Mr. Paul Reynolds reports
CANACCORD GENUITY GROUP INC. REPORTS THIRD QUARTER FISCAL 2015 RESULTS; ANNOUNCES STRATEGIC CHANGES TO LEADERSHIP AND OPERATING STRUCTURE OF GLOBAL CAPITAL MARKETS BUSINESS; EXCLUDING SIGNIFICANT ITEMS, THIRD QUARTER LOSS PER COMMON SHARE OF $0.19
During the third quarter of fiscal 2015, the quarter ended Dec. 31, 2014, Canaccord Genuity Group Inc. generated $166.5-million in revenue. Excluding significant items(1), the company recorded a net loss of $14.3-million or a net loss of $17.4-million attributable to common shareholders(2) (a loss per common share of 19 cents). Including all expense items, on an IFRS (international financial reporting standards) basis, the company recorded a net loss of $21.5-million or a net loss attributable to common shareholders(2) of $24.3-million (a loss per common share of 27 cents).
"We are fortunate to have cultivated strong leadership across our global operations," said Paul Reynolds, president and chief executive officer of Canaccord Genuity. "The steps we have taken to improve and streamline our leadership structure allow us to bring a sharper management focus to our key priorities, to maximize our core strengths for our clients and shareholders."
On Feb. 1, 2015, the company announced that it had taken steps to reduce the size of its global work force by 4 per cent, in order to rationalize operations in light of current market conditions. In connection with this initiative, the company announces key changes within the executive structure of its global capital markets business. The changes are in the interest of improving collaboration between global teams and accelerating the delivery of innovative thinking and solutions to clients focused on growth.
Dan Daviau has been appointed CEO, North American capital markets. In his new role, Mr. Daviau will take an active role in managing Canadian and U.S. capital markets operations. This appointment reflects Mr. Daviau's extensive record of achievement in serving and growing the company's client base in both Canada and the United States and fostering partnerships between the company's businesses.
Canadian investment banking will be led by an executive team reporting to Mr. Daviau, comprising: Jens Mayer, who will continue as co-head of investment banking alongside Sanjiv Samanat, who has been promoted to co-head of investment banking; Justin Bosa, who has been promoted to head of diversified investment banking; and Stewart Busbridge, who assumes the role of head of mergers and acquisitions. This new team will be charged with continuing to grow and improve the company's already leading investment bank franchise.
Dvai Ghose has accepted the role of global head of equity research, a position that leverages his proven leadership capabilities as head of Canadian equity research and his outstanding record of delivering world-class research coverage as a top-ranked analyst in his sector. In addition, Canaccord Genuity is pleased to announce the appointment of Tony Dwyer and Michael Graham as co-heads of the U.S. equity research division. Both Mr. Dwyer and Mr. Graham have extensive experience building successful research platforms with global reach.
Concluding a long and distinguished career at Canaccord Genuity, Matt Gaasenbeek will be stepping down from his role as president of Canadian capital markets. For more than two decades, Mr. Gaasenbeek has been instrumental in building the Canadian capital markets team and shaping the growth of Canaccord Genuity's North American equities businesses, having played a key role in the successful integration of the company's global sales, trading and execution capability.
Concurrent with these appointments, effective March 31, Phil Evershed has made the decision to leave his role as global head of investment banking, in order to focus on opportunities outside of investment banking. Since 2010, Mr. Evershed has been an integral part of the growth and success of Canaccord Genuity and an outstanding partner and mentor within the global investment banking business. After March 31, Mr. Evershed will continue as a special adviser to the board of directors of Canaccord Genuity.
All appointments will take immediate effect.
Third quarter of fiscal 2015 compared with third quarter of fiscal 2014
- Revenue of $166.5-million, a decrease of 28 per cent or $64.5-million from $231-million;
- Excluding significant items, expenses of $184.1-million, a decrease of 9 per cent or $18.8-million from $202.9-million(1);
- Expenses of $192-million, a decrease of 7 per cent or $14.5-million from $206.5-million;
- Excluding significant items, loss per common share of 19 cents, compared with diluted earnings per common share (EPS) of 17 cents(1);
- Excluding significant items, net loss of $14.3-million, compared with net income of $21.2-million(1);
- Net loss of $21.5-million, compared with net income of $18.3-million;
- Loss per common share of 27 cents, compared with diluted EPS of 14 cents.
Third quarter of fiscal 2015 compared with second quarter of fiscal 2015
- Revenue of $166.5-million, a decrease of 30 per cent or $69.8-million from $236.3-million;
- Excluding significant items, expenses of $184.1-million, a decrease of 11 per cent or $23.3-million from $207.4-million(1);
- Expenses of $192-million, a decrease of 9 per cent or $19.3-million from $211.3-million;
- Excluding significant items, loss per common share of 19 cents, compared with diluted EPS of 17 cents(1);
- Excluding significant items, net loss of $14.3-million, compared with net income of $20.7-million(1);
- Net loss of $21.5-million, compared with net income of $17.6-million;
- Loss per common share of 27 cents, compared with diluted EPS of 14 cents.
Fiscal 2015 year to date compared with fiscal 2014 year to date (nine months ended Dec. 31, 2014, compared with nine months ended Dec. 31, 2013)
- Revenue of $648.3-million, an increase of 8 per cent or $46.8-million from $601.5-million;
- Excluding significant items, expenses of $607.4-million, an increase of 10 per cent or $54.6-million from $552.8-million(1);
- Expenses of $625.6-million, an increase of 10 per cent or $56.7-million from $568.9-million;
- Excluding significant items, diluted EPS of 20 cents, compared with diluted EPS of 29 cents(1);
- Excluding significant items, net income of $30.5-million, compared with net income of $39.8-million(1);
- Net income of $15-million, compared with net income of $26.1-million;
- Diluted EPS of five cents, compared with diluted EPS of 16 cents.
Financial condition at end of third quarter fiscal 2015 compared with fourth quarter fiscal 2014
- Cash and cash equivalents balance of $340-million, down $24.3-million from $364.3-million;
- Working capital of $422.2-million, a decrease of $47.2-million from $469.4-million;
- Total shareholders' equity of $1.11-billion, down $60.7-million from $1.17-billion;
- Book value per diluted common share of $8.63, down $0.42 from $9.05(3);
- On Feb. 4, 2015, the board of directors approved a quarterly dividend of five cents per common share, payable on March 10, 2015, with a record date of Feb. 27, 2015;
- On Feb. 4, 2015, the board of directors also approved a cash dividend of 34.375 cents per Series A preferred share, payable on March 31, 2015, with a record date of March 20, 2015, and a cash dividend of 35.9375 cents per Series C preferred share, payable on March 31, 2015, to holders of record as at March 20, 2015.
Summary of operations
Corporate
- During the third quarter, the company purchased 807,549 common shares under the terms of its normal course issuer bid (NCIB) to bring the total purchases to 1,186,249 for the fiscal year as of Feb. 3, 2015 (1,071,749 common shares as of Dec. 31, 2014);
- Subsequent to the quarter, the company appointed Jefferies International Ltd. as joint corporate broker.
Capital markets
- Canaccord Genuity led or co-led 34 transactions globally, raising total proceeds of $900-million(4) during the third quarter of fiscal 2015;
- Canaccord Genuity participated in 77 transactions globally, raising total proceeds of $6.2-billion(4) during the third quarter of fiscal 2015;
- Significant investment banking transactions for Canaccord Genuity during the third quarter of fiscal 2015 include:
- 95 million pounds for Ediston Property Investment Co. PLC on the London Stock Exchange;
- $82.8-million (U.S.) for ORBCOMM Inc. on the Nasdaq Stock Market;
- $80-million for AGT Food and Ingredients Inc. on the Toronto Stock Exchange;
- $65-million (U.S.) for Histogenics Corp. on Nasdaq;
- $50.3-million for American Hotel Income Properties REIT on the TSX;
- $45.9-million for Kinaxis Inc. on the TSX;
- $45-million for NYX Gaming Group Ltd. on the TSX;
- 36.3 million pounds for Mortgage Advice Bureau on the LSE's Alternative Investment Market;
- 35.7 million pounds for Chesnara PLC on the LSE;
- $28.8-million for ProMedic Life Sciences Inc. on the TSX;
- 25 million pounds for HICL Infrastructure Co. Ltd. on the LSE;
- $21.3-million (Australian) for BSA Ltd. on the Australian Securities Exchange;
- In Canada, Canaccord Genuity participated in raising $270.9-million for government and corporate bond issuances during the third quarter of fiscal 2015;
- Canaccord Genuity generated advisory revenues of $22.6-million during the third quarter of fiscal 2015, a decrease of $17-million or 43 per cent compared with the same quarter last year;
- During the third quarter of fiscal 2015, significant M&A (mergers and acquisitions) and advisory transactions included:
- Agnico Eagle Mines Ltd. on its acquisition of Cayden Resources Inc.;
- Co-operative Bank on the 157.5-million-pound sale of Illius Properties Ltd. to Salmon Real Estate Ltd.;
- Essar Power Canada Holdings Inc. on its $65-million (U.S.) debt financing;
- EnterpriseDB on its sale to Peak Equity Partners, Milestone Partners and NewSpring Capital;
- Airclic Inc. on its sale to Descartes Systems Group;
- FranConnect on its majority recapitalization by Serent Capital;
- The Intertain Group Ltd. on its acquisition of Dumarca Group Holdings PLC;
- IK Investment Partners on the acquisition of Exxelia Group from LBO France;
- SunOpta Inc. on the $37.5-million divestiture of its fibre and starch business;
- Resources Prima Group Ltd. (formerly Sky One Holdings Ltd.) on the acquisition of Energy Prima Pte. Ltd.
Canaccord Genuity Wealth Management (global)
- Globally, Canaccord Genuity Wealth Management generated $59.6-million in revenue in the third quarter of fiscal 2015;
- Assets under administration in Canada and assets under management in the United Kingdom and Europe and Australia were $31.3-billion at the end of the third quarter of fiscal 2015(3).
Canaccord Genuity Wealth Management (North America)
- Canaccord Genuity Wealth Management (North America) generated $28.3-million in revenue and, after intersegment allocations, recorded a net loss of $1.8-million before taxes in the third quarter of fiscal 2015;
- Assets under administration in Canada were $10.3-billion as at Dec. 31, 2014, down 4 per cent from $10.8-billion at the end of the previous quarter and up 8 per cent from $9.5-billion at the end of the third quarter of fiscal 2014(3);
- Assets under management in Canada (discretionary) were $1.44-billion as at Dec. 31, 2014, up 4 per cent from $1.39-billion at the end of the previous quarter and up 35 per cent from $1.07-billion at the end of the third quarter of fiscal 2014(3);
- As at Dec. 31, 2014, Canaccord Genuity Wealth Management had 161 advisory teams(5), a decrease of one advisory team from Sept. 30, 2014, and a decrease of two from Dec. 31, 2013.
Canaccord Genuity Wealth Management (United Kingdom and Europe)
- Wealth management operations in the United Kingdom and Europe generated $30-million in revenue and, after intersegment allocations and excluding significant items, recorded net income of $4.7-million before taxes in the third quarter of fiscal 2015(1);
- Assets under management (discretionary and non-discretionary) were $20.3-billion (11.2-billion pounds)(3) as at Dec. 31, 2014.
SELECTED FINANCIAL INFORMATION EXCLUDING SIGNIFICANT ITEMS(1)
(in thousands of dollars, except per-share amounts and percentages)
Three months ended Nine months ended
Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013
Total revenue per IFRS $ 166,471 $ 230,959 $ 648,298 $ 601,496
Total expenses per IFRS 191,991 206,539 625,585 568,919
Significant items recorded
in Canaccord Genuity
Amortization of intangible assets 1,684 1,680 5,132 5,040
Impairment of goodwill 4,535 - 4,535 -
Restructuring costs - - - 5,486
Significant items recorded in
Canaccord Genuity Wealth Management
Amortization of intangible assets 1,660 1,945 6,124 5,585
Restructuring costs - - 783 -
Significant items recorded in
corporate and other
Restructuring costs - - 1,600 -
Total significant items 7,879 3,625 18,174 16,111
Total expenses excluding significant items 184,112 202,914 607,411 552,808
Net (loss) income before income taxes
-- adjusted $ (17,641) $ 28,045 $ 40,887 $ 48,688
Income taxes (recovery) -- adjusted (3,388) 6,818 10,377 8,917
Net (loss) income -- adjusted $ (14,253) $ 21,227 $ 30,510 $ 39,771
(Loss) earnings per common share
-- basic, adjusted $ (0.19) $ 0.18 $ 0.21 $ 0.32
(Loss) earnings per common share
-- diluted, adjusted $ (0.19) $ 0.17 $ 0.20 $ 0.29
(1) Figures excluding significant items are non-IFRS measures.
Message from the president and CEO:
Fellow shareholders,
Continuing economic and political uncertainty in many of the regions where we operate contributed to a turbulent capital markets environment throughout much of our fiscal third quarter. The heightened volatility that began late in our second fiscal quarter prevailed through October and November, which led to a postponement of transaction activity in our key markets.
During the quarter, financing values on the TSX and TSX-V plunged 23.4 per cent and financing values on AIM decreased by 17.6 per cent when compared with the same period last year. Despite continuing and disciplined focus on cost containment, the abrupt decline in global investment banking activity adversely affected our bottom-line performance. For our fiscal third quarter, Canaccord Genuity Group recorded revenue of $166.5-million, a year-over-year decrease of 28 per cent. Excluding significant items, the company recorded a third quarter loss per share of 19 cents. While all regions were negatively affected by macroeconomic conditions, the most notable decline took place in the United Kingdom and Europe. General anxiety surrounding the outcome of the U.K. elections, combined with fears of deflation in the Eurozone, significantly slowed activity for our business in the region, which has historically recorded its strongest performance during our fiscal third quarter.
While investments we have made to diversify our revenue streams have limited our exposure to the energy sector in our core Canadian, U.K. and Europe, and U.S. businesses, the sharp decline in oil prices has reduced our expectation for advisory and financing activity in our Hong Kong and Beijing offices, which are closely tied to the energy sector. As a result, the company recorded a $4.5-million impairment charge related to the goodwill allocated to that region.
Against this challenging backdrop, we have maintained a strong capital position, which safeguards our ability to deliver the breadth and quality of service our global clients have come to expect. At the end of the third quarter, the company had $422.2-million in working capital and $340-million in cash and cash equivalents.
We have also upheld our commitment to protecting long-term value for our shareholders through continuing participation in our NCIB program. During the quarter, the company purchased 807,549 shares for cancellation, bringing the total number of shares purchased to 1,186,249 for fiscal 2015. And finally, I am pleased to confirm that our board of directors has approved a dividend of five cents for this quarter.
Subsequent to the quarter, we made some changes to our leadership and operating structure, which will affect our results in the near term, but improve our capital position over time. Approximately 80 professionals, predominantly in our U.K. and Europe and U.S. operations, will be leaving the organization under various termination arrangements. We expect this new operating structure to deliver approximately $25-million in sustainable savings on an annual basis over the coming years. These decisions allow us to streamline and strengthen our capital markets businesses and position us well for future outperformance.
Advancing our global leadership and operating structure
The successful integration of our global businesses has fostered the development of a strong culture of leaders who are working effectively to co-ordinate the extensive experience and capabilities across our regional teams.
We have reached a stage in the evolution of our business where we can confidently streamline our leadership structure to focus on strengthening profitability and protecting our core strengths. At the start of fiscal 2016, Canaccord Genuity will combine its Canadian and U.S. operations into a unified North American business and streamline our four reporting businesses into three: North America, United Kingdom and Europe, and Asia-Pacific.
This co-ordinated approach to leadership provides a clear line of sight into the businesses and will increase synergies between our teams. A carefully selected transition committee will manage successful integration of these changes to ensure minimal disruption for our professionals and, most importantly, the delivery of innovative ideas and a consistent service model for our clients.
Strong performance during the first half of fiscal 2015 offsets a difficult third quarter
During the quarter, Canaccord Genuity participated in 77 transactions globally, raising total proceeds of $6.2-billion. Revenues in our global capital markets division were negatively affected by weak commodity markets and reduced transaction activity in global small-capitalization stocks. For our fiscal third quarter, Canaccord Genuity earned $103.9-million in revenue, a decrease of 39.3 per cent compared with last year. Strong performance in our capital markets business during the first half of our fiscal year helped to offset third quarter losses, and we were able to increase year-to-date revenues by 5.7 per cent compared with the first nine months of last year.
Revenue generated from advisory fees was $22.6-million, a decrease of $17-million from the same period last year. We attribute this result to a decrease of $19.6-million in our U.K. and Europe advisory business. The effect of this decline was moderately offset by improved performance in our Canadian and U.S. advisory businesses, which recorded year-over-year increases of 22.3 per cent and 44.1 per cent. respectively.
Increased volatility had a positive effect on our trading business, as revenues from commissions and fees increased by 20.7 per cent to $41.1-million during the quarter.
Looking ahead, we expect near-term commodity prices to remain volatile, which will support our agency trading business. Additionally, we believe continued weakness in commodity prices will create opportunities in our banking, M&A and advisory businesses, as companies pursue strategies to strengthen their capital base.
Global wealth management operations deliver consistent and stable revenue growth
Canaccord Genuity Wealth Management earned $58.2-million in revenue, an increase of 6.4 per cent compared with last year. This business accounted for 35 per cent of our total revenue during the quarter, an increase of 11.3 per cent over the previous fiscal year and a testament to the diversification, stability and consistency of revenues that we receive from this business.
Total assets under administration and management grew to $31.3-billion at the end of the quarter, an increase of $2.3-billion or 7.8 per cent compared with the same quarter last year.
In the United Kingdom and Europe, this consistency in earnings was evident as Canaccord Genuity Wealth Management recorded $30-million in revenue, which, excluding significant items, translated to $4.7-million in net income before taxes, a 35.3-per-cent increase from the same period last year. The recent successful implementation of a sophisticated software platform provides this business with the necessary infrastructure to support significant expansion in the region.
In Canada, discretionary assets under management increased to $1.4-billion, an improvement of 34.7 per cent compared with the same period last year. In November, we launched our proprietary asset management platform, Canaccord Genuity Global Portfolio Solutions (GPS), across Canada. Early response to the product has been strong and we expect growing client investment in our range of GPS optimized portfolios to meaningfully increase assets under management in this business over the coming years.
Outlook
The market environment at the end of calendar 2014 had a disappointing effect on our quarterly results, but we remain confident in our business mix, our market position and the opportunities ahead of us.
While the effect of developments in the energy sector leads us to adopt a cautious outlook for our capital markets business, we believe our diverse global platform provides us with a strong position to capitalize on the opportunities that lower oil prices will create in other areas of the global mid-market.
Our priorities for our capital markets business centre on increasing profitability in our core areas of strength, and on the delivery of long-term value for our clients and our shareholders. As an independent investment bank with a focus on the global mid-market, we expect to make adjustments in our business mix over time to adapt to changes in market conditions.
For our global wealth management business, we will continue to focus on growing our share of fee-based and discretionary accounts by continuing to invest in the depth and quality of our offering. We will also continue to actively pursue opportunities to increase our scale in the United Kingdom. The strength of our balance sheet and prudent management of capital resources give us confidence in our near-term ability to pursue aggressive growth for our U.K. wealth management business. With the exceptional leadership and solid infrastructure we have in place, our objective is to double our assets under management in the United Kingdom over the coming years, through organic growth and bolt-on acquisitions.
Subsequent to the quarter, the company announced the appointment of Jefferies International Ltd. as joint corporate broker alongside our existing corporate broker, RBC Europe Ltd. We expect this relationship to contribute to strengthening brand awareness and exposure for Canaccord Genuity in the United States and the United Kingdom and Europe.
Despite a challenging period in the global capital markets, I am confident Canaccord Genuity has the optimal mix of leadership and global capabilities to operate our business successfully and exceed the changing needs of our clients as we navigate this dynamic market environment together.
Kind regards,
Paul Reynolds, president and CEO, Canaccord Genuity
Access to quarterly results information
Interested investors, the media and others may review this quarterly earnings release and supplementary financial information on the company's website.
Conference call and webcast presentation
Interested parties are invited to listen to the company's third quarter fiscal 2015 results conference call with analysts and institutional investors, via a live webcast or a toll-free number. The conference call is scheduled for Thursday, Feb. 5, 2015, at 5 a.m. PT, 8 a.m. ET, 1:00 p.m. (U.K. time) and 9 p.m. (China standard time), and on Friday, Feb. 6, 2015, at 12 a.m. Australia ET. At that time, senior executives will comment on the results for the third quarter of fiscal 2015 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.
Analysts and institutional investors can call in via telephone at:
Within Toronto: 647-427-7450
Toll-free in North America: 1-888-231-8191
Toll-free from the United Kingdom: 0-800-051-7107
Toll-free from Ireland: 1-800-760-620
Toll-free from France: 0-800-917-449
Toll-free from Germany: 0-800-183-0171
Toll-free from northern China: 10-800-714-1191
Toll-free from southern China: 10-800-140-1195
Toll-free from Australia: 1-800-287-011
Please request to participate in Canaccord Genuity's third quarter fiscal 2015 earnings call. If a passcode is requested, please use 55630723.
A replay of the conference call can be accessed after 8 a.m. PT and 11 a.m. ET on Thursday, Feb. 5, 2015, until March 31, 2015, at 416-849-0833 or 1-855-859-2056 by entering passcode 55630723 followed by the pound sign.
Notes:
- Figures excluding significant items are non-IFRS measures;
- Net loss attributable to common shareholders is calculated as the net loss adjusted for non-controlling interests and preferred share dividends;
- Non-IFRS measures;
- Source -- transactions over $1.5-million -- internally sourced information;
- Advisory teams normally comprise one or more investment advisers (IAs) and their assistants and associates, who together manage a shared set of client accounts. Advisory teams that are led by or include only an IA who has been licensed for less than three years are not included in the advisory team count, as it typically takes a new IA approximately three years to build an average-sized book of business.
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