4th Aug 2011 07:00
Canaccord Financial Inc. Reports First Quarter Fiscal 2012 Results
(All dollar amounts are stated in Canadian dollars unless otherwise indicated)1
VANCOUVER, Aug. 3, 2011 /CNW/ - Canaccord Financial Inc. (AIM: CF.)generated revenue of $159.8 million and net income of $13.2 million in thefirst quarter of fiscal 2012, the quarter ended June 30, 2011. Revenue was 5%higher than the same quarter last year and net income for the first quarter was154% higher compared to net income of $5.2 million recorded in the firstquarter of fiscal 2011. Diluted earnings per common share (EPS) for fiscal Q1/12 were $0.16, compared to diluted EPS of $0.07 in the same quarter last year.Excluding acquisition-related items, net income was $14.1 million, downslightly from $14.2 million in the comparable quarter last year, and EPS was$0.17 compared to $0.19."We see great opportunities for our business through the growth initiativeswe're undertaking and believe we're very well positioned for the eventualmarket resurgence. Our recently announced partnership with BGF Equities willsignificantly grow our distribution capabilities through licenses to operate onthe Australian and Hong Kong stock exchanges, and will also enhance Canaccord'saccess to Australia's robust resource sector," noted Paul Reynolds, Presidentand CEO of Canaccord Financial Inc. "Nevertheless, the difficult marketenvironment that persisted throughout our fiscal first quarter led to lowertrading volumes and heightened market volatility, which impacted clientactivity in some of our core businesses."
First quarter of fiscal 2012 vs. first quarter of fiscal 2011
· Revenue of $159.8 million, up 5% or $7.9 million from $151.9 million· Expenses of $144.0 million, down $0.3 million from $144.3 million
· Net income of $13.2 million, up 154% or $8.0 million compared to net income of $5.2 million
· Return on common equity (ROE) of 7.0%, up from 3.9% (2)(3)
· Diluted EPS of $0.16 compared to diluted EPS of $0.07
Excluding acquisition-related expense items(2)(4)
· Expenses of $143.1 million, up 8% or $11.2 million from $131.9million
· Net income of $14.1 million, down 1% or $0.1 million compared to net income of $14.2 million
· ROE of 7.3%, down from 10.5%(2) (3)
· Diluted EPS of $0.17 compared to diluted EPS of $0.19
First quarter of fiscal 2012 vs. fourth quarter of fiscal 2011
· Revenue of $159.8 million, down 35% or $87.8 million from $247.6million· Expenses of $144.0 million, down 24% or $45.3 million from $189.3million
· Net income of $13.2 million, down 68% or $28.1 million compared to net income of $41.3 million
· ROE of 7.0%, down from 22.6%(2)(3)
· Diluted EPS of $0.16 compared to diluted EPS of $0.49 in the fourth quarter of 2011
Excluding acquisition-related expense items(2)(4)
· Expenses of $143.1 million, down 24% or $45.2 million from $188.3million
· Net income of $14.1 million, down 67% or $28.2 million compared to net income of $42.3 million
· ROE of 7.3%, down from 22.6% (2)(3)
· Diluted EPS of $0.17 compared to diluted EPS of $0.50 in the fourth quarterof 2011
Financial condition at end of first quarter 2012 vs. first quarter 2011
· Cash and cash equivalents balance of $710.7 million, up $140.7 million from $570.0 million
· Working capital of $486.0 million, up $174.4 million from $311.6million
· Total shareholders' equity of $848.2 million, up $177.2 million from $671.0 million
· Book value per diluted common share for the period end was $8.71, up 11% or $0.85 from $7.86(2)
· On August 3, 2011, the Board of Directors approved a quarterly dividend of $0.10 per common share payable on September 15, 2011 with a record date of August 26, 2011
· On August 3, 2011, the Company also declared the initial cash dividend of $0.37295 per Series A Preferred Share payable on September 30, 2011 with a record date of September 16, 2011
SUMMARY OF OPERATIONS
Corporate
· On April 15, 2011, Canaccord Financial Inc. shareholders approvedamendments to the Company's corporate articles, allowing for the issuance ofpreferred shares· On June 6, 2011, Canaccord Financial Inc. announced the offering ofSeries A Rate Reset Preferred Shares priced at $25.00 each to raise capital forgeneral corporate purposes· On June 23, 2011, the Series A Preferred Share offering closed withthe listing of 4,000,000 Series A Preferred Shares, trading on the TSX underthe symbol CF.PR.A.
· Subsequent to quarter end, on July 7, 2011, the syndicate of investment dealers exercised an over-allotment option, and the Company issued an additional 540,000 Series A Preferred Shares
· In total, the issuance of 4,540,000 Series A Rate-Reset Preferred Shares raised $113.5 million in gross proceeds
· At the Company's 2011 Annual General Meeting held on June 24, 2011,shareholders approved the re-election of all nine of the corporate directorsnominated for Canaccord Financial Inc.'s Board of Directors· During the quarter, Canaccord Financial Inc. announced the filing ofa Normal Course Issuer Bid, to allow for the purchase of up to 2,000,000 commonshares for cancellation over a one-year period ending June 12, 2012
Capital Markets
· Canaccord Genuity led 46 transactions globally to raise total proceeds of $1.5 billion(5) during fiscal Q1/12
· Canaccord Genuity participated in a total of 106transactions globally to raise total proceeds of $3.2 billion(5) during fiscal Q1/12
· During fiscal Q1/12, Canaccord Genuity led or co-led the following transactions:
· US$550 million for Manabi Holdings S.A. (non-exchange listed)· US$230 million for Neo Material Technologies Inc. on the TSX· C$113.5 million for Canaccord Financial Inc. on the TSX· US$100.6 million for Aveo Pharmaceuticals on the NASDAQ· C$100.1 million for Artis REIT on the TSX· US$74.0 million for Dexcom Inc. on the NASDAQ· C$59.9 million for Pure Industrial Real Estate Trust on the TSXVenture· C$55.0 million for Bellatrix Exploration Ltd. on the TSX· US$50.0 million for Anthera Pharmaceuticals on the NASDAQ· US$47.0 million for Inhibitex Inc. on the NASDAQ· £45.6 million for Bahamas Petroleum Company Plc. on AIM· C$43.7 million for NexJ Systems Inc. on the TSX· C$40.2 million for Levon Resources Ltd. on the TSX Venture
· Canaccord Genuity recorded advisory revenues of $22.5 million during fiscal Q1/12, an increase of 9% compared to the same quarter last year
· During fiscal Q1/12, Canaccord Genuity advised on the following M&A and advisory transactions:
· SynthRx, Inc. on its acquisition by ADVENTRX Pharmaceuticals, Inc.· Adenyo Inc. on its acquisition by Motricity, Inc.· Renegade Petroleum Ltd. on its acquisition of Petro Uno ResourcesLtd.· NuLoch Resources Inc. on its acquisition by Magnum Hunter ResourcesCorp.· Blinkx Plc. on its acquisition of Burst Media Corp.
· MENA Hydrocarbons Inc. on its reverse takeover of MENA (formerly SKANA Capital Corp.)
· Insulet Corp. on its acquisition of Neighborhood Diabetes Inc.· New Gold Inc. on its acquisition of Richfield Ventures Corp.
· Canadian Satellite Radio Holdings Inc. on its merger with Sirius Canada Inc.
· Luminex Corp. on its acquisition of EraGen Biosciences· EADS on its acquisition of Vector Aerospace Corporation· Petrowest Energy Services Trust on its debt financing
Wealth Management
· Canaccord Wealth Management recorded $2.5 million of net income before taxes in Q1/12
· Assets under administration were $15.7 billion, up 25% from $12.6billion at the end of Q1/11, and down 8% from $17.0 billion at the end of Q4/11(2)
· Assets under management were $575 million, up 33% from $431 million at the end of Q1/11, and up 5% from $546 million at the end of Q4/11(2)
· As at June 30, 2011, Canaccord had 263 Advisory Teams(6),down eight from 271 Advisory Teams as of March 31, 2011 and down 27 from 290 Advisory Teams as of June 30, 2010
· This decrease is largely due to an ongoing strategic review of ourWealth Management division and the conversion of corporate branches to theIndependent Wealth Management (IWM) platform, where each branch is led by oneInvestment Advisor (IA) and is counted as one Advisory Team
· During the first quarter of Canaccord's fiscal year, the IWM platform added two branches and closed one location:
· A new Kitchener, Ontario, IWM branch was opened on May 10, 2011
· The corporate Thunder Bay, Ontario, branch converted to the IWM platform on July 1, 2011
· The Whitehorse, Yukon, IWM branch closed on May 31, 2011
· Canaccord Wealth Management now has 32 branches across Canada, including 19 operating on the IWM platform
Subsequent to June 30, 2011
· On July 7, 2011, the over-allotment option was exercised for Canaccord's preferred share offering, prompting the issuance of 540,000 additional preferred shares. In total, 4,540,000 Series A Preferred Shares were issued by Canaccord, raising $113.5 million in gross proceeds.
· On July 31, 2011, Canaccord announced that it has entered into adefinitive agreement to acquire a 50% equity interest in BGF Capital Group PtyLtd (BGF), commonly referred to as BGF Equities, which will expand Canaccord'soperations into Australia and Hong Kong.· Consideration of AUD$40 million will be provided for the 50% interestin BGF, payable in cash and, subject to TSX approval, CF common shares. Thetransaction is not intended to be dilutive. Canaccord intends to purchase andcancel a like number of shares under its NCIB.
· The transaction is expected to close during Canaccord's third quarter of fiscal 2012 (the fourth quarter of calendar 2011), at which point BGF Equities will be re-branded Canaccord BGF
· Canaccord has also been granted the option to purchase the remaining50% equity interest in the company during a three-month period commencing onthe fifth anniversary of the initial investment
· Canaccord will have the right to appoint three of the six corporate directors of Canaccord BGF
Non-IFRS MeasuresThe non-International Financial Reporting Standards (IFRS) measures presentedinclude assets under administration, assets under management, book value perdiluted common share, return on common equity and figures that excludeacquisition-related expense items. Management believes that these non-IFRSmeasures will allow for a better evaluation of the operating performance ofCanaccord's business and facilitate meaningful comparison of results in thecurrent period to those in prior periods and future periods. Figures thatexclude acquisition-related expense items provide useful information byexcluding certain items that may not be indicative of Canaccord's coreoperating results. A limitation of utilizing these figures that excludeacquisition-related expense items is that the IFRS accounting effects of theacquisition-related expense items do in fact reflect the underlying financialresults of Canaccord's business; thus, these effects should not be ignored inevaluating and analyzing Canaccord's financial results. Therefore, managementbelieves that Canaccord's IFRS measures of financial performance and therespective non-IFRS measures should be considered together.Acquisition-related expense items in the first quarter 2012 and fourth quarter2011 include $0.9 million of amortization of intangible assets in connectionwith the acquisition of Genuity Capital Markets (Genuity). Acquisition-relatedexpense items in the first quarter 2011 include $11.0 million ofacquisition-related costs and $1.4 million of amortization of intangible assetsin connection with the acquisition of Genuity.
TO OUR SHAREHOLDERS:
On July 31st, we were very pleased to announce the expansion of our operationsinto Australia and Hong Kong through the acquisition of 50% of BGF Equities7,which will be renamed Canaccord BGF when the transaction is completed duringour fiscal third quarter. We had been evaluating opportunities to strengthenour presence in the Asia-Pacific region for some time, and we're very pleasedto have found a partner that met all of our acquisition criteria.Canaccord's commitment of AUD$40 million will be paid in cash and, subject toTSX approval, Canaccord common shares. As our intention is to repurchase andcancel the same amount of shares from the market through our NCIB, any sharesprovided as consideration will not be dilutive to our shareholders. Importantly, the purchase agreement also provides us with the option to acquirethe remaining 50% of the company in 2016. On a pro-forma basis, we expect theacquisition will be accretive to Canaccord's earnings.This strategically important partnership provides Canaccord with increasedaccess to the thriving resource market in Australia. It also allows us todevelop relationships with emerging and growing companies that can expand intoother facets of our business as their advisory and financing needs change. Just as important, our partnership dramatically enhances Canaccord'sdistribution capabilities through licenses to operate on both the Australianand Hong Kong stock exchanges. There are tremendous opportunities for ourbusiness in both these markets, particularly as it relates to our resourcesector expertise and robust investor demand from Asia.
Our new colleagues from BGF Equities share our values and entrepreneurial culture and, like Canaccord, understand that the success of their business is based on strong client relationships. We're certain they will complement Canaccord's existing team well, and we're eager to see the results that our combined sector expertise, relationships and distribution capabilities can provide clients and shareholders.
We expect our expansion in the Asia-Pacific region will greatly benefit ourexisting operations in China. Our distribution and listing capabilities on theHong Kong stock exchange will significantly enhance the value we can provideclients and strengthen our competitive position in this region. We arecontinuing to invest in our Chinese operations but believe it will be severalquarters before Canaccord Genuity Asia begins showing consistent returns. Ourpipeline is developing well and we're pleased with the corporate relationshipswe're building; however, we are facing headwinds as a result of changinginvestor sentiment in North America related to Chinese companies.The expansion of our global platform is well underway, and it continues to be acore component of our growth strategy. By establishing a presence inhigher-growth markets and in geographies with growing opportunities in keysectors, we're building a stronger business to benefit from the eventual marketresurgence, while also helping to temper the seasonality of some of our corebusinesses.QUARTERLY UPDATEWhile the first half of our fiscal year is traditionally slower for ourbusiness, this seasonality has been magnified by challenging marketconditions. As was the case with many industry participants, the results ofour fiscal first quarter were impacted by the dramatic slowdown in tradingvolumes and increasingly cautious investor sentiment. I'm generally pleasedwith how our business units are performing within this market environment;however, we are continuing with efforts to lower our costs and best align ourresources to operate within a period of reduced capital markets activity insome of our core markets. We're confident in our strategy and believe theinvestments we're making, and growth initiatives we're undertaking, arestrengthening our business and best positioning Canaccord for the eventualmarket recovery.
Canaccord's revenue of $159.8 million was 5.2% higher than the same quarter last year. Our UK operations had a particularly difficult quarter, as the industry-wide slowdown in this market continues. We expect revenue contributions from this geography will be inconsistent in upcoming quarters, as our European pipeline remains strong but market opportunities remain sporadic.
Net income for the fiscal first quarter was $13.2 million, up significantlyfrom $5.2 million in the same quarter last year, when costs associated with theexpansion of our Canadian capital markets team were booked. Diluted earningsper common share for the first quarter of fiscal 2012 were $0.16, or $0.17excluding acquisition-related expenses.We have had some success in hitting our expense reduction targets. Whilenon-comp expenses from pre-existing operations have declined, especially withinour wealth management division, new costs have been incurred as a result of ourexpansion initiatives and changing operational needs. We have identified whatwe need to do to capture more cost savings, and we're making some long termstructural and operational changes to achieve our objectives.
CANACCORD GENUITY
The market environment was challenging for most of our fiscal first quarter,marked by increased volatility, lower trading volumes and waning investorconfidence. Revenue from Canaccord's investment banking, commission andprincipal trading lines were negatively impacted as a result. In the threemonths ended June 30, 2011, Canaccord Genuity generated $97.4 million inrevenue, down 2.8% compared to the same quarter last year and 40.5% from thesecond best results for the division last quarter.Canaccord Genuity's investment banking operations performed relatively wellwithin this market context, leading or co-leading 46 transactions globally toraise $1.5 billion in gross proceeds for our clients. Notably, Canaccordco-led a US$550 million private placement for Manabi Holdings S.A. in May. This was a cross-border transaction that we matched with multiple internationalinvestors - highlighting the strength of our firm's global reach andinstitutional relationships. Revenue from investment banking operationsdeclined compared to last quarter as a result of having an overall smallerposition of the total transactions we participated in during the quarter.As was the case with many industry participants, revenue from our tradingoperations declined as a result of reduced client activity and tradingvolumes. Market volatility also had a marked impact on trading results. It,combined with our efforts to assist clients with liquidity during the downturn,led to higher than anticipated facilitation losses during the quarter. We aretaking measures to prudently control capital use for trading activity and arecontinuing to monitor market fluctuations closely.The strength of our M&A and advisory pipeline provided a solid contribution toour investment banking team during the quarter. Advisory activities generated$22.5 million in revenue during fiscal Q1/12, up 9.1% from the same quarterlast year, but down 12.3% from the record advisory revenue we achieved lastquarter. Our pipeline of M&A transactions remains very strong, evident by thefive new transactions that we announced advisory assignments for during thequarter. Subsequent to quarter end, it was also announced that CanaccordGenuity is acting as financial advisor to the noteholders of OPTI Canada in itsacquisition by CNOOC and acting as financial advisor to Primero Mining Corp. inits merger with Northgate Minerals Corporation - two prominent transactions inCanada that underscore the strength of our expanded M&A and advisory team.
CANACCORD WEALTH MANAGEMENT
Canaccord Wealth Management performed reasonably well during our typicallyslower first quarter, even within a period of reduced market activity. Thedivision generated $54.8 million in revenue during fiscal Q1/12, up 16.0%compared to the same quarter last year, but down 24.6% from the revenue weachieved in last quarter's more robust market environment. Despite reducedclient activity, the business recorded net income before taxes of $2.5 millioncompared to a net loss of $1.7 million in the year-ago quarter. We are pleasedthat Canaccord Wealth Management has generated profitable returns for the thirdconsecutive quarter, but as divisional revenues are highly correlated to marketvolumes, we are watching the impact of the market slowdown carefully. Strengthening the core business and building our managed accounts platformremain important components of our business plan, and together they willimprove the division's ability to provide consistent returns to ourshareholders. Much like last year, and in line with historical trends, weanticipate that retail trading and client activity will increase in late summeror early fall as individual investors refocus on their investment portfolios.
LOOKING FORWARD
The sovereign debt issues facing the global economy continue to impact investorconfidence and market stability; however, we believe a sustained recovery willlikely build during the second half of our fiscal year. Our long term strategyremains focused on best positioning the company for the eventual marketresurgence.
Our international expansion initiatives and our investments in certain sector verticals are laying a strong foundation for our continued growth. We're confident that our decisions to deploy capital in these key markets will enhance the value of the services we provide our clients, and grow the long term value of our company for shareholders.
Paul D. Reynolds,President & CEOACCESS TO QUARTERLY RESULTS INFORMATIONInterested investors, the media and others may review this quarterly earningsrelease and supplementary financial information at http://www.canaccordfinancial.com/EN/IR/Pages/default.aspx .CONFERENCE CALL AND WEBCAST PRESENTATIONInterested parties are invited to listen to Canaccord's first quarter fiscal2012 results conference call with analysts and institutional investors, via alive webcast or a toll free number. The conference call is scheduled forThursday, August 4, 2011 at 8:00 a.m. (Pacific Time), 11:00 a.m. (EasternTime), 4:00 p.m. (UK Time) and 11:00 p.m. (China Standard Time). At that time,senior executives will comment on the results for the first quarter of thefiscal 2012 year and respond to questions from analysts and institutionalinvestors.The conference call may be accessed live and archived on a listen-only basisvia 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 Q1/12 earnings call.
A replay of the conference call can be accessed after 11:00 a.m. (PacificTime), 2:00 p.m. (Eastern Time), 7:00 p.m. (UK Time) on August 4, 2011, and 2:00 a.m. (China Standard Time) on August 5, 2011 until September 17, 2011 at416-849-0833 or 1-855-859-2056 by entering passcode 83510514 followed by thepound (#) sign.ABOUT CANACCORD FINANCIAL INC.Through its principal subsidiaries, Canaccord Financial Inc. is a leadingindependent, full-service financial services firm, with operations in twoprincipal segments of the securities industry: wealth management and globalcapital markets. Since its establishment in 1950, Canaccord has been driven byan unwavering commitment to building lasting client relationships. We achievethis by generating value for our individual, institutional and corporateclients through comprehensive investment solutions, brokerage services andinvestment banking services. Canaccord has 46 offices worldwide, including 32Wealth Management offices located across Canada. Canaccord Genuity, theinternational 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 andthe 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 symbolCF.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 Companyadopted International Financial Reporting Standards (IFRS) effective April 1,2011. All financial information provided for Q1/12 is in accordance with IFRS,and all comparative financial information for the four quarters of fiscal 2011has been restated and presented in accordance with IFRS.2 See non-IFRS measures.3 ROE is presented on an annualized basis. ROE for the quarter is calculated bydividing the annualized net income available to common shareholders for theperiod over the average common shareholders' equity. See non-IFRS measures.4 Acquisition-related expense items are related to the acquisition of GenuityCapital Markets. See non-IFRS measures.5 Source: Placement Tracker. Includes placements for companies incorporated inCanada 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 ofclient accounts. Advisory Teams that are led by, or only include, an IA whohas been licensed for less than three years are not included in our AdvisoryTeam count, as it typically takes a new IA approximately three years to buildan average-sized book. 7 Canaccord Financial Inc. has agreed to acquire a 50% equity interest in BGFCapital Group Pty Ltd, commonly known as BGF Equities. For further information:North American media: Investor relations inquiries: Nominated Adviser and Joint Scott Davidson Jamie Kokoska Broker: Managing Director, Global Head of Vice President, Investor Relations Marc Milmo or Carl Holmes Marketing & Communications & Charles Stanley Securities Phone: 416-869-3875 Communications Phone: +44 020 7149 6764 Email: [email protected] Phone: 416-869-3891 Email: London media: Email: [email protected] [email protected] Bobby Morse or Ben Romney Joint Broker: Buchanan Communications (London) Oliver Hearsey or Nick Triggs Phone: +44 (0) 207 466 5000 Keefe, Bruyette & Woods LimitedEmail: [email protected]
Phone: +44 (0) 20 7663 5400
Email: [email protected]
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