Canaccord Genuity Group Inc. reports second quarter fiscal 2014 results

PR Newswire

Excluding significant items, earned net income of $6.7 million during the quarter (1)

(All dollar amounts are stated in Canadian dollars unless otherwise indicated)

TORONTO, Nov. 6, 2013 /PRNewswire/ - In the second quarter of fiscal 2014, the quarter ended September 30, 2013, Canaccord Genuity Group Inc. (Canaccord, the Company, TSX: CF, LSE: CF.) generated $183.3 million in revenue. Excluding significant items(1) (a non-IFRS measure), the Company recorded net income of $6.7 million or net income of $3.3 million available to common shareholders(2) ($0.03 per diluted common share). Including all expense items, on an IFRS basis, the Company recorded a net loss of $0.1 million or a net loss available to common shareholders(2) of $3.3 million (loss of $0.03 per diluted common share). 

"Fiscal Q2 was characterized by a challenging environment in some of our operating units, but we believe we are beginning to see signs of improved market activity across our geographies. Canaccord Genuity's global platform is very well suited to meet the evolving demands of our clients," said Paul Reynolds, President and CEO of Canaccord Genuity Group Inc.  "I'm confident that our improving pipeline of activity combined with our focus on cost-containment should provide for better results in the coming quarters."

Second quarter of fiscal 2014 vs. first quarter of fiscal 2014

  • Revenue of $183.3 million, down 2% or $3.9 million from $187.2 million
  • Excluding significant items, expenses of $175.4 million, up $0.9 million from $174.5 million(1)
  • Expenses of $184.3 million, up 3% or $6.2 million from $178.1 million
  • Excluding significant items, net income of $6.7 million compared to net income of $11.8 million (1)
  • Net loss of $0.1 million compared to net income of $7.9 million
  • Excluding significant items, diluted earnings per common share (EPS) of $0.03 compared to diluted EPS of $0.09 in the first quarter of fiscal 2014(1)
  • Loss per common share of $0.03 compared to diluted EPS of $0.06 in the first quarter of fiscal 2014

Second quarter of fiscal 2014 vs. second quarter of fiscal 2013

  • Revenue of $183.3 million, down 2% or $3.3 million from $186.6 million
  • Excluding significant items, expenses of $175.4 million, down 2% or $4.3 million from $179.7 million (1)
  • Expenses of $184.3 million, down 10% or $20.6 million from $204.9 million
  • Excluding significant items, net income of $6.7 million compared to net income of $5.9 million (1)
  • Net loss of $0.1 million compared to a net loss of $14.8 million
  • Excluding significant items, diluted EPS of $0.03 compared to diluted EPS of $0.03(1)
  • Loss per common share of $0.03 compared to a loss per common share of $0.19

First half of fiscal 2014 vs. first half of fiscal 2013
(Six months ended September 30, 2013 vs. six months ended September 30, 2012)

  • Revenue of $370.5 million, up 6% or $21.4 million from $349.1 million
  • Excluding significant items, expenses of $349.9 million, down 3% from $361.4 million(1)
  • Expenses of $362.4 million, down 8% or $29.6 million from $392.0 million
  • Excluding significant items, net income of $18.5 million compared to a net loss of $10.4 million (1)
  • Net income of $7.8 million compared to a net loss of $35.5 million
  • Excluding significant items, diluted EPS of $0.12 compared to a loss per common share of $0.17(1)
  • Diluted EPS of $0.02 compared to a loss per common share of $0.43

Financial condition at end of second quarter fiscal 2014 vs. fourth quarter fiscal 2013

  • Cash and cash equivalents balance of $360.2 million, down $130.8 million from $491.0 million
  • Working capital of $412.3 million, up $18.6 million from $393.7 million
  • Total shareholders' equity of $1.1 billion, up $33.4 million from $1.0 billion
  • Book value per diluted common share of $8.00, up $0.32 from $7.68 (1)
  • On November 6, 2013, the Board of Directors approved a quarterly dividend of $0.05 per common share payable on December 10, 2013 with a record date of November 22, 2013
  • On November 6, 2013, the Board of Directors also approved a cash dividend of $0.34375 per Series A Preferred Share payable on December 31, 2013 with a record date of December 20, 2013, and a cash dividend of $0.359375 per Series C Preferred Share payable on December 31, 2013 to Series C Preferred shareholders of record as at December 20, 2013

SUMMARY OF OPERATIONS

Corporate

  • On August 7, 2013, the Company held its 2013 Annual General Meeting of shareholders, where all nominated directors were re-elected to the Board
  • On August 8, 2013, the Company renewed its normal course issuer bid (NCIB)/ buy-back programme, which provides the Company with the ability to purchase, at its discretion, up to 5,136,948 of its common shares through the facilities of the TSX for cancellation
  • During the fiscal second quarter, the Company repurchased 796,992 of its common shares under the terms of its former and current NCIB
    • Of these shares, 739,292 have been cancelled effective as of September 30, 2013, and the remaining 57,700 will be held in treasury until subsequently cancelled
  • During fiscal Q2/14, the Company recorded restructuring costs of $5.5 million in connection with the restructuring of the sales and trading operations in Canada and the UK and Europe as well as certain office closure costs
  • Subsequent to the end of the quarter, on October 1, 2013, Canaccord Financial Inc. was renamed Canaccord Genuity Group Inc.
  • Subsequent to the end of the quarter, on October 23, 2013, Canaccord Genuity Inc. (Canaccord Genuity's US capital markets division) held a charity trading day, where designated commissions from equity, electronic and agency options trades on that day were donated to Youth, I.N.C. In total, Canaccord Genuity's US team generated approximately US$1.0 million for at-risk children through the eighth annual Trading Day for Kids.

Capital Markets

  • Canaccord Genuity led or co-led 27 transactions globally, raising total proceeds of C$1.5 billion(2) during fiscal Q2/14
  • Canaccord Genuity participated in 75 transactions globally, raising total proceeds of C$8.8 billion(2)  during fiscal Q2/14
  • During fiscal Q2/14, Canaccord Genuity led or co-led the following transactions :
    • £300.0 million for the Renewables Infrastructure Group Limited on the LSE
    • £125.0 million for Saffron Housing Finance PLC on the LSE
    • £86.0 million for HICL Infrastructure Company Limited on the LSE
    • AUD$80.6 million for G8 Education Limited on the ASX
    • C$68.8 million for HealthLease Properties REIT on the TSX
    • C$65.0 million for MINT Income Fund on the TSX
    • AUD$47.7 million for Red Fork Energy Limited on the ASX
    • US$41.7 million for Datalink Corporation on the NASDAQ
    • US$40.4 million for TearLab Corp. on the NASDAQ
    • C$40.0 million for Amaya Gaming Group Inc. on the TSX
    • AUD$36.4 million for Buccaneer Energy Limited on the ASX
    • US$31.6 million for XOMA Corporation on the NASDAQ
    • US$25.0 million for DragonWave Inc. on the NASDAQ
    • £15.0 million for W&G Investments PLC on AIM
    • C$24.2 million for Halogen Software Inc. on the TSX
    • US$23.0 million for Pure Multi-Family REIT LP on the TSX Venture
    • C$23.1 million for FAM Real Estate Investment Trust on the TSX
    • US$15.2 million for Glu Mobile on the NASDAQ
    • SGD$18.4 million for Sin Heng Heavy Machinery Limited on the Singapore Exchange
  • In Canada, Canaccord Genuity raised $228.8 million for government and corporate bond issuances during fiscal Q2/14.
  • Canaccord Genuity generated advisory revenues of $29.9 million during fiscal Q2/14, an increase of 5% compared to the same quarter last year.
  • During fiscal Q2/14, Canaccord Genuity advised on the following M&A and advisory transactions:
    • Uranium One Inc. on its sale to ARMZ Uranium Holding Company
    • May Gurney Integrated Services PLC on the recommended takeover offer by Kier Group PLC
    • Morgan Stanley Real Estate on its disposal of Executive Offices Group
    • AXA Private Equity and Trescal Group's Management team on its acquisition of Trescal
    • Independent News & Media PLC on the sale of its South African subsidiary
    • Renewable Energy Developers Inc. on its sale to Capstone Infrastructure Corporation
    • Payzone Group on its disposal of Cashzone to Cardtronics
    • Côte Holdings Limited on its disposal to CPBE Capital LLP
    • Phoenix Equity Partners on its acquisition  of a controlling stake in the issued share capital of Key Retirement Solutions Limited
    • Xceed Mortgage Corporation on its sale to MCAN Mortgage Corporation
    • Datawatch Corporation on its acquisition of Panopticon Software AB
    • Labrador Iron Mines Holdings Limited on its strategic collaboration agreement with Tata Steel Minerals Canada Ltd.
    • Luminus Devices, Inc. on its merger with Lightera Corporation
    • Revolution Lighting Technologies, Inc. on its acquisition of Relume Technologies Inc.
    • Cub Energy Inc. on its acquisition of Anatolia Energy Corp.

Canaccord Genuity Wealth Management (Global)

  • Globally, Canaccord Genuity Wealth Management generated $51.2 million in revenue in Q2/14
  • Assets under administration in Canada and assets under management in the UK and Europe, and Australia were $27.5 billion at the end of Q2/14(1)

Canaccord Genuity Wealth Management (North America)

  • Canaccord Genuity Wealth Management (North America) generated $24.4 million in revenue and, after intersegment allocations, recorded a net loss of $5.1 million before taxes in Q2/14
  • Assets under administration in Canada were $9.4 billion as at September 30, 2013, up 1% from $9.3 billion at the end of the previous quarter and down 29% from $13.3 billion at the end of fiscal Q2/13(1)
  • Assets under management in Canada (discretionary) were $935 million as at September 30, 2013, up 6% from $880 million at the end of the previous quarter and up 19% from $784 million at the end of fiscal Q2/13(1)
  • As at September 30, 2013, Canaccord Genuity Wealth Management had 163 Advisory Teams(3), a decrease of 68 Advisory Teams from September 30, 2012 and a decrease of 10 from June 30, 2013

Canaccord Genuity Wealth Management (UK and Europe)

  • Wealth management operations in the UK and Europe generated $25.8 million in revenue and, after intersegment allocations, and excluding significant items, recorded net income of $3.6 million before taxes in Q2/14(1)
  • Assets under management (discretionary and non-discretionary) were $17.7 billion (£10.6 billion) (1)

Non-IFRS Measures

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, amortization of intangible assets, and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions. Book value per diluted common share is calculated as total common shareholders' equity divided by the number of diluted common shares outstanding, and commencing in Q1/14, adjusted for shares purchased under the normal course issuer bid and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans.

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 (1)

             
  Three months ended
September 30
Quarter-
over-
quarter
change
Six months ended
September 30
YTD-
over-
YTD
change
(C$ thousands, except per share and % amounts) 2013 2012 2013 2012
Total revenue per IFRS $183,306 $186,599 (1.8)% $370,537 $349,148 6.1%
Total expenses per IFRS 184,262 204,910 (10.1)% 362,380 391,958 (7.5)%
Significant items recorded in Canaccord Genuity        
  Restructuring costs 5,486 4,395 24.8% 5,486 4,395 24.8%
  Acquisition-related costs 388 (100.0)% 388 (100.0)%
  Amortization of intangible assets 1,658 3,436 (51.7)% 3,360 7,809 (57.0)%
Significant items recorded in Canaccord Genuity            
  Wealth Management            
  Restructuring costs 13,567 (100.0)% 13,567 (100.0)%
  Acquisition-related costs 900 (100.0)% 900 (100.0)%
  Amortization of intangible assets 1,751 1,614 8.5% 3,640 2,612 39.4%
Significant items recorded in Corporate and Other            
  Restructuring costs 900 (100.0)% 900 (100.0)%
Total significant items 8,895 25,200 (64.7)% 12,486 30,571 (59.2)%
Total expenses excluding significant items 175,367 179,710 (2.4)% 349,894 361,387 (3.2)%
Net income (loss) before taxes - adjusted $7,939 $6,889 15.2% $20,643 $(12,239) 268.7%
Income taxes (recovery) - adjusted 1,205 982 22.7% 2,099 (1,851) 213.4%
Net income (loss) - adjusted $6,734 $5,907 14.0% $18,544 $(10,388) 278.5%
Earnings (loss) per common share - basic, adjusted $0.03 $0.03 $0.13 $(0.17) 176.5%
Earnings (loss) per common share - diluted, adjusted $0.03 $0.03 $0.12 $(0.17) 170.6%

Fellow Shareholders

Canaccord Genuity's fiscal second quarter once again showcased our geographic diversification. While our core markets were affected by the decreased activity of the summer months, we saw sequentially strong performances by our US- and UK-based businesses. Overall, we believe we are returning to more normalized market conditions, as we have already seen an improvement in activity across our geographies and sector verticals. As such, our firm's performance rebounded in September, ending the quarter with growing momentum across our business and a strong pipeline of activity.

Following a significant period of growth over the past several years, our priorities centre on delivering global services to our clients as well as the continued search for efficiencies throughout our business. We are implementing important changes that we're confident will lower our ongoing expenses and improve our margins in the longer term, and we are making investments to improve our support infrastructure and internal systems. While our Q2 performance was profitable on a non-IFRS basis, Canaccord Genuity recorded $8.9 million of restructuring and other significant items(1) during the quarter, due largely to the leadership changes in our equities businesses in Canada and the UK, resulting in a small loss for the quarter under IFRS.

On October 1, the parent company of the Canaccord group of companies was renamed Canaccord Genuity Group Inc., unifying the brand structure of our global business under the established Canaccord Genuity name. We believe this better aligns the publicly traded company with the proven capabilities of our two main operating divisions.

Financial Performance

The benefits of our diversified revenue streams continue to be apparent, with each of our geographies providing meaningful contributions to our overall results this quarter. Once again, two-thirds of our global revenue was generated outside of Canada.

During the second quarter fiscal 2014, Canaccord Genuity generated $183 million of revenue, a steady result compared to the previous quarter and the same period last year, and excluding significant items(1) recorded net income of $6.7 million or net income of $3.3 million available to common shareholders(2) ($0.03 per diluted common share).  Including significant items, the Company recorded a net loss of $0.1 million or a net loss available to common shareholders(2) of $3.3 million (loss of $0.03 per diluted common share).

We remain well capitalized through the diligent monitoring of our balance sheet, and as of September 30 the Company's net working capital position was $412.3 million. I am pleased to report the renewal of our normal course issuer bid (NCIB)/buy-back programme, and during the first half of the year, the Company repurchased for cancellation 1,361,496 common shares under our former and current NCIB. We continue to be very active in share buybacks into our fiscal third quarter.

Canaccord Genuity - Capital Markets

Our global capital markets division generated $126.7 million of revenue during the second quarter, an increase of 5% compared to the same period last year and a slight decline compared to the previous quarter. Advisory revenue declined by 17% from the previous quarter and increased slightly by 5% compared to the same quarter last year. We were pleased that the division increased underwriting revenue by 29% compared to the previous quarter and by 18% compared to the same quarter last year. Globally, our business continues to leverage the current market environment to find opportunities for our clients.

For the three months ended September 30, 2013, Canaccord Genuity led or co-led 27 transactions globally, raising total proceeds of $1.5 billion for our clients, due largely by the solid performances of our US and UK-based teams. In fact, our Investment Companies team in the UK acted on the £300 million IPO of the Renewables Infrastructure Group, a milestone transaction in the European IPO market. And we're maintaining our market leadership in IPO transactions in this geography as we begin our fiscal third quarter. Canaccord Genuity in the UK was named the Investment Bank of the Week by Financial News in early October, following our role as sole bookrunner in the Tungsten Corporation IPO, the largest corporate float on AIM since 2007.

In Canada, our capital markets practice was impacted by the difficult market environment, particularly in the resources sector. However, we are beginning to see encouraging signs of a return to more normalized activity, as evidenced by the $200 million financing that Canaccord Genuity recently co-led for Bellatrix Exploration Ltd. on the TSX in October.

In the US, our business continues to outperform. This division was the largest contributor of revenue globally for the second consecutive quarter, underscoring the exceptional equity financing team we have assembled. We've further enhanced our institutional service offering by adding new high yield capabilities to our platform, through the addition of a US fixed income sales and trading team. We're confident this added scale is well suited to our broad sector coverage and will help the division grow our client base.

In addition, Canaccord Genuity in Australia had a record performance, demonstrating the success of our strategy to expand the business' sector coverage beyond the resource space. In July, our Australian business was named the Best Equities House in the non-bank owned category of the 2013 East Coles Survey, as voted on by Australian institutional investors.

It's clear that the diversity of our revenue streams is a key differentiator of our global capital markets business, and we're confident the division is poised for success in a more robust market environment.

Canaccord Genuity - Wealth Management

Canaccord Genuity Wealth Management generated $50.2 million of revenue during the second fiscal quarter, a 7% decline compared to the previous quarter. However, we're pleased that each of our wealth management businesses successfully increased assets under management compared to Q1. Globally, the division manages $27.5 billion of client assets, an increase of 7% from June 30, 2013.

In Canada, difficult market conditions continue to pose challenges to the business. Canaccord Genuity Wealth Management in North America generated $24.4 million of revenue and recorded a net loss of $5.1 million for the quarter. However, the business increased assets under management by 6% compared to the previous quarter and by 19% compared to last year, to $935 million, a solid indication of growth in our managed and fee-based accounts.

Our wealth management business in the UK and Europe provides consistent returns to our global franchise, recording another quarter of profitability. The division generated $25.8 million of revenue and posted net income of $3.6 million before taxes and excluding significant items.(1) Having consistently increased assets under management over the past four consecutive quarters to $17.7 billion as of September 30, this division is successfully attracting more clients in a market facing growing regulation.

In the coming months, our wealth management business in Canada will be introducing a sophisticated portfolio offering developed for the Canadian retail investor, while leveraging the global infrastructure established by our UK-based business. Once it is available to our clients, we believe this new product will drive higher fee-generation and improve our margins.

Looking Ahead

Subsequent to the end of the quarter, Canaccord Genuity launched an advertising campaign featuring our new global value proposition, To us there are no foreign markets. It showcases the global perspective of our capital markets and wealth management businesses and enhances our brand exposure to existing and prospective clients.

In addition, I want to reiterate our continuing commitment to pursue opportunities to further reduce our overhead expenses and find ways to advance the efficiencies of our company on behalf of our shareholders.

In closing, we are beginning to see a strengthening in global market conditions with a concurrent improvement in our pipelines across our operating units. While our fiscal second quarter performance was seasonally slow, we believe Canaccord Genuity is in an excellent position to leverage the improving environment in the latter half of our fiscal year.

Kind regards,
Paul Reynolds
President and CEO
Canaccord Genuity Group 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.canaccordgenuitygroup.com/EN/IR/Pages/default.aspx.

CONFERENCE CALL AND WEBCAST PRESENTATION
Interested parties are invited to listen to Canaccord's second quarter fiscal 2014 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 6, 2013 at 2:00 p.m. (Pacific Time), 5:00 p.m. (Eastern Time), 10:00 p.m. (UK Time), and at 6:00 a.m. (China Standard Time), and 9:00 a.m. (Australia EST Time) on Thursday, November 7, 2013. At that time, senior executives will comment on the results for the first quarter of the fiscal 2014 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: http://www.canaccordgenuitygroup.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 North America)
  • 0-800-051-7107 (toll free from the UK)
  • 1-800-760-620 (toll free from Ireland)
  • 0-800-917-449 (toll free from France)
  • 0-800-183-0171 (toll free from Germany)
  • 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 Genuity Group Inc.'s Q2/14 earnings call. If a passcode is requested, please use 90809089.

A replay of the conference call can be accessed after 5:00 p.m. (Pacific Time), 8:00 p.m. (Eastern Time) Wednesday, November 6, 2013 until December 19, 2013at 416-849-0833 or 1-855-859-2056 by entering passcode 90809089 followed by the pound (#) sign.

ABOUT CANACCORD GENUITY GROUP INC.:

Through its principal subsidiaries, Canaccord Genuity Group Inc. (the Company) is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: wealth management and capital markets. Since its establishment in 1950, the Company 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. The Company has offices in 11 countries worldwide, including wealth management offices located in Canada, Australia, the UK and Europe.  Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, France, Germany, Ireland, Hong Kong, mainland China, Singapore, Australia and Barbados. To us there are no foreign markets.™

Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX and the symbol CF. on the London Stock Exchange. Canaccord Series A Preferred Shares are listed on the TSX under the symbol CF.PR.A. Canaccord Series C Preferred Shares are listed on the TSX under the symbol CF.PR.C.

FOR FURTHER INFORMATION, CONTACT:

North American media:
Scott Davidson
Executive Vice President, Global
Head of Corporate Development &
Strategy
Phone: 416-869-3875
Email: scott.davidson@canaccord.com

London media:
Bobby Morse or Ben Romney
Buchanan Communications (London)
Phone: +44 (0) 207 466 5000
Email: bobbym@buchanan.uk.com
    Investor relations inquiries:
Andrea Sergautis
Manager, Investor Relations & Communications
Phone: 416-687-5507
Email:andrea.sergautis@canaccord.com
 
      Broker:
Oliver Hearsey
RBC Europe Limited
Phone: +44 (0) 20 7653 4000
Email: oliver.hearsey@rbccm.com


 

None of the information on the Company's websites at www.canaccord.com, www.canaccordgenuitygroup.com, www.canaccordgenuity.com and www.canaccord.com/wm should be considered incorporated herein by reference.

_______________________
1 See Non-IFRS Measures.

2 Net income (loss) available to common shareholders is calculated as net income (loss) adjusted for non-controlling interests and preferred share dividends.

3 Source: Transactions over $1.5 million. Internally sourced information.

4 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. 

i A non-IFRS measure

 

 

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