on its acquisition by Cephalon, Inc.
- Kanetix Ltd. on its sale of a majority stake to Monitor Clipper Partners
- Kruger Products LP on its US$211 million debt private placement
- Noteholders of Compton Petroleum on restructuring of debt and guarantee of $50 million rights offering
- On the sale of certain assets of Brompton Corp. and Morrison Williams Investment Management
- Northgate Minerals in connection with its cancelled agreement with Primero Mining
- Canaccord Genuity was ranked 7th for both the total number and total value of PIPE transactions completed in the US during the first nine months of calendar 2011(7)
- Canaccord Wealth Management recorded $1.9 million of net income before taxes in Q2/12
- Assets under administration were $14.6 billion, up 5% from $13.9 billion at the end of Q2/11, and down 7% from $15.7 billion at the end of Q1/12(3)
- Assets under management were $574 million, up 21% from $473 million at the end of Q2/11, and remained nearly unchanged from $575 million at the end of Q1/12(3)
- As at September 30, 2011, Canaccord had 271 Advisory Teams(8), a decrease of nine from 280 Advisory Teams as of September 30, 2010 and an increase of eight from 263 Advisory Teams as of June 30, 2011
- The decrease from last year is largely due to an ongoing strategic review of our Wealth Management division and the conversion of corporate branches to the Independent Wealth Management (IWM) platform, where each branch is led by one Investment Advisor (IA) and is counted as one Advisory Team
- During the second quarter of Canaccord's fiscal year, the IWM platform added two branches and closed one location
- A second Gatineau, Québec, IWM branch was opened on September 29, 2011
- The corporate Québec City, Québec , branch converted to the IWM platform on August 1, 2011
- Canaccord Wealth Management now has 32 branches across Canada, including 20 operating on the IWM platform
- During the quarter, Canaccord Wealth Management announced it had partnered with fi360 Canada to offer Canaccord Advisors the Accredited Investment Fiduciary Professional (AIFP) designation. This designation denotes the successful completion of one of the most advanced professional training programs available to Investment Advisors on fiduciary standards-of-care.
Subsequent to September 30, 2011
- On October 18, 2011, Canaccord Financial Inc. announced the departure of Mark Maybank. Mr. Maybank was COO of Canaccord Financial Inc. and President of Canaccord Genuity Corp.
- Responsibilities of Mr. Maybank's role were reallocated to other management positions
- On October 24, 2011, Matthew Gaasenbeek was named President of the Canadian capital markets division of Canaccord Genuity Corp.
- Mr. Gaasenbeek will oversee all aspects of Canaccord Genuity's Canadian capital markets business, including Investment Banking, Research, Institutional Sales and Trading, Fixed Income, International Trading, and Registered Traders
- On November 1, 2011, Canaccord Financial Inc. closed its acquisition of BGF Equities. The aggregate consideration paid by Canaccord for the 50% interest in BGF Equities totalled AUD$40.2 million [C$42.2 million]. The 50% interest was acquired through the purchase of shares from certain existing shareholders and the purchase of treasury shares as follows:
- AUD$14.7 million for the purchase of existing BGF Equities shares primarily from passive non-executive shareholders
- AUD$5.5 million(9) in Canaccord common shares (the Consideration Shares) were issued to key executives of Canaccord BGF
- AUD$20.0 million for the subscription of treasury shares in Canaccord BGF
The non-International Financial Reporting Standards (IFRS) measures presented include assets under administration, assets under management, book value per diluted common share, return on common equity and figures that exclude acquisition-related expense items. Acquisition-related expense items are costs incurred and expenses recognized in relation to both prospective and completed acquisitions. Management believes that these non-IFRS measures will allow for a better evaluation of the operating performance of Canaccord's business and facilitate meaningful comparison of results in the current period to those in prior periods and future periods. Figures that exclude acquisition-related expense items provide useful information by excluding certain items that may not be indicative of Canaccord's core operating results. A limitation of utilizing these figures that exclude acquisition-related expense items is that the IFRS accounting effects of the acquisition-related expense items do in fact reflect the underlying financial results of Canaccord's business; thus, these effects should not be ignored in evaluating and analyzing Canaccord's financial results. Therefore, management believes that Canaccord's IFRS measures of financial performance and the respective non-IFRS measures should be considered together.
|Selected financial information excluding acquisition-related expense items|
|Three months||Quarter-||Six months||
|ended September 30||over-||ended September 30||over-|
|(C$ thousands, except % amounts)||2011||2010||change||2011||2010||change|
|Total revenue per IFRS||$119,500||$149,285||(20.0%)||$279,283||$301,202||(7.3)%|
|Total expense per IFRS||126,396||134,676||(6.1%)||270,430||278,962||(3.1)%|
|Acquisition-related expense items recorded in Canaccord Genuity|
|Acquisition-related costs - Genuity Capital Markets (Genuity)||-||-||-||-||10,990||(100.0)%|
|Acquisition-related costs - BGF||1,443||-||n.m.||1,443||-||n.m.|
|Amortization of intangible assets - Genuity||930||1,827||(49.1)%||1,860||3,266||(43.0)%|
|Acquisition-related expense items recorded in Corporate and Other|
|Acquisition-related costs - prospective acquisitions not pursued||1,513||-||n.m.||1,513||-||n.m.|
|Total acquisition-related expense items||3,886||1,827||112.7%||4,816||14,256||(66.2)%|
|Total expenses excluding acquisition-related expense items||122,510||132,849||(7.8)%||265,614||264,706||0.3%|
|Net income (loss) before tax - adjusted||$(3,010)||$16,436||(118.3)%||$13,669||$36,496||(62.5)%|
|Net income (loss) - adjusted||$(1,665)||$12,078||(113.8)%||$12,460||$ 26,269||(52.6)%|
|Earnings (loss) per common share - basic, adjusted||$(0.05)||$0.16||(131.3)%||$0.14||$0.37||(62.2)%|
|Earnings (loss) per common share - diluted, adjusted||$(0.05)||$0.15||(133.3)%||$0.13||$0.33||(60.6)%|
n.m.: not meaningful
TO OUR SHAREHOLDERS:
While we're pleased with the relative performance of certain Canaccord divisions against the current economic backdrop, our overall results this quarter reflect the pull back in world markets and the sharp contraction of investment banking activity. The fiscal second quarter was characterized by extreme market volatility, growing economic uncertainty and low investor and issuer confidence. Like all industry participants, our capital markets business was impacted by this challenging macro environment.
Globally, Canaccord Financial generated revenue of $119.5 million, down 20% from the same quarter last year. Revenue from our M&A and Advisory operations and our wealth management division was fairly resilient within these difficult business conditions; however, muted investment banking activity during the quarter severely challenged the performance of our capital markets division.
While we've continued to make operational changes to run our business more efficiently, the abrupt decrease in revenue impacted our bottom line performance. Canaccord recorded a net loss of $5.3 million during the quarter, which includes expenses related to acquisitions and other growth initiatives we undertook during this period of market dislocation. Excluding acquisition-related expense items totalling $3.9 million ($3.6 million after tax), the company recorded a net loss of $1.7 million, or $0.05 per common share.
Expenses for the quarter were $126.4 million, a 6% decrease from the same quarter last year. While compensation expense throughout our organization was reduced as a result of lower revenue, certain operational costs increased to support our expanding global team. Excluding acquisition-related expense items, Canaccord's expenses were down 7.8% compared to the same quarter last year.
The structural changes we referred to last quarter are well underway. Our management composition is flatter, we've made selective decisions to reduce staffing throughout the organization - particularly in geographies facing the most headwinds - and we're in the process of providing more information to our clients online in order to reduce expenses related to delivering these services.
The strength of our balance sheet remains an important differentiator for us during these turbulent market conditions. It puts us in a strong position when activity eventually increases, and allows us to be a potential buyer of strategically important and undervalued assets as this market dislocation continues.
Globally, Canaccord Genuity generated $69.4 million of revenue during our fiscal second quarter, a decrease of 28.4% from the same quarter last year, primarily due to decreased investment banking activity in all of our geographies. However, not all of our capital markets activities were impacted as severely.
We're particularly pleased with the resiliency of our advisory operations within this economic environment. Advisory fees totalled $21.7 million during the quarter, which was 67% higher than the same quarter last year, and a testament to the quality of our expanded M&A and Advisory Teams. We're also proud of the opportunities our sales and trading desks were able to find for our clients within this time of increased investor uncertainty. Commission revenue of $26.0 million was 13.6% lower than the same period last year, but a solid performance given the exceptionally volatile market conditions that existed during the quarter.
Our UK operations continued to experience very challenging business conditions; however, we continue to believe that significant opportunities will emerge within that market once the economic climate stabilizes in Europe. In the meantime, the strength of our global platform will provide sufficient support to our business in this region as we seek to strengthen our market share and best position Canaccord Genuity for the eventual market recovery. Despite the current market challenges, our team has been able to leverage windows of market opportunity to launch offerings for our clients. Most recently, we co-led a £46 million transaction for Rockhopper Exploration PLC on AIM.
Our capital markets business in the US also faced headwinds during our fiscal second quarter. And while its revenue declined less than our other geographies, the limited scale of our US operations currently dictates smaller profit margins. As we build scale and add more services for our US clients, we anticipate the business will more easily be able to withstand the impact of revenue fluctuations.
Our operations in China recently demonstrated the significance of that market opportunity when Daylight Energy Ltd. announced that we had been appointed as lead advisor in its acquisition by Sinopec. This lead engagement reinforces the capabilities of our Chinese business and the strength of our client relationships. It's an excellent example of the kind of business we're building in Canaccord Genuity Asia's pipeline.
Subsequent to quarter end, on November 1, we closed our acquisition of 50% of BGF Equities in Australia and rebranded the business as Canaccord BGF. We see significant opportunities in Australia and Hong Kong, and believe we've found some exceptional partners to expand our presence in the Asia-Pacific region. The pipeline of business in Australia is strong, and we expect that Canaccord BGF's contribution to our operating performance will be noticed immediately. Canaccord BGF will be presented on a consolidated basis as part of our capital markets division going forward.
CANACCORD WEALTH MANAGEMENT
The strength of our wealth management business was evident again this quarter by its continued profitability despite the challenging market backdrop. Canaccord Wealth Management generated $47.4 million of revenue, an increase of 6.5% compared to the same period last year, and $1.9 million of net income before income taxes.
Market performance negatively impacted assets under administration during the quarter, despite net asset inflows. As of September 30, assets under administration were $14.6 billion - up 5.3% year over year, but down 6.6% from the end of last quarter. Net new assets were also added to our managed accounts platform, and as a result, assets under management remained relatively unchanged in spite of market declines.
Canaccord Wealth Management's Advisory Team count increased this quarter, partially due to graduating New Advisors who have now achieved at least three years of experience and have completed all required training. We are also selectively recruiting Advisors who share our values and client service standards. During the quarter, four Advisory Teams joined our national Advisor base.
Our industry has experienced many highs and lows over the last several years, and within this market turbulence, we have done what we have always done best - we focused on our clients. It is this fundamental approach that fosters our long term relationships, builds trust with our growing client base, and drives our vision for Canaccord as we navigate the company in this dynamic global economy.
The market environment continues to be challenging, but I'm pleased with our team's ability to generate value for our clients by finding and leveraging windows of opportunity. Market volatility and economic uncertainties will remain important factors in determining investment banking activity; however, our pipeline of transactions remains strong and we're confident that once markets stabilize, we'll begin to see some robust activity once again.
We're confident in our strategy for Canaccord and our continued growth focus. The investments we're making to expand our global platform, enhance our service offering and capture market share are laying a strong foundation for the eventual market recovery. As was evident this quarter, we are committed to evaluating all opportunities that could add meaningful long term value to our clients and shareholders; however, we remain very disciplined in our approach. Only opportunities that are a strong strategic and cultural fit, and accretive to earnings, will ultimately be pursued. These criteria have ensured the successful growth of our operations so far, and will continue to be the determining factors for our growth strategy going forward.
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 second quarter fiscal 2012 results conference call with analysts and institutional investors, via a live webcast or a toll free number. The conference call is scheduled for Friday, November 11, 2011, at 5:00 a.m. (Pacific Time), 8:00 a.m. (Eastern Time), 1:00 p.m. (UK Time) and 9:00 p.m. (China Standard Time). At that time, senior executives will comment on the results for the second quarter of the fiscal 2012 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)
Please request to participate in Canaccord Financial's Q2/12 earnings call.
A replay of the conference call can be accessed after 8:00 a.m. (Pacific Time), 11:00 a.m. (Eastern Time), 4:00 p.m. (UK Time), and 12:00 a.m. (China Standard Time) on November 11, 2011 until December 25, 2011 at 416-849-0833 or 1-855-859-2056 by entering passcode 15964413 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 49 offices worldwide, including 32 Wealth Management offices located across Canada. Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, China, Hong Kong, Australia and Barbados.
Canaccord Financial Inc. is publicly traded under the symbol CF on the TSX and the symbol CF. on AIM, a market operated by the London Stock Exchange. Canaccord's Series A Preferred Shares are listed on the TSX under the symbol CF.PR.A.
|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 As required by the Canadian Accounting Standards Board (AcSB), the
Company adopted International Financial Reporting Standards (IFRS)
effective April 1, 2011. All financial information provided for fiscal
2012 is in accordance with IFRS, and all comparative financial
information for the four quarters of fiscal 2011 has been restated and
presented in accordance with IFRS.
2 On July 31, 2011, Canaccord announced it had entered into a definitive agreement to acquire a 50% interest in BGF Capital Group Pty Ltd, commonly known as BGF Equities. The transaction closed on November 1, 2011, subsequent to fiscal Q2/12.
3 See Non-IFRS Measures.
4 ROE is presented on an annualized basis. ROE for the quarter is calculated by dividing the annualized net income (loss) available to common shareholders for the period over the average common shareholders' equity for the period. See Non-IFRS Measures.
5 Acquisition-related expense items are related to the acquisitions discussed under Non-IFRS Measures.
6 Source: FP Infomart and Company Information.
7 Source: PlacementTracker
8 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.
9 A total of 623,796 Consideration Shares were issued, calculated on the basis of Canaccord's volume-weighted average trading price on the Toronto Stock Exchange for a period of 20 consecutive trading days ending on the third trading day before closing. Using this method of valuation, the shares were valued at AUD$5.3 million.
SOURCE Canaccord Financial Inc.
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