Mr. Dan Daviau reports
CANACCORD GENUITY GROUP INC. REPORTS FIRST QUARTER FISCAL 2018 RESULTS
During the first quarter of fiscal 2018, the quarter ended June 30, 2017, Canaccord Genuity Group Inc. generated $199.8-million in revenue. Excluding significant items (1), the company recorded net income (3) of $1.6-million or a net loss of $600,000 attributable to common shareholders (2) (a loss per common share of one cent). Including all significant items, on an international financial reporting standard basis, the company recorded a net loss (3) of $2.6-million or a net loss attributable to common shareholders (2) of $4.8-million (a loss per common share of five cents).
"The progress we are making to adjust our business mix and increase contributions from our global wealth management businesses is evident in our first quarter results, and we look forward to further enhancing our earnings stability following the integration of our recently announced acquisition to grow our U.K. [United Kingdom] wealth management business," said Dan Daviau, president and chief executive officer of Canaccord Genuity Group. "While we remain cautious in our outlook for near term in capital markets activities, we are encouraged by indications of broader and more sustainable economic growth, as we continue to improve our market position in all geographies where we operate."
SELECTED FINANCIAL INFORMATION EXCLUDING SIGNIFICANT ITEMS (1)
($ thousands, except per-share and per-cent amounts)
Three months ended June 30
2017 2016
Total revenue per IFRS $199,808 $206,180
Total expenses per IFRS 201,580 196,169
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Revenue
Significant items recorded in Canaccord Genuity
Realized translation gains on disposal of Singapore - 1,193
Total revenue excluding significant items 199,808 204,987
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Expenses
Significant items recorded in Canaccord Genuity
Amortization of intangible assets 580 818
Restructuring costs (2) 448 -
Significant items recorded in Canaccord Genuity Wealth Management
Amortization of intangible assets 1,324 1,405
Acquisition-related costs 2,184 -
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Total significant items 4,536 2,223
Total revenue excluding significant items 199,808 204,987
Total expenses excluding significant items 197,044 193,946
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Net (loss) income before taxes -- adjusted $2,764 $11,041
Income taxes -- adjusted 1,149 2,902
Net (loss) income -- adjusted $1,615 $8,139
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Net (loss) income attributable to common shareholders, adjusted (627) 4,300
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(Loss) earnings per common share -- basic, adjusted $(0.01) $0.05
(Loss) earnings per common share -- diluted, adjusted $(0.01) $0.05
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(1) Figures excluding significant items are non-IFRS measures.
(2) Restructuring costs for the three months ended June 30, 2017, were incurred in
connection with the closing of certain trading operations in Dublin, which formed
part of the company's United Kingdom capital markets operations.
Fellow shareholders:
During the first quarter of our 2018 fiscal year, continued uncertainty remained an important feature in global capital markets. In the U.K. and Europe, uncertainty over the political backdrop and the future path of monetary policy led to a volatile quarter despite positive returns amid stronger corporate earnings. U.S. equities advanced over the quarter, and the S&P 500 recorded a total return of 3.1 per cent, but activity levels were lower amid uncertainty that the U.S. administration will be able to deliver on its fiscally expansive policies, and small- and mid-cap equities underperformed large caps over the period. Canadian equity markets were impacted by concerns over energy and commodity markets, as well as housing market risks.
Canaccord Genuity Group earned total revenue of $199.8-million for the first fiscal quarter, a decrease of 3.1 per cent compared with the same period a year ago. While the environment did weigh on the results this quarter, we continued to make excellent progress to deliver on our strategy of increasing contributions from our global wealth management operations and focusing on our initiatives to improve stability across our operations.
Executing on our strategy: growing wealth management to stabilize headline performance
At the end of our first fiscal quarter, assets under management and administration in our global wealth management businesses grew to $39.3-billion, an improvement of 19.2 per cent compared with one year ago.
Our wealth management business in the U.K. and Europe delivered another strong quarterly performance, with a year-over-year revenue increase of 14.4 per cent. Excluding significant items, this business delivered $8.5-million of net income and a pretax profit margin of 22.2 per cent. At the end of the first quarter, assets under management totalled $25.8-billion, a year-over-year increase of 14.9 per cent. When measured in local currency, assets under management increased by 18.9 per cent compared with a year ago.
In early July, we announced that this division has agreed to acquire Hargreave Hale, a leading independent investment and wealth management business based in the United Kingdom. With this development, Canaccord Genuity Wealth management is poised to become a top-10 wealth management business in the region by assets, with even stronger growth potential from a base of 22 billion pounds. The acquisition is subject to regulatory approval and other customary closing conditions and is expected to be completed prior to the end of our third fiscal quarter. As a result of this development, the company recorded $2.2-million of acquisition-related costs. Along with the senior management of Hargreave Hale, we are confident that bringing together our shared strengths and complementary differences will allow us to unlock some larger opportunities for both businesses and deliver enhanced value for our clients and shareholders, and we expect that the business combination will be immediately accretive.
Our Canadian wealth management business also delivered a significant improvement in profitability for the first fiscal quarter. Excluding significant items, this business contributed net income of $3.2-million, or a pretax profit margin improvement of 7.4 percentage points compared with the first quarter of our last fiscal year. This improvement was driven primarily by our efforts to increase scale in this business, as revenues generated from the new assets that we have added to our platform are being more wholly reflected in our results. Excluding significant items, total expenses as a percentage of revenue in this business decreased by 7.7 percentage points, a measure we expect to continually improve as we achieve greater scale in this operation. At the end of the first fiscal quarter, assets under administration and management in our Canadian wealth management business were $12.7-billion, an improvement of 29.1 per cent, compared with the same period last year. Notably, discretionary assets under management in this business have increased by 108.8 per cent compared with the same period last year. Our recruiting efforts in this business remain on track, and we continue to attract interest from a solid pipeline of high-quality investment advisers.
Global capital markets
The robust market backdrop that characterized our fourth fiscal quarter was replaced with more subdued activity levels in global capital markets for our first quarter of fiscal 2018. That said, we supported our clients when market opportunities presented. During the first quarter of fiscal 2018, Canaccord Genuity participated in 98 investment banking transactions to raise proceeds of $12.7-billion for growth companies.
Revenue for our global capital markets business was $121.8-million, a decrease of 13.4 per cent, compared with the first quarter of our last fiscal year, primarily on lower advisory fees revenue. While still below historical levels, we experienced a modest improvement in revenue generated from investment banking activities from our operations in Canada, United States, and the U.K. and Europe. In Canada, investment banking revenue increased by 28.7 per cent compared with the first quarter of last year. Investment banking revenues in our U.S. and our U.K., Europe and Dubai operations increased by 16.8 per cent and 18.4 per cent, respectively. These gains were offset by a decrease in Australia, the first period of subdued activity following two years of strong gains, as investors transitioned away from small- and mid-cap stocks.
While our Canadian capital markets business achieved profitability during the quarter, the year-over-year decline in advisory revenues was most pronounced for this business, largely due to an exceptionally strong quarter in the prior year. Global trading revenue was down by $1.7-million compared with the same quarter last year, primarily due to lower activity in our U.K., Europe and Dubai operation. This result was partially offset by our U.S. trading operation, which delivered 5.1-per-cent-higher revenue on a year-over-year basis, a testament to this team's efforts to attract increased client flows and increase our specialty trading capability, despite reduced market activity arising from generally lower market volatility.
While fiscal and policy regulation remains uncertain, ample liquidity in emerging and developed markets gives us confidence in an improving backdrop for new listings and equity capital markets activities throughout the coming quarters. Additionally, we expect that low volatility should support a healthy merger and acquisition pipeline.
Innovating to support a vibrant marketplace for growth companies
Subsequent to the end of the quarter, Canaccord Genuity Acquisition Corp., a special-purpose acquisition company (SPAC) in Canada, was established, for which we raised $30-million in financing. This development allows us to support high-potential growth companies to gain access to investment capital and a method by which to go public, while simultaneously offering access to a broadly desirable investment vehicle to our network of retail investors across Canada. By leveraging our core capability as a leader in raising capital for growth companies, we are very well positioned to identify compelling investment opportunities, as we contribute to a vibrant marketplace for growth companies in Canada. I look forward to updating you on our progress when we introduce a qualifying acquisition.
Significant opportunities to expand long-term capability for our business in any market environment
We have consistently noted that variability of results is an inevitable feature of our global capital markets business, and therefore we focus on operating our business for long-term success and stability.
Since we began our restructuring and cost reduction activities in the third quarter of fiscal 2016, we have continued to manage our expenses carefully throughout various market backdrops, and we have improved operational efficiencies across many areas of our business. We continue to be well capitalized for investment in our key priorities, with working capital of $467.5-million and cash and cash equivalents of $521.7-million at June 30. I am also pleased to report that our board of directors has approved a cash dividend of one cent per share for the quarter.
To date, I am pleased with the steady progress we are making to adjust our business mix and strengthen our market position across our operations. While we remain cautious in the near term, we are encouraged by indications of an improving global economy, with potential for broader and more sustainable growth than we have seen in recent years. The many talented professionals that we have recruited and retained across our global capital markets operations have remained active throughout the summer months, working hard to strengthen our market position so that we can deliver for our clients when market conditions are favourable. In our wealth management operations, we continue to focus on growing assets under management and increasing contributions from fee-based accounts, which will improve net income contributions from this segment and continue to enhance our longer-term earnings stability.
Kind regards,
Dan Daviau
President and chief executive officer
Canaccord Genuity Group
Access to quarterly results information
Interested investors, the media and others may review this quarterly earnings release and supplementary financial information at the company's website.
Conference call and webcast presentation
Interested parties are invited to listen to Canaccord Genuity's first quarter fiscal 2018 results conference call, through a live webcast or a toll-free number. The conference call is scheduled for Aug. 3, 2017, at 5 a.m. Pacific Time, 8 a.m. Eastern Time, 1 p.m. U.K. time, 8 p.m. China Standard Time and 10 p.m. Australia EST. During the call, senior executives will comment on the results and respond to questions from analysts and institutional investors.
The conference call may be accessed live and archived on a listen-only basis at the company's website.
Analysts and institutional investors can call in by 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 Group Inc. first quarter 2018 results call. If a passcode is requested, please use 22448817.
A replay of the conference call will be made available from approximately two hours after the live call on Aug. 3, 2017, until Sept. 17, 2017, at 416-849-0833 or 1-855-859-2056 by entering passcode 22448817 followed by the number key.
About Canaccord Genuity Group Inc.
Through its principal subsidiaries, Canaccord Genuity Group is a leading independent, full-service financial service 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. The company has offices in 10 countries worldwide, including wealth management offices located in Canada, the U.K., Guernsey, Jersey, the Isle of Man and Australia. Canaccord Genuity, the international capital markets division, operates in Canada, the U.S., the U.K., France, Ireland, Hong Kong, China, Australia and Dubai.
(1) Figures excluding significant items are non-international financial reporting standard measures.
(2) Net (loss) income attributable to common shareholders is calculated as the net (loss) income adjusted for non-controlling interests and preferred share dividends.
(3) Before non-controlling interests and preferred share dividends.
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