Canaccord Genuity Group Inc. reports third quarter fiscal 2016 results

Excluding significant items, third quarter loss per common share of $0.25⁽¹⁾ as weakened conditions in global equity markets continue
Restructuring program and headcount reductions expected to deliver significant cost savings

(All dollar amounts are stated in Canadian dollars unless otherwise indicated)

TORONTO, Feb. 11, 2016 /CNW/ - During the third quarter of fiscal 2016, the quarter ended December 31, 2015, Canaccord Genuity Group Inc. (Canaccord Genuity, the Company, TSX: CF, LSE: CF.) generated $181.8 million in revenue. Excluding significant items ⁽¹⁾_, the Company recorded a net loss of $19.1 million or a net loss of $22.2 million attributable to common shareholders ⁽²⁾ (a loss per common share of $0.25). These results include certain charges for impairment of an investment in Canadian First Financial Group Inc. and a software development impairment charge in the aggregate amount of $6.3 million as further described below.

During the quarter the Company also recorded, as significant items, an impairment charge to the carrying value of its goodwill and other assets in the amount of $321.0 million and restructuring charges of $4.3 million.  Including the goodwill and other assets impairment charge, the restructuring expenses and other significant items (amortization of intangible assets acquired in connection with a business combination), on an IFRS basis, the Company recorded a net loss of $346.4 million or a net loss attributable to common shareholders ⁽²⁾ of $349.3 million (a loss per common share of $3.91).

"A number of cyclical factors in the broader economy continued to put pressure on revenue and negatively impacted our third quarter performance," said Dan Daviau, President & Chief Executive Officer of Canaccord Genuity Group Inc. "We are making significant progress to reposition our business, with a strategy that is centered around improving our operational efficiencies and better aligning our core strengths, so that we can return to profitability and steadily improve our bottom-line returns."

As referred to above, in addition to the recurring significant item related to amortization of intangible assets acquired in connection with a business combination, the following significant items were recorded during the third quarter of fiscal 2016:

In addition to the significant items recorded above, during the quarter the Company also recorded charges in respect of:

In response to the current business conditions and economic climate, the Company is undertaking a thorough review of its operations and cost structure.  With the restructuring program and headcount reductions described above and other cost savings initiatives, the Company has identified more than $30 million of annual costs savings that it expects to realize through fiscal 2017.  Approximately $10 million in respect of general and administrative expenses including promotion and travel, communications and technology and trading costs has been identified and approximately $20 million in respect of savings in compensation expense is expected to be realized as a result of the restructuring program described above.

Third Quarter of Fiscal 2016 vs. Third Quarter of Fiscal 2015

• Revenue of $181.8 million, an increase of 9% or $15.4 from $166.5 million
• Excluding significant items, expenses of $204.2 million, an increase of 11% or $20.1 million from $184.1 million⁽¹⁾
• Expenses of $532.5 million, an increase of 177% or $340.5 million from $192.0 million
• Excluding significant items, loss per common share of $0.25 compared to a loss per common share of $0.19⁽¹⁾
• Excluding significant items, net loss of $19.1 million compared to a net loss of $14.3 million⁽¹⁾
• Net loss of $346.4 million compared to a net loss of $21.5 million
• Loss per common share of $3.91 compared to a loss per common share of $0.27

Third Quarter of Fiscal 2016 vs Second Quarter of Fiscal 2016

• Revenue of $181.8 million, a decrease of 5% or $8.8 million from $190.6 million
• Excluding significant items, expenses of $204.2 million, an increase of 10% or $18.0 million from $186.2 million⁽¹⁾
• Expenses of $532.5 million, an increase of 182% or $343.4 million from $189.1 million
• Excluding significant items, loss per common share of $0.25 compared to a loss per common share of $0.01⁽¹⁾
• Excluding significant items, net loss of $19.1 million compared to a net income of $1.9 million ⁽¹⁾
• Net loss of $346.4 million compared to a net loss of $0.4 million
• Loss per common share of $3.91 compared to a loss per common share of $0.03

Year-to-Date Fiscal 2016 vs. Year-to-Date Fiscal 2015
(Nine months ended December 31, 2015 vs. Nine months ended December 31, 2014)

• Revenue of $586.9 million, a decrease of 10% or $61.4 million from $648.3 million
• Excluding significant items, expenses of $589.6 million, a decrease of 3% or $17.8 million from $607.4 million⁽¹⁾
• Expenses of $923.6 million, an increase of 48% or $298.0 million from $625.6 million
• Excluding significant items, loss per common share of $0.15 compared to diluted EPS of $0.20 ⁽¹⁾
• Excluding significant items, net loss of $2.7 million compared to net income of $40.9 million ⁽¹⁾
• Net loss of $335.9 million compared to net income of $15.0 million
• Loss per common share of $3.78 compared to diluted EPS of $0.05

Financial Condition at End of Third Quarter Fiscal 2016 vs. Fourth Quarter Fiscal 2015

• Cash and cash equivalents balance of $413.6 million, an increase of $91.3 million from $322.3 million
• Working capital of $408.3 million, a decrease of $18.9 million from $427.2 million
• Total shareholders' equity of $789.2 million, a decrease of $328.3 million from $1.12 billion
• Book value per diluted common share of $5.33, a decrease of $3.38 from $8.71⁽³⁾
• On February 11, 2016, the Board of Directors considered the Company's dividend policy in the context of the market environment and Canaccord's business activity and approved a suspension of the quarterly common dividend.  This suspension will be reviewed quarterly and a determination made on the basis of business conditions and profitability.
• On February 11, 2016, the Board of Directors also approved a cash dividend of $0.34375 per Series A Preferred Share payable on March 31, 2016 with a record date of March 18, 2016, and a cash dividend of $0.359375 per Series C Preferred Share payable on March 31, 2016 to Series C Preferred shareholders of record as at March 18, 2016.

SUMMARY OF OPERATIONS

Corporate

• On August 4, 2015, the Board of Directors approved the filing of an application to renew the normal course issuer bid ("NCIB") to provide for the ability to purchase, at the Company's discretion, up to a maximum of 5,163,737 common shares through the facilities of the TSX and on alternative trading systems during the period from August 13, 2015 to August 12, 2016. The purpose of any purchases under this program is to enable the Company to acquire shares for cancellation. The maximum number of shares that may be purchased represents 5.0% of the Company's outstanding common shares.  A total of 624,350 shares have been purchased and cancelled under the terms of the NCIB during the nine months ended December 31, 2015.
• In light of current market conditions the Company determined that the Company's office in Barbados was no longer required and accordingly that office was closed during the quarter.

Capital Markets

• Canaccord Genuity participated in 47 transactions globally, raising total proceeds of C$11.9 billion⁽⁴⁾ during fiscal Q3/16
• Canaccord Genuity led or co-led in 13 transactions globally, raising total proceeds of C$0.93 billion⁽⁴⁾  during fiscal Q3/16
• Significant investment banking transactions for Canaccord Genuity during fiscal Q3/16 include:
  • £2.45 billion for Worldpay Group PLC on the LSE
  • US$531.3 million for Atlassian Corporation PLC on NASDAQ
    
  • C$460.1 million for Pembina Pipeline Corporation on the TSX
    
  • C$300.0 million for National Bank of Canada on the TSX
    
  • C$250.3 million for Canadian Apartment Properties Real Estate Investment Trust on the TSX
    
  • C$200.0 million for AltaGas Ltd. on the TSX
    
  • £121 million sell down for Paysafe Group plc on the LSE
    
  • £78 million for The Renewables Infrastructure Group on the LSE
    
  • C$104.3 million for Cara Operations Limited. on the TSX
    
  • US$86.3 million for Advanced Accelerator Applications S.A. on NASDAQ
    
  • US$72.9 million for Dimension Therapeutics, Inc. on NASDAQ
    
  • £51.0 million for HICL Infrastructure Company Limited on the LSE
    
  • C$69.0 million for Pine Cliff Energy Ltd. on the TSXV
    
  • C$53.5 million for NorthWest Healthcare Properties REIT on the TSX
    
  • C$40.3 million for Dalradian Resources Inc. on the TSX
    
  • US$36.0 million for T2 Biosystems, Inc. on NASDAQ
    
  • AUD$32.0 million for Starpharma Holdings Limited on the ASX
    
  • SGD$18.4 million for Asia-Pacific Strategic Investments Limited on the SGX
    
  • AUD$18.0 million for LatAm Autos Limited on the ASX

• In Canada, Canaccord Genuity participated in raising $198.0 million for government and corporate bond issuances during fiscal Q3/16
  
• Canaccord Genuity generated advisory revenues of $37.8 million during fiscal Q3/16, an increase of $15.2 million or 67% compared to the same quarter last year
  
• During fiscal Q3/16, significant M&A and advisory transactions included :
  • Ashley Park Financial Services Corp. on its cross-border debt financing
    
  • Amica Mature Lifestyles Inc. on its C$986 million sale to BayBridge Seniors Housing Inc.
  • Corsair Capital and Palamon Capital Partners on the acquisition of Currencies Direct
    
  • Ephesus Lighting, Inc. on its sale to Eaton Corporation PLC
    
  • American Eagle Energy on its sale to Resource Energy Can-AM LLC
    
  • Linxens SAS in the €1.5 billion sale to CVC Capital Partners from Astorg Partners
    
  • Investcorp, through its investment vehicle, Orca Bidco Limited, in the £66.7 million acquisition of OpSec Security Group PLC
    
  • Response Genetics, Inc. on its sale to Cancer Genetics, Inc.
    
  • Retroficiency, Inc. on its sale to Ecova, Inc.

Canaccord Genuity Wealth Management (Global)

• Globally, Canaccord Genuity Wealth Management generated $61.8 million in revenue in Q3/16
  
• Assets under administration in Canada and assets under management in the UK & Europe and Australia were $34.4 billion at the end of Q3/16⁽³⁾

Canaccord Genuity Wealth Management (North America)

• Canaccord Genuity Wealth Management (North America) generated $25.6 million in revenue and, after intersegment allocations and before taxes, recorded a net loss of $2.4 million in Q3/16
• Assets under administration in Canada were $9.04 billion as at December 31, 2015, a decrease of 5% from $9.48 billion at the end of the previous quarter and a decrease of 12% from $10.31 billion at the end of fiscal Q3/15⁽³⁾
• Assets under management in Canada (discretionary) were $1.26 billion as at December 31, 2015, a decrease of 7% from $1.36 billion at the end of the previous quarter and a decrease of 12% from $1.44 billion at the end of fiscal Q3/15⁽³⁾
• Canaccord Genuity Wealth Management had 140 Advisory Teams⁽⁵⁾,^{a decrease of one Advisory Team from September 30, 2015 and a decrease of 21 from December 31, 2014}

Canaccord Genuity Wealth Management (UK & Europe)

• Wealth management operations in the UK & Europe generated $35.0 million in revenue and, after intersegment allocations, and excluding significant items, recorded net income of $6.5 million before taxes in Q3/16⁽¹⁾
• Assets under management (discretionary and non-discretionary) were $24.5 billion (£11.9 billion)^{as at December 31, 2015, an increase of 7% from $22.9 billion (£11.4 billion) at the end of the previous quarter and an increase of 21% from $20.3 billion (£11.2 billion) from December 31, 2014(3).  In local currency (GBP), these increases were 4% and 6% respectively.}

Non-IFRS Measures

The non-International Financial Reporting Standards (IFRS) measures presented include assets under administration, assets under management, book value per diluted common share and figures that exclude significant items. Significant items include restructuring costs, amortization of intangible assets acquired in connection with a business combination, impairment of goodwill and other assets and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions. Book value per diluted common share is calculated as total common shareholders' equity divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments and, commencing in Q1/14, adjusted for shares purchased under the NCIB and not yet cancelled and estimated forfeitures in respect of unvested share awards under share-based payment plans.

Management believes that these non-IFRS measures will allow for a better evaluation of the operating performance of the Company's business and facilitate meaningful comparison of results in the current period to those in prior periods and future periods. Figures that exclude significant items provide useful information by excluding certain items that may not be indicative of the Company's core operating results. A limitation of utilizing these figures that exclude significant items is that the IFRS accounting effects of these items do in fact reflect the underlying financial results of the Company's business; thus, these effects should not be ignored in evaluating and analyzing the Company's financial results. Therefore, management believes that the Company's IFRS measures of financial performance and the respective non-IFRS measures should be considered together.

(1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures above.
n.m.: not meaningful

Fellow Shareholders:

During our third fiscal quarter, numerous cyclical factors and persistent broad market volatility materially impacted our industry and continued to put pressure on activity levels in many areas of our business. While we have announced restructuring measures, we continue to use this period productively, to reposition our global operations for long-term success.

For the third fiscal quarter of 2016, Canaccord Genuity Group Inc. earned revenue of $181.8 million. Excluding significant items, the company recorded a net loss of $19.1 million, which translated into a loss per common share of $0.25. While revenues for the period increased by $15.4 million, or 9% when compared to the same period last year, the net loss was primarily attributable to certain software development charges, an impairment loss in our investment in Canadian First Financial Group Inc. and higher compensation expenses as a percentage of revenue.

From 2010 to 2012, we made strategic acquisitions which have helped us successfully expand our global footprint and deliver differentiated service levels for our clients. Since that period, changes in global economic conditions led to operating losses and reduced our revenue forecasts, such that the Company incurred goodwill impairment charges of $321.0 million with respect to our global capital markets operations. We continue to see material value in these operations over a cycle, however, accounting standards require a fair value test during a time that we perceive to be the bottom of a cycle.

The performance we are reporting today is not what we are accustomed to seeing for our industry or for our business. Importantly, it does not reflect the vision we have for our company going forward.

Positioning our business for stronger bottom line performance

We are moving aggressively to streamline our company and drive operating efficiencies. During the quarter, we took steps to rationalize our global infrastructure and exit underperforming business lines, so that we can significantly reduce our fixed cost base and stabilize our business for the future. While these developments will negatively impact our results in the near term, we expect to realize over $30 million in annualized savings in the next fiscal year.

While our review of operations is still ongoing, we have made steady progress in reducing general and administrative, communication and technology and trading costs across our operations.  We have also taken steps to focus our business in the areas where we can achieve dominance as an independent midmarket global investment bank. As a result of these developments, approximately 125 professionals, or 12% of our workforce from front and back office operations in our Canadian, US and UK & Europe Capital Markets businesses have left or will be leaving the firm under various termination arrangements throughout the remainder of fiscal 2016.

Following a careful review of the impact the market environment has had on our business activity, the Board of Directors made the prudent decision to suspend our quarterly common share dividend.  We remain committed to returning capital to our shareholders and look forward to reinstating this dividend payment under more positive market conditions and when profitability returns.

We believe these actions are in the best interests of the Company and our shareholders. Looking ahead, we expect to maximize shareholder value by creating a more efficient and aligned global business, while making disciplined investments in our key focus areas so that we can optimize our client relationships and provide meaningful opportunities for our employees.

Aligning global Capital Markets operations to improve cross-border capabilities and return to profitability

In the third quarter of fiscal 2016, Canaccord Genuity participated in 60 transactions and raised total proceeds of $12.8 billion for our clients.

Revenues for our capital markets business were $122.1 million, an increase of 18% from the same period a year ago, with the strongest contribution coming from our US operations, driven mainly by higher advisory and principal trading activity. Global advisory fees increased by $15.2 million or 67% compared to the same period last year, with the most significant contribution from our Canadian operations.  Market conditions continued to challenge investment banking activity during the quarter and revenues for this segment of our global capital markets business were 24% lower on a year-over-year basis.

Our Canadian capital markets division experienced the most notable year-over-year decline in investment banking activity and recorded a 34% drop in revenues during the fiscal third quarter. While ECM activity in the region hit its lowest level since 2001, Canaccord Genuity retained its position as the top independent book runner in the region for the 2015 calendar year. Looking ahead, we will continue to leverage our strategic position in this market to deliver on our mission to be the dominant independent investment bank in Canada.

Revenue in our UK & Europe operations increased by 24% on a year over year basis, driven by higher advisory and principal trading activity. This performance was offset by higher expense levels primarily related to compensation expense. Subsequent to the quarter, we took steps to focus our operations and better align this business to become a stronger, long-term contributor to our global franchise. The restructuring initiatives we announced today will create a leaner, more focused midmarket securities and investment banking business, capable of delivering stronger returns in the next fiscal year.

I am also pleased to announce that Quest®, Canaccord Genuity's proprietary offering of online analytical tools, valuation models and market commentary will soon be rolled out internationally. Based on the success of the initial launch in the UK & Europe earlier this year, we expect this to provide opportunities for revenue growth and a valuable tool for enhancing our client relationships.

Revenue in our Asia-Pacific capital markets business increased by 15%, predominantly driven by increased business activity in our Australian operations. This business has steadily improved its performance since our initial investment in 2011. Looking ahead, we expect to be able to leverage the strength of our diversified Australian capital markets business to further integrate these operations and improve our strength in the region.

While the market environment continues to impact activity levels in our capital markets business, we are working to align our core offerings across our global operations with a focus on cross-selling opportunities, which will deepen our relationships with top-tier clients and ultimately, strengthen our profitability.  We are also fortunate to have cultivated a pipeline of activity in all of our primary markets, and are well positioned to successfully execute on these mandates when market conditions permit.

Wealth Management

Globally, Canaccord Genuity Wealth Management generated revenue of $61.8 million during the quarter.

While we continue to experience growth in our fee-based and proprietary asset management offerings, the ongoing weakness in investment banking activity continues to put pressure on commissions and fees for our Canadian wealth management business, a key distribution channel for our capital markets transactions. Despite challenging market conditions, we maintain a strong focus on attracting and retaining high quality advisors, investing in training programs and building a comprehensive suite of high quality products to help advisors grow their businesses.

In our UK wealth management business, we continue to attract new assets, which directly support our recurring revenue growth. Client holdings in our in-house investment management products exceed $1 billion and are attracting growing interest from domestic intermediaries and international fund companies. Additionally, we are increasingly attracting established and reputable professionals to our differentiated platform and have welcomed three senior advisors to our London and Isle of Man wealth management operations during the quarter.  We continue to actively review opportunities to strategically expand this business to improve its contribution to our performance.

Strengthening alignment with our shareholders to improve our net-income focus

Our independence provides a level of agility in our business that allows us to stay competitive and exceed our clients' expectations while adjusting to new market realities.

Reducing our costs is an important priority. We remain diligent on expenses and are carefully reviewing our staffing mix, to ensure that our business is appropriately positioned for success in our operating environment.  With an enhanced leadership team in place, we are actively examining additional opportunities to improve efficiencies across our organization. Our renewed commitment to managing our costs is not in response to the changes in our operating environment- this is quite simply how we intend to manage our business from now on. Additionally, we will continue to adjust our long-term incentive plan structure, to better align our compensation strategy with our performance.

We are acutely aware that we are operating in a new reality. Canaccord Genuity has an outstanding set of assets to draw upon - a more integrated business model, an established track record of delivering world-class ideas and solutions for our clients, ample working capital and a leadership team that is closely aligned with our shareholders through direct investment and a stronger net income focus.

While we reshape our business to perform in a continuously evolving market environment, we will also make careful adjustments to our global brand strategy, to ensure that our corporate identity resonates strongly with current and prospective clients, employees and shareholders.

In any market environment, we are focused and committed to improving long-term shareholder value. By continuing to strategically reposition our business in this challenging market, I am confident that Canaccord Genuity is well positioned to emerge as the dominant independent midmarket investment bank and wealth management firm, capable of improving our revenues, achieving above-average market share and delivering growing long-term returns for our shareholders.

Kind regards,

Dan Daviau
President & CEO
Canaccord Genuity Group Inc.

ACCESS TO QUARTERLY RESULTS INFORMATION
Interested investors, the media and others may review this quarterly earnings release and supplementary financial information at http://www.canaccordgenuitygroup.com/EN/IR/Pages/default.aspx.

CONFERENCE CALL AND WEBCAST PRESENTATION
Interested parties are invited to listen to Canaccord Genuity's fiscal third quarter 2016 results conference call, via live webcast or a toll free number. The conference call is scheduled for Friday, February 12, 2016 at 5:00 a.m. Pacific time, 8:00 a.m. Eastern time, 1:00 p.m. UK time, 9:00 p.m. China Standard Time, and on February 13, 2016, at 12:00 am 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 via the Internet at: http://www.canaccordgenuitygroup.com/EN/NewsEvents/Pages/Events.aspx.

Analysts and institutional investors can call in via telephone at:

• 647-427-7450 (within Toronto)
• 1-888-231-8191 (toll free in North America)
• 0-800-051-7107 (toll free from the UK)
• 1-800-760-620 (toll free from Ireland)
• 0-800-917-449 (toll free from France)
• 0-800-183-0171 (toll free from Germany)
• 10-800-714-1191 (toll free from Northern China)
• 10-800-140-1195 (toll free from Southern China)
• 1-800-287-011 (toll free from Australia)

Please request to participate in Canaccord Genuity Group Inc.'s Q3/16 earnings call. If a passcode is requested, please use 14912660.

A replay of the conference call will be available on February 12, 2016, after 8:00 a.m. (Pacific Time), 11:00 a.m. (Eastern Time)4:00 p.m. (UK Time), and on February 13, 2016, at 12:00 a.m. (China Standard Time) and at 3:00 a.m. (Australia EST Time) until April 15, 2016 at 416-849-0833 or 1-855-859-2056 by entering passcode 14912660 followed by the pound (#) sign.

ABOUT CANACCORD GENUITY GROUP INC.:
Through its principal subsidiaries, Canaccord Genuity Group Inc. (the Company) 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. We achieve this by generating value for our 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, Australia, the UK , Guernsey, Jersey, and the Isle of Man. Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, France, Ireland, Hong Kong, China, Singapore, Australia and Dubai. To us there are no foreign markets.^TM

Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX and the symbol CF. on the London Stock Exchange. Canaccord Genuity Series A Preferred Shares are listed on the TSX under the symbol CF.PR.A. Canaccord Genuity Series C Preferred Shares are listed on the TSX under the symbol CF.PR.C.

______________________________________
^{1 Figures excluding significant items are non-IFRS measures.  See Non-IFRS measures above.
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 See Non-IFRS Measures above.
4 Source: Transactions over $1.5 million. Internally sourced information.
5 Advisory Teams are normally comprised of one or more Investment Advisors (IAs) and their assistants and associates, who together manage a shared set of client accounts. Advisory Teams that are led by, or only include, an IA who has been licensed for less than three years are not included in our Advisory Team count, as it typically takes a new IA approximately three years to build an average-sized book of business.}  

SOURCE Canaccord Genuity Group Inc.

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