Mr. Dan Daviau reports
CANACCORD GENUITY GROUP INC. REPORTS SECOND QUARTER FISCAL 2018 RESULTS
During the second quarter of fiscal 2018, the quarter ended Sept. 30, 2017, Canaccord Genuity Group Inc. generated $191.5-million in revenue. Excluding significant items (1), the company recorded net income (3) of $3.5-million or net income of $1.0-million attributable to common shareholders (2) (earnings per common share of one cent). In September, the company completed the acquisition of Hargreave Hale Ltd. and recorded as significant items acquisition-related costs and certain restructuring expenses in connection with the transaction. Including all significant items, on an international financial reporting standard basis, the company recorded a net loss (3) of $7.3-million or a net loss attributable to common shareholders (2) of $9.8-million (a loss per common share of 11 cents).
"Our fiscal second quarter results reflect the increasing stability that our global wealth management operations are capable of delivering against a challenging backdrop for mid-market investment banking and advisory activity," said Dan Daviau, president and chief executive officer of Canaccord Genuity Group. "We are encouraged by improving activity levels heading into the second half of our fiscal year, and we look forward to delivering improving returns and stronger long-term stability for our shareholders."
Second quarter of fiscal 2018 versus second quarter of fiscal 2017:
-
Revenue of $191.5-million, a decrease of 1.1 per cent or $2.1-million from $193.6-million;
- Excluding significant items, expenses of $186.2-million, a decrease of 2.4 per cent or $4.5-million from $190.7-million
(1);
- Expenses of $198.6-million, an increase of 3.0 per cent or $5.8-million from $192.8-million;
- Excluding significant items, earnings per common share of one cent compared with a loss per common share of three cents
(1);
- Excluding significant items, net income (3) of $3.5-million compared with net income (3) of $2.0-million
(1);
- Net loss (3) of $7.3-million compared with net income (3) of $200,000;
- Loss per common share of 11 cents compared with a loss per common share of five cents.
Second quarter of fiscal 2018 versus first quarter of fiscal 2018:
-
Revenue of $191.5-million, a decrease of 4.1 per cent or $8.3-million from $199.8-million;
- Excluding significant items, expenses of $186.2-million, a decrease of 5.5 per cent or $10.8-million from $197.0-million
(1);
- Expenses of $198.6-million, a decrease of 1.5 per cent or $3.0-million from $201.6-million;
- Excluding significant items, earnings per common share of one cent compared with a loss per common share of one cent (1);
- Excluding significant items, net income (3) of $3.5-million compared with net income (3) of $1.6-million
(1);
- Net loss (3) of $7.3-million compared with a net loss (3) of $2.6-million;
- Loss per common share of 11 cents compared with a loss per common share of five cents.
Year-to-date fiscal 2018 versus year-to-date fiscal 2017 (six months ended Sept. 30, 2017, versus six months ended Sept. 30, 2016):
-
Revenue of $391.4-million, a decrease of 2.1 per cent or $8.4-million from $399.8-million;
- Excluding significant items, expenses of $383.2-million, a decrease of 0.4 per cent or $1.4-million from $384.6-million
(1);
- Expenses of $400.2-million, an increase of 2.9 per cent or $11.2-million from $389.0-million;
- Excluding significant items, diluted earnings per share of nil compared with diluted EPS of two cents
(1);
- Excluding significant items, net income (3) of $5.2-million compared with net income of $10.1-million
(1);
- Net loss (3) of $9.8-million compared with net income (3) of $7.7-million;
- Loss per common share of 16 cents compared with a loss per common share of one cent.
Financial condition at end of second quarter fiscal 2018 versus fourth quarter fiscal 2017:
-
Cash and cash equivalents balance of $543.1-million, a decrease of $134.7-million from $677.8-million;
- Working capital of $464.7-million, a decrease of $23.8-million from $488.5-million;
- Total shareholders' equity of $720.4-million, a decrease of $44.4-million from $764.8-million;
- Book value per diluted common share of $4.74, a decrease of 34 cents from $5.08
(4);
- On Nov. 7, 2017, the board of directors approved a dividend of one cent per common share, payable on Dec. 15, 2017, with a record date of Dec. 1, 2017;
- On Nov. 7, 2017, the board of directors approved the following cash dividends: 24.281 cents per Series A preferred share payable on Jan. 2, 2018, with a record date of Dec. 22, 2017; and 31.206 cents per Series C preferred share payable on Jan. 2, 2018, with a record date of Dec. 22, 2017.
SELECTED FINANCIAL INFORMATION EXCLUDING SIGNIFICANT ITEMS (1)
($ thousands, except per-share and per-cent amounts)
Three months ended Six months ended
Sept. 30, Sept. 30,
2017 2016 2017 2016
Total revenue per IFRS $191,547 $193,602 $391,355 $399,782
Total expenses per IFRS $198,613 $192,845 $400,193 $389,014
-------- -------- -------- --------
Revenue
Significant items recorded in Canaccord Genuity
Realized translation gains on disposal of
Singapore - - - 1,193
Total revenue excluding significant items 191,547 193,602 391,355 398,589
-------- -------- -------- --------
Expenses
Significant items recorded in Canaccord Genuity
Amortization of intangible assets 579 827 1,159 1,646
Restructuring costs (2) 4,256 - 4,704 -
Significant items recorded in Canaccord Genuity
Wealth management
Amortization of intangible assets 1,262 1,323 2,586 2,727
Restructuring costs (2) 2,000 - 2,000 -
Acquisition-related costs 4,364 - 6,548 -
-------- -------- -------- --------
Total significant items 12,461 2,150 16,997 4,373
Total expenses excluding significant items 186,152 190,695 383,196 384,641
-------- -------- -------- --------
Net income before taxes -- adjusted $5,395 $2,907 $8,159 $13,948
Income taxes -- adjusted 1,847 899 2,996 3,801
Net income -- adjusted $3,548 $2,008 $5,163 $10,147
-------- -------- -------- --------
Net income (loss) attributable to common shareholders, adjusted 970 (2,481) 343 1,819
-------- -------- -------- --------
Earnings (loss) per common share -- basic, adjusted $0.01 $(0.03) $0.00 $0.02
Earnings (loss) per common share -- diluted, adjusted $0.01 $(0.03) $0.00 $0.02
-------- -------- -------- --------
(1) Figures excluding significant items are non-international financial reporting standard
measures.
(2) Restructuring costs for the six months ended Sept. 30, 2017, related to termination
benefits incurred as a result of the closing of certain trading operations in the company's
United Kingdom and European capital markets operations, and staff reductions in the company's
Canadian and U.S. capital markets operations, as well as real estate and other integration
costs related to the acquisition of Hargreave Hale.
Fellow shareholders:
Canaccord Genuity Group earned revenue of $192-million for our second quarter of fiscal 2018. While we are encouraged by the improving momentum for small- and mid-cap global growth equities that began in late September, the operating environment we witnessed for most of the three-month period was in many respects a continuance of the conditions we experienced in our first fiscal quarter, with the added impact of the typical summer slowdown in North American markets.
Despite this being a challenging period for capital markets activities in most of our regions, I would like to highlight the positive impact that our strategic shift to strengthening contributions from our global wealth management operations has contributed to our overall results. Excluding significant items (1), net income for the three-month period was $3.5-million, and diluted earnings per share were one cent, improvements of 77 per cent and 133 per cent, respectively, when compared with the similar revenue environment that we experienced in the same period last year.
Driving long-term stability for our shareholders requires a disciplined focus on achieving a balance that will also allow us to deliver more consistent results from our global capital markets operations. During the quarter, we incurred restructuring costs of $6.3-million, of which $4.3-million was attributable to our realignment efforts in our U.S. and Canadian capital markets businesses, with the balance related to our acquisition of Hargreave Hale. Additionally, cost containment continues to be an important priority across our operations. Excluding significant items (1), expenses as a percentage of revenue decreased by 1.3 percentage points year over year. Non-compensation-related operating expenses decreased a further 4 per cent, and our firmwide general and administrative expenses declined by 7 per cent, when compared with the same period last year.
Wealth management: added scale marks an important point in our journey to long-term stability
Our global wealth management operations earned combined revenue of $70-million in the second quarter, a year-over-year improvement of 9 per cent. At the end of the three-month period, total assets under management and administration for Canaccord Genuity Wealth Management grew to $55-billion.
Following the closing of our acquisition of Hargreave Hale on Sept. 18, our wealth management business in the U.K. and Europe ended the quarter with a significant increase in assets under management to $41-billion, cementing its position as a top-10 wealth manager by assets in the region. Fee-related revenue in this business increased to 73 per cent, from 71 per cent a year ago. While the revenue and profitability associated with the increase in client assets from the Hargreave Hale acquisition will be more wholly reflected in our next fiscal quarter, the business has continued to post impressive asset growth and fund sales as we progress with our integration efforts. This acquisition closed on Sept. 18 and has contributed roughly two million pounds sterling in second quarter revenue for our wealth management business in the U.K. and Europe.
Our Canadian wealth management business earned revenue of $32-million for the second quarter, an improvement of 8 per cent compared with the same period last year. Assets under management and administration in this business reached $12.8-billion, a year-over-year improvement of 24 per cent.
With an added benefit from strengthening market valuations, results in this business were driven by steady execution of our strategy of investing in and developing our talent pool to facilitate the delivery of a differentiated service model. At the end of our second fiscal quarter, average book size per advisory team improved by 21 per cent compared with a year ago. Discretionary assets in this business increased by 121 per cent year over year, which helped lift the percentage of fee-related revenue in this business to 42 per cent for our second fiscal quarter.
(1) Figures excluding significant items are non-IFRS measures.
Our recent achievements have led to an increased pipeline of recruiting activity in our Canadian wealth management business, and we are attracting growing interest from advisory teams in all regions across Canada. We are also continuing to explore opportunities to expand our Australian wealth management operations.
Global capital markets: positioned for stronger performance as the mid-market environment improves
In late September, relative performance of the S&P Global Small Cap Index began to show a positive upturn, having lagged the Global Large Cap Index for most of the calendar year. We see this as an encouraging indication that the environment for growth stocks is improving.
For most of the three-month period, global new issue activity for small- and mid-cap equities posted further declines from the previous quarter, and the impact of this was most notable in our Canadian and U.S. capital markets businesses. Headwinds from low volatility, low rates and a flat yield curve also impacted trading volumes across our operations. For our second fiscal quarter, revenue for our global capital markets division was $119-million.
Our U.K. and Europe capital markets business delivered a profitable quarterly result on improved investment banking and advisory activity. On a year-over-year basis, second quarter revenue in this operation improved by 24 per cent. As the realities of Brexit draw near, our teams in the region have been productive in several transactions that leverage our unique cross-border capabilities and relationships to help companies in the U.K. secure investment and partnerships from across Europe. In Australia, activity levels have begun to regain momentum following a period of subdued activity in the previous quarter, a result of a significant rotation out of small-cap equities. Second quarter investment banking activity in this region was broadly in line with historical levels, and revenue for the second quarter improved by 210 per cent sequentially, which helped this business deliver a pretax profit margin of 11 per cent.
Second quarter performance from our Canadian and U.S. operations was weaker in part due to the typical summer slowdown, and also as a result of the lower levels of mid-market equity issuance that took place across our industry in both regions. During the quarter, we made some staffing reductions in both businesses in the interest of fostering a more intensive focus on driving profitability in core focus areas, while paring back on strategies that have been difficult to scale in the current market environment.
On a positive note, advisory revenues earned by our U.S. business for the first half of fiscal 2018 were 7 per cent higher than the same period last year. This team has leveraged our strengths in the health care and technology sectors to build a solid pipeline of advisory work, which is a strong complement to our equity capital markets activities in the region. Our U.S. equities business has also continued to gain market share in the region, despite the softer trading environment. In Canada, our origination teams have been actively leveraging our strengths as the leading independent mid-market investment bank to help entrepreneurs access growth capital in emerging high-growth sectors with notable activity in the cannabis and fintech segments. Our recent establishment of Canaccord Genuity Acquisition Corp. as an alternative vehicle to access public markets has also attracted interest from numerous entrepreneurs with established businesses and strong growth potential.
Each of our operations in Canada, the United States, Australia, U.K., Europe and Dubai has its own distinct regional advantages, but our global capabilities are an extraordinary differentiator and an important competitive advantage for our business. Across our global capital markets operations, activity levels heading into our third fiscal quarter are markedly stronger than in the first half of the year. Strengthening commodity prices helped to lift the Toronto Stock Exchange to near-record levels in October, which bodes well for activities in our Canadian and Australian capital markets businesses. We are also progressing with the establishment of ancillary businesses within our capital markets operations, which will allow us to capture greater efficiencies from our existing infrastructure, while offering a broader suite of products and services to our existing client base.
Finally, I would like to provide an update on our expectations for the coming implementation of MiFID II. First and foremost, we have developed a strategy to capitalize on our commitment to producing the highly focused research and strong trade execution that add the greatest value for our buy-side clients and gives us confidence in our ability to continue to attract commissions. Given our material U.K. presence, we have been preparing for this development for some time, and we have been having an active dialogue with our clients around pricing and their approach to MIFID II payment mechanisms. We expect limited impact to our capital markets business once this change is implemented. With the added benefit of our proprietary stock screening and idea generation tool, Quest, we also see opportunities to provide enhanced offerings for existing and new clients.
A balanced business model puts us on track for greater earnings stability through the cycle
This was a pivotal quarter for our organization, as we added meaningful scale in our global wealth management operations, a strategy we will continue to build upon and one which will deliver improved long-term stability for our shareholders.
Looking ahead, we maintain a constructive outlook for investment banking and advisory activity. Our unique global mid-market capabilities strengthen our competitive position in all our regions, and the backdrop for our core focus sectors is healthy. With our efforts to better focus and align our operations, and the new and improving contributions from our wealth management businesses, I am confident that market-driven challenges are more navigable for our business than ever before.
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.
Quarterly conference call and webcast
Interested parties are invited to listen to Canaccord Genuity's second quarter conference call, through a live webcast or a toll-free number. The conference call is scheduled for Nov. 8, 2017, at 5 a.m. Pacific Time, 8 a.m. Eastern Time, 12 p.m. U.K. time, 9 p.m. China Standard Time and 12 a.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 second quarter 2018 results call. If a passcode is requested, please use 93950590.
A replay of the conference call will be made available from approximately two hours after the live call on Nov. 8, 2017, until Dec. 22, 2017, at 416-849-0833 or 1-855-859-2056 by entering passcode 93950590 followed by the number sign.
About Canaccord Genuity Group Inc.
Through its principal subsidiaries, Canaccord Genuity Group 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. It achieves this by generating value for its individual, institutional and corporate clients through comprehensive investment solutions, brokerage services and investment banking services. 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.
(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.
(4) A non-IFRS measure.
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