11th Nov 2011 07:00
Canaccord Financial Inc. Reports Second Quarter Fiscal 2012 Results
(All dollar amounts are stated in Canadian dollars unless otherwise indicated)1
TORONTO, Nov. 10, 2011 /CNW/ - During the second quarter of fiscal 2012, thequarter ended September 30, 2011, Canaccord Financial Inc. generated $119.5 million in revenue and recorded a net loss of $5.3million, or $0.09 per common share. Acquisition-related expense items totalling$3.9 million, or $3.6 million after tax, were incurred during the quarter,including $1.4 million related to the acquisition of a 50% interest in BGFEquities(2), and $1.5 million associated with due diligence activities for acorporate development opportunity in the UK that Canaccord chose not to pursue.Excluding acquisition-related expense items, a non-IFRS measure, Canaccordrecorded a net loss of $1.7 million or $0.05 per common share.(3)"The investments we've made to expand our M&A and Advisory capabilities andstrengthen our wealth management business have helped us generate moreconsistent earnings contributions from these operations. Still, ongoing globaleconomic uncertainty and market volatility had a considerable impact on issuerconfidence and investment banking activity," noted Paul Reynolds, President andCEO of Canaccord Financial Inc. "Our results this quarter reflect thechallenging market environment; however, we remain very well capitalized andstrategically positioned to expand our global platform and grow our marketshare."
Second quarter of fiscal 2012 vs. second quarter of fiscal 2011
· Revenue of $119.5 million, down 20% or $29.8 million from $149.3million· Expenses of $126.4 million, down 6% or $8.3 million from $134.7million· Net loss of $5.3 million compared to net income of $10.3 million· Return on common equity (ROE) of (2.8)%, down from 6.0% (3)(4)
· Diluted loss per common share of $0.09 compared to diluted earnings per common share (EPS) of $0.12
Excluding acquisition-related expense items(3)(5)
· Expenses of $122.5 million, down 8% or $10.3 million from $132.8 million
· Net loss of $1.7 million compared to net income of $12.1 million· ROE of (0.9)%, down from 6.9% (3)(4)
· Diluted loss per common share of $0.05 compared to diluted EPS of $0.15 in the second quarter of 2011
Second quarter of fiscal 2012 vs. first quarter of fiscal 2012
· Revenue of $119.5 million, down 25% or $40.3 million from $159.8million· Expenses of $126.4 million, down 12% or $17.6 million from $144.0million· Net loss of $5.3 million, compared to net income of $13.2 million· ROE of (2.8)%, down from 7.0%(3)(4)
· Diluted loss per common share of $0.09 compared to diluted EPS of $0.16 in the first quarter of 2012
Excluding acquisition-related expense items(3)(5)
· Expenses of $122.5 million, down 14% or $20.6 million from $143.1 million
· Net loss of $1.7 million compared to net income of $14.1 million· ROE of (0.9)%, down from 7.3% (3)(4)
· Diluted loss per common share of $0.05 compared to diluted EPS of $0.17 in the first quarter of 2012
First half of fiscal 2012 vs. first half of fiscal 2011
(Six months ended September 30, 2011 vs. six months ended September 30, 2010)· Revenue of $279.3 million, down 7% or $21.9 million from $301.2million· Expenses of $270.4 million, down 3% or $8.6 million from $279.0million· Net income of $7.9 million compared to net income of $15.4 million· ROE of 2.1%, down from 4.9%(3)(4)
· Diluted EPS of $0.07 compared to diluted EPS of $0.19 in the first half of fiscal 2011
Excluding acquisition-related expense items(3)(5)
· Expenses of $265.6 million, up $0.9 million from $264.7 million
· Net income of $12.5 million compared to net income of $26.3 million
· ROE of 3.2%, down from 8.7% (3)(4)
· Diluted EPS of $0.13 compared to diluted EPS of $0.33 in the first half of fiscal 2011
Financial condition at end of second quarter 2012 vs. second quarter 2011
· Cash and cash equivalents balance of $691.1 million, up $54.2 million from $636.9 million
· Working capital of $501.4 million, up $176.3 million from $325.1million
· Total shareholders' equity of $863.5 million, up $183.0 million from $680.5 million
· Book value per diluted common share for the period end was $8.75, up 9% or $0.70 from $8.05(3)
· On November 10, 2011, the Board of Directors approved a quarterlydividend of $0.10 per common share payable on December 15, 2011 with a recorddate of December 2, 2011· On November 10, 2011, the Company also declared a cash dividend of$0.34375 per Series A Preferred Share payable on January 3, 2012 with a recorddate of December 16, 2011SUMMARY OF OPERATIONSCorporate
· Related to Canaccord Financial Inc.'s June 23, 2011 preferred share offering, on July 7, 2011, the overallotment option of Canaccord's Series A
Preferred Share offering was exercised, and 540,000 additional Series A Preferred Shares were issued
· In total, Canaccord Financial Inc. issued 4,540,000 Series A Preferred Shares, raising $113.5 million in gross proceeds
· On August 16, 2011, Canaccord Financial Inc. disclosed, in accordancewith UK regulations, that it had held preliminary discussions with EvolutionGroup PLC (Evolution) regarding a potential offer for the shares of Evolution.Subsequently, on September 8, 2011, Canaccord announced that it would notproceed with an offer.
Capital Markets
· Canaccord Genuity led or co-led 16 transactions globally, raising total proceeds of $472 million(6) during fiscal Q2/12
· Canaccord Genuity participated in 95transactions globally, raising total proceeds of $1.2 billion(6) during fiscal Q2/12
· During fiscal Q2/12, Canaccord Genuity led or co-led the following transactions:
· C$230.0 million offering for Wi-LAN Inc. on the TSX· C$103.1 million offering for EcoSynthetix Inc. on the TSX · C$65.1 million offering for Nevada Copper Corp. on the TSX· C$60.0 million offering for Pinecrest Energy Inc. on the TSX Venture· C$57.6 million offering for Avion Gold Corporation on the TSX· C$41.9 million offering for Claymore Silver Bullion Fund on the TSX· C$38.4 million offering for PNG Gold Corp. on the TSX Venture · C$33.9 million offering for Galane Gold Mines Ltd. on the TSX Venture· US$30.4 million offering for Kit Digital Inc. on the NASDAQ
· Canaccord Genuity recorded advisory revenues of $21.7 million during fiscal Q2/12, an increase of 67% compared to the same quarter last year
· During fiscal Q2/12, Canaccord Genuity advised on the following M&A and advisory transactions:
· AlterisRenewables Inc. on its acquisition by Real Goods Solar· AIM Health Group Inc. on its acquisition by Imperial Capital GroupLtd.· Premier Gold Mines Limited on its acquisition of Goldstone ResourcesInc.· ChemGenexPharmaceuticals Limited on its acquisition by Cephalon, Inc.
· KanetixLtd. on its sale of a majority stake to Monitor Clipper Partners
· Kruger Products LP on its US$211 million debt private placement
· Noteholdersof Compton Petroleum on restructuring of debt and guarantee of $50 million rights offering
· On the sale of certain assets of Brompton Corp. and Morrison Williams Investment Management
· Northgate Minerals in connection with its cancelled agreement with Primero Mining
· Canaccord Genuity was ranked 7th for both the total number and totalvalue of PIPE transactions completed in the US during the first nine months
ofcalendar 2011(7)Wealth Management
· Canaccord Wealth Management recorded $1.9 million of net income before taxes in Q2/12
· Assets under administration were $14.6 billion, up 5% from $13.9 billion at the end of Q2/11, and down 7% from $15.7 billion at the end of Q1/12 (3)
· Assets under management were $574 million, up 21% from $473 millionat the end of Q2/11, and remained nearly unchanged from $575 million at the endof Q1/12(3)
· As at September 30, 2011, Canaccord had 271 Advisory Teams(8),a decrease of nine from 280 Advisory Teams as of September 30, 2010 and an increase of eight from 263 Advisory Teams as of June 30, 2011
· The decrease from last year is largely due to an ongoing strategicreview of our Wealth Management division and the conversion of corporatebranches to the Independent Wealth Management (IWM) platform, where each branchis led by one Investment Advisor (IA) and is counted as one Advisory Team
· During the second quarter of Canaccord's fiscal year, the IWM platform added two branches and closed one location
· A second Gatineau, Qu©bec, IWM branch was opened on September 29,2011
· The corporate Qu©bec City, Qu©bec , branch converted to the IWM platform on August 1, 2011
· Canaccord Wealth Management now has 32 branches across Canada, including 20 operating on the IWM platform
· During the quarter, Canaccord Wealth Management announced it had partnered with fi360 Canada to offer Canaccord Advisors the Accredited Investment Fiduciary Professional (AIFP) designation. This designation denotes the successful completion of one of the most advanced professional training programs available to Investment Advisors on fiduciary standards-of-care.
Subsequent to September 30, 2011
· On October 18, 2011, Canaccord Financial Inc. announced the departureof Mark Maybank. Mr. Maybank was COO of Canaccord Financial Inc. and Presidentof Canaccord Genuity Corp.
· Responsibilities of Mr. Maybank's role were reallocated to other management positions
· On October 24, 2011, Matthew Gaasenbeek was named President of the Canadian capital markets division of Canaccord Genuity Corp.
· Mr. Gaasenbeek will oversee all aspects of Canaccord Genuity's Canadian capital markets business, including Investment Banking, Research, Institutional Sales and Trading, Fixed Income, International Trading, and Registered Traders
· On November 1, 2011, Canaccord Financial Inc. closed its acquisitionof BGF Equities. The aggregate consideration paid by Canaccord for the 50%interest in BGF Equities totalled AUD$40.2 million [C$42.2 million]. The 50%interest was acquired through the purchase of shares from certain existingshareholders and the purchase of treasury shares as follows:
· AUD$14.7 million for the purchase of existing BGF Equities shares primarily from passive non-executive shareholders
· AUD$5.5 million(9) in Canaccord common shares (the Consideration Shares) were issued to key executives of Canaccord BGF
· AUD$20.0 million for the subscription of treasury shares in Canaccord BGF
Non-IFRS MeasuresThe non-International Financial Reporting Standards (IFRS) measures presentedinclude assets under administration, assets under management, book value perdiluted common share, return on common equity and figures that excludeacquisition-related expense items. Acquisition-related expense items are costsincurred and expenses recognized in relation to both prospective and completedacquisitions. Management believes that these non-IFRS measures will allow for abetter evaluation of the operating performance of Canaccord's business andfacilitate meaningful comparison of results in the current period to those inprior periods and future periods. Figures that exclude acquisition-relatedexpense items provide useful information by excluding certain items that maynot be indicative of Canaccord's core operating results. A limitation ofutilizing these figures that exclude acquisition-related expense items is thatthe IFRS accounting effects of the acquisition-related expense items do in factreflect the underlying financial results of Canaccord's business; thus, theseeffects should not be ignored in evaluating and analyzing Canaccord's financialresults. Therefore, management believes that Canaccord's IFRS measures offinancial performance and the respective non-IFRS measures should be consideredtogether.Selected financial information excluding acquisition-related expense items Three months Quarter- Six months YTD- ended September 30 over- ended September 30 over- quarter YTD (C$ thousands, except % amounts) 2011
2010 change 2011 2010 change
Total revenue per IFRS $119,500
$149,285 (20.0%) $279,283 $301,202 (7.3)%
Total expense per IFRS 126,396
134,676 (6.1%) 270,430 278,962 (3.1)%
Acquisition-related expense items recorded in
Canaccord Genuity Acquisition-related costs - Genuity Capital Markets - - - - 10,990(100.0)% (Genuity) Acquisition-related costs - BGF 1,443
- n.m. 1,443 - n.m.
Amortization of intangible assets - Genuity 930
1,827 (49.1)% 1,860 3,266 (43.0)%
Acquisition-related expense items recorded in Corporate
and Other
Acquisition-related costs - prospective acquisitions not 1,513
- n.m. 1,513 - n.m. pursued Total acquisition-related expense items 3,886
1,827 112.7% 4,816 14,256 (66.2)%
Total expenses excluding acquisition-related expense items 122,510 132,849 (7.8)% 265,614 264,706 0.3%
Net income (loss) before tax - adjusted $(3,010)
$16,436 (118.3)% $13,669 $36,496 (62.5)%
Net income (loss) - adjusted $(1,665)
$12,078 (113.8)% $12,460 $ 26,269 (52.6)%
Earnings (loss) per common share - basic, adjusted $(0.05) $0.16 (131.3)% $0.14 $0.37 (62.2)%
Earnings (loss) per common share - diluted, adjusted $(0.05) $0.15 (133.3)% $0.13 $0.33 (60.6)%
n.m.: not meaningfulTO OUR SHAREHOLDERS:While we're pleased with the relative performance of certain Canaccorddivisions against the current economic backdrop, our overall results thisquarter reflect the pull back in world markets and the sharp contraction ofinvestment banking activity. The fiscal second quarter was characterized byextreme market volatility, growing economic uncertainty and low investor andissuer confidence. Like all industry participants, our capital marketsbusiness was impacted by this challenging macro environment.Globally, Canaccord Financial generated revenue of $119.5 million, down 20%from the same quarter last year. Revenue from our M&A and Advisory operationsand our wealth management division was fairly resilient within these difficultbusiness conditions; however, muted investment banking activity during thequarter severely challenged the performance of our capital markets division.While we've continued to make operational changes to run our business moreefficiently, the abrupt decrease in revenue impacted our bottom lineperformance. Canaccord recorded a net loss of $5.3 million during the quarter,which includes expenses related to acquisitions and other growth initiatives weundertook during this period of market dislocation. Excludingacquisition-related expense items totalling $3.9 million ($3.6 million aftertax), the company recorded a net loss of $1.7 million, or $0.05 per commonshare.Expenses for the quarter were $126.4 million, a 6% decrease from the samequarter last year. While compensation expense throughout our organization wasreduced as a result of lower revenue, certain operational costs increased tosupport our expanding global team. Excluding acquisition-related expenseitems, Canaccord's expenses were down 7.8% compared to the same quarter lastyear.The structural changes we referred to last quarter are well underway. Ourmanagement composition is flatter, we've made selective decisions to reducestaffing throughout the organization - particularly in geographies facing themost headwinds - and we're in the process of providing more information to ourclients online in order to reduce expenses related to delivering theseservices.The strength of our balance sheet remains an important differentiator for usduring these turbulent market conditions. It puts us in a strong position whenactivity eventually increases, and allows us to be a potential buyer ofstrategically important and undervalued assets as this market dislocationcontinues.
CANACCORD GENUITY
Globally, Canaccord Genuity generated $69.4 million of revenue during our fiscal second quarter, a decrease of 28.4% from the same quarter last year, primarily due to decreased investment banking activity in all of our geographies. However, not all of our capital markets activities were impacted as severely.
We're particularly pleased with the resiliency of our advisory operationswithin this economic environment. Advisory fees totalled $21.7 million duringthe quarter, which was 67% higher than the same quarter last year, and atestament to the quality of our expanded M&A and Advisory Teams. We're alsoproud of the opportunities our sales and trading desks were able to find forour clients within this time of increased investor uncertainty. Commissionrevenue of $26.0 million was 13.6% lower than the same period last year, but asolid performance given the exceptionally volatile market conditions thatexisted during the quarter.Our UK operations continued to experience very challenging business conditions;however, we continue to believe that significant opportunities will emergewithin that market once the economic climate stabilizes in Europe. In themeantime, the strength of our global platform will provide sufficient supportto our business in this region as we seek to strengthen our market share andbest position Canaccord Genuity for the eventual market recovery. Despite thecurrent market challenges, our team has been able to leverage windows of marketopportunity to launch offerings for our clients. Most recently, we co-led a £46 million transaction for Rockhopper Exploration PLC on AIM.Our capital markets business in the US also faced headwinds during our fiscalsecond quarter. And while its revenue declined less than our othergeographies, the limited scale of our US operations currently dictates smallerprofit margins. As we build scale and add more services for our US clients, weanticipate the business will more easily be able to withstand the impact ofrevenue fluctuations.Our operations in China recently demonstrated the significance of that marketopportunity when Daylight Energy Ltd. announced that we had been appointed aslead advisor in its acquisition by Sinopec. This lead engagement reinforcesthe capabilities of our Chinese business and the strength of our clientrelationships. It's an excellent example of the kind of business we'rebuilding in Canaccord Genuity Asia's pipeline.Subsequent to quarter end, on November 1, we closed our acquisition of 50% ofBGF Equities in Australia and rebranded the business as Canaccord BGF. We seesignificant opportunities in Australia and Hong Kong, and believe we've foundsome exceptional partners to expand our presence in the Asia-Pacific region. The pipeline of business in Australia is strong, and we expect that CanaccordBGF's contribution to our operating performance will be noticed immediately.Canaccord BGF will be presented on a consolidated basis as part of our capitalmarkets division going forward.
CANACCORD WEALTH MANAGEMENT
The strength of our wealth management business was evident again this quarterby its continued profitability despite the challenging market backdrop. Canaccord Wealth Management generated $47.4 million of revenue, an increase of6.5% compared to the same period last year, and $1.9 million of net incomebefore income taxes.Market performance negatively impacted assets under administration during thequarter, despite net asset inflows. As of September 30, assets underadministration were $14.6 billion - up 5.3% year over year, but down 6.6% fromthe end of last quarter. Net new assets were also added to our managedaccounts platform, and as a result, assets under management remained relativelyunchanged in spite of market declines.Canaccord Wealth Management's Advisory Team count increased this quarter,partially due to graduating New Advisors who have now achieved at least threeyears of experience and have completed all required training. We are alsoselectively recruiting Advisors who share our values and client servicestandards. During the quarter, four Advisory Teams joined our national Advisorbase.LOOKING FORWARDOur industry has experienced many highs and lows over the last several years,and within this market turbulence, we have done what we have always done best -we focused on our clients. It is this fundamental approach that fosters ourlong term relationships, builds trust with our growing client base, and drivesour vision for Canaccord as we navigate the company in this dynamic globaleconomy.The market environment continues to be challenging, but I'm pleased with ourteam's ability to generate value for our clients by finding and leveragingwindows of opportunity. Market volatility and economic uncertainties willremain important factors in determining investment banking activity; however,our pipeline of transactions remains strong and we're confident that oncemarkets stabilize, we'll begin to see some robust activity once again.We're confident in our strategy for Canaccord and our continued growth focus. The investments we're making to expand our global platform, enhance our serviceoffering and capture market share are laying a strong foundation for theeventual market recovery. As was evident this quarter, we are committed toevaluating all opportunities that could add meaningful long term value to ourclients and shareholders; however, we remain very disciplined in our approach. Only opportunities that are a strong strategic and cultural fit, and accretiveto earnings, will ultimately be pursued. These criteria have ensured thesuccessful growth of our operations so far, and will continue to be thedetermining factors for our growth strategy going forward.Paul D. Reynolds,President & CEOCanaccord Financial Inc.ACCESS 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 second quarter fiscal2012 results conference call with analysts and institutional investors, via alive webcast or a toll free number. The conference call is scheduled forFriday, November 11, 2011, at 5:00 a.m. (Pacific Time), 8:00 a.m. (EasternTime), 1:00 p.m. (UK Time) and 9:00 p.m. (China Standard Time). At that time,senior executives will comment on the results for the second quarter of 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 Q2/12 earnings call.
A replay of the conference call can be accessed after 8:00 a.m. (Pacific Time),11:00 a.m. (Eastern Time), 4:00 p.m. (UK Time), and 12:00 a.m. (China StandardTime) on November 11, 2011 until December 25, 2011 at 416-849-0833 or1-855-859-2056 by entering passcode 15964413 followed by the pound (#) sign.ABOUT CANACCORD FINANCIAL INC.Through its principal subsidiaries, Canaccord Financial Inc. is a 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 49 offices worldwide, including 32Wealth Management offices located across Canada. Canaccord Genuity, theinternational capital markets division, operates in Canada, the US, the UK,China, Hong Kong, Australia and Barbados.Canaccord Financial Inc. is publicly traded under the symbol CF on the TSX 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 fiscal 2012 is in accordance withIFRS, and all comparative financial information for the four quarters of fiscal2011 has been restated and presented in accordance with IFRS.2 On July 31, 2011, Canaccord announced it had entered into a definitiveagreement to acquire a 50% interest in BGF Capital Group Pty Ltd, commonlyknown as BGF Equities. The transaction closed on November 1, 2011, subsequentto fiscal Q2/12.3 See Non-IFRS Measures.4 ROE is presented on an annualized basis. ROE for the quarter is calculated bydividing the annualized net income (loss) available to common shareholders forthe period over the average common shareholders' equity for the period. SeeNon-IFRS Measures.5 Acquisition-related expense items are related to the acquisitions discussedunder Non-IFRS Measures.6 Source: FP Infomart and Company Information.7 Source: PlacementTracker8 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 of business. 9 A total of 623,796 Consideration Shares were issued, calculated on the basisof Canaccord's volume-weighted average trading price on the Toronto StockExchange for a period of 20 consecutive trading days ending on the thirdtrading day before closing. Using this method of valuation, the shares werevalued at AUD$5.3 million.For further information:North American media: Investor relations inquiries: Nominated Adviser and Joint Broker:Scott Davidson Jamie Kokoska Marc Milmo or Carl Holmes Executive Vice President, Global Vice President, Investor
Relations & Charles Stanley Securities
Head of Corporate Development & Strategy Communications Phone: +44 020 7149 6764Phone: 416-869-3875 Phone: 416-869-3891 Email: Email: [email protected] Email: [email protected] [email protected] media: Joint Broker: Bobby Morse or Ben Romney Erick Diaz
Buchanan Communications (London) Keefe, Bruyette & Woods Limited Phone: +44 (0) 207 466 5000 Phone: +44 (0) 207 663 3162 Email: [email protected]
Email: [email protected] (CF.)
XLONRelated Shares:
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