Canaccord Genuity Group Inc. reports third quarter fiscal 2014 results

Excluding significant items, earned net income of $21.2 million during the quarter ⁽¹⁾

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

TORONTO, Feb. 5, 2014 /CNW/ - In the third quarter of fiscal 2014, the quarter ended December 31, 2013, Canaccord Genuity Group Inc. (Canaccord, the Company, TSX: CF, LSE: CF.) generated $231.0 million in revenue. Excluding significant items⁽²⁾ (a non-IFRS measure), the Company recorded net income of $21.2 million or net income of $17.0 million available to common shareholders⁽³⁾ ($0.17 per diluted common share). Including all expense items, on an IFRS basis, the Company recorded net income of $18.3 million or net income available to common shareholders⁽³⁾ of $14.4 million (earnings per diluted common share of $0.14).

"During our fiscal third quarter, our strong results were driven by the record performance in the UK and Europe, and we were pleased with the record contribution made by our Australian operations," stated Paul Reynolds, President and CEO of Canaccord Genuity Group Inc. "This quarter, 68% of our revenue came from outside of Canada, driven largely by a 75% increase in global underwriting compared to last year."

Third quarter of fiscal 2014 vs. second quarter of fiscal 2014

• Revenue of $231.0 million, up 26% or $47.7 million from $183.3 million
• Excluding significant items, expenses of $202.9 million, up 16% or $27.5 million from $175.4 million⁽²⁾
• Expenses of $206.5 million, up 12% or $22.2 million from $184.3 million
• Excluding significant items, net income of $21.2 million compared to net income of $6.7 million⁽²⁾
• Net income of $18.3 million compared to a net loss of $0.1 million
• Excluding significant items, diluted earnings per common share (EPS) of $0.17 compared to diluted EPS of $0.03 in the second quarter of fiscal 2014⁽²⁾
• Diluted EPS of $0.14 compared to a loss per common share of $0.03 in the second quarter of fiscal 2014

Third quarter of fiscal 2014 vs. third quarter of fiscal 2013

• Revenue of $231.0 million, up $1.0 million from $230.0 million
• Excluding significant items, expenses of $202.9 million, down 1% or $2.1 million from $205.0 million⁽²⁾
• Expenses of $206.5 million, down 5% or $10.4 million from $216.9 million
• Excluding significant items, net income of $21.2 million compared to net income of $20.5 million⁽²⁾
• Net income of $18.3 million compared to net income of $10.3 million
• Excluding significant items, diluted EPS of $0.17 with no change from Q3/13⁽²⁾
• Diluted EPS of $0.14 compared to diluted EPS of $0.08

Year-to-date fiscal 2014 vs. year-to-date fiscal 2013
(Nine months ended December 31, 2013 vs. nine months ended December 31, 2012)

• Revenue of $601.5 million, up 4% or $22.3 million from $579.2 million
• Excluding significant items, expenses of $552.8 million, down 2% or $13.6 million from $566.4 million⁽²⁾
• Expenses of $568.9 million, down 7% or $39.9 million from $608.8 million
• Excluding significant items, net income of $39.8 million compared to net income of $10.1 million⁽²⁾
• Net income of $26.1 million compared to a net loss of $25.2 million
• Excluding significant items, diluted EPS of $0.29 compared to diluted EPS of $0.02⁽²⁾
• Diluted EPS of $0.16 compared to a loss per common share of $0.35

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

• Cash and cash equivalents balance of $357.7 million, down $133.3 million from $491.0 million
• Working capital of $428.9 million, up $35.2 million from $393.7 million
• Total shareholders' equity of $1.12 billion, up $70 million from $1.05 billion
• Book value per diluted common share of $8.43, up $0.75 from $7.68⁽²⁾
• On February 5, 2014, the Board of Directors approved a quarterly dividend of $0.05 per common share payable on March 10, 2014 with a record date of February 21, 2014
• On February 5, 2014, the Board of Directors also approved a cash dividend of $0.34375 per Series A Preferred Share payable on March 31, 2014 with a record date of March 14, 2014, and a cash dividend of $0.359375 per Series C Preferred Share payable on March 31, 2014 to Series C Preferred shareholders of record as at March 14, 2014

SUMMARY OF OPERATIONS

Corporate

• On October 1, 2013, the Company changed its name from Canaccord Financial Inc. to Canaccord Genuity Group Inc.
• During the fiscal third quarter, the Company purchased 1,256,792 of its common shares under the terms of its normal course issuer bid (NCIB) to bring the total purchases for the current fiscal year to 3,156,344 common shares as of February 3, 2014 (2,618,288 common shares as of December 31, 2013)
• 2,547,576 common shares purchased under the NCIB up to the end of Q3/14 have been cancelled and the remaining 70,712 common shares purchased during Q3/14 will be held in treasury until subsequently cancelled
• Subsequent to the end of the quarter, on January 15, 2014, Canaccord appointed Stuart Raftus as President of Canaccord Genuity Wealth Management in Canada

Capital Markets

• Canaccord Genuity led or co-led 45 transactions globally, raising total proceeds of C$3.3 billion⁽⁴⁾ during fiscal Q3/14
• Canaccord Genuity participated in 95 transactions globally, raising total proceeds of C$8.1 billion⁽⁴⁾  during fiscal Q3/14
• During fiscal Q3/14, Canaccord Genuity led or co-led the following investment banking transactions:
• US$726.1 million for Abengoa S.A. on the NASDAQ
• £210.5 million for Quindell PLC on AIM
• £207.8 million for Arrow Global Group PLC on the LSE
• £160.0 million for Tungsten Corporation PLC on AIM
• £125.4 million for Caracal Energy Inc. on the LSE
• C$175.0 million for Bellatrix Exploration Limited on the TSX
• US$116.2 million for Lannett Company, Inc. on the NYSE
• US$115.6 million for Emerald Oil, Inc. on the NYSE
• US$113.0 million for DP Aircraft I Limited on the Specialist Fund Market of the LSE and CISE
• £48.8 million for MedicX Fund Limited on the LSE
• SGD$70.4 million for ValueMax Group Limited on the SGX
• C$50.0 million for HealthLease Properties REIT on the TSX
• C$46.1 million for Altus Group Limited on the TSX
• C$45.0 million for WesternOne Inc. on the TSX
• US$39.1 million for MiMedx Group, Inc. on the NASDAQ
• AUD$42.5 million for Tiger Resources Limited on the ASX
• AUD$42.0 million for Donaco International Limited on the ASX
• C$40.3 million for American Hotel Income Properties REIT LP on the TSX
• C$40.3 million for DHX Media Limited on the TSX
• AUD$37.0 million for iBuy Group Limited on the ASX
• C$34.5 million for Concordia Healthcare Inc. on the TSX
• AUD$35.0 million for Syrah Resources Limited on the ASX
• AUD$30.0 million for Orocobre Limited on the ASX
• C$23.0 million for Solium Capital Inc. on the TSX
• In Canada, Canaccord Genuity raised $249.1 million for government and corporate bond issuances during fiscal Q3/14
• Canaccord Genuity generated advisory revenues of $39.8 million during fiscal Q3/14, a decrease of 43% compared to the record generated in the same quarter last year
• During fiscal Q3/14, Canaccord Genuity advised on the following M&A and advisory transactions:
• Canada Goose Inc. on its sale of a majority stake to Bain Capital
• Ontario Teachers' Pension Plan on its acquisition of Burton's Holdings Limited⁽⁵⁾
• Dr. Jean-Claude Marian on the sale of a 15% stake in Orpéa to the Canada Pension Plan Investment Board
• William Investments Limited on the disposal of Norland Managed Services Limited to CBRE Group, Inc.
• Colfax Corporation on the acquisition of the Global Infrastructure and Industry business of FläktWoods Group
• Ontario Teachers' Pension Plan Board on its acquisition of Busy Bees Holdings Limited ⁽⁵⁾
• Hartawan Holdings Limited on its reverse takeover of Wilton Resources Corporation Limited
• Afferro Mining Inc. on its disposal to International Mining and Infrastructure Corporation PLC
• Vitruvian Partners LLP on its acquisition of Royal London 360º Insurance Company Limited
• Cubic Corporation on its acquisition of Serco's Transportation Solutions business
• Chesnara PLC on the acquisition of Direct Line Life Insurance Company Limited from Direct Line Insurance Group PLC
• Qualium Investissement and MML Capital Partners on the disposal of Carré Blanc & Cie to Nixen Partners
• Safran Group on its joint venture with Albany International Corporation
• Essar Steel Algoma Inc. on secured loan financing
• Pacific Rim Mining Corporation on its sale of OceanaGold Corporation
• Bregal Partners (AquaTerra Water Management, L.P.) on its acquisition of Four Winds Energy Services Limited
• Duke Street LLP on its strategic partnership with Tikehau Group

Canaccord Genuity Wealth Management (Global)

• Globally, Canaccord Genuity Wealth Management generated $56.2 million in revenue in Q3/14
• Assets under administration in Canada and assets under management in the UK and Europe and Australia were $29.0 billion at the end of Q3/14⁽²⁾

Canaccord Genuity Wealth Management (North America)

• Canaccord Genuity Wealth Management (North America) generated $27.7 million in revenue and, after intersegment allocations, recorded a net loss of $4.7 million before taxes in Q3/14
• Assets under administration in Canada were $9.5 billion as at December 31, 2013, up 1% from $9.4 billion at the end of the previous quarter and down 17% from $11.4 billion at the end of fiscal Q3/13⁽²⁾
• Assets under management in Canada (discretionary) were $1.1 billion as at December 31, 2013, up 14% from $935 million at the end of the previous quarter and up 35% from $791 million at the end of fiscal Q3/13⁽²⁾
• As at December 31, 2013, Canaccord Genuity Wealth Management had 163 Advisory Teams⁽⁶⁾, a decrease of 21 Advisory Teams from December 31, 2012 and no change from September 30, 2013

Canaccord Genuity Wealth Management (UK and Europe)

• Wealth management operations in the UK and Europe generated $27.0 million in revenue and, after intersegment allocations, and excluding significant items, recorded net income of $3.5 million before taxes in Q3/14⁽²⁾
• Assets under management (discretionary and non-discretionary) were $19.0 billion (£10.8 billion) ⁽²⁾

Non-IFRS Measures

The non-International Financial Reporting Standards (IFRS) measures presented include assets under administration, assets under management, book value per diluted common share and figures that exclude significant items. Significant items include restructuring costs, amortization of intangible assets, and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions. Book value per diluted common share is calculated as total common shareholders' equity divided by the number of diluted common shares outstanding and, commencing in Q1/14, adjusted for shares purchased under the 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 Canaccord's business and facilitate meaningful comparison of results in the current period to those in prior periods and future periods. Figures that exclude significant items provide useful information by excluding certain items that may not be indicative of Canaccord's core operating results. A limitation of utilizing these figures that exclude significant items is that the IFRS accounting effects of these items do in fact reflect the underlying financial results of Canaccord's business; thus, these effects should not be ignored in evaluating and analyzing Canaccord's financial results. Therefore, management believes that Canaccord's IFRS measures of financial performance and the respective non-IFRS measures should be considered together.

Selected financial information excluding significant items⁽¹⁾

	Three months ended December 31		Quarter -over- quarter change	Nine months ended December 31		YTD- over- YTD change
(C$ thousands, except per share and % amounts)	2013	2012		2013	2012
Total revenue per IFRS	$230,959	$230,003	0.4%	$601,496	$579,151	3.9%
Total expenses per IFRS	206,539	216,882	(4.8)%	568,919	608,840	(6.6)%
Significant items recorded in Canaccord Genuity
Restructuring costs	—	5,276	(100.0)%	5,486	9,671	(43.3)%
Acquisition-related costs	—	—	—	—	388	(100.0)%
Amortization of intangible assets	1,680	3,473	(51.6)%	5,040	11,282	(55.3)%
Significant items recorded in Canaccord Genuity   Wealth Management
Restructuring costs	—	1,034	(100.0)%	—	14,601	(100.0)%
Acquisition-related costs	—	431	(100.0)%	—	1,331	(100.0)%
Amortization of intangible assets	1,945	1,643	18.4%	5,585	4,255	31.3%
Significant items recorded in Corporate and Other
Restructuring costs	—	—	—	—	900	(100.0)%
Total significant items	3,625	11,857	(69.4)%	16,111	42,428	(62.0)%
Total expenses excluding significant items	202,914	205,025	(1.0)%	552,808	566,412	(2.4)%
Net income  before taxes - adjusted	$28,045	$24,978	12.3%	$48,688	$12,739	282.2%
Income taxes  - adjusted	6,818	4,525	50.7%	8,917	2,674	233.5%
Net income  - adjusted	$21,227	$20,453	3.8%	$39,771	$10,065	295.1%
Earnings per common share - basic, adjusted	$0.18	$0.19	(5.3)%	$0.32	$0.02	n.m.
Earnings per common share - diluted, adjusted	$0.17	$0.17	—	$0.29	$0.02	n.m.

(1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures above.
n.m.: not meaningful

Fellow Shareholders

Two years ago, we made a strategic decision to acquire Collins Stewart Hawkpoint to transform our business and substantially bolster our relevance in key markets, take advantage of a distressed European market and leverage the historical strength of the Canadian dollar. Today, we are clearly seeing the benefits of this strategic decision, which has allowed us to emerge as an important player in the resurgent UK and US markets. The results of our fiscal third quarter demonstrate the strength of our global business and the success of our efforts to diversify our revenue streams. Importantly, 68% of revenue was earned outside of Canada and we are in an excellent position to continue providing clients with international perspectives from all of the markets that we operate in.

This quarter featured the record performance of our UK-based businesses, achieved by both our wealth management and capital markets divisions. Our UK and European practice has once again showcased its pivotal role in our global franchise and the exceptional quality of service we provide our institutional, corporate and private clients in this very important market.

For the three months ended December 31, 2013, Canaccord Genuity generated $231 million of revenue, a 26% increase compared to the previous quarter and a slight uptick from the strong performance reported a year ago. Through our continued focus on controlling our operating leverage, we lowered our expenses by 5% compared to the same quarter last year, during which similar revenue levels were achieved. Excluding significant items⁽⁷⁾, the Company recorded net income of $21.2 million or net income of $17.0 million available to common shareholders⁽⁸⁾, earning $0.17 per diluted common share. On an IFRS basis, the Company recorded net income of $18.3 million or $14.4 million available to common shareholders⁽⁸⁾, earning $0.14 per diluted common share.

Our balance sheet metrics indicate our ongoing commitment to a diligent capital strategy, and at the end of the third quarter, Canaccord Genuity had $428.9 million in working capital, $357.7 million in cash and cash equivalents and $1.1 billion in shareholders' equity. During the quarter, the Company purchased for cancellation 1,256,792 common shares, and throughout our fiscal year to date⁽⁹⁾, we have purchased 3,156,344 common shares for cancellation under our normal course issuer bid/buy-back programme. Finally, I'm pleased to confirm that our Board of Directors has approved a dividend of $0.05 this quarter.

Record Performance by UK-based Capital Markets Business

Canaccord Genuity's global capital markets division generated $171.2 million in revenue, a solid increase of 35% compared to the previous quarter and a 3% increase compared to the same quarter last year. Globally, we led or co-led 45 transactions, raising total proceeds of $3.3 billion on behalf of our clients. As a result, we increased global underwriting revenue by 80% compared to the previous quarter and by 95% compared to the same period last year, a clear indicator of the successful investment banking enterprise that we have developed across our global platform.

In the UK and Europe, we generated $65.7 million in revenue for the quarter, a 53% increase from the previous quarter, and a record result for this group that was driven largely by the success of our advisory and equity transaction leadership in this market. Compared to the previous quarter, investment banking revenue increased by 119%, while advisory revenue increased by 66%, highlighting the exceptional service levels we provide our clients in this geography. We are consistently showcasing the leading role we play in the UK mid-market space.

In Canada, the market began to show early signs of a recovery and our Canadian capital markets practice returned to profitability during the quarter. We generated $41.3 million in revenue, a 32% increase compared to the previous quarter, while increasing expenses by only 1%. Excluding significant items⁽¹⁾, this group earned net income before tax of $6.0 million.

We continue to be pleased with the performance of our US team, who successfully increased revenue during the quarter by 10% to $48.3 million compared to the previous quarter, and by 28% compared to the same period last year. This division has maintained a strong momentum of capturing more lead mandates and broadening our sector coverage to serve a growing client base in this geography. In addition, we made a decision to grow our fixed income capabilities in the US that resulted in a $2 million impact on our earnings this quarter. We anticipate a similar impact next quarter, with the expectation that this group will run on a break-even basis in the next fiscal year.

Canaccord Genuity's other international operations delivered record metrics to our global business for the three months ended December 31, 2013, driven primarily by the performance of our partners in Australia and Singapore. This group generated $16.0 million in revenue, an 88% increase compared to the results recorded in the previous quarter, and earned net income before tax and excluding significant items⁽¹⁾ of $4.6 million.

Wealth Management

Globally, Canaccord Genuity Wealth Management generated $54.7 million in revenue during the quarter, the division's largest revenue contribution during this fiscal year, and increased client assets on a global basis to $29.0 billion.

Our UK-based wealth management division achieved record revenue since joining our platform of $27.0 million and further increased assets under management to $19.0 billion - a 45% increase in client assets since we acquired this business in March 2012. This division continues to be a key differentiator of our global franchise, through the broad range of solutions and exceptional service levels provided by our high-calibre team of investment professionals.

Wealth management revenue generated in North America increased to $27.7 million and discretionary assets under management rose to $1.1 billion, a 35% increase compared to the same period last year. Looking ahead, our priorities for this division will centre on enhancing our margins, managing our costs, and growing the business through targeted recruitment and training. In addition, we will be launching Global Portfolio Solutions (GPS) in the spring, a proprietary asset management product that will build out the investment solutions we offer our clients. These initiatives will be overseen by Stuart Raftus, the new President of our Canadian wealth management business, who we welcomed to Canaccord Genuity on January 15, 2014. Stuart brings over 28 years of industry experience to the firm and is very well suited to lead this division.

Looking Forward

The decisions we've made to dramatically alter the revenue composition of our business were pursued over the past several years in order to provide our clients with differentiated global services and our shareholders with significantly diversified revenue streams. Our fiscal third quarter showcased the earnings power of our global business and the important progress we've made in becoming a fully integrated, collaborative global franchise. Our teams are working more effectively together than ever before and are very optimistic about our near-term prospects of success. I share in this enthusiasm as we look to further enhance the global alignment of our product offering and distribution, and continue to increase our relevance to clients.

Kind regards,
Paul D. Reynolds
President & CEO

ACCESS TO QUARTERLY RESULTS INFORMATION
Interested investors, the media and others may review this quarterly earnings release and supplementary financial information at http://www.canaccordgenuitygroup.com/EN/IR/Pages/default.aspx.

CONFERENCE CALL AND WEBCAST PRESENTATION
Interested parties are invited to listen to Canaccord's third quarter fiscal 2014 results conference call with analysts and institutional investors, via a live webcast or a toll free number. The conference call is scheduled for Wednesday, February 5, 2014 at 2:00 p.m. (Pacific Time), 5:00 p.m. (Eastern Time), 10:00 p.m. (UK Time), and at 6:00 a.m. (China Standard Time) and 9:00 a.m. (Australia Eastern Daylight Time) on Thursday, February 6, 2014. At that time, senior executives will comment on the results for the third quarter of the fiscal 2014 year and respond to questions from analysts and institutional investors.

The conference call may be accessed live and archived on a listen-only basis via the Internet at: http://www.canaccordgenuitygroup.com/EN/NewsEvents/Pages/Events.aspx

Analysts and institutional investors can call in via telephone at:

• 647-427-7450 (within Toronto)
• 1-888-231-8191 (toll free in North America)
• 0-800-051-7107 (toll free from the UK)
• 1-800-760-620 (toll free from Ireland)
• 0-800-917-449 (toll free from France)
• 0-800-183-0171 (toll free from Germany)
• 10-800-714-1191 (toll free from Northern China)
• 10-800-140-1195 (toll free from Southern China)
• 1-800-287-011 (toll free from Australia)

Please request to participate in Canaccord Genuity Group Inc.'s Q3/14 earnings call. If a passcode is requested, please use 43452863.

A replay of the conference call can be accessed after 5:00 p.m. (Pacific Time), 8:00 p.m. (Eastern Time) Wednesday, February 5, 2014 until March 31, 2014 at 416-849-0833 or 1-855-859-2056 by entering passcode 43452863 followed by the pound (#) sign.

ABOUT CANACCORD GENUITY GROUP INC.:
Through its principal subsidiaries, Canaccord Genuity Group Inc. (the Company) is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: wealth management and capital markets. Since its establishment in 1950, the Company has been driven by an unwavering commitment to building lasting client relationships. We achieve this by generating value for our individual, institutional and corporate clients through comprehensive investment solutions, brokerage services and investment banking services. The Company has offices in 11 countries worldwide, including wealth management offices located in Canada, Australia, the UK and Europe. Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, France, Germany, Ireland, Hong Kong, mainland China, Singapore, Australia and Barbados. To us there are no foreign markets.^TM

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

FOR FURTHER INFORMATION, CONTACT:

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.

__________________________________
¹ Excluding significant items. See Non-IFRS Measures.
² See Non-IFRS Measures.
³ Net income available to common shareholders is calculated as net income adjusted for non-controlling interests and preferred share dividends.
⁴ Source: Transactions over $1.5 million. Internally sourced information.
⁵ Buy-side debt advisory mandate
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.
⁷ A non-IFRS measure.
⁸ Net income available to common shareholders is calculated as net income adjusted for non-controlling interests and preferred share dividends.
⁹ As of February 3, 2014.

 

 

SOURCE: Canaccord Genuity Group Inc.

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