Canaccord reports record revenue and net income
(All dollar amounts are stated in Canadian dollars unless otherwise indicated)
VANCOUVER, Feb. 10 /PRNewswire-FirstCall/ - Canaccord Financial Inc. generated record revenue of $254.8 million and record net income of $42.7 million in the third quarter of fiscal 2011, the quarter ended December 31, 2010. Revenue was 47.1% higher than the same quarter last year and 70.7% higher compared to the previous quarter. Net income for the third quarter was $42.7 million, 182.6% higher than net income of $15.1 million during the same quarter last year and 340.2% higher than $9.7 million recorded in the previous quarter. Diluted earnings per share (EPS) for fiscal Q3/11 were $0.51, compared to diluted EPS of $0.27 in the same quarter last year and diluted EPS of $0.12 in the previous quarter.
"This quarter's record results are an early indication of the earnings power we believe is possible from our expanded global capital markets operations. While our investment banking team was well positioned to capitalize on the improved underwriting environment, revenue from our advisory business increased nearly 300% compared to the same period last year," noted Paul Reynolds, President and CEO of Canaccord Financial Inc. "All of Canaccord's businesses contributed to the significant results we achieved this quarter, a testament to the abilities of our employees and the strength of our integrated global platform."
THIRD QUARTER 2011 VS. THIRD QUARTER 2010
- Revenue of $254.8 million, up 47.1% or $81.6 million from $173.2 million
- Expenses of $193.3 million, up 28.1% or $42.4 million from $150.9 million
- Net income of $42.7 million, up 182.6% or $27.6 million compared to net income of $15.1 million
- Return on equity (ROE) of 24.2%, up from 15.2%(1)(2)
- Diluted EPS of $0.51 compared to diluted EPS of $0.27
Excluding acquisition-related expense items(1)(3)
- Expenses of $190.6 million, up 26.3% or $39.7 million from $150.9 million
- Net income of $45.3 million, up 199.8% or $30.2 million compared to net income of $15.1 million
- ROE of 25.1%, up from 15.2% (1)(2)(4)
- Diluted EPS of $0.54 compared to diluted EPS of $0.27
THIRD QUARTER 2011 VS. SECOND QUARTER 2011
- Revenue of $254.8 million, up 70.7% or $105.5 million from $149.3 million
- Expenses of $193.3 million, up 42.9% or $58.0 million from $135.3 million
- Net income of $42.7 million, up 340.2% or $33.0 million compared to net income of $9.7 million
- ROE of 24.2%, up from 5.7%(1)(2)
- Diluted EPS of $0.51 compared to diluted EPS of $0.12 in the second quarter of 2011
Excluding acquisition-related expense items (1)(3)
- Expenses of $190.6 million, up 42.8% or $57.1 million from $133.5 million
- Net income of $45.3 million, up 293.9% or $33.8 million compared to net income of $11.5 million
- ROE of 25.1%, up from 6.7%(1)(2)(4)
- Diluted EPS of $0.54 compared to diluted EPS of $0.14 in the second quarter of 2011
YEAR-TO-DATE 2011 VS. YEAR-TO-DATE 2010
(Nine months ended December 31, 2010 vs. nine months ended December 31, 2009)
- Revenue of $556.0 million, up 28.0% or $121.6 million from $434.4 million
- Expenses of $473.4 million, up 21.9% or $85.2 million from $388.2 million
- Net income of $57.3 million, up 85.0% or $26.3 million compared to net income of $31.0 million
- ROE of 11.2%, up from 10.6%(1)(2)
- Diluted EPS of $0.71 compared to diluted EPS of $0.56 in the same period of the prior year
Excluding acquisition-related expense items(1)(3)
- Expenses of $456.4 million, up 17.6% or $68.2 million from $388.2 million
- Net income of $70.7 million, up 128.4% or $39.7 million compared to net income of $31.0 million
- ROE of 14.0%, up from 10.6%(1)(2)(4)
- Diluted EPS of $0.87 compared to diluted EPS of $0.56 in the same period of the prior year
FINANCIAL CONDITION AT END OF THIRD QUARTER 2011 VS. THIRD QUARTER 2010
- Cash and cash equivalents balance of $713.1 million, down $69.5 million from $782.6 million
- Working capital of $387.9 million, up $60.9 million from $327.0 million
- Total shareholders' equity of $723.6 million, up $322.9 million from $400.7 million
- Book value per diluted common share for the period end was $8.42, up 20.3% or $1.42 from $7.00(1)
- On February 9, 2011 the Board of Directors approved a quarterly dividend of $0.075 per share payable on March 15, 2011 with a record date of March 4, 2011
SUMMARY OF OPERATIONS
- On November 22, 2010, Canaccord announced its acquisition of The Balloch Group Limited, a leading independent boutique investment bank in China and a strategic agreement with the Export-Import Bank of China ("China Eximbank")
- These initiatives represent an important entry into Asia for Canaccord that add to its global capabilities and the services it provides clients, while leveraging the strength of Canaccord's sector expertise, particularly in mining, energy, life sciences and clean technology
- Canaccord's agreement with China Eximbank provides China-based clients with an enhanced ability to grow internationally and provides international clients with increased access to Chinese debt financing
- Canaccord Genuity led 44 transactions globally to raise total proceeds of $1.6 billion(5) during fiscal Q3/11
- Canaccord Genuity participated in a total of 138 transactions globally to raise total proceeds of $3.8 billion(5) during fiscal Q3/11
- During fiscal Q3/11, Canaccord Genuity led or co-led the following transactions:
- C$347.6 million for Eastern Platinum Limited on the TSX
- US$208.4 million for Northern Oil and Gas Inc. on the AMEX
- £206.3 million for Rockhopper Exploration Plc. on AIM
- C$184.1 million for Baja Mining Corp. on the TSX
- C$162.8 million for Air Canada on the TSX
- C$130.0 million for Canadian Overseas Petroleum Ltd. on the TSX Venture
- C$116.0 million for Artis Real Estate Investment Trust on the TSX
- C$86.3 million for Pinecrest Energy Inc. on the TSX Venture
- US$86.3 million for Golden Minerals Company on the TSX
- US$76.0 million for NxStage Medical Inc. on the NASDAQ
- C$74.8 million for International Tower Hill Mines Ltd. on the TSX
- US$60.8 million for Aveo Pharmaceuticals Inc. on the NASDAQ
- US$55.0 million for IMRIS Inc. on the NASDAQ
- C$53.9 million for Orezone Gold Corporation on the TSX
- C$50.9 million for P1 Energy Corp. (non-exchange listed)
- C$50.0 million for Exeter Resource Corporation on the TSX
- C$47.2 million for Alexco Resource Corp. on the TSX
- C$46.0 million for Fortuna Silver Minds Inc. on the TSX
- US$43.0 million for Petroneft Resources Plc. on AIM
- US$41.6 million for Insulet Corporation on the NASDAQ
- Canaccord Genuity recorded advisory revenues of $25.2 million during fiscal Q3/11, an increase of 298.6% compared to the same quarter last year
- During fiscal Q3/11, Canaccord Genuity advised on the following M&A transactions:
- Nellix, Inc. on its acquisition by Endologix Inc.
- Skana Capital Corp. on its merger with MENA Hydrocarbons Inc.
- Avenir Diversified Income Trust on its acquisition of Great Plains Exploration Inc.
- Pacific Equity Partners on its acquisition of CIBC Mellon Issuer Services Business
- Dragonwave Inc. on its acquisition of Axerra Networks Inc.
- Francisco Partners LP on its acquisition of Source Photonics Inc.
- Parkbridge Lifestyle Communities Inc. on its acquisition by British Columbia Investment Management Corporation
- Canaccord Genuity acted for the Ad Hoc Committee of Unsecured Noteholders of Abitibi-Consolidated Inc. et al. during the restructuring of $4.0 billion of debt under the Companies' Creditors Arrangement Act (Canada), which was completed during the quarter
- Canaccord Genuity completed four Private Investment in Public Equity (PIPE) transactions in North America that raised US$207.4 million in proceeds during fiscal Q3/11(5)
- In October 2010, Canaccord Genuity opened an office in Minneapolis, Minnesota - Canaccord's sixth US office
- Canaccord Wealth Management recorded $9.0 million of net income before taxes in Q3/11, which has made the division profitable during the first nine months of the fiscal year
- Assets under administration of $16.0 billion, up 31.1% from $12.2 billion at the end of Q3/10, and up 15.1% from $13.9 billion at the end of Q2/11(1)
- Assets under management of $514 million, up 21.5% from $423 million at the end of Q3/10, and up 8.7% from $473 million at the end of Q2/11(1)
- As at December 31, 2010, Canaccord had 272 Advisory Teams(6), down 55 from 327 Advisory Teams as of December 31, 2009 and down eight from 280 Advisory Teams as of September 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 Investment Advisor (IA) and is counted as one Advisory Team
- On November 1, 2010, Canaccord Wealth Management's corporate Prince George, British Columbia branch converted to the IWM platform
- On November 30, 2010, Canaccord Wealth Management welcomed a new Calgary, Alberta branch to the IWM platform
Subsequent to December 31, 2010
- On January 17, 2011, Canaccord completed the acquisition of The Balloch Group Limited. Canaccord's operations in Asia were launched as Canaccord Genuity Asia
- On January 17, 2011, Canaccord Financial Inc. welcomed Howard Balloch to its Board of Directors
- Mr. Balloch was the founder and president of The Balloch Group Limited, and is now the Chairman of Canaccord Genuity Asia
- On January 1, 2011, Canaccord Wealth Management's Simcoe, Ontario branch converted to the IWM platform
- On January 21, 2011, Canaccord Wealth Management welcomed a new Burlington, Ontario branch to the IWM platform
- Canaccord Wealth Management now has 31 offices across Canada, including 15 branches on the IWM platform
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.
Acquisition-related expense items in the third quarter 2011 include $1.8 million for costs incurred for the acquisition of The Balloch Group Limited and $0.9 million of amortization of intangible assets in connection with the acquisition of Genuity Capital Markets. Acquisition-related expense items during the nine months ended December 31, 2010 include $11.0 million for acquisition-related costs and $4.2 million for the amortization of intangible assets related to the acquisition of Genuity Capital Markets, and $1.8 million costs incurred for the acquisition of The Balloch Group Limited.
LETTER TO SHAREHOLDERS
To Our Shareholders
The momentum we gained in September continued into our fiscal third quarter, helping us achieve significant top-line growth and record financial performance. While the improved market environment during the last three months of calendar 2010 buoyed the industry in general, our client activity and revenue levels increased even further, largely due to combining the core strengths and client relationships of Canaccord and Genuity. We expected it would take some time to fully realize the benefits and earnings power from our acquisition in April, however we view our performance this quarter as an early indication of what our expanded capital markets team is capable of accomplishing.
At $42.7 million, we generated record net income for the quarter, which is the result of both top-line growth and ongoing efforts to improve our operating efficiency. Revenue for the three months ended December 31, 2010 was a record $254.8 million, up 70% compared to Q2/11 and 47% compared to the same period last year. Strong underwriting and advisory fees and increased client activity in our Wealth Management division anchored our revenue growth this quarter. Expenses of $193.3 million grew with business activity; however we experienced a significant increase in our operating leverage compared to last quarter and the same period last year.
Excluding acquisition-related charges, diluted earnings per share for the three months ended December 31 were $0.54, an increase of 286% from last quarter and double that of the same quarter last year. These charges include $1.8 million related to our recent expansion into Asia through the acquisition of The Balloch Group Limited (TBG) and $0.9 million of amortization of intangible assets related to the acquisition of Genuity Capital Markets. On a GAAP basis, diluted earnings per share were $0.51 - up 325% compared to Q2/11, and 89% compared to the same period last year.
The 24.2% of annualized return on equity we achieved during Q3/11 is in line with our expectations of what we can realize at current business levels. It is a significant increase from past quarters and above our stated 20% ROE target that we have set for the Company over a full business cycle. Excluding all acquisition-related expense items, annualized ROE was 25.1% for the quarter and 14.0% for the first nine months of the fiscal year.
The strength of our balance sheet and the much improved business environment were important factors in our board's decision to increase our quarterly dividend to $0.075 this quarter. While we are pleased with the Company's recent performance and continue to be cautiously optimistic in our outlook for the year ahead, we remain committed to allocating capital in a way that most effectively builds long-term value for our shareholders. Investing in projects and initiatives that allow us to expand into new markets, or grow our existing market share, will continue to be a priority.
The power of our global capital markets team was truly demonstrated this quarter, with significant revenue and income contributions from all geographies we operate in and all capital markets activities we perform. Canaccord Genuity generated $177.8 million of revenue during Q3/11, an 83% increase compared to last quarter and a 53% increase from the same period last year. As revenue levels rose, so did the operational efficiency of the division. This quarter's lower expense ratios contributed substantially to improving the operating margins of Canaccord Genuity. Net income before income taxes was $55.9 million for the division, up 239% from the previous quarter and more than double the earnings recorded in Q3/10.
Strong client activity from the resource sector carried over from last quarter, marked by several large transactions we led or co-led for mining and energy companies. Of these, the largest transactions were a C$347.6 million offering for Eastern Platinum Limited on the TSX, a US$208.4 million transaction for Northern Oil and Gas on the AMEX and a £206.3 million deal for Rockhopper Exploration on AIM. Notably, each of these offerings originated in different geographies - underscoring the capabilities Canaccord Genuity is recognized for globally.
While the strong commodities cycle continues to provide ample opportunity for us to leverage our expertise in the resource sector, the breadth of our expanded capital markets team is evident by the range of industries we're leading transactions in. In Canada, our capital markets team led or co-led an outstanding 43 equity transactions or private placements over $1.5 million during the quarter, including a $162.8 million offering for Air Canada. It is a transaction that also highlights the traction we're getting by combining the skills and relationships of the new Canaccord Genuity team. Additionally, of the five transactions our US team led or co-led over $50 million during the quarter, three were for healthcare-related companies. In fact, during calendar 2010 we participated in more life sciences and med-tech sector transactions in the US than any other investment bank - firmly establishing Canaccord Genuity as a recognized leader in this important sector.
The significant increase in advisory revenue we achieved this quarter reveals the kind of earnings power we believe is possible through our much larger M&A and restructuring team. At $25.2 million, advisory fee revenue nearly doubled compared to last quarter and increased 299% compared to the same period last year. Advisory assignments take time to secure and complete, and our results this quarter provide some insight into the level of client activity we would expect in suitable market conditions. Of particular note, Canaccord Genuity advised Parkbridge Lifestyle Communities Inc. during its acquisition by British Columbia Investment Management Corporation, Pacific Equity Partners on its acquisition of CIBC Mellon's Issuer Services business, and Francisco Partners LP on its acquisition of Source Photonics Inc. During the quarter we were also very pleased to close our first restructuring assignment since our acquisition of Genuity, acting for the unsecured noteholders of Abitibi-Consolidated Inc. during the restructuring of $4 billion of debt under creditor protection.
Canaccord Wealth Management
As markets improved, so did client activity in Canaccord Wealth Management. This, combined with our ongoing efforts to increase the operational efficiency of the division, paid off substantially as the business generated its first profitable quarter since the financial crisis. With $9.0 million in net income during Q3/11, the division is now profitable during the first nine-months of fiscal 2011 and continues to show strong momentum.
The activities of our Wealth Management team generated $68.6 million in revenue during the quarter, achieved entirely by the hard work and dedication of our Investment Advisors and the success they have had in identifying opportunities for our private clients.
As of December 31, Canaccord Wealth Management had $16.0 billion in assets under administration, a 31% increase compared to the same quarter last year. At this asset level, we believe we've turned the corner in building appropriate scale to capture more value for our shareholders in the division. As we continue to evaluate opportunities to enhance our client service offering and grow the scale of our wealth management platform, we have reasons to be confident this division will contribute to our bottom line on a more consistent basis in the quarters ahead.
Growing our Global Platform
On January 17, we launched Canaccord Genuity Asia with the completion of our acquisition of TBG, a leading boutique investment bank in China. This important expansion provides us with significant opportunities to tap into the region's growing demand for expertise in many of the areas Canaccord Genuity has established market leadership - including the mining, energy, life sciences and clean technology sectors. In November we also announced a strategic agreement with the Export-Import Bank of China, the benefits of which will provide our China-based and international clients with many new opportunities to grow their operations with access to Chinese debt financing.
With the acquisition, we welcomed approximately 40 new employees to the global Canaccord Genuity team. We were also very pleased to welcome the newest member of our Board of Directors, Howard Balloch. As the past president of TBG, Howard brings extensive knowledge of the Asian market, as well as many important relationships with key stakeholders in the region.
The integration of our new offices in China is largely complete, and we're already seeing great opportunities in that market. I look forward to discussing what we achieve in Asia in the quarters ahead.
The current market environment is providing many opportunities for us to leverage our existing operations to gain new clients and garner market share. It is also revealing many new business development prospects that, under the right circumstances, could allow us to expand our service offering and global footprint.
While our Company has been built on a bedrock of strategic acquisitions, the pillars of Canaccord's success have always been the quality of our people and the strength of our ideas. To that end, we remain committed to identifying opportunities that are strategically complementary to our existing businesses, culturally compatible with our integrated global team, and fundamental in generating long-term value for our shareholders.
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 third 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 Thursday, February 10, 2011 at 5:30 a.m. (Pacific Time), 8:30 a.m. (Eastern Time) and 1:30 p.m. (UK Time). At that time, senior executives will comment on the results for the third 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)
- 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 Q3/11 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 February 10, 2011 until March 27, 2011 at 416-849-0833 or 1-800-642-1687 by entering passcode 37314975 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 41 offices worldwide, including 31 Wealth Management offices located across Canada. Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, China 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:
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1 See non-GAAP measures
2 ROE is presented on an annualized basis. ROE for the third quarter 2011 is calculated by dividing the annualized net income for the three months ending December 31, 2010 over the average shareholders' equity. ROE for year-to-date 2011 is calculated by dividing the annualized net income for the nine months ending December 31, 2010 over the average shareholders' equity.
3 Acquisition-related expense items are related to the acquisition of Genuity Capital Markets and The Balloch Group Limited. See non-GAAP measures.
4 ROE figures exclude acquisition-related items. See non-GAAP measures.
5 Source: Placement Tracker. Includes placements for companies incorporated in Canada and the US
6 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.
SOURCE Canaccord Financial Inc.