Excluding significant items, first quarter earnings per common share of $0.19 (1)
(All dollar amounts are stated in Canadian dollars unless otherwise indicated)
TORONTO, Aug. 1, 2018 /CNW/ - During the first quarter of fiscal 2019, the quarter ended June 30, 2018, Canaccord Genuity Group Inc. (Canaccord Genuity, the Company, TSX: CF) generated $274.1 million in revenue. Excluding significant items (1), the Company recorded net income (3) of $25.0 million or net income of $21.7 million attributable to common shareholders (2) (earnings per common share of $0.19). Including all significant items, on an IFRS basis, the Company recorded net income (3) of $18.6 million or net income attributable to common shareholders (2) of $15.3 million (earnings per common share of $0.14).
"Fiscal 2019 is off to a strong start and we continued to strengthen our business mix and increase scale in our wealth management operations, while our capital markets business benefited from a continued positive backdrop for growth stocks," said Dan Daviau, President & CEO of Canaccord Genuity Group Inc. "We are confident in our market position and we are increasingly demonstrating that our business is advantageously positioned to navigate changes in the market environment, while we stay focused on driving stability for our business and our shareholders."
First Quarter of Fiscal 2019 vs. First Quarter of Fiscal 2018
First Quarter of Fiscal 2019 vs Fourth Quarter of Fiscal 2018
Financial Condition at end of First Quarter Fiscal 2019 vs. Fourth Quarter Fiscal 2018
SUMMARY OF OPERATIONS
Corporate
Canaccord Genuity (Capital Markets)
Canaccord Genuity Wealth Management (Global)
Canaccord Genuity Wealth Management (North America)
Canaccord Genuity Wealth Management (UK & Europe)
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 acquired in connection with a business combination, impairment of goodwill and other assets and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions, gains or losses related to business disposals including recognition of realized translation gains on the disposal of foreign operations, certain accounting charges related to the change in the Company's long-term incentive plan as recorded with effect on March 31, 2018, certain incentive-based costs related to the acquisition of Hargreave Hale, as well as certain expense items, typically included in development costs, which are considered by management to reflect a singular charge of a non-operating nature. Book value per diluted common share is calculated as total common shareholders' equity adjusted for assumed proceeds from the exercise of options and warrants and conversion of convertible debentures divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments including options, warrants and convertible debentures, and, commencing in Q1/14, adjusted for shares purchased under the Company's normal course issuer bid (NCIB) 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 the Company'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 the Company'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 the Company's business; thus, these effects should not be ignored in evaluating and analyzing the Company's financial results. Therefore, management believes that the Company'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 June 30 |
Quarter-over- quarter change |
|||
| (C$ thousands, except per share and % amounts) |
2018 |
2017 |
||
| Total revenue per IFRS |
$274,123 |
$199,808 |
37.2% |
|
| Total expenses per IFRS |
252,241 |
201,580 |
25.1% |
|
| Revenue |
||||
| Significant items recorded in Canaccord Genuity |
— |
— |
— |
|
| Total revenue excluding significant items |
274,123 |
199,808 |
37.2% |
|
| Expenses Significant items recorded in Canaccord Genuity |
||||
| Amortization of intangible assets |
579 |
580 |
(0.2) % |
|
| Restructuring costs (2) |
1,316 |
448 |
193.8% |
|
| Acquisition- related costs |
1,173 |
— |
n.m. |
|
| Significant items recorded in Canaccord Genuity Wealth Management |
||||
| Amortization of intangible assets |
2,856 |
1,324 |
115.7% |
|
| Acquisition-related costs |
— |
2,184 |
(100.0) % |
|
| Incentive-based costs related to acquisition (3) |
1,543 |
— |
n.m |
|
| Total significant items |
7,467 |
4,536 |
64.6% |
|
| Total revenue excluding significant items |
274,123 |
199,808 |
37.2% |
|
| Total expenses excluding significant items |
244,774 |
197,044 |
24.2% |
|
| Net income before taxes – adjusted |
29,349 |
$2,764 |
n.m. |
|
| Income taxes – adjusted |
4,314 |
1,149 |
275.5% |
|
| Net income - adjusted |
$25,035 |
$1,615 |
n.m. |
|
| Net income (loss) attributable to common shareholders, adjusted |
21,651 |
(627) |
n.m. |
|
| Earnings (loss) per common share – basic, adjusted |
$0.23 |
$(0.01) |
n.m. |
|
| Earnings (loss) per common share – diluted, adjusted |
$0.19 |
$(0.01) |
n.m. |
|
| (1) |
Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 4. |
| (2) |
Restructuring costs for the three months ended June 30, 2018 were incurred in connection with our UK capital markets operations. |
| (3) |
Incentive-based costs related to the acquisition of Hargreave Hale determined with reference to financial targets and other performance criteria. |
| n.m.: not meaningful |
Business segment results for the three months ended June 30, 2018
| Excluding |
IFRS |
|||||
| (C$ thousands, except per share amounts) |
Canaccord |
Canaccord |
Corporate and |
Total |
Total |
|
| Revenue |
$156,172 |
$112,576 |
$5,375 |
$274,123 |
$274,123 |
|
| Expenses |
(141,771) |
(94,923) |
(15,547) |
(252,241) |
(252,241) |
|
| Inter-segment allocations |
(4,305) |
(3,347) |
7,652 |
— |
— |
|
| Income (loss) before income taxes and significant items |
$10,096 |
$14,306 |
$(2,520) |
$21,882 |
$21,882 |
|
| Significant items (A) |
||||||
| Amortization of intangible assets |
579 |
2,856 |
— |
3,435 |
— |
|
| Restructuring costs |
1,316 |
— |
— |
1,316 |
— |
|
| Acquisition-related costs |
1,173 |
— |
— |
1,173 |
— |
|
| Incentive-based costs related to acquisition |
— |
1,543 |
— |
1,543 |
— |
|
| Total significant items |
3,068 |
4,399 |
7,467 |
— |
||
| Income (loss) before income taxes |
$13,164 |
$18,705 |
$(2,520) |
$29,349 |
$21,882 |
|
| Income (taxes) recovery (B) |
(2,337) |
(2,805) |
828 |
(4,314) |
(3,233) |
|
| Non-controlling interests |
(1,033) |
— |
— |
(1,033) |
(1,033) |
|
| Preferred share dividends (C) |
(1,366) |
(985) |
— |
(2,351) |
(2,351) |
|
| Corporate and other (C) |
(983) |
(709) |
1,692 |
|||
| Net income attributable to common shareholders |
7,445 |
14,206 |
— |
21,651 |
15,265 |
|
| Dilutive EPS factors |
||||||
| Interest on convertible |
490 |
354 |
— |
844 |
844 |
|
| 7,936 |
14,559 |
— |
22,495 |
16,109 |
||
| Average diluted number of shares (D) |
117,541 |
117,541 |
117,541 |
117,541 |
||
| Diluted earnings per share, excluding significant items (A) |
$0.07 |
$0.12 |
— |
$0.19 |
— |
|
| Diluted earnings per share on an IFRS basis |
— |
— |
— |
— |
$0.14 |
|
| (A) |
Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 4. |
| (B) |
Allocation of consolidated tax provision based on management estimates by region and by business unit |
| (C) |
Allocation to capital markets and wealth management segments based on revenue |
| (D) |
This is the diluted share number used to calculate diluted EPS. |
Fellow Shareholders:
Our results for the first quarter of fiscal 2019 reflect the stability in the fundamentals for our business, both on the income and the expense side. For the three-month period, Canaccord Genuity Group Inc. earned record first quarter revenue of $274.1 million, an improvement of 37.2% from the same period a year ago.
The impact of political uncertainties and trade tensions during the period was offset by healthy earnings growth in most of our key markets, fueled by strength in the U.S. economy, tight labor markets in North America and stronger commodity prices – all factors which contributed to increased activity and client participation during a traditionally slow quarter. The revenue growth we achieved over the three-month period was relatively broad based across our capital markets and wealth management businesses, which earned revenues of $156.2 million and $112.6 million respectively.
Excluding significant items(1) we incurred higher expenses compared to the first quarter of last year, to support stronger activity levels in our capital markets operations and business growth in our UK and Canadian wealth management operations. Despite this increase, our firmwide expense ratio decreased by 9.3 percentage points year-over-year, a testament to our continued focus on cost containment across our businesses.
Net income excluding significant items(1) for the three-month period amounted to $25.0 million, a significant improvement from $1.6 million a year ago. This translated into diluted earnings per common share excluding significant items (1) of $0.19 for the three-month period, and we estimate that 63% - or $0.12 - of this amount was contributed by our expanded global wealth management operations.
Expanded wealth management operations delivering growing contributions to our profitability
At the end of the three-month period, total client assets increased to $66.2 billion, a marked improvement of 68.5% compared to a year ago.
With the addition of Hargreave Hale in September 2017, our expanded UK & Europe wealth management operation achieved year-over-year revenue growth of 73.0% for the three-month period. When measured in local currency, client assets in this business increased by 75.8% over the year and by 8.5% sequentially, to £26.9 billion. We continue to make steady progress with our integration of Hargreave Hale and we anticipate further organic growth and margin improvement in this business as our teams in the region leverage their complementary strengths with a collective focus on delivering strong investment performance, an enhanced client experience and employee commitment and dedication.
Total client assets in our Canadian wealth management business increased by 49.3% year-over-year and by 21.5% sequentially, to $18.9 billion. Revenue in this segment increased by 26.7% compared to the first quarter of last year, to $46.8 million. During the quarter we welcomed additional new advisory teams and additional client assets in Vancouver, Winnipeg, Edmonton and Toronto and the revenue and net income contributions from these additions will be more wholly reflected in future reporting periods.
Recruiting activity in Canada continues to be robust as established Investment Advisors increasingly embrace the advantages and opportunities that an independent platform with broad global expertise and opportunities can provide for their business and their clients. The average book size per Investment Advisory team in this business has increased by over 80% in just two years.
In all our wealth management businesses, we have continued to invest in strengthening our back-office expertise and the implementation of technological solutions to enhance our process efficiencies, so that we can seamlessly integrate new investment professionals and clients as we increase scale and asset growth for this segment.
| (1) |
Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 4. |
Delivering stronger outcomes for capital markets clients and improving our competitive position.
Canaccord Genuity participated in 92 transactions to raise $11.2 billion for global growth companies in the first quarter of fiscal 2019.
Revenue earned by our global capital markets business increased by 28.3% year-over-year to $156.2 million, primarily attributable to higher banking and advisory activity levels in our US, Canadian and Australian businesses during a typically slow quarter.
For the three-month period, revenue earned through advisory and underwriting activities grew by 30.4% and 75.8% respectively compared to a year ago. We continue to experience a general trend of larger deal size across our advisory business, reflective of growing demand for independent advice that is free from conflict. Principal trading revenue for the period increased by 19.4% year-over-year, primarily attributable to higher market activity in our US and UK operations.
The strongest contribution to our quarterly result was from our US operation, which earned record quarterly revenue of $76.2 million. Revenue generated through investment banking and advisory activities during the three-month period increased by 262.9% and 29.0% respectively on a year-over-year basis and our institutional equities group delivered another strong performance during the quarter. Excluding significant items, this business delivered a pre-tax profit margin of 10.0%, a significant improvement from a loss of 4.1% in the same period last year.
Our Canadian capital markets division also delivered a solid quarterly result. This business maintained its lead as the dominant independent investment bank in Canada during the three-month period, having raised close to 70% more capital than our closest independent competitor. Trading volumes in this business were lower due to reduced volatility and seasonality but Canaccord Genuity and Jitneytrade remained the top two independents for block trading volumes in Canada for the three-month period. Following the closing of our Jitneytrade acquisition late in the fiscal quarter, we expect the increased contributions from this business to be reflected in future reporting periods.
Our Australian capital markets business has experienced strong momentum across all sectors and has maintained its position as a leading investment bank for small cap equities in the region. This business is an increasingly stronger contributor to our global platform and its contribution to our total global capital markets revenue improved by 123% year-over-year.
The first quarter result for our UK, Europe & Dubai operations was influenced by the timing of transaction closings in the region. With a strong advisory component, timing of revenue in this business can be uneven on a quarter-to-quarter basis. During the period we also took additional steps to adjust our staffing mix in this region, to further improve alignment with the global platform.
We have continued in our efforts to create a unified global network of investment banking, sales, trading and research professionals, an important differentiator for our firm in all the regions where we operate. For the three-month period, revenue per employee in our global capital markets business increased by 25.3% compared to a year ago, and we continue to focus on capturing greater efficiencies and strengthening our execution capabilities.
Steadfast execution on our strategy to drive stronger long-term success
As we enter our second fiscal quarter, market fundamentals remain broadly favorable and the elements that drive a healthy market environment for growth stocks are still in place and supportive of strategic M&A and capital raising activities.
While our industry is facing several uncertainties that have the potential to impact investor sentiment, we are increasingly demonstrating that our business is advantageously positioned to navigate periodic bouts of volatility while we stay focused on achieving our medium and longer-term targets.
With signs that the economic backdrop could become more challenging for growth stocks, we anticipate that rising commodity prices will drive increased activities in the natural resource sectors, a historic area of strength for our firm. We also anticipate growing interest in non-traditional sectors where Canaccord Genuity has established a strong market position, such as cannabis and digital assets.
I am confident that the increased contributions from our wealth management business will allow us to better manage through periods of lower new issue and advisory activity and that our capital markets business is appropriately scaled to deliver consistent service levels for clients in all our markets. Additionally, our expanded trading platform in Canada will allow us to capture a greater share of trading activity during periods of increased volumes.
Our Company continues to be well capitalized for investment in our strategic priorities with $563.6 million in working capital.
Regardless of the market backdrop, we will continue to execute on our strategy of increasing long-term stability and delivering more predictable returns for our shareholders. We have a talented group of professionals who are committed to providing differentiated opportunities and exceptional services for clients and a diversified revenue mix that positions us to be opportunistic in any market environment
Kind regards,
Dan Daviau
President & 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/FinReports/Pages/default.aspx
CONFERENCE CALL AND WEBCAST PRESENTATION
Interested parties are invited to listen to Canaccord Genuity's first quarter results conference call via live webcast or a toll-free number. The conference call is scheduled for Thursday, August 2, 2018 at 5:00 a.m. Pacific time, 8:00 a.m. Eastern time, 1:00 p.m. UK time, 8:00 p.m. China Standard Time, and 10:00 p.m. Australia EST. During the call, senior executives will comment on the results and respond to questions from analysts and institutional investors.
The conference call may be accessed live and archived on a listen-only basis at: http://www.canaccordgenuitygroup.com/EN/NewsEvents/Pages/Events.aspx
Analysts and institutional investors can call in via telephone at:
Please ask to participate in the Canaccord Genuity Group Inc. Q1/19 results call. If a passcode is requested, please use 5096969.
A replay of the conference call will be made available from approximately two hours after the live call on August 2, 2018 until October 4, 2018 at 416-849-0833 or 1-855-859-2056 by entering passcode 5096969 followed by the (#) key.
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 Wealth Management offices located in Canada, the UK, Guernsey, Jersey, the Isle of Man and Australia. Canaccord Genuity, the international capital markets division, operates in North America, UK & Europe, Asia, Australia and the Middle East. To us there are no foreign markets.TM
Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX. Canaccord Genuity Series A Preferred Shares are listed on the TSX under the symbol CF.PR.A. Canaccord Genuity Series C Preferred Shares are listed on the TSX under the symbol CF.PR.C.
| ___________________ |
|
| 1 |
Figures excluding significant items are non-IFRS measures. See Non-IFRS measures on pages 4. |
| 2 |
Net income (loss) attributable to common shareholders is calculated as the net income (loss) adjusted for non-controlling interests and preferred share dividends. |
| 3 |
Before non-controlling interests and preferred share dividends. |
| 4 |
See Non-IFRS Measures on page 4 |
| 5 |
Transactions over $1.5 million. Internally sourced information |
| 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 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. |
| None of the information on the Company's websites at www.canaccordgenuity.com, www.canaccordgenuitygroup.com, and www.canaccordgenuity.com/cm should be considered incorporated herein by reference. |
Investor and media relations inquiries:
Christina Marinoff, Vice President
Investor Relations and Communications
Phone: 416-687-5507
Email: [email protected]
SOURCE Canaccord Genuity Group Inc.
Investor and media relations inquiries: Christina Marinoff, Vice President, Investor Relations and Communications, Phone: 416-687-5507, Email: [email protected]; www.canaccordgenuitygroup.com
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...
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