GMP Capital Inc. reports second quarter 2016 results

GENERATED PRE-TAX EARNINGS OF $0.3 MILLION ON REVENUE OF $41.5 MILLION

For further information about GMP Capital Inc., our results for second quarter 2016 and the meaning of certain references, this earnings release should be read in conjunction with our unaudited interim condensed consolidated financial statements as at and for the three and six months ended June 30, 2016 (Second Quarter 2016 Financial Statements), and our management's discussion and analysis for the three and six months ended June 30, 2016 (Second Quarter 2016 MD&A), which can be accessed on our website at gmpcapital.com and on SEDAR at sedar.com. Unless otherwise indicated, all dollar amounts are expressed in Canadian dollars and have been taken from our Second Quarter 2016 Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS).

TORONTO, Aug. 5, 2016 /CNW/ - GMP Capital Inc. (GMP) (TSX: GMP) today reported revenue of  $41.5 million in second quarter 2016, down 48% compared with the same period last year.  Income before income tax was $0.3 million in second quarter 2016. GMP recorded a net loss of $0.7 million and a diluted loss per share of $0.02 in second quarter 2016, compared with net income of $5.5 million and diluted earnings per share (EPS) of $0.06 in second quarter 2015. 

"The strength and sustainability of our businesses were evident this quarter -  despite a difficult operating environment that featured myriad headwinds including the added uncertainty provided by the 'Brexit Vote', our Capital Markets and Wealth Management business segments generated pre-tax profit in second quarter 2016 ," said Harris Fricker, President and Chief Executive Officer, GMP. "This is reflective of the restructuring initiatives announced in January and demonstrates the considerable operating leverage in our business."

Commenting further, Mr. Fricker said, "The announcement of our pending acquisition of FirstEnergy is highly impactful for our firm.  FirstEnergy has built a coveted franchise that is part of the fabric of Canada's energy culture and, when combined with our broader platform, provides GMP with an enviable competitive position in the independent dealer space."

FINANCIAL HIGHLIGHTS

Second Quarter 2016 versus Second Quarter 2015

• Revenue of $41.5 million compared with $79.2 million.
• Expenses of $41.5 million compared with $70.0 million.
• Net loss of $0.7 million compared with net income of $5.5 million.
• Net loss attributable to common shareholders of $1.2 million compared with net income attributable to common shareholders of $4.6 million.
• Diluted loss per share of $0.02 compared with EPS of $0.06.
• Annualized return on common equity (ROE)¹ of negative 2.2% compared with positive 7.3%.

First Half 2016 versus First Half 2015

• Revenue of $87.4 million compared with $132.5 million.
• Expenses of $91.2 million compared with $132.1 million.
• Net loss of $4.3 million compared with net loss of $3.4 million.
• Net loss attributable to common shareholders of $6.3 million compared with net loss attributable to common shareholders of $5.0 million.
• Diluted loss per share of $0.10 compared with diluted loss per share of $0.07.
• ROE¹ of negative 5.8% compared with negative 4.0%.

1. Considered to be a non-GAAP financial measure. This measure does not have any standardized meaning prescribed by generally accepted accounting principles (GAAP) under IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers.  This data should be read in conjunction with the "Non-GAAP Measures" section at the end of this press release and the "Presentation of Financial Information and Non-GAAP Measures" section in the Second Quarter 2016 MD&A.

SECOND QUARTER 2016 BUSINESS SEGMENT HIGHLIGHTS

Capital Markets

Second Quarter 2016 versus Second Quarter 2015

Revenue
Revenue of $38.6 million decreased 48% primarily due to a decline in investment banking fees.

• Investment banking revenue of $18.0 million decreased 68% primarily driven by a sharp decline in client activity compared with the prior year quarter, which included record levels of advisory fees for GMP.
• Principal transactions generated net gains of $8.9 million compared with $1.4 million primarily due to higher returns on principal inventories and increased U.S. client-related fixed income activity.
• Commission revenue of $11.0 million decreased 14% on lower client trading activity.

Expenses
Expenses of $37.1 million decreased 42% primarily due to lower employee compensation and benefits expenses.

• Fixed salaries and benefits declined 50% primarily due to a lower fixed cost base following our recent restructuring initiatives and also due to the expiration of certain guaranteed compensation arrangements in our U.S. energy business.
• Employee compensation and benefits included $2.2 million associated with the U.S. energy business compared with $5.9 million.
• Variable compensation decreased 45% commensurate with the decrease in revenues.
• Ratio of total employee compensation and benefits to revenues of 66.8% was stable compared with 66.1%, despite the 48% drop in total revenues.

Income before income taxes

• Income before income taxes of $1.5 million compared with income before income taxes of $9.3 million.

Wealth Management

Second Quarter 2016 versus Second Quarter 2015

• Wealth Management reported income before income taxes of $0.3 million compared with income before income taxes of $1.2 million.
• Second quarter 2015 included recognition of $1.8 million in dividends on our preferred share investments in Richardson GMP following a dividend declaration by Richardson GMP.

Richardson GMP Highlights:

The following information sets forth an overview of the consolidated financial results of Richardson GMP, on a 100% basis; noting, however, that GMP owns an approximate 31% non-controlling interest of Richardson GMP as at June 30, 2016.

• Revenue of $64.7 million representing a 9% decrease primarily driven by lower commissions.
• Results include a one-time recovery of $1.2 million in connection with a sales tax refund.
• Adjusted EBITDA² of $9.6 million decreased 9%.
• Assets under administration of $27.2 billion as at June 30, 2016, represents a 3% increase during first half 2016.

2.  Considered to be a non-GAAP financial measure. This data should be read in conjunction with the "Supplemental Information" section at the end of this press release and in the Second Quarter 2016 MD&A.

 

DIVIDENDS

On August 4, 2016, the board of directors of GMP (Board of Directors) approved a quarterly cash dividend of $0.2257 per Cumulative 5-Year Rate Reset Preferred Share, Series B, and $0.2155 per Cumulative Floating Rate Preferred Shares, Series C, each payable on September 30, 2016, to preferred shareholders of record on September 15, 2016.

CONFERENCE CALL

A conference call and live audio webcast to discuss GMP's second quarter 2016 results will be held this morning at 10:00 a.m. (ET).  GMP executives will host the call followed by a question-and-answer session for analysts. Interested parties are invited to access the quarterly conference call on a listen-only basis by dialing 416-340-2218 or 1-800-396-7098 (toll free) or via live audio webcast at http://gmpcapital.com/Investor-Relations/Quarterly-Information. A recording of the conference call will be available until Friday, August 12, 2016, by dialing 905-694-9451 or 1-800-408-3053 (toll free) and entering access code 2786311#. The webcast will be archived at http://gmpcapital.com/Investor-Relations/Quarterly-Information.

NON-GAAP MEASURES

We use certain measures to assess our financial performance that are not GAAP measures under IFRS. These measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of GMP's performance, liquidity, cash flows and profitability. For further information, refer to  the "Presentation of Financial Information and Non-GAAP Measures" section in the Second Quarter 2016 MD&A.

The following table provides a reconciliation of GMP's reported results to its adjusted measures including the composition of the adjusted measures for the periods presented.

($000, except as otherwise noted)		Three months ended June 30			Six months ended June 30
		2016		2015	2016		2015
Reported Results
Income (loss) before income taxes		297		9,409	(3,439)		308
Income tax expense		998		3,909	883		3,686
Net (loss) income		(701)		5,500	(4,322)		(3,378)
Net (loss) income attributable to common shareholders		(1,194)		4,574	(6,317)		(5,002)
Reported Measures
Net (loss) income per common share (dollars):
	Basic	(0.02)		0.07	(0.10)		(0.07)
	Diluted	(0.02)		0.06	(0.10)		(0.07)
ROE ^1		(2.2)%		7.3%	(5.8)%		(4.0)%
Pre-Tax Impact of Adjusting Items:
	Bond forward (gain) loss	—		(831)	945		2,469
	Retention shares	—		164	—		300
Impact of adjusting items on income (loss) before income taxes		—		(667)	945		2,769
After-Tax Impact of Adjusting Items:
	Bond forward (gain) loss	—		(612)	696		1,820
	Retention shares	—		91	—		167
Impact of adjusting items on net (loss) income		—		(521)	696		1,987
Adjusted Results ^1
Income (loss) before income taxes		297		8,742	(2,494)		3,077
Net (loss) income		(701)		4,979	(3,626)		(1,391)
Net (loss) income attributable to common shareholders		(1,194)		4,053	(5,621)		(3,015)
Adjusted Results ^1
Net (loss) income per common share (dollars):
	Basic	(0.02)		0.06	(0.08)		(0.04)
	Diluted	(0.02)		0.06	(0.08)		(0.04)
ROE		(2.2)%		6.5%	(5.2)%		(2.4)%

1.  Considered to be non-GAAP financial measures. These measures do not have any standardized meaning prescribed by GAAP under IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.

SUPPLEMENTAL INFORMATION

The following supplemental information reflects how management of Richardson GMP assesses the financial performance of Richardson GMP.

Supplemental Financial Information - Richardson GMP

Richardson GMP's management assesses performance on both a reported and an adjusted basis and considers both bases to be useful in assessing underlying, ongoing business performance. Presenting results on both bases also permits readers to assess the impact of specified items on financial results. Richardson GMP's management uses certain measures to assess the financial performance of Richardson GMP that are not GAAP measures under IFRS. EBITDA and adjusted EBITDA do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. These Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of Richardson GMP's performance, liquidity, cash flows and profitability. Richardson GMP's management believes adjusting results by excluding the impact of the specified items is more reflective of ongoing financial performance and cash generating capabilities and provides readers with an enhanced understanding of how management views Richardson GMP's core performance. For further information, refer to the "Supplemental Information" section in the  Second Quarter 2016 MD&A.

The following table sets forth an overview of the consolidated financial results of Richardson GMP for the periods indicated, on a 100% basis; noting, however, that GMP owns an approximate 31% non-controlling interest of Richardson GMP as at June 30, 2016.

($000, except as otherwise noted)		Three months ended June 30		% increase/ (decrease)	Six months ended June 30		% increase/ (decrease)
		2016	2015		2016	2015
Revenue		64,731	71,374	(9)	130,150	139,908	(7)
Expenses		61,819	68,696	(10)	125,624	136,774	(8)
Employee compensation and benefits		44,964	48,263	(7)	89,993	95,998	(6)
Non-compensation expenses		16,855	20,433	(18)	35,631	40,776	(13)
Net income - reported		2,912	2,678	9	4,526	3,134	44
Pre-tax impact of adjusting items
	Interest	787	1,503	(48)	1,622	3,151	(49)
	Depreciation and amortization	1,330	1,557	(15)	2,667	2,984	(11)
	Transition assistance loan amortization	3,878	3,329	16	7,128	6,858	4
EBITDA^1		8,907	9,067	(2)	15,943	16,127	(1)
	Share-based compensation	674	1,439	(53)	1,543	2,610	(41)
Adjusted EBITDA^1		9,581	10,506	(9)	17,486	18,737	(7)
Number of advisory teams		198	197	1
AUA at period-end ($ millions)		27,200	27,700	(2)

FORWARD-LOOKING INFORMATION

This press release contains "forward-looking information" as defined under applicable Canadian securities laws.   This information includes, but is not limited to, statements concerning our objectives, our strategies to achieve those objectives, as well as statements made with respect to management's beliefs, plans, estimates, projections and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking information generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "should", "plans" or "continue", or similar expressions suggesting future outcomes or events. Such forward-looking information reflects management's current beliefs and is based on information currently available to management.

Forward-looking information is not a guarantee of future performance and is subject to numerous risks and uncertainties, including those described in this press release. The acquisition of FirstEnergy is subject to various risks and uncertainties, including that the conditions to closing will not be satisfied or waived or that the transaction will otherwise not be consummated.  GMP's primary business activities are both competitive and subject to various risks. These risks include market, credit, liquidity, operational and legal and regulatory risks and other risk factors including, without limitation: variation in the market value of securities, volatility and liquidity of equity and fixed income trading markets, volume of new financings and mergers and acquisitions,  dependence on key personnel and sustainability of fees. Other factors, such as general economic conditions, including interest rate and exchange rate fluctuations, may also have an effect on GMP's results of operations. Many of these risks and uncertainties can affect GMP's actual results and could cause its actual results to differ materially from those expressed or implied in any forward-looking information disclosed by management or on its behalf.  For a description of additional risks that could cause our actual results to materially differ from our current expectations, see "Risk Management"  and "Risk Factors" in the Second Quarter 2016 MD&A and "Risk Factors" in GMP's annual information form. These risks and uncertainties are not the only ones facing GMP together with its consolidated operations controlled by it and its predecessors (GMP Group).  Additional risks and uncertainties not currently known to us or that we currently consider immaterial may also impair the operations of the GMP Group.  Material assumptions or factors underlying the forward-looking information contained in this press release include, but are not limited to, "Business Environment and Outlook", "Second Quarter 2016 Financial Highlights", "Segment Results ", "Liquidity and Capital Resources" sections of the Second Quarter 2016 MD&A. Although forward-looking information contained in this press release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with this forward-looking information. Certain statements included in this press release may be considered a "financial outlook" for purposes of applicable Canadian securities laws, and as such the financial outlook may not be appropriate for purposes other than this press release. The forward-looking information contained in this press release is made as of the date of this press release, and should not be relied upon as representing GMP's views as of any date subsequent to the date of this press release. Except as required by applicable law, management and GMP's Board of Directors undertake no obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

ABOUT GMP CAPITAL INC.

GMP is a leading independent diversified financial services firm headquartered in Toronto, Canada, providing a wide range of financial products and services to a global client base that includes corporate clients, institutional investors and high-net-worth individuals in two integrated reporting segments. The Capital Markets segment provides investment banking, including advisory and underwriting services, institutional sales and trading and research through offices located in Toronto, Montreal, Calgary, New York, Miami, Houston, Dallas, Hong Kong and Beijing. Wealth Management consists of GMP's non-controlling ownership interest in Richardson GMP Limited. Richardson GMP Limited, Canada's largest independent wealth management firm, is focused on providing exclusive and comprehensive wealth management and investment services delivered by an experienced team of investment professionals. GMP is listed on the Toronto Stock Exchange under the symbol "GMP". For further information, please visit our corporate website at gmpcapital.com

SOURCE GMP Capital Inc.

GMP Capital Inc., Rocco Colella, Director, Investor Relations, 145 King Street West, Suite 300, Toronto, Ontario M5H 1J8, Tel: [phone]; Fax: [phone], [email protected] or [email protected]