Mr. Dan Daviau reports
CANACCORD GENUITY GROUP INC. REPORTS THIRD QUARTER FISCAL 2017 RESULTS
During the third quarter of fiscal 2017, the quarter ended Dec. 31, 2016, Canaccord Genuity Group Inc. generated $208.1-million in revenue. Excluding significant items (1), the company recorded net income of $6.3-million or net income of $2.9-million attributable to common shareholders (2) (earnings per common share of three cents). Including all expense items, on an IFRS (international financial reporting standards) basis, the company recorded net income of $4.5-million or net income of $1.2-million attributable to common shareholders (2) (earnings per common share of one cent).
The results for the quarter included certain non-recurring charges in the total amount of $6.0-million related to costs associated with the rationalization of the company's office space in Toronto, costs associated with the transition of new investment advisers onto the company's wealth management platform in Canada, and charges in connection with the acceleration of certain stock-based awards and contractual compensation payments. These costs were recorded as general and administrative expenses in Canaccord Genuity Wealth Management (North America) ($700,000) and as premises and equipment and incentive compensation expenses in corporate and other ($5.3-million). These costs have not been excluded for purposes of calculating adjusted net income (referred to as net income excluding significant items (1)).
"While the long-term impact of recent developments in the U.S. and U.K. remains to be seen, we are encouraged to see more investors putting capital to work in the growth sectors of the global economy, a development that has given us a positive near-term outlook for our business," said Dan Daviau, president and chief executive officer of Canaccord Genuity. "As activity levels improved, we have maintained a strong focus on driving down overall expenses to enhance profitability across our operations. In addition, we have made meaningful progress to advance our global wealth management strategy, which will further contribute to long-term earnings stability."
Third quarter of fiscal 2017 compared with third quarter of fiscal 2016
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Revenue of $208.1-million, an increase of 14.4 per cent or $26.3-million from $181.8-million;
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Excluding significant items, expenses of $200.3-million, a decrease of 1.9 per cent or $4.0-million from $204.2-million (1);
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Expenses of $202.4-million, a decrease of 62.0 per cent or $330.1-million from $532.5-million (3);
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Excluding significant items, diluted earnings per common share (EPS) of three cents, compared with a loss per common share of 25 cents (1);
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Excluding significant items, net income of $6.3-million, compared with a net loss of $19.1-million (1);
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Net income of $4.5-million, compared with a net loss of $346.4-million (3);
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Diluted EPS of one cent, compared with a loss per common share of $3.91 (3).
Third quarter of fiscal 2017 compared with second quarter of fiscal 2017
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Revenue of $208.1-million, an increase of 7.5 per cent or $14.5-million from $193.6-million;
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Excluding significant items, expenses of $200.3-million, an increase of 5.0 per cent or $9.6-million from $190.7-million (1);
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Expenses of $202.4-million, an increase of 5.0 per cent or $9.6-million from $192.8-million;
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Excluding significant items, diluted EPS of three cents, compared with a loss per common share of three cents (1);
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Excluding significant items, net income of $6.3-million, compared with net income of $2.0-million (1);
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Net income of $4.5-million, compared with net income of $200,000;
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Diluted EPS of one cent, compared with a loss per common share of five cents.
Year-to-date fiscal 2017 compared with year-to-date fiscal 2016
(nine months ended Dec. 31, 2016, compared with nine months ended Dec. 31, 2015)
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Excluding significant items, revenue of $606.7-million, an increase of 3.4 per cent or $19.8-million from $586.9-million (1);
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Excluding significant items, expenses of $584.9-million, a decrease of 0.8 per cent or $4.7-million from $589.6-million (1);
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Revenue of $607.9-million, an increase of 3.6 per cent or $21.0-million from $586.9-million;
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Expenses of $591.4-million, a decrease of 36.0 per cent or $332.2-million from $923.6-million (3);
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Excluding significant items, diluted EPS of five cents, compared with a loss per common share of 15 cents (1);
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Excluding significant items, net income of $16.5-million, compared with a net loss of $3.9-million (1);
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Net income of $12.2-million, compared with a net loss of $335.9-million (3);
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Diluted EPS of one cent, compared with a loss per common share of $3.78 (3).
Financial condition at end of third quarter fiscal 2017 compared with fourth quarter fiscal 2016
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Cash and cash equivalents balance of $470.2-million, an increase of $41.9-million from $428.3-million;
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Working capital of $455.9-million, an increase of $74.6-million from $381.3-million;
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Total shareholders' equity of $735.6-million, a decrease of $14.3-million from $749.9-million;
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Book value per diluted common share of $4.85, a decrease of 14 cents from $4.99 (4).
On Feb. 9, 2017, the board of directors considered the company's dividend policy in the context of the market environment and business activity and approved a continued suspension of the quarterly common dividend. This suspension will be reviewed quarterly and a determination will be made on the basis of business conditions and profitability.
On Feb. 9, 2017, the board of directors approved a cash dividend of 24.281 cents per Series A preferred share, payable on March 31, 2017, with a record date of March 17, 2017, and a cash dividend of 35.9375 cents per Series C preferred share, payable on March 31, 2017, to Series C preferred shareholders of record as at March 17, 2017.
Summary of operations
Corporate
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On Oct. 27, 2016, the company closed a private placement of convertible unsecured senior subordinated debentures in the total principal amount of $60-million. The company intends to use the net proceeds to finance growth in its wealth management business in Canada through the recruitment of investment advisers and for general corporate purposes. The debentures bear interest at a rate of 6.50 per cent per year, payable semi-annually on the last day of June and December each year, commencing Dec. 31, 2016. The debentures are convertible at the holders' option into the company's common shares at a conversion price of $6.50 per share. The debentures will mature on Dec. 31, 2021, and may be redeemed by the company, in certain circumstances, on or after Dec. 31, 2019.
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On Aug. 11, 2016, Canaccord Genuity announced the filing of a normal course issuer bid (NCIB) to purchase up to a maximum of 5,587,378 of its common shares in accordance with the requirements of the Toronto Stock Exchange through the facilities of the TSX and on alternative trading systems during the period from Aug. 15, 2016, to Aug. 14, 2017. The purpose of any purchase under this program is to enable the company to acquire shares for cancellation. The maximum number of shares that may be purchased represented 5.0 per cent of the company's outstanding common shares at the time of filing the NCIB. In total, 99,800 shares have been purchased and cancelled under the terms of the NCIB during the nine months ended Dec. 31, 2016.
Capital markets (5)
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Canaccord Genuity participated in 84 investment banking transactions globally, raising total proceeds of $10.8-billion (5) during the fiscal third quarter of 2017.
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Canaccord Genuity led or co-led 24 transactions globally, raising total proceeds of $762-million (5) during the fiscal third quarter of 2017.
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Significant investment banking transactions for Canaccord Genuity during the fiscal third quarter of 2017 include:
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$24.9-million (Australian) for Doray Minerals Ltd. on the Australian Securities Exchange;
- 329.0-million-pound block trade for Playtech PLC on the London Stock Exchange;
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$186.0-million block trade for a holder of Great Canadian Gaming Corp. on the TSX;
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$30.0-million (U.S.) for GenMark Diagnostics Inc. on the Nasdaq Stock Market;
- $62.6-million (Australian) for Cooper Energy Ltd. on the ASX;
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38.0 million pounds for Rathbone Brothers PLC on the LSE;
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$75.0-million (U.S.) initial public offering (IPO) for Obalon Therapeutics Inc. on Nasdaq;
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$66.5-million for InPlay Oil Corp. on the TSX;
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$29.0-million for Pro Real Estate Investment Trust on the TSX Venture Exchange;
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$40.3-million for Alterra Power Corp. on the TSX;
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$322.0-million (U.S.) for Twilio Inc. on the New York Stock Exchange;
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$123.0-million (U.S.) IPO for iRhythm Technologies Inc. on Nasdaq;
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$172.5-million (U.S.) for Advanced Accelerator Applications SA on Nasdaq;
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$134.6-million (U.S.) IPO for AquaVenture Holdings Ltd. on the NYSE;
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$400.00-million IPO for Aritzia Inc. on the TSX;
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$40.0-million (U.S.) IPO for Everspin Technologies Inc. on Nasdaq;
- $25.0-million (Australian) IPO for Dreamscape Networks Ltd. on the ASX;
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$25.0-million for Aurora Cannabis Inc. on the TSX-V;
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$20.0-million for iAnthus Capital Holdings Inc. on the Canadian Securities Exchange;
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$80.5-million (U.S.) for Kratos Defense & Security Solutions Inc. on Nasdaq;
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$50.0-million for Supreme Pharmaceuticals Inc. on the CSE;
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$16.5-million (U.S.) for Palatin Technologies on the NYSE MKT;
- $26.5-million (Australian) for Dacian Gold Ltd. on the ASX;
- $60.0-million IPO for CanniMed Therapeutics Inc. on the TSX;
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$126.5-million (U.S.) IPO for Xencor Inc. on Nasdaq;
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$35.7-million (U.S.) IPO for TiGenix on Nasdaq.
- In Canada, Canaccord Genuity participated in raising $233.7-million for government and corporate bond issuances during the fiscal third quarter of 2017.
- Advisory fees recorded during the fiscal third quarter of 2017 were $17.1-million, a decrease of $21.8-million or 56.0 per cent compared with the same quarter last year
- During the fiscal third quarter of 2017, significant M&A (merger and acquisition) and advisory transactions included:
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Kier Group PLC on the 75-million-pound sale of its infrastructure engineering and environmental consultancy business to WSP Global Inc.;
- Catapult Environmental Inc. on its private equity sponsorship by ARC Financial Corp.;
- TransGlobe Energy Corp. on its $80-million Canadian asset acquisition;
- Only About Children on the divestment of a majority stake to Bain Capital Private Equity;
- PEMCO World Air Services Inc. on its sale to Airborne Maintenance and Engineering Services Inc., a subsidiary of Air Transport Services Group Inc.;
- InPlay Oil Corp. on the reverse takeover transaction of TSX-listed Anderson Energy Inc., the closing of a $47-million asset acquisition and the raising of $70.3-million of gross subscription receipt proceeds;
- SynCardia Systems Inc. on its sale to affiliates of Versa Capital Management LLC pursuant to paragraph 363 of the U.S. Bankruptcy Code;
- Abenex Capital on the disposal of Vulcanic to Qualium;
- ECI Partners on the acquisition of Edenhouse;
- Flakt Woods on its disposal to Triton Partners.
Canaccord Genuity Wealth Management (global)
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Globally, Canaccord Genuity Wealth Management generated $68.5-million in revenue during the fiscal third quarter of 2017.
- Assets under administration in Canada and assets under management in the United Kingdom and Europe and Australia were $36.1-billion at the end of the fiscal third quarter of 2017 (4), an increase of 5.0 per cent or $1.7-billion at the end of the previous quarter and an increase of 5.1 per cent or $1.7-billion at the end of the fiscal third quarter of 2016.
Canaccord Genuity Wealth Management (North America)
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Canaccord Genuity Wealth Management (North America) generated $32.8-million in revenue and, after intersegment allocations and before taxes, recorded a net loss of $500,000 during the fiscal third quarter of 2017. As noted above, incremental costs associated with the transition of new investment advisers onto the company's wealth management platform in the amount of $700,000 were recorded during the quarter and are reflected in this net loss for the quarter.
- Assets under administration in North America were $12.0-billion as at Dec. 31, 2016, an increase of 15.8 per cent from $10.3-billion at the end of the previous quarter and an increase of 32.5 per cent from $9.0-billion at the end of the fiscal third quarter of 2016 (4).
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Assets under management in North America (discretionary) were $2.5-billion as at Dec. 31, 2016, an increase of 107.3 per cent from $1.2-billion at the end of the previous quarter and an increase of 100.2 per cent from $1.3-billion at the end of the fiscal third quarter of 2016 (4) (included in assets under administration).
- Canaccord Genuity Wealth Management had 139 advisory teams (6) at the end of the fiscal third quarter of 2017, unchanged from Sept. 30, 2016, and a decrease of one team from Dec. 31, 2015.
Canaccord Genuity Wealth Management (U.K. and Europe)
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Wealth management operations in the U.K. and Europe generated $34.5-million in revenue and, after intersegment allocations, and excluding significant items, recorded net income of $8.1-million before taxes during the fiscal third quarter of 2017 (1).
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Assets under management (discretionary and non-discretionary) were $23.4-billion (14.1 billion pounds) as at Dec. 31, 2016, an increase of 0.8 per cent from $23.2-billion (13.6 billion pounds) as at the end of the previous quarter and a decrease of 4.7 per cent from $24.5-billion (11.9 billion pounds) as at Dec. 31, 2015 (4). In local currency (pounds), assets under management at Dec. 31, 2016, increased by 3.3 per cent compared with Sept. 30, 2016, and by 18.2 per cent compared with the fiscal third quarter of 2017.
SELECTED FINANCIAL INFORMATION EXCLUDING SIGNIFICANT ITEMS (1)
(in thousands of dollars, except per-share and percentage amounts)
Three months ended Dec. 31, Nine months ended Dec. 31,
2016 2015 2016 2015
Total revenue per IFRS $ 208,108 $ 181,837 $ 607,890 $ 586,893
Total expenses per IFRS 202,397 532,456 591,411 923,566
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Revenue
Significant items included
in Canaccord Genuity
Realized translation gains
on disposal of Singapore - - 1,193 -
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Total revenue excluding
significant items 208,108 181,837 606,697 586,893
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Expenses
Significant items recorded
in Canaccord Genuity
Amortization of intangible
assets 829 1,333 2,475 4,063
Impairment of goodwill and
other assets - 321,037 - 321,037
Restructuring costs - 2,977 - 2,977
Significant items recorded
in Canaccord Genuity
Wealth Management
Amortization of intangible
assets 1,274 1,560 4,001 4,584
Significant items recorded
in corporate and other
Restructuring costs - 1,300 - 1,300
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Total significant items 2,103 328,207 6,476 333,961
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Total expenses excluding
significant items 200,294 204,249 584,935 589,605
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Net income (loss) before
taxes -- adjusted 7,814 (22,412) 21,762 (2,712)
Income taxes (recovery) --
adjusted 1,505 (3,268) 5,306 1,170
Net income (loss) --
adjusted 6,309 (19,144) 16,456 (3,882)
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Net income (loss)
attributable to common
shareholders, adjusted 2,907 (22,228) 4,726 (13,508)
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Earnings (loss) per common
share -- basic, adjusted 0.03 (0.25) 0.05 (0.15)
Earnings (loss) per common
share -- diluted, adjusted 0.03 (0.25) 0.05 (0.15)
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(1) Figures excluding significant items are non-IFRS measures.
"Fellow shareholders:
"The results of our third fiscal quarter reflect improving performance across global capital markets in our focus sectors. Although developments in the U.K. and the U.S. continue to evolve, and the longer-term impact on the growth sectors of the global economy remains to be seen, we are encouraged by improving activity levels and our near-term outlook is positive.
"The outcome of the U.S. federal election in November led to improved sentiment throughout financial markets, on the back of ongoing stabilization in economic data, an anticipated shift towards more expansionary fiscal policy, lower taxes and a new approach to regulation from the new administration. During the quarter, the S&P/TSX Composite finished 4.5 per cent higher, including dividends, ending the 2016 calendar year up 21.1 per cent, as higher oil and gold prices gave the Canadian index a boost for the better part of 2016.
"Throughout the quarter, businesses in the U.K. became more active as they began taking steps to move forward in light of a widely anticipated 'hard' Brexit, a development that has become increasingly likely subsequent to the end of the quarter.
"In addition to improving activity levels across our operations, the benefits of the restructuring and alignment initiatives we announced one year ago are becoming more evident in our results. We have continued to strengthen overall profitability and drive down expenses while activity levels improve across our global operations. Our back office and support teams have maintained a strong focus on improving firm-wide efficiencies, optimizing office spaces, and ensuring that we have the necessary support and infrastructure to move forward with our strategy across all businesses and geographies.
"For the third quarter of fiscal 2017, Canaccord Genuity Group Inc. generated total revenue of $208.1-million, an increase of 14.4 per cent compared to the same quarter of last year. Our expenses for the quarter included approximately $6-million in non-recurring charges, primarily in connection with the costs of growing our Canadian wealth management platform, contractual compensation payments and the rationalization of our office space in Toronto. These costs have not been excluded for the purpose of calculating adjusted net income.
"Global wealth management businesses continue to drive stability and growth
"At the end of our third fiscal quarter, Canaccord Genuity Wealth Management had total assets under management and administration of $36.1-billion, a year-over-year increase of 5.1 per cent. Total revenue generated by our wealth management operations in the U.K. and Europe [and] Canada and Australia grew to $68.5-million, an increase of 10.8 per cent compared to the same quarter of last year.
"Our wealth management operation in the U.K. and Europe produced a record third quarter result. When measured in local currency, net income for the three month period was 4.9 million pounds, an improvement of 1.7 million pounds or 53 per cent compared to the same quarter of last year. The exceptional quality of our product offering in this region has helped this business to steadily improve net inflows and increase assets under management, which grew to 14.1 billion pounds at the end of the quarter, up from 11.9 billion pounds a year ago. I am also pleased to report that Canaccord Genuity Wealth Management was recently awarded the Citywealth IFC award for investment manager of the year -- Isle of Man.
"Assets in our Canadian wealth management business continued to improve, primarily due to the success of our recruiting strategy. At the end of the third fiscal quarter, total assets under administration in this business grew to approximately $12-billion, an increase of 32.5 per cent when compared to the same period last year. As most new assets were transitioned to our platform near the end of the fiscal period, associated revenues will be more fully reflected in future quarters. Our recruiting efforts in this business remain on track, and we are attracting interest from growing numbers of high-quality advisers. Looking ahead, we will continue to centre our offering on professional and highly personalized advice for clients, a differentiator that I am confident will position us to be the leading independent wealth management firm in Canada.
"Looking ahead, we continue to focus on increasing scale in our Canadian and U.K. and Europe wealth management operations, in addition to driving growth in our Australian wealth management business, so that we can steadily improve recurring revenue contributions and further enhance stability for our shareholders. As we move forward on this strategy, we expect to incur moderate, non-recurring charges with respect to on-boarding new advisers and clients. In addition, we will continue to incur costs associated with our acquisition efforts in our U.K. and offshore businesses.
"Profitable quarter for all global capital markets businesses
"Activity levels in our global capital markets businesses continued to trend higher on more evidence of global growth tailwinds. For the third fiscal quarter, our global capital markets business earned revenue of $137.3-million, with the largest contribution coming from our U.S. operation.
"Our U.S. capital markets business delivered its strongest revenue quarter on record, driven primarily by our principal trading operation, which is on track to deliver a record fiscal year performance. Revenue generated from investment banking activities has also steadily improved over the fiscal year. While it is too early to tell if the postelection optimism will translate into longer-term conviction, we have continued to strengthen our competitive position in the U.S. market by making disciplined investments to strengthen our capability in the verticals that support our core strengths globally. Recently, we announced new senior investment banking hires to strengthen coverage in our health care IT [information technology] (HCIT), consumer and retail and technology practices.
"Calendar 2016 was a pivotal year for our Australian capital markets team, as they cemented Canaccord Genuity as a dominant mid-market competitor in the region. This operation has become significant enough that we now provide separate disclosure in our supplementary financial information. Despite a seasonally slower third quarter, revenues from capital markets activity in this business increased by 96 per cent compared to the same period of last year, driven primarily by investment banking activity. Year to date, this business has increased revenues by 118 per cent compared to the first nine months of fiscal 2016. Our teams in the region have consistently demonstrated a commitment to delivering successful outcomes for clients, putting this business on track to deliver a record result for fiscal 2017.
"On the back of a very challenging year, our capital markets business in the U.K. and Europe returned to marginal profitability during the third fiscal quarter. Notably, investment banking revenue in this business increased by 35.8 per cent on a year-over-year basis and revenue generated from principal trading activity increased by 37.1 per cent. Activity in our advisory business has steadily improved since the start of the fiscal year, and we continue to have good visibility on improving near-term activity in this segment. We are also actively working to better align our new issue business in the region. While we are encouraged by the positive momentum in this region, we are also carefully reviewing all opportunities to ensure long-term profitability in this business.
"I am also pleased to report that subsequent to the end of the quarter, our Dubai operation successfully closed its first official advisory mandate, which was one of our most significant transactions of the fiscal year. With the working association between Dubai and the U.K., Dubai's operations will now be reported with the Canaccord Genuity U.K. and Europe business unit in our supplementary financial information.
"New issue activity in our Canadian capital markets business continued to be softer during the third quarter, but on a year-over-year basis, revenue generated from investment banking activities increased by 206 per cent. Importantly, our recently formed capital markets origination group is driving stronger collaboration between our capital markets and wealth management teams in the region, and we have recently completed a number of important early-stage financings for entrepreneurial clients, with whom we expect to form long-term partnerships as we support their growth objectives over time. We will continue to grow our origination capability, to firmly establish Canaccord Genuity as the leading independent investment bank in Canada.
"Looking ahead, we are encouraged to see that broad market sentiment at the start of calendar 2017 is much more positive than it was in the same period last year. Investors are increasingly looking to put more money to work in the dynamic growth sectors of the global economy, and, as a leading independent global investment bank with a focus on the mid-market, our differentiated service model positions us well to increase activity in our core focus sectors.
"Committed to driving long-term shareholder value creation
"While our near-term outlook for activity levels in our capital markets and wealth management operations is positive, we continue to anticipate periodic increases in volatility levels as the markets react to the specifics of regulatory and policy changes in the U.K. and the U.S. Against this backdrop, we remain committed to operating our business efficiently, and with a strong focus on delivering sustainable long-term value for our clients and our shareholders.
"Kind regards,
"Dan Daviau, 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 Canaccord Genuity's third quarter conference call via live webcast or a toll-free number. The conference call is scheduled for Friday, Feb. 10, 2017, at 5 a.m. PT/8 a.m. ET/1 p.m. U.K. time/9 p.m. China Standard Time/11 p.m. Australia ET. 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 on the company's website.
Analysts and institutional investors can call in via telephone at:
Within Toronto: 647-427-7450
Toll-free outside Toronto: 1-888-231-8191
Toll-free from the United Kingdom: 0-800-051-7107
Toll-free from France: 0-800-91-7449
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
Toll-free from United Arab Emirates: 800-017-8071
Please ask to participate in the Canaccord Genuity fiscal third quarter 2017 results call. If a passcode is requested, please use 28425365.
A replay of the conference call will be available on Feb. 10, 2017, after 8 a.m. PT/11 a.m. ET/4 p.m. U.K. time, and on Feb. 11, 2017, at 12 a.m. China Standard Time/2:00 a.m. Australia ET, until March 17, 2017, at 416-849-0833 or 1-855-859-2056 by entering passcode 28425365 followed by the pound sign.
Notes:
- Figures excluding significant items are non-IFRS measures;
- Net income (loss) attributable to common shareholders is calculated as the net income (loss) adjusted for non-controlling interests and preferred share dividends;
- Expenses in the fiscal third quarter of 2016 included an impairment charge of $321-million related to goodwill and other assets;
- Non-IFRS measures;
- 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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