Mr. Dan Daviau reports
CANACCORD GENUITY GROUP INC. REPORTS FIRST QUARTER FISCAL 2021 RESULTS
Canaccord Genuity Group Inc. has released its financial results for the first fiscal quarter ended June 30, 2020.
"Our performance for the fiscal first quarter reflects our agile and defensive business mix that allows us to shift resources, where needed, to ensure excellent client experiences in any environment," said Dan Daviau, president and chief executive officer of Canaccord Genuity Group. "We achieved record quarterly revenues, with all businesses contributing to our profitability, and, in keeping with our commitment to increase shareholder returns, we increased our quarterly common share dividend by 10 per cent."
First fiscal quarter highlights
(all dollar amounts are stated in thousands of dollars unless otherwise indicated):
First quarter revenue of $377.7-million, highest quarterly revenue on record;
Quarterly investment banking revenue increased 30 per cent year over year, driven by strong new-issue activities across all geographies with increased activity levels in the life science, technology and mining sectors;
Australian capital market business delivered record revenue of $42.5-million, reflecting stronger investment banking activity across small-cap focus sectors, with established leadership in mining;
Excluding significant items (1), diluted earnings per common share for the first fiscal quarter were 25 cents per share (22 cents per share on an international financial reporting standard basis);
Excluding significant items (1), 48 per cent of diluted earnings per share contributed by global wealth management operations;
Total client assets in global wealth management business increased to $68.9-billion, an increase of 13.4 per cent from fourth quarter 2020;
First quarter common share dividend of 5.5 cents per common share.
Three months ended
June 30 June 30 March 31
(Q1 2021) (Q1 2020) (Q4 2020)
Revenue $377,728 $325,508 $319,648
First fiscal quarter highlights -- adjusted (1)
Expenses -- excluding significant items (1) $335,965 $286,978 $294,703
Earnings per common share -- diluted, excluding significant items (1) $0.25 $0.23 $0.17
Net income -- excluding significant items (1) $32,897 $30,654 $21,451
Net income attributable to common shareholders -- excluding
significant items (1, 3) $29,065 $28,218 $19,142
First fiscal quarter highlights -- IFRS
Expenses $340,674 $294,156 $289,430
Earnings per common share -- diluted $0.22 $0.18 $0.21
Net income (2) $28,964 $24,290 $26,246
Net income attributable to common shareholders (3) $25,132 $21,854 $23,937
(1) Figures excluding significant items are non-international financial reporting standard measures.
See non-IFRS measures on page 6 of management's discussion and analysis.
(2) Before non-controlling interests and preferred share dividends.
(3) Net income attributable to common shareholders is calculated as the net income adjusted for
non-controlling interests and preferred share dividends.
Core business performance highlights
Canaccord Genuity wealth management
The company's combined global wealth management operations earned revenue of $137.9-million for the first fiscal quarter, a year-over-year increase of 6.3 per cent. Excluding significant items (1), the pretax net income contribution from this segment increased by 4.4 per cent year over year to $24.3-million:
Wealth management operations in the United Kingdom and Europe generated $68.0-million in revenue and, after intersegment allocations, and excluding significant items (1), recorded net income of $16.0-million before taxes in first quarter 2021 up from $13.0-million for fourth quarter 2020.
Canaccord Genuity wealth management (North America) generated $57.0-million in revenue and, after intersegment allocations, recorded net income of $7.6-million before taxes in first quarter 2021 up from $2.7-million for fourth quarter 2020.
Wealth management operations in Australia generated $13.0-million in revenue and, after intersegment allocations and excluding significant items (1), recorded net income of $700,000 before taxes in first quarter 2021 down slightly from $900,000 for fourth quarter 2020.
First quarter revenue in the company's U.K. and European wealth management business decreased by 5.5 per cent compared with first quarter 2020, mainly driven by a decline in fee-based revenue resulting from slightly lower market values for client assets due to current market conditions and reduced interest income due to lower rates. Despite the decline in revenue, pretax income excluding significant items (1) increased by 14.2 per cent compared with the three months ended June 30, 2019, due to a decrease in overhead expenses. On an adjusted (1) basis, the pretax profit margin was 23.6 per cent, an increase of 4.1 percentage points year over year, and an increase of 3.2 percentage points from the average for fiscal 2020.
Revenue in the company's North American wealth management business decreased slightly by 1.5 per cent in first quarter 2021 compared with the same period in the prior year. The pretax profit margin was 13.3 per cent, a decline of 2.7 percentage points from first quarter 2020 although an increase of 2.5 percentage points from the average for fiscal 2020.
The Australian wealth management operations earned revenue of $13.0-million and pretax income excluding significant items (1) of $700,000 in the first quarter of fiscal 2021, reflecting contributions from the acquisition of Patersons Securities Ltd. in third quarter 2020.
Total client assets in the company's global wealth management businesses at the end of the first fiscal quarter amounted to $68.9-billion:
Client assets in North America were $22.2-billion as at June 30, 2020, an increase of 20.6 per cent from $18.4-billion at the end of the previous quarter and an increase of 4.8 per cent from $21.2-billion at June 30, 2019.
Client assets in the U.K. and Europe were $43.6-billion (25.9 billion pounds sterling) as at June 30, 2020, an increase of 9.2 per cent from $39.9-billion (22.7 billion pounds sterling) at the end of the previous quarter and a decrease of 4.4 per cent from $45.6-billion (27.4 billion pounds sterling) at June 30, 2019.
Client assets in Australia were $3.1-billion ($3.3-billion (Australian)) as at June 30, 2020, an increase of 27.7 per cent from $2.4-billion ($2.8-billion (Australian)) at the end of the previous quarter. In addition, client assets totalling $11.8-billion are also held in other accounts on the Australian wealth management trading platform.
Canaccord Genuity capital markets
Excluding significant items (1), this segment contributed pretax net income of $34.4-million for the quarter, an improvement of 68.4 per cent compared with the same period in the previous fiscal year. Globally, Canaccord Genuity capital markets earned first fiscal quarter revenue of $234.9-million, an increase of 23.6 per cent compared with the same period a year ago:
Canaccord Genuity capital markets led or co-led 79 investment banking transactions globally, raising total proceeds of $2.3-billion during fiscal first quarter 2021.
Canaccord Genuity capital markets, including led or co-led, participated in 133 investment banking transactions globally, raising total proceeds of $15.8-billion during fiscal first quarter 2021.
Revenue in the company's U.S. capital market business increased by 20.8 per cent for the three months ended June 30, 2020, compared with first quarter 2020. This included an increase of $32.3-million in principal trading revenue over first quarter 2020 and an increase of $10.4-million in commissions and fees revenue, both increases attributable to the increased levels of trading volumes during the quarter. Investment banking revenue in this business increased by 4.6 per cent year over year, reflecting robust new-issue activity, particularly in the health care and technology sectors. These increases were partially offset by a decline in advisory fees of $24.1-million from first quarter 2020.
Revenue in the company's Australia operations increased from $9.2-million in first quarter 2020 to $42.5-million in the first quarter of fiscal 2021. The significant increase in the current quarter was largely driven by increased investment banking activity in the company's focus sectors, including mining and resource companies, and includes unrealized gains in certain inventory and warrant positions earned in respect of investment banking activity.
First quarter revenue in the company's Canadian capital market operation increased by 41.1 per cent when compared with the most recent fiscal quarter but decreased by $9.0-million or 14.1 per cent year over year, when compared with the exceptionally strong performance in first quarter 2020. Investment banking revenue for the three-month period was 122.8 per cent higher than in the most recent fiscal quarter.
The U.K. and European capital market business achieved a revenue increase of 4.8 per cent year over year. Despite a softer environment for advisory activities in the region, investment banking and principal trading revenues increased by 205.6 per cent and 52.1 per cent, respectively. Pretax profit was $1.0-million for the three months ended June 30, 2020, compared with a loss of $200,000 in the same period a year ago.
Summary of corporate developments
On June 11, 2020, the company announced that Gene McBurney has been appointed to lead the firm's investment banking efforts in Latin America and the Caribbean and enhance its market-leading mining franchise.
Total compensation expense as a percentage of revenue increased from 59.9 per cent in first quarter 2020 and 60.3 per cent in fiscal 2020 to 66.9 per cent in first quarter 2021. The increase in the compensation ratio for the current quarter was due to an increase in the fair value of performance share units (PSUs) granted in prior periods as a component of the company's overall executive compensation program. The fair value of the PSUs is based upon progress against certain predetermined three-year performance metrics, including share price relative to the market, as measured at the time of vesting. The PSUs are awarded annually, vest after three years and are paid in cash at the time of vesting in an amount calculated with reference to the share price at the time of vesting, and, accordingly, the value will vary with share price performance. Changes to the fair value of the PSUs as measured in future periods may increase or decrease from the fair value as recorded at June 30, 2020, and such changes will be recorded through compensation expense.
Results for the first quarter of fiscal 2021 were impacted by the following significant items:
Amortization of intangible assets acquired in connection with business combinations;
Certain incentive-based costs related to the acquisitions and growth initiatives in the U.K. and European wealth business.
In addition, the company's effective tax rate returned to a normalized level of 22 per cent, following the recognition of deferred tax assets in fiscal 2020 that had previously been unrecognized due to historical losses.
Financial condition at the end of first quarter fiscal 2021 versus fourth quarter of fiscal 2020:
Cash and cash equivalents balance of $782.3-million, a decrease of $214.8-million from $997.1-million;
Working capital of $543.1-million, a decrease of $4.2-million from $547.3-million;
Total shareholders' equity of $918.0-million, a decrease of $10.6-million from $928.6-million.
Common and preferred share dividends
On Aug. 5, 2020, the board of directors approved a dividend of 5.5 cents per common share, payable on Sept. 10, 2020, with a record date of Aug. 28, 2020.
On Aug. 5, 2020, the board approved a cash dividend of 24.281 cents per Series A preferred share payable on Sept. 30, 2020, to Series A preferred shareholders of record as at Sept. 18, 2020.
On Aug. 5, 2020, the board approved a cash dividend of 31.206 cents per Series C preferred share payable on Sept. 30, 2020, to Series C preferred shareholders of record as at Sept. 18, 2020.
Access to quarterly results information
Interested investors, the media and other stakeholders may review the earnings release and supplementary financial information at the company's website.
Quarterly conference call and webcast presentation
Interested parties are invited to listen to Canaccord Genuity's first quarter fiscal 2021 results conference call by live webcast or a toll-free number. The conference call is scheduled for Aug. 6, 2020, at 8 a.m. Eastern Time, 5 a.m. Pacific 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 will also be archived on a listen-only basis at the company's website.
Analysts and institutional investors can call in by telephone.
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: 0-800-917-449
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 2021 results call. If a passcode is requested, please use 5558518.
A replay of the conference call will be made available from approximately two hours after the live call on Aug. 6, 2020, until Oct. 6, 2020, at 416-849-0833 or 1-855-859-2056, by entering passcode 5558518 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. 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 wealth management offices located in Canada, the U.K., Guernsey, Jersey, the Isle of Man and Australia. The company's international capital market division operates in North America, U.K. and Europe, Asia, Australia, and the Middle East.
Canaccord Genuity Group is publicly traded under the symbol CF on the Toronto 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. The company's 6.25 per cent convertible unsecured senior subordinated debentures are listed on the TSX under the symbol CF.DA.A.
(1) Figures excluding significant items are non-international financial reporting standard measures. See non-IFRS measures on page 6 of management's discussion and analysis.
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