Canaccord Financial Inc. Reports Third Quarter Fiscal 2013 Results

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Canaccord Financial Inc

06 Feb, 2013, 21:35 GMT

TORONTO, February 6, 2013 /PRNewswire/ --

Earned net income of $20.5 million during the quarter, excluding significant items(1)

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

In the third quarter of fiscal 2013, the quarter ended December 31, 2012, Canaccord Financial Inc. (Canaccord, the Company, TSX: CF, LSE: CF.) generated $230.0 million in revenue. Excluding significant items(1) (a non-IFRS measure), the Company recorded net income of $20.5 million, or $0.17 per diluted common share. Including all expense items, on an IFRS basis, the Company recorded net income of $10.3 million, or $0.08 per diluted common share.

"The results of our fiscal third quarter clearly illustrate the benefits of the acquisitions we've made over the last several years. With record advisory revenue, continued growth of our UK wealth management business, and strong performance in the UK and US, we're pleased with the results we generated this quarter," stated Paul Reynolds, President and CEO of Canaccord Financial Inc.

Mr. Reynolds continued, "Over half of Canaccord's revenue is now earned in markets outside of Canada - underscoring the importance and strength of our global platform, and the value our clients receive from our comprehensive service offering."

Third quarter of fiscal 2013 vs. second quarter of fiscal 2013

  • Revenue of $230.0 million, up 23% or $43.4 million from $186.6 million
  • Excluding significant items, expenses of $205.0 million, up 14% or $25.3 million from $179.7 million(1)
  • Expenses of $216.9 million, up 6% or $12.0 million from $204.9 million
  • Excluding significant items, net income of $20.5 million compared to net income of $5.9 million(1)
  • Net income of $10.3 million compared to a net loss of $14.8 million
  • Excluding significant items, diluted earnings per common share (EPS) of $0.17 compared to diluted EPS of $0.03 in the second quarter of fiscal 2013(1)
  • Diluted EPS of $0.08 compared to a loss per common share of $0.19 in the second quarter of fiscal 2013

Third quarter of fiscal 2013 vs. third quarter of fiscal 2012

  • Revenue of $230.0 million, up 56% or $82.1 million from $147.9 million
  • Excluding significant items, expenses of $205.0 million, up 55% or $72.9 million from $132.1 million(1)
  • Expenses of $216.9 million, up 52% or $74.1 million from $142.8 million
  • Excluding significant items, net income of $20.5 million compared to net income of $10.6 million(1)
  • Net income of $10.3 million compared to net income of $2.5 million
  • Excluding significant items, diluted EPS of $0.17 compared to diluted EPS of $0.11(1)
  • Diluted EPS of $0.08 compared to diluted EPS of $0.01

Year-to-date fiscal 2013 vs. year-to-date fiscal 2012
(Nine months ended December 31, 2012 vs. nine months ended December 31, 2011)

  • Revenue of $579.2 million, up 36% or $152.0 million from $427.2 million
  • Excluding significant items, expenses of $566.4 million, up 42% or $168.7 million from $397.7 million(1)
  • Expenses of $608.8 million, up 47% or $195.5 million from $413.3 million
  • Excluding significant items, net income of $10.1 million compared to net income of $23.1 million(1)
  • Net loss of $25.2 million compared to net income of $10.4 million
  • Excluding significant items, diluted EPS of $0.02 compared to diluted EPS of $0.23(1)
  • Loss per common share of $0.35 compared to diluted EPS of $0.09

Financial condition at end of third quarter fiscal 2013 vs. third quarter fiscal 2012

  • Cash and cash equivalents balance of $556.0 million, down $144.9 million from $700.9 million
  • Working capital of $397.2 million, down $74.7 million from $471.9 million
  • Total shareholders' equity of $1.1 billion, up $198.9 million from $852.3 million
  • Book value per diluted common share for the period end was $7.62, down 11% or $0.92 from $8.54(1)
  • On February 6, 2013, the Board of Directors approved a quarterly dividend of $0.05 per common share payable on March 15, 2013 with a record date of March 1, 2013
  • On February 6, 2013, the Board of Directors also approved a cash dividend of $0.34375 per Series A Preferred Share payable on April 1, 2013 with a record date of March 15, 2013, and a cash dividend of $0.359375 per Series C Preferred Share payable on April 1, 2013 to Series C Preferred shareholders of record as at March 15, 2013

SUMMARY OF OPERATIONS

Corporate

  • On October 1, 2012, Canaccord's acquisition of Eden Financial Ltd.'s wealth management business closed
  • On October 1, 2012, Canaccord appointed Philip Evershed Global Head of Investment Banking
  • On November 6, 2012 Canaccord appointed Steve Buell Global Head of Research
  • On November 7, 2012, Canaccord Financial Inc. welcomed Dipesh Shah as an additional independent director on its Board

Capital Markets

  • Canaccord Genuity led or co-led 33 transactions globally, raising total proceeds of C$888 million(2) during fiscal Q3/13
  • Canaccord Genuity participated in 123 transactions globally, raising total proceeds of C$9.8 billion(2) during fiscal Q3/13
  • During fiscal Q3/13, Canaccord Genuity led or co-led the following transactions:
    • Two transactions totalling £105.3 million for HICL Infrastructure Company Limited on the LSE
    • £100.0 million for Monitise plc on AIM
    • £100.0 million for Newlon Housing Trust (Private Placement)
    • SGD$94.0 million for Geo Energy Resources Ltd. on the SGX
    • C$89.1 million for Trez Capital Senior Mortgage Investment Corporation (non-exchange listed)
    • £80 million for Intermediate Capital Group Plc through a retail bond issue
    • C$54.6 million for Pure Industrial Real Estate Trust on the TSX
    • £48.5 million for Alpha Plus Holdings Plc through a retail bond issue
    • US$41.4 million for AceIRX Pharmaceuticals Inc. on the NASDAQ
    • C$34.5 million for SilverCrest Mines Inc. on the TSX-Venture
    • AUD$36.0 million for Lifestyle Communities Limited on the ASX
    • AUD$30.0 million for Neon Energy Limited on the ASX
    • C$30.0 million for Labrador Iron Mines Holdings Limited on the TSX
    • C$28.8 million for TriOil Resources Ltd. on the TSX
    • AUD$21.0 million for Orocobre Limited on the ASX
    • £20.0 million for Secure Trust Bank Plc on AIM
  • In Canada, Canaccord Genuity raised $238.1 million for government bond issuances and $25.0 million for corporate bond issuances during fiscal Q3/13
  • Canaccord Genuity generated record advisory revenues of $69.3 million during fiscal Q3/13, an increase of 80% compared to the previous record of $38.5 million generated in the same quarter last year
  • During fiscal Q3/13, Canaccord advised on the following M&A and advisory transactions:
    • Viterra Inc. on its acquisition by Glencore International plc
    • Yellow Media Ltd. on its C$2.8 billion recapitalization
    • Research In Motion on the sale of NewBay Software to Synchronoss Technologies, Inc.
    • Mateco Group (Odewald & Compagnie) on its acquisition by TVH Group
    • Sprott Power Corp. on its acquisition of Shear Wind Inc.
    • Automotive Technologies Inc. (Wireless Zone) on its acquisition of Glentel Inc.
    • Eco-Products on its acquisition by WNA, Inc.
    • GT Advanced Technologies on its acquisition of Twin Creek Technologies
    • Mears Group on its acquisition of Morrison Facilities Services Limited
    • Wildroots and TrueBliss on their acquisition by Continental Mills, Inc.
    • Psion on its acquisition by Motorola Solutions, Inc.
    • Buy As You View Holdings Limited on its acquisition by Rutland Partners
    • DHX Media Ltd. on its acquisition of Cookie Jar Entertainment
    • Score Media Inc. on its acquisition by Rogers Communications Corp.
    • Zetar on its acquisition by Zertus UK Holding Limited
    • Unifeeder on its acquisition of Feederlink from Irish Continental Group

Canaccord Wealth Management (Global)

  • Globally, Canaccord Wealth Management generated $60.0 million in revenue
  • Assets under administration in Canada, and assets under management in the UK and Europe, and Australia, were $27.0 billion at the end of Q3/13(1)

Canaccord Wealth Management (North America and Australia)

  • Canaccord Wealth Management generated $35.2 million in revenue and, after intersegment allocations, recorded a net loss of $5.6 million before taxes in Q3/13
  • Assets under administration in Canada were $11.4 billion as at December 31, 2012, down 14% from $13.3 billion at the end of the previous quarter and down 21% from $14.4 billion at the end of fiscal Q3/12(1)
    • This decrease is due largely to the reduction of branches operating in Canada, as was announced on September 24, 2012.
  • Assets under management in Australia were $408 million at the end of fiscal Q3/13, up 15% from $354 million at the end of the previous quarter(1)
  • Assets under management in Canada (discretionary) were $791 million as at December 31, 2012, up 1% from $784 million at the end of the previous quarter and up 30% from $607 million at the end of fiscal Q3/12(1)
  • As at December 31, 2012, Canaccord Wealth Management had 184 Advisory Teams(3), a decrease of 94 Advisory Teams from December 31, 2011 and a decrease of 47 from September 30, 2012

Canaccord Wealth Management (UK and Europe)

  • Collins Stewart Wealth Management generated $24.8 million in revenue and, excluding significant items, recorded net income of $2.4 million before taxes in Q3/13
  • This division recognized $1.5 million of restructuring and acquisition-related costs related to the purchase of Eden Financial Ltd.'s wealth management business and $1.6 million of amortization of intangible assets acquired in connection with the acquisition of CSHP. Including these significant items, Collins Stewart Wealth Management recorded a net loss after intersegment allocations and before income taxes of $0.7 million during the quarter ended December 31, 2012
  • Assets under management (discretionary and non-discretionary) were $15.2 billion (£9.5 billion)

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, and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions. Management believes that these non-IFRS measures will allow for a better evaluation of the operating performance of Canaccord'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 Canaccord'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 Canaccord's business; thus, these effects should not be ignored in evaluating and analyzing Canaccord's financial results. Therefore, management believes that Canaccord's IFRS measures of financial performance and the respective non-IFRS measures should be considered together.

Selected financial information excluding significant items

 
                                                        Quarter-                       YTD-
                                     Three months ended    over-  Nine months ended   over-
                                          December 31    quarter     December 31        YTD
    (C$ thousands, except per share      2012      2011   change     2012     2011   change
    and % amounts)                       
    Total revenue per IFRS           $230,003  $147,889    55.5% $579,151 $427,172    35.6%
    Total expenses per IFRS           216,882  $142,822    51.9%  608,840 $413,252    47.3%
    Significant items recorded in 
    Canaccord Genuity
      Restructuring costs               5,276     1,292     n.m.    9,671    1,292     n.m.
      Acquisition-related costs             -     2,700 (100.0)%      388    4,143  (90.6)%
      Amortization of intangible
      assets                            3,473     1,767    96.5%   11,282    3,627   211.1%
    Significant items recorded in 
    Canaccord Wealth Management
      Restructuring costs               1,034         -     n.m.   14,601        -     n.m.
      Acquisition-related costs           431         -     n.m.    1,331        -     n.m.
      Amortization of intangibl
      assets                            1,643         -     n.m.    4,255        -     n.m.
    Significant items recorded in 
    Corporate and Other
      Restructuring costs                   -     5,000 (100.0)%      900    5,000  (82.0)%
      Acquisition-related costs             -         -     n.m.        -    1,513 (100.0)%
    Total significant items            11,857    10,759    10.2%   42,428   15,575   172.4%
    Total expenses excluding 
    significant items                 205,025   132,063    55.2%  566,412  397,677    42.4%
    Net income before taxes 
    - adjusted                        $24,978   $15,826    57.8%  $12,739  $29,495  (56.8)%
    Income taxes - adjusted             4,525     5,182  (12.7)%    2,674    6,391  (58.2)%
    Net income - adjusted             $20,453   $10,644    92.2%  $10,065  $23,104  (56.4)%
    Earnings per common share 
    - basic, adjusted                   $0.19     $0.12    58.3%    $0.02    $0.26  (92.3)%
    Earnings per common share 
    - diluted, adjusted                 $0.17     $0.11    54.5%    $0.02    $0.23  (91.3)%

n.m.: not meaningful

Fellow shareholders:

The results of our fiscal third quarter demonstrate the value of our larger, global platform and the importance of the investments we've made over the last several years.  Most notably, the successful integration of our acquisition of Collins Stewart Hawkpoint is evident across our business. Our UK and US operations are now operating profitablyi. We're benefiting from a strong UK and European wealth management platform, in markets that should provide even more opportunities to grow client assets. And we've established Canaccord Genuity as a leading investment bank in the UK. In fact, Canaccord Genuity was the second most active investment bank in the UK for the number of transactions led or co-led during calendar 2012, and ninth overall for total proceeds raised for clients, in this highly competitive marketii.

Our strategy of geographic diversification appears to be well timed.  By expanding our operations in the UK, US and overseas markets, we are much better positioned to leverage international market opportunities and withstand regional fluctuations of capital markets activity. The results of which are apparent in our performance. Half of Canaccord's revenue is now generated in markets outside of Canada - underscoring the importance of the expansion activities we successfully executed over the last several years.

Quarterly performance

Record advisory fees drove significant revenue gains during our fiscal third quarter. In the three months ended December 31, 2012, Canaccord Financial Inc. generated revenue of $230.0 million and adjusted net incomei of $20.5 million, or $0.17 per diluted common share. During the quarter we implemented a number of strategies aimed at enhancing the performance of some of our businesses. These initiatives resulted in $11.9 million of restructuring costs and other significant items not related to continuing operating activities. Including significant items, on an IFRS basis, the Company generated net income of $10.3 million, or $0.08 per diluted share.

Annualized return on common shareholders' equity, excluding significant items, increased to 7.8% during the quarter. We're pleased with the progress we're making to enhance ROE. Just as important, the increased diversification of our business should allow us to achieve more consistent returns going forward.

We remain committed to a conservative capital strategy. Our business continues to be well capitalized to serve our clients, both in the current market environment and during periods with much more robust market activity. At the end of the fiscal third quarter, Canaccord had $556.0 million in cash and cash equivalents, $397.2 million in net working capital and $1.1 billion in shareholders' equity. I'm also pleased to confirm that our Board of Directors approved a dividend of $0.05 this quarter.

Canaccord Genuity

Our strategy to further integrate our global capital markets platform, particularly within our investment banking practice, is progressing very well.  We believe these efforts will further enhance the value of the services we offer and increase our relevance to clients. We also expect additional synergies will be achieved through further cross-border collaboration - benefiting both our business and our clients.

Canaccord Genuity generated $165.4 million of revenue globally, an increase of 39% from last quarter and 77% from the same period last year. While revenue grew substantially, operating expenses only increased 16% from the previous quarter, which lowered expense ratios in this division meaningfully. Canaccord Genuity contributed $29.3 million of adjusted net income before taxi to the Company during the fiscal quarter, an increase of 116% compared to the same period last year.

This quarter set a new company record for M&A and advisory revenue. At $69.3 million, more revenue was generated through our global advisory practice than in the past two quarters combined. In addition, in the first nine months of fiscal 2013 we have generated 15% more advisory revenue than all of last year. This performance was helped by two substantial and high-profile advisory mandates completed in Canada, as well as increased advisory activity in the UK and Europe. It is a strong representation of the value being generated from our acquisitions of Genuity Capital Markets in 2010 and Collins Stewart Hawkpoint last year. We are particularly pleased with the performance of our advisory practice, and continue to have a very healthy pipeline of advisory mandates.

In the last several months we have taken steps to better integrate the advisory business of Canaccord Genuity Hawkpoint into our broader global investment banking group. We expect our UK and European clients will benefit greatly from this integrated approach, through our ability to meet multiple corporate needs with one dedicated team. When this initiative completes on March 1, this business will operate under the Canaccord Genuity brand.

Capital raising activity also benefited from the expanded reach of our operations this quarter, with contributions from all the markets we service. On a global basis, Canaccord Genuity led or co-led 33 transactions over $1.5 million during the quarter, raising over C$887 million for clients. Investment banking activities generated $34.2 million of revenue for the division, a 10% increase from last quarter, and a 45% increase from the same period last year.

Wealth Management

Much of our focus this quarter was dedicated to enhancing our global wealth management platform. In the UK, we were very pleased to welcome our new colleagues from Eden Financial on October 1. Approximately 35 wealth management professionals joined our firm, as did 2,500 client accounts and £835 million of new client assets. This team is now working side-by-side with colleagues from Collins Stewart Wealth Management and will ultimately work from the same support platform.

In Canada, we continued with our strategy of strengthening our platform by focusing our operations in core Canadian centres. Canaccord Wealth Management now has 16 branches across the country. At the end of the quarter, our Canadian wealth management division had 184 Investment Advisory teams and $11.4 billion of assets under administration.

Combined, Canaccord's wealth management operations generated $60.0 million of revenue, an increase of 4% compared to last quarter and 35% compared to the same period last year.

Today, our global wealth management platform operates in Canada, the UK, Switzerland, the Channel Islands, the Isle of Man and Australia. We oversee $27.0 billion of client assetsiii.  And we offer clients tailored services through our team of over 800 wealth management employees.

To better reflect the scope of this division, I'm pleased to announce that our global wealth management operations will soon be unified under one universal brand: Canaccord Genuity Wealth Management. We believe this change will more accurately communicate the span of our wealth management businesses to our clients and stakeholders, and will allow us to more easily share resources amongst the markets we operate in. We expect this branding change will be implemented during the second calendar quarter.

Looking forward

While the market environment has been less than optimal for several quarters, we are beginning to see promising signs of capital markets activity.  We're optimistic that equity markets and financing transactions will rebound in the coming months, as we are already seeing positive inflows to equities from fixed income products. As appetite for risk returns, particularly in the US and the UK, we expect our well-established transactional capabilities will benefit alongside our already robust M&A pipeline.

Our focus continues to be on further integrating our business within our investment banking practice and across our wealth management platform, in order to capture the full value of our operating scale. We also remain committed to evaluating ways to enhance the earnings capabilities of our firm, whether they involve activities aimed at lowering our expense ratios or growing our relevance to clients. All of our efforts have been, and will continue to be, aimed at expanding our client relationships and increasing the value of our business for our shareholders.

Kind regards,

Paul Reynolds
President & CEO
Canaccord Financial Inc.

_________________________________

i    Excluding restructuring and acquisition-related items referred to as "significant items" elsewhere in this report. Adjusted net income before tax is net income before tax excluding significant items.

ii   Thomson Reuters information

iii  As at December 31, 2012

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

CONFERENCE CALL AND WEBCAST PRESENTATION
Interested parties are invited to listen to Canaccord's third quarter fiscal 2013 results conference call with analysts and institutional investors, via a live webcast or a toll free number. The conference call is scheduled for Wednesday, February 6, 2013 at 2:00 p.m. (Pacific Time), 5:00 p.m. (Eastern Time), 10:00 p.m. (UK Time), and at 6:00 a.m. (China Standard Time), and 9:00 a.m. (Australia EDT Time) on Thursday, February 7, 2013. At that time, senior executives will comment on the results for the third quarter of the fiscal 2013 year 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.canaccordfinancial.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 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 Financial's Q3/13 earnings call.

A replay of the conference call can be accessed after 5:00 p.m. (Pacific Time), 8:00 p.m. (Eastern Time) Wednesday, February 6, 2013, and after 1:00 a.m. (UK Time), 9:00 a.m. (China Standard Time) and 12:00 p.m. (Australia EDT Time) on Thursday, February 7, 2013 until March 23, 2013 at 416-849-0833 or 1-855-859-2056 by entering passcode 87744173 followed by the pound (#) sign.

ABOUT CANACCORD FINANCIAL INC.:

Through its principal subsidiaries, Canaccord Financial Inc. is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: wealth management and global capital markets. Since its establishment in 1950, Canaccord 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.  Canaccord has offices in 13 countries worldwide, including wealth management offices located in Canada, Australia, the UK and Europe. Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, France, Germany, Ireland, Italy, Hong Kong, mainland China, Singapore, Myanmar, Australia and Barbados.

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

None of the information on Canaccord's websites at http://www.canaccordfinancial.com, http://www.canaccordgenuity.com, and http://www.canaccord.com should be considered incorporated herein by reference.

__________________________________

1  See Non-IFRS measures.

2  Source: Transactions over $1.5 million. Internally sourced information.

3  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.

For further information:

North American media:
Scott Davidson
Executive Vice President, Global Head of Corporate Development & Strategy
Phone: +1-416-869-3875
Email: scott.davidson@canaccord.com

London media:
Bobby Morse or Ben Romney
Buchanan Communications (London)
Phone: +44(0)207-466-5000
Email: bobbym@buchanan.uk.com

Investor relations inquiries:
Jamie Kokoska
Vice President, Investor Relations & Communications
Phone: +1-416-869-3891
Email: jamie.kokoska@canaccord.com

Joint Broker:
Oliver Hearsey or James Kelly
RBC Europe Limited
Phone: +44(0)20-7653-4000
Email: oliver.hearsey@rbccm.com

Joint Broker:
Erick Diaz
Keefe, Bruyette & Woods Limited
Phone: +44(0)207-663-3162
Email: ediaz@kbw.com

(CF.)