Excluding significant items, second quarter loss per common share of $0.03(1)
Wealth Management operations continue to deliver stable earnings growth, helping to mitigate impact of subdued global capital markets activity
(All dollar amounts are stated in Canadian dollars unless otherwise indicated)
TORONTO, Nov. 1, 2016 /CNW/ - During the second quarter of fiscal 2017, the quarter ended September 30, 2016, Canaccord Genuity Group Inc. (Canaccord Genuity, the Company, TSX: CF) generated $193.6 million in revenue. Excluding significant items (1), the Company recorded net income of $2.0 million representing a net loss of $2.5 million attributable to common shareholders (2) (a loss per common share of $0.03). Including all significant items, on an IFRS basis, the Company recorded net income of $0.2 million representing a net loss attributable to common shareholders(2) of $4.2 million (a loss per common share of $0.05).
"While the impact of the prolonged period of market uncertainty before and after the Brexit vote and leading up to the US federal election is evident in our second quarter results, we are encouraged by improving global activity levels in our core focus areas and by exceptional performance from our Australian investment banking business," said Dan Daviau, President & CEO of Canaccord Genuity Group Inc. "During the quarter we made significant progress to advance our global wealth management strategy, which we expect will directly contribute long-term earnings stability."
The Company also announces changes within its executive leadership team, in combination with a clear strategy for the successful transition of responsibilities.
Brad Kotush, Executive Vice President, Chief Financial Officer & Chief Risk Officer has decided to leave Canaccord Genuity Group Inc., concluding eighteen years of dedicated service. Brad has agreed to stay with the Company until the release of its third quarter results in February 2017 to ensure an orderly transition. Following Brad's departure, Don MacFayden, Senior Vice President, Finance and Chief Financial Officer of Canaccord Genuity Inc., our US subsidiary, will assume the role of Executive Vice President and Chief Financial Officer. Adrian Pelosi, Senior Vice President Risk Management & Treasurer will become Executive Vice President, Chief Risk Officer and Treasurer. Nick Russell, Chief Financial Officer of Canaccord Genuity Limited, our UK & Europe subsidiary, will assume the expanded global position of Senior Vice President, Finance.
"I would like to thank Brad for his commitment and many contributions to Canaccord Genuity Group and its employees. Since joining the firm in 1998, Brad played a vital role in the numerous significant acquisitions and financings that led to the development of our global platform," said Dan Daviau, President & CEO of Canaccord Genuity Group Inc. "Brad has been a good partner and he has built a strong and globally integrated finance and risk team and I am confident that the professionals we have selected as his successors will transition seamlessly. On behalf of my partners and the Board of Directors, I wish Brad continued success in his future endeavours."
Don MacFayden is a CPA, CA and first joined one of Canaccord Genuity Group's predecessor firms in 1986. During that time he has been a significant contributor to the Group's growth. In addition to his current role as CFO of our U.S. operations he has been a key member of the Group's internal and external financial reporting and tax team for many years.
Adrian Pelosi joined the firm in 2007 and since 2008 has served in a variety of roles of increasing responsibility within the firm's Risk Management division. He has had Group Board level reporting responsibilities since 2010 and in addition to his risk management duties, has served as Senior Vice President Internal Audit and currently serves as Group Treasurer. Adrian is a CFA Charterholder and a Certified Risk Manager (CRM).
Nick Russell has gained significant experience in the finance divisions of European and North American investment banks since he began his career in 1998. He has an FCCA designation and he became Chief Financial Officer of the firm's UK & Europe capital markets operations in 2008. Following the successful acquisition of Collins Stewart Hawkpoint plc in 2012, his role expanded to include responsibility for operations, accounting, tax, regulation and risk for Canaccord Genuity Limited.
Second Quarter of Fiscal 2017 vs. Second Quarter of Fiscal 2016
Second Quarter of Fiscal 2017 vs First Quarter of Fiscal 2017
Year-to-Date Fiscal 2017 vs. Year-to-Date Fiscal 2016
(Six months Ended September 30, 2016 vs. Six Months Ended September 30, 2015)
Financial Condition at end of Second Quarter Fiscal 2017 vs. Fourth Quarter Fiscal 2016
SUMMARY OF OPERATIONS
Corporate
Capital Markets
Canaccord Genuity Wealth Management (Global)
Canaccord Genuity Wealth Management (North America)
Canaccord Genuity Wealth Management (UK & Europe)
In addition to the changes described above and in connection with the continuing development of the Company's wealth management business and the Company's ongoing initiatives to reduce future operating costs, the Company expects to record certain non-recurring charges in its third quarter of fiscal 2017 related to costs associated with the rationalization of its office space in Toronto, costs associated with the transition of new investment advisors onto the Company's wealth management platform in Canada and charges in connection with the acceleration of certain stock-based awards and certain contractual compensation payments. The aggregate of these costs is expected to be approximately $6 million.
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, acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions, as well as gains or losses related to business disposals including recognition of realized translation gains on the disposal of foreign operations. Book value per diluted common share is calculated as total common shareholders' equity adjusted for assumed proceeds from the exercise of options and warrants divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments including options and warrants, as applicable, and, commencing in Q1/14, adjusted for shares purchased under the 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 |
Quarter- |
Six months ended |
YTD – |
||||
| (C$ thousands, except per share and % amounts) |
2016 |
2015 |
2016 |
2015 |
|||
| Total revenue per IFRS |
$193,602 |
$190,602 |
1.6% |
$399,782 |
$405,056 |
(1.3)% |
|
| Total expenses per IFRS |
192,845 |
$189,103 |
2.0% |
389,014 |
$391,110 |
(0.5)% |
|
| Significant items recorded in Canaccord Genuity |
|||||||
| Amortization of intangible assets |
827 |
1,320 |
(37.4)% |
1,646 |
2,730 |
(39.7)% |
|
| Net gain realized on business disposal (revenue) |
— |
— |
— |
(1,193) |
— |
n.m. |
|
| Significant items recorded in Canaccord Genuity |
|||||||
| Wealth Management |
|||||||
| Amortization of intangible assets |
1,323 |
1,557 |
(15.0)% |
2,727 |
3,024 |
(9.8)% |
|
| Total significant items |
2,150 |
2,877 |
(25.3)% |
3,180 |
5,754 |
(44.7)% |
|
| Total revenue excluding significant items |
193,602 |
190,602 |
1.6% |
398,589 |
405,056 |
(1.6)% |
|
| Total expenses excluding significant items |
190,695 |
186,226 |
2.4% |
384,641 |
385,356 |
(0.2)% |
|
| Net income before taxes – adjusted |
$2,907 |
$4,376 |
(33.6)% |
$13,948 |
$19,700 |
(29.2)% |
|
| Income taxes – adjusted |
899 |
2,433 |
(63.0)% |
3,801 |
4,438 |
(14.4)% |
|
| Net income – adjusted |
$2,008 |
$1,943 |
3.3% |
$10,147 |
$15,262 |
(33.5)% |
|
| Net (loss) income attributable to common |
(2,481) |
(811) |
(205.9)% |
1,819 |
8,720 |
(79.1)% |
|
| (Loss) earnings per common share – basic, adjusted |
$(0.03) |
$(0.01) |
(200.0)% |
$0.02 |
$0.10 |
(80.0)% |
|
| (Loss) earnings per common share – diluted, adjusted |
$(0.03) |
$(0.01) |
(200.0)% |
$0.02 |
$0.09 |
(77.8)% |
|
| (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on above. |
|||||||
Fellow Shareholders:
Over our second fiscal quarter, global markets began to show signs of recovery from the initial shock of the UK Referendum result. The S&P/TSX Composite finished 5.5% higher and the MSCI EAFE gained 6.5%, while the S&P 500 posted more modest gains of 3.9%.
During the three month period, total financing values on the TSX and TSXV improved on a year-over-year basis, but declined by 35.8% compared to the previous three month period. In the US, financing values decreased year-over-year, but increased from the previous quarter, as issuers became more active in advance of the US federal election. Financing activity on the AIM increased slightly compared to the previous quarter as signs of stability began to return to this market.
While the final outcomes of pending global events are manageable for our industry, the period of uncertainty before and after the Brexit vote and leading up to the US federal election has impacted global equity capital markets activities since the start of calendar 2016. The impact of this prolonged period of lower activity was evident in our second fiscal quarter results.
Subdued investment banking and advisory activity impacted profitability for our capital markets businesses in Canada, the US and the UK & Europe, but I am pleased to report a record performance from our Australian capital markets business. Additionally, our wealth management businesses in Canada and the UK & Europe both performed at breakout levels. Our strategy to increase scale and grow revenue from fee-based assets in these businesses has helped to mitigate the impact of lower capital markets activity and dynamic changes within our industry.
Steadily improving contributions from global wealth management operations
Our global wealth management operations generated revenue of $63.7 million for the quarter, an increase of 5.8% compared to the second quarter of last year. Total assets under management increased to $34.4 billion, a record for our business.
In the UK & Europe, our wealth management operations recorded second quarter revenue of $34 million and net income of $7.6 million before taxes and after intersegment allocations. Even with a currency headwind resulting from declines in the pound sterling, this business produced record results in Canadian dollar terms. When measured in local currency, assets under management grew by 6.2% since the end of our first fiscal quarter and grew by 20.1% over the last 12 months. With investments to improve our infrastructure behind us, we have been able to steadily improve operating margins in this business. For the second fiscal quarter, total expenses as a percentage of revenue decreased by 4.6 percentage points year-over-year to 80.6%. Operating margin has improved to over 20% during the quarter, a level we believe is sustainable for this business, compared to a level of 17.3% for fiscal 2016.
I am also pleased to report that our Canadian wealth management business has achieved its second consecutive quarter of profitability. Expenses as a percentage of revenue have declined steadily over the past two quarters, and were 84.7% at the end of the second fiscal quarter, the lowest level since fiscal 2012. While we expect that increasing costs associated with onboarding new advisors and client assets will have a short term impact on earnings, our recruiting efforts will contribute to increasing long-term revenue and asset growth in this business.
A milestone investment to grow our Canadian Wealth Management operations
During the quarter, we announced that one of our largest, long term investors and one of Canada's leading asset managers committed $60 million to support the growth of our Canadian wealth management business, an important endorsement of our wealth management strategy. With this division's return to profitability, we are focused on actively recruiting established advisor teams to accelerate growth in this business. In recent months, we have welcomed nine new Investment Advisors and we continue to gather commitments from additional Advisors. These current and planned additions represent combined new assets of approximately $2.5 billion, which brings us significantly closer to our stated goal of $15 billion in assets under administration and ultimately beyond that level for this business.
Our strategy of selectively hiring advisors is a prudent and efficient approach to increasing assets under management. We have the freedom to work directly with professionals who fit within our culture of independence and entrepreneurialism, while avoiding the substantial costs and restructuring that would typically be associated with an acquisition. We are now very well positioned to focus on growing this business and increasing assets under management, to become the leading independent wealth management business in Canada. This growth will also support our leading independent capital markets business in the region.
Record performance from Australian investment banking operation
During the second fiscal quarter of 2017, Canaccord Genuity participated in 78 transactions globally, to raise total proceeds of $9.3 billion for growth companies. Our global capital markets business generated revenues of $127 million, with the strongest contributions coming from our Australian and Canadian capital markets teams.
These increases were offset by a 27% decrease in revenue generated by our UK & Europe capital markets business when compared to the same period of last year and a smaller decrease of 1.8% from our US Capital markets business.
Our Australian business continued to post exceptional results in the second fiscal quarter, with a year- over-year revenue increase of 113%. This performance was primarily driven by a 288% increase in investment banking revenue when compared to the same quarter of last year. During the quarter, our Australian investment banking teams led a number of transactions in the ultra-competitive mining and energy sectors and also reached a new milestone in secondary commissions. While we anticipate a seasonal slowing of capital raising activities, we are confident that this team will continue to have a strong market share of capital raising and advisory business in the region.
During the typically slower summer months, investment banking revenue in our Canadian capital markets business increased significantly when compared to the same period last year, but is still below normalized levels. Notwithstanding a softer business environment, our Canadian capital markets teams continued to execute for clients and recorded a 14% increase in revenues, driven by a 186% increase in investment banking revenue and a 70% increase in revenue generated from commissions and fees. While investment banking and advisory activity in our US Capital Markets business was lower than the same period last year, our principal trading operation continues to post strong performance and increased revenue by 38% compared to the same period last year.
While the UK government has indicated its intention to trigger its exit from the European Union at the end of March 2017, there is still little clarity on what form this will take. This uncertainty has subdued new issue activity in the region, despite lower volatility and supportive economic factors such as record low interest rates and accommodative monetary policies. As a result of our alignment efforts and recruiting activity to support our core global capabilities, we have been able to grow our client base and our pipeline in the region. We expect that new issue activity will improve during the second half of our fiscal year, as greater clarity develops and market conditions become more accommodative.
Continued commitment to managing our costs
Since we began our restructuring initiatives nine months ago, we have achieved most of our fixed cost reduction objectives, with an additional benefit from changes in foreign exchange rates. Excluding significant items and incentive compensation, we have significantly reduced our second quarter firm wide operating expenses compared to the same period last year to $86.6 million from $93.5 million, and we continue to explore additional expense reduction measures. Our enhanced culture of cost containment was evidenced by a 17.8%, or $4.1 million reduction in our general and administrative expenses when compared to the second quarter of last year.
Commitment to our communities
In any market, our teams are committed to making positive contributions in the communities where we operate. During the quarter we hosted the fourth annual Canaccord Genuity Great Camp Adventure Walk to benefit the highest priority needs of the Hospital for Sick Children in Toronto. More than $2.1 million was raised by 2,800 participants, sponsors and volunteers in support of this event, which has raised a total of $7.6 million since 2013. On October 27, through commissions generated from designated equities trades, our US capital markets team again helped raise money for the benefit of Youth INC during Trading Week for Kids, bringing our five year contribution to more than US$3.5 million. Youth INC offers a venture philanthropy model that is focused on helping to accelerate growth of youth-serving non-profits in New York City.
Advancing our leadership from within
Today we announced that Brad Kotush will be leaving Canaccord Genuity Group and that he will stay until February, 2017 to ensure an orderly transition of his responsibilities. As Chief Financial and Risk Officer, Brad has helped to foster the development of highly capable and globally integrated Finance and Risk teams and I am confident that the professionals we have selected as his successors will transition into their new roles with ease. I would again like to thank Brad for his many contributions to our organization and our employees over the past 18 years.
Looking to the second half of fiscal 2017, we continue to have a number of opportunities to strengthen our offering and increase market share across all of our businesses, and we are better equipped to withstand the impact of factors we cannot control. As an agile and independent firm, we will continue to make adjustments within our business, to protect our core strengths and take advantage of changing market conditions. While we continue to take advantage of an excellent recruiting environment, we are committed to investing thoughtfully in areas we expect to deliver sustainable and long term growth, so that we can provide stronger returns for our clients and our shareholders.
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
QUARTERLY CONFERENCE CALL AND WEBCAST:
Interested parties are invited to listen to Canaccord Genuity's second quarter conference call, via live webcast or a toll free number. The conference call is scheduled for Wednesday, November 2, 2016 at 5:00 a.m. Pacific time, 8:00 a.m. Eastern time, 12:00 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. Q2/17 results call. If a passcode is requested, please use 70234186.
A replay of the conference call will be available on November 2, 2016, after 8:00 a.m. (Pacific Time), 11:00 a.m. (Eastern Time) 3:00 p.m. (UK Time), 11:00 p.m. (China Standard Time), and on November 3, 2016, at 1:00 a.m. (Australia EST Time) until December 19, 2016 at 416-849-0833 or 1-855-859-2056 by entering passcode 70234186 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 10 countries worldwide, including 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 Canada, the US, the UK, France, Ireland, Hong Kong, China, Australia and Dubai. 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.
FOR FURTHER INFORMATION, CONTACT:
Investor relations inquiries:
Christina Marinoff
Vice President, Investor Relations and Communications
Phone: 416-687-5507
Email: [email protected]
| ______________________________________________ |
| 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. |
SOURCE Canaccord Genuity Group Inc.
Image with caption: "Canaccord Genuity Group Inc. (CNW Group/Canaccord Genuity Group Inc.)". Image available at: http://photos.newswire.ca/images/download/20161101_C7537_PHOTO_EN_809509.jpg
Investor relations inquiries: Christina Marinoff, Vice President, Investor Relations and Communications, Phone: 416-687-5507, Email: [email protected]
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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