CANACCORD FINANCIAL INC. REPORTS FISCAL SECOND QUARTER 2011 RESULTS
(All dollar amounts are stated in Canadian dollars unless otherwise indicated)
VANCOUVER, Nov. 3 /PRNewswire-FirstCall/ - Canaccord Financial Inc.'s revenue for the second quarter of fiscal year 2011, ended September 30, 2010, was $149.3 million, up 20.6% from the same quarter last year but down 1.7% from the previous quarter. Net income for the second quarter was $9.7 million, up 44.0% compared to a net income of $6.7 million during the same quarter last year and up 99.2% compared to the previous quarter. Diluted earnings per share (EPS) for fiscal Q2/11 were $0.12, compared to diluted EPS of $0.12 in Q2/10 and diluted EPS of $0.06 the previous quarter. "Though we are encouraged by the dramatic market turnaround the last two months, volatile market activity persisted through much of July and August and had a noticeable impact on business levels during our fiscal second quarter," noted Paul Reynolds, President and CEO of Canaccord Financial Inc. "Client interest remains strong and as investors and corporate issuers regain confidence in the markets, the climate for trading and investment banking activity should continue to improve."
SECOND QUARTER 2011 VS. SECOND QUARTER 2010
- Revenue of $149.3 million, up 20.6% or $25.6 million from $123.7
million
- Expenses of $135.3 million, up 16.8% or $19.4 million from $115.9
million
- Net income of $9.7 million compared to net income of $6.7 million
- Return on equity (ROE) of 5.7%, down from 6.9%((1))
- Diluted EPS of $0.12 compared to diluted EPS of $0.12
Excluding acquisition-related expense items(1)(2)
- Expenses of $133.5 million, up 15.2% or $17.6 million from $115.9
million
- Net income of $11.5 million compared to net income of $6.7 million
- ROE of 6.7%, down from 6.9% ((1))((3))
- Diluted EPS of $0.14 compared to diluted EPS of $0.12
SECOND QUARTER 2011 VS. FIRST QUARTER 2011
- Revenue of $149.3 million, down 1.7% or $2.6 million from $151.9
million
- Expenses of $135.3 million, down 6.5% or $9.4 million from $144.7
million
- Net income of $9.7 million compared to net income of $4.9 million
- ROE of 5.7%, up from 3.7%((1))
- Diluted EPS of $0.12 compared to diluted EPS of $0.06 in the first
quarter of 2011
Excluding acquisition-related expense items (1)(2)
- Expenses of $133.5 million, up 1.0% or $1.2 million from $132.3
million
- Net income of $11.5 million compared to net income of $13.9 million
- ROE of 6.7%, down from 10.3% ((1))((3))
- Diluted EPS of $0.14 compared to diluted EPS of $0.18 in the first
quarter of 2011
FIRST HALF OF FISCAL 2011 VS. FIRST HALF OF FISCAL 2010
(Six months ended September 30, 2010 vs. six months ended September 30,
2009)
- Revenue of $301.2 million, up 15.3% or $40.0 million from $261.2
million
- Expenses of $280.0 million, up 18.0% or $42.6 million from $237.4
million
- Net income of $14.6 million compared to net income of $15.9 million
- ROE of 4.7%, down from 8.3%((1))
- Diluted EPS of $0.18 compared to diluted EPS of $0.28 in the first
half of fiscal 2010
Excluding acquisition-related expense items(1)(2)
- Expenses of $265.8 million, up 12.0% or $28.4 million from $237.4
million
- Net income of $25.4 million compared to net income of $15.9 million
- ROE of 8.5%, up from 8.3% ((1))((3))
- Diluted EPS of $0.32 compared to diluted EPS of $0.28 in the first
half of fiscal 2010
FINANCIAL CONDITION AT END OF SECOND QUARTER 2011 VS. SECOND QUARTER 2010
- Cash and cash equivalents balance of $636.9 million, down $72.6
million from $709.5 million
- Working capital of $340.2 million, up $33.0 million from $307.2
million
- Total shareholders' equity of $679.3 million, up $291.1 million from
$388.2 million
- Book value per diluted common share for the period end was $8.03, up
18.5% or $1.25 from $6.78((1))
- On November 2, 2010 the Board of Directors considered the dividend
policy and approved a quarterly dividend of $0.05 per share payable
on December 10, 2010 with a record date of November 19, 2010
SUMMARY OF OPERATIONS
Capital Markets
- Canaccord Genuity led 26 transactions globally to raise total
proceeds of $780.4 million(4) during fiscal Q2/11
- Canaccord Genuity participated in a total of 72 transactions globally
to raise total proceeds of $1.3 billion(4) during fiscal Q2/11
- During fiscal Q2/11, Canaccord Genuity led or co-led the following
transactions:
- $300.0 million for Primero Mining Corp. on the TSX Venture
- $92.6 million for Artis Real Estate Investment Trust on the TSX
- (pnds stlg) 52.0 million for Aberdeen Latin American Income Fund
Limited on the LSE
- $50.0 million for Zodiac Exploration Corp. on the TSX Venture
- US$44.8 million for APO Energy Inc. (non-listed)
- US$47 million for NPS Pharmaceuticals on the NASDAQ
- $40.5 million for Extorre Gold Mines Limited on the TSX
- $40.3 million for Pinecrest Energy Inc. on the TSX Venture
- Canaccord Genuity advised on eight M&A transactions that closed
during the Q2/11, including:
- SunOpta Inc. on its sale of SunOpta Bioprocess Inc. to Mascoma
Corporation
- Pure Technologies Ltd. on its acquisition of Pressure Pipe
Inspection Co.
- Brett Resources Inc. on its sale to Osisko Mining Corporation
- Primero Mining Corp. on its acquisition of Goldcorp's San Dimas
gold and silver mine
- Canaccord Genuity completed 15 Private Investment in Public Equity
(PIPE) transactions in North America that raised US$222.4 million in
proceeds during fiscal Q2/11(5)
- Canaccord Genuity ranked first for Quality of Investing Ideas and
first for Quality of Small-Cap Research in the Canadian 2010 Brendan
Wood International survey(6)
Wealth Management
- Assets under administration of $13.9 billion, up 22.0% from $11.4
billion at the end of Q2/10, and up 10.3% from $12.6 billion at the
end of Q1/11((1))
- Assets under management of $473 million, up 4.4% from $453 million at
the end of Q2/10, and up 9.7% from $431 million at the end of Q1/11
((1))
- As at September 30, 2010 Canaccord had 280 Advisory Teams(7) down 54
from 334 Advisory Teams as of September 30, 2009 and down 10 from 290
Advisory Teams as of June 30, 2010
- This decrease 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 IA and is counted as one Advisory Team
- During Q2/11, Canaccord Wealth Management closed its Orangeville
(Ontario) branch, which operated on Canaccord's IWM platform
- On August 24, 2010, Canaccord Wealth Management added to its service
offering with the launch of Complete Canaccord Philanthropic
Solutions, which provides clients with a tax-efficient and cost-
effective way to include charitable giving as part of their overall
estate plan
Subsequent to September 30, 2010
- On November 1, 2010, Canaccord Wealth Management's corporate Prince
George branch converted to the Independent Wealth Management platform
- Canaccord Wealth Management now has 30 offices across Canada,
including 11 branches on the IWM platform
Non-GAAP Measures
Non-GAAP measures presented include assets under administration, assets under management, book value per diluted common share, return on equity and figures that exclude acquisition-related expense items. Management believes that these non-GAAP 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 GAAP accounting effects of the acquisition-related expense items do in fact reflect the underlying financial results of Canaccord's business and these effects should not be ignored in evaluating and analyzing Canaccord's financial results. Therefore, management believes that Canaccord's GAAP measures of financial performance and the respective non-GAAP measures should be considered together.
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(1) See non-GAAP measures
(2) Acquisition-related expense items are in connection with the
acquisition of Genuity Capital Markets. Second quarter 2011 figures
include $1.9 million of amortization of intangible assets. First half
of fiscal 2011 figures include $11.0 million of acquisition-related
costs and $3.3 million of amortization of intangible assets.
(3) ROE figures excluding acquisition-related expense items, exclude only
$1.9 million of amortization of intangible assets recorded in Q2/11,
$11.0 million in acquisition-related costs and $1.4 million of
amortization of intangible assets recorded in Q1/11, and $5.0 million
of acquisition-related costs in Q4/10.
(4) Source: FP Infomart and Company information
(5) Source: Placement Tracker. Includes placements for companies
incorporated in Canada and the US
(6) Brendan Wood International: Institutional Equity Research, Sales and
Trading Performance in Canada 2010 Report.
(7) 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 licenced 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.
LETTER TO SHAREHOLDERS
To Our Shareholders
We've seen a dramatic improvement in both market activity and equity performance during the last two months, which is particularly encouraging as September is typically marked by lower returns. Still, this improved market environment does not reflect our experience during the first two months of our fiscal second quarter. After an unusually slow summer period marked by much uncertainty on the part of investors and issuers, Canaccord Financial posted relatively good results for the three months ended September 30, 2010 and finished the quarter with strong momentum across all of our businesses. In addition, the integration of the Canaccord Genuity teams, facilities and client relationships has gone extremely well and is beginning to reveal the strong capital markets synergies we anticipated from the acquisition.
Revenue for the three months ended September 30, 2010 totalled $149.3 million, a 20.6% increase from the same period a year ago. Net income rose 44% to $9.7 million while diluted earnings per share remained flat at $0.12 due to the issuance of shares during the first quarter of fiscal 2011 for the acquisition of Genuity Capital Markets (Genuity). Diluted EPS doubled compared to last quarter, when most charges related to the acquisition of Genuity were booked.
The amortization of assets related to the Genuity acquisition peaked during Q2/11, resulting in $1.9 million of acquisition-related expenses. Excluding acquisition-related expense items, net income for the quarter was $11.5 million compared to $6.7 million in the same period last year and $13.9 million in Q1/11. On this basis, diluted EPS was $0.14 for the quarter, up 17% compared to the same period last year, but down 22% compared to the previous quarter. Net income was up 60% in the first six months of fiscal 2011, compared to the first six months of fiscal 2010.
As part of our ongoing commitment to cost containment, we are in the process of implementing many new initiatives to enhance Canaccord's operating efficiency. We expect to achieve up to $20 million in cost savings from these changes, which will help bring us closer to our long-term target for return on equity. Excluding acquisition-related expense items, annualized ROE for the second quarter of fiscal 2011 was 6.7% compared to 6.9% for the second quarter last year. Importantly, our cash and working capital positions remain very strong.
Canaccord Genuity
The surge of activity Canaccord Genuity experienced in September was not sufficient to completely offset the market uncertainty that affected the entire industry during the summer months of 2010. Nonetheless, Canaccord Genuity led 26 transactions globally during the quarter, raising total proceeds of more than $780 million. The division's revenue for the three months ended September 30, 2010 declined 3% to $97 million compared to the first quarter of fiscal 2011, during which we completed the acquisition of Genuity. Excluding acquisition-related charges, Canaccord Genuity's second quarter operating income, before intersegment cost allocations, declined 18% to $21.2 million compared to the first quarter. Second-quarter revenue from M&A advisory assignments declined to $13 million.
In Canada, the Canaccord Genuity team worked hard to get deals done that could be done in the difficult market environment. We're seeing the benefits of the Genuity acquisition with many of our advisory clients. Two companies we advised during the quarter, SunOpta Inc. and Pure Technologies Ltd., are great examples of how we have been able to add value to our pre-existing client relationships through our new combined platform. We also reached beyond our traditional strengths in mining and energy to complete transactions for clients in the real estate, life sciences and technology sectors. The secondary offering we did for Artis Real Estate Investment Trust during the quarter is a prime example of our sector diversification and the strength of our client relationships. At $93 million, it was the fifth offering we led or co-led for this client since January 2010, bringing the total value of capital raised for Artis this year to $375 million.
We were very pleased to see excellent revenue growth from our trading desks across all geographies, outperforming many of our competitors. In Canada, strong client relationships continue to drive increases in market share on the TSX and TSX-Venture exchanges compared to our activity prior to the integration of Canaccord Genuity. Our ability to grow our agency business in challenging markets results from a combination of great execution and great ideas, so we are very pleased to be recognized in Brendan Woods' Institutional Equity Research, Sales and Trading Performance in Canada 2010 Report with the top rankings for Quality of Investing Ideas and Quality of Small-Cap Research. Three of our analysts also received top-three rankings in the report, including Mario Mendonca who placed first in Canada for his coverage of insurance companies and second for his coverage of banks.
While investor uncertainty in the U.S. during our second quarter reduced banking and advisory revenue compared to the previous quarter, our U.S. agency trading business continued to grow and gain market share, despite lower overall volumes industry-wide. We also continue to expand our equity research group, with two prominent additions to our technology practice. In August, our U.S. team held Canaccord's 30th annual Global Growth Conference in Boston, with great success. We had record institutional attendance and client participation, with over 1,300 registrants that included 524 institutional investors. Impressively, our team facilitated nearly 600 investment banking meetings and more than 3,000 one-on-one meetings for our clients over just three days. Our clients are continually impressed by not only the quality of opportunities that are identified through the conference but also the corporate relationships we help to facilitate.
Our U.K. business continues to be a key contributor to Canaccord's global platform.
With a solid increase in revenue for the second quarter, our U.K. team is making significant progress within the still-difficult economic environment there. Most recently, our team led a (pnds stlg)206 million follow-on issue for Rockhopper Exploration, a transaction that will be recognized in our fiscal third quarter. And with a 61% increase in commission revenue during the first six months of fiscal 2011 compared to the same period last year, we're very pleased that the investments we've made to build out our U.K. sales and trading desks are beginning to deliver the results we anticipated.
Canaccord Wealth Management
Uncertain and volatile equity markets reduced investor activity for most of the second quarter of fiscal 2011. Revenue for Canaccord Wealth Management totalled $44.5 million, an 11% increase from the same period last year but down 5.7% from the previous quarter. After intersegment cost allocations, the division lost $4 million compared to a loss of $3.3 million in the year-earlier quarter and a loss of $1.9 million in the first quarter of fiscal 2011.
The realignment of our wealth management operations is a core strategy for Canaccord, but it is clear that we must do more to lower the division's breakeven so it can become self-sustaining. We expect that approximately $10 million of the savings we've identified in our current round of cost-containment initiatives will come from changes to improve operational efficiencies in Canaccord Wealth Management. To that end, we recently promoted Tanya Bird to Chief Operating Officer of the division, a role in which she will be responsible for improving the productivity of our wealth management operations and implementing strategies to enhance our clients' experience.
Looking ahead
Despite the tough market environment we faced through much of the summer - a situation not unique to Canaccord - we began to see positive momentum in September, with profit contribution across all of our geographies. That momentum has carried over into the third quarter, giving us reason to be optimistic, although cautiously, about the immediate months ahead. We're particularly pleased with the success of the integration of the Canaccord Genuity capital markets teams and the early synergies we're seeing among our skill sets and client relationships. We entered the third quarter with a strong pipeline and a sense of growing momentum in all of our business units.
Amidst the challenging economic backdrop, we're seeing great prospects for growth, particularly in new markets. There are significant opportunities in Asia that would allow us to leverage our core strengths, strong client relationships and focus on growth companies. China, specifically, has a high demand for expertise in areas we've established market leadership in, especially the mining, energy and clean technology sectors. We are actively engaged in exploring several opportunities that would increase our access to, and presence in, this important growth market. We hope to be able to share our Asia strategy with you in the near future and look forward to discussing its benefits with you in the months ahead.
Paul D. Reynolds
President & Chief Executive Officer
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 2011 results conference call with analysts and institutional investors, via a live webcast or a toll free number. The conference call is scheduled for Wednesday, November 3, 2010 at 5:00 a.m. (Pacific Time), 8:00 a.m. (Eastern Time) and 12:00 p.m. (UK Time). At that time, senior executives will comment on the results for the second quarter of fiscal 2011 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 United Kingdom)
Please request to participate in Canaccord Financial's Q2/11 earnings call.
A replay of the conference call can be accessed after 8:00 a.m. (Pacific Time), 11:00 a.m. (Eastern Time) and 3:00 p.m. (UK Time) on November 3, 2010 until December 18, 2010 at 416-849-0833 or 1-800-642-1687 by entering passcode 15967524 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 38 offices worldwide, including 30 Wealth Management offices located across Canada. Canaccord Genuity, the international capital markets division, operates in the US, UK, Canada 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.
FOR FURTHER INFORMATION, CONTACT:
North American media:
Scott Davidson
Managing Director, Global Head of Marketing & Communications
Phone: 416-869-3875
Email: [email protected]
London media:
Bobby Morse or Ben Romney
Buchanan Communications (London)
Phone: +44 (0) 207 466 5000
Email: [email protected]
Investor relations inquiries:
Jamie Kokoska
Manager, Investor Relations & Communications
Phone: 416-869-3891
Email: [email protected]
Nominated Adviser and Joint Broker:
Marc Milmo or Carl Holmes
Charles Stanley Securities
Phone: +44 020 7149 6764,
Email: [email protected]
Joint Broker:
Oliver Hearsey or Nick Triggs
Keefe, Bruyette & Woods Limited
Phone: +44 (0) 20 7663 5400,
Email: [email protected]
SOURCE Canaccord Financial Inc.
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