CANACCORD GENUITY GROUP INC. REPORTS SECOND QUARTER FISCAL 2023 RESULTS
Excluding significant items,quarterly earnings per common share of $0.25 (1)
Second quarter dividend of $0.085 per common share
TORONTO,Nov. 3,2022 --Canaccord Genuity Group Inc. (Canaccord Genuity Group,the Company) (TSX: CF) today announced its financial results for the second fiscal quarter and six months ended September 30,2022.
"In light of the very challenging conditions that continue to grip markets around the world,I am pleased with how our business has performed," said Dan Daviau,President & CEO of Canaccord Genuity Group Inc. "Steps we have taken to reduce our reliance on underwriting activities and increase contributions from our wealth management and M&A advisory businesses have contributed to our resilience,and we are very well positioned to reclaim leadership in our core underwriting sectors when market conditions improve."
Second fiscal quarter and six-month fiscal year-to-date highlights:
(All dollar amounts are stated in thousands of Canadian dollars unless otherwise indicated)
Second quarter revenue excluding significant items(1) of $381.8 million,a decrease of 19.6% over the same period in the prior year
Second quarter net income before taxes excluding significant items(1) of $50.6 million,a decrease of 47.1% compared to Q2/22 ($39.0 million and a decrease of 55.2% on an IFRS basis)
Diluted earnings per common share excluding significant items(1) for the second fiscal quarter of $0.25 per share (diluted earnings per common share of $0.14 on an IFRS basis),a decrease of 56.9% compared to the second quarter of fiscal 2022
Diluted earnings per common share excluding significant items(1) for the first six months of fiscal 2023 of $0.36 ($0.02 on an IFRS basis)
Capital markets advisory revenue increased by 22.2% compared to the previous quarter,reflecting quarter-over-quarter increases in both the US and Canada
Total client assets(1) in our global wealth management business were $88.6 billion at September 30,2022,a year-over-year decrease of 9.7%,reflecting year-over-year decreases of 5.7% in Canada,13.1% in the UK & Crown Dependencies and an increase of 1.3% in Australia. Decreases were primarily attributable to the decline in market values from September 30,2021 partially offset by the additions of new assets in connection with the acquisitions of Punter Southall Wealth Limited (PSW) and Adam & Company
Despite the reduction in client asset values,global wealth management revenue for the second fiscal quarter increased by 1.8% year-over-year reflecting increases in commissions & fees revenue of 1.3% year-over-year and interest revenue of 206.8% year-over-year partially offset by a decrease in new issue revenue
On August 17,the Company,through its UK & Europe capital markets business completed its acquisition of the business of Results International Group LLP (Results),an independent advisory firm focused in the healthcare and technology sectors
Second quarter common share dividend of $0.085 per share
Fiscal year-to-date capital deployment initiatives including dividends and share buybacks totaled $22.0 million or 39.7% of adjusted net income for the six-month period.
Three months ended
September 30
Year-over-year
change
Three months
ended June 30
Quarter-over-
quarter change
Q2/23
Q2/22
Q1/23
Second fiscal quarter highlights- adjusted1
Revenue excluding significant items1
$381,793
$475,161
(19.6)%
$328,817
16.1%
Expenses excluding significant items1
$331,178
$379,509
(12.7)%
$301,365
9.9%
Diluted earnings per common share
excluding significant items1
$0.25
$0.58
(56.9)%
$0.11
127.3%
Net Income excluding significant items1
$35,426
$69,719
(49.2)%
$19,935
77.7%
Net Income attributable to common
shareholders excluding significant items1,3
$25,793
$63,326
(59.3)%
$11,879
117.1%
Second fiscal quarter highlights-IFRS
Revenue
$380,522
$475,161
(19.9)%
$317,370
19.9%
Expenses
$341,490
$388,124
(12.0)%
$315,476
8.2%
Diluted earnings (loss) per common share
$0.14
$0.49
(71.4)%
$(0.14)
200.0%
Net Income (loss)2
$26,564
$61,785
(57.0)%
$(3,004)
n.m.
Net income (loss) attributable to
common shareholders3
$14,779
$54,232
(72.7)%
$(12,564)
217.6%
1. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 5
2. Before non-controlling interests and preferred share dividends paid on the Series A and Series C Preferred Shares
3. Net income (loss) attributable to common shareholders is calculated as the net income adjusted for non-controlling interests and preferred share dividends
______________________
(1)See Non-IFRS Measures on page 5
Core business performance highlights:Canaccord Genuity Wealth ManagementThe Company's combined global wealth management operations earned revenue of $169.3 million for the second fiscal quarter,a year-over-year increase of 1.8%. Net income before taxes excluding significant items(1) for this segment decreased by 12.6% year-over-year. When measured on a year-to-date basis,revenue amounted to $331.5 million,a decrease of 8.2% compared to the first six months of the prior fiscal year.Wealth management operations in the UK & Crown Dependencies generated second quarter revenue of $81.0 million,an increase of 10.4% compared to Q1/23 and an increase of 7.8% compared to the same period last year. Measured in local currency (GBP),revenue was £52.7 million in Q2/23 compared to £43.3 million in Q2/22,an increase of 21.7% compared to the same quarter last year. Net income before taxes excluding significant items(1) for this business was $18.1 million in Q2/23,down 8.2% year-over-year,partially due to higher interest expense on additional bank loans obtained to acquire PSW and Adam & Company.
Canaccord Genuity Wealth Management (North America) generated $73.4 million in second quarter revenue,a year-over-year increase of 1.5% compared to Q2/22. Second quarter interest income in this business amounted to $11.1 million,an increase of 145.3% year-over-year due to the higher interest rate environment. Excluding significant items(1) net income before taxes for this business was $9.7 million in Q2/23,which represents a year-over-year decrease of 1.6%.
Wealth management operations in Australia generated $14.9 million in second quarter revenue,a decrease of 20.6% compared to the second quarter of last year. Excluding significant items(1) net loss before taxes for this business was $0.1 million in Q2/23,down from net income of $2.1 million in Q2/22.Total client assets in the Company's global wealth management businesses at the end of the second fiscal quarter amounted to $88.6 billion,a decrease of $9.5 billion or 9.7% from Q2/22.Client assets in the UK & Crown Dependencies were $50.0 billion (£32.3 billion) as at September 30,a decrease of 4.2% (decrease of 2.8% in local currency) from $52.2 billion (£33.3 billion) at the end of the previous quarter,and a decrease of 13.1% (decrease of 3.9% in local currency) from $57.5 billion (£33.6 billion) at September 30,2021,primarily attributable to the decline in market values,partially offset by net inflows and new assets from our acquisitions of PSW and Adam & Company.
Client assets in North America were $33.7 billion as at September 30,a decrease of 0.3% from $33.9 billion at the end of the previous quarter and a decrease of 5.7% from $35.8 billion at September 30,2021 due to the decline in market values,partially offset by net new inflows and new assets from existing IAs and new recruits.
Client assets(1) in Australia were $4.9 billion (AUD 5.5 billion) at September 30,an increase of 3.9% from $4.7 billion (AUD 5.3 billion) at the end of the previous quarter and an increase of 1.3% from $4.8 billion (AUD 5.3 billion) at September 30,2021. In addition,client assets(1) totalling $13.3 billion (AUD 14.9 billion) are also held on record in less active and transactional accounts through our Australian platform.______________________
(1)See Non-IFRS Measures on page 5
Canaccord Genuity Capital Markets
Globally,Canaccord Genuity Capital Markets earned revenue of $205.7 million for the second fiscal quarter,a year-over-year decrease of 32.5%. The decrease primarily reflected substantially lower investment banking revenues in all geographies in connection with the significant decline in industry-wide new issue activity. Advisory revenue for the three-month period was $100.9 million,an increase of 22.2% sequentially and a year-over-year decrease of 27.4%. Net income before taxes excluding significant items(1)for this segment was $26.2 million for the quarter,a year-over-year decrease of 64.0%.
CanaccordGenuity Capital Markets participated in 157 investment banking transactions globally,including led or co-led,raising total proceeds of $9.0 billion fiscal year-to-date.
The Company's US capital markets business was the largest contributor of revenue for the three-month period,with revenue of $128.8 million,or 62.6% of total global capital markets revenue. This business contributed advisory fees revenue of $75.2 million for Q2/23,a decrease of 27.5% from the same period in the prior year,and an increase of 18.7% compared to the previous quarter. Commissions and fees revenue for the three-month period increased by 6.8% year-over-year,to $21.9 million. Investment banking revenue for the three-month period decreased by 79.7% to $5.4 million when compared to the second quarter of the prior year because of reduced new issue activity. Principal trading revenue also decreased by 8.8% from the prior year to $25.5 million in the second quarter due to lower trading volume,volatility,and activity. Excluding significant items(1),the pre-tax net income contribution from this business amounted to $21.9 million for the three-month period.
Second quarter revenue of $32.3 million in our Canadian capital markets business decreased by 43.3% when compared to Q2/22. Second quarter investment banking,advisory,and commissions and fees revenue declined by 64.4%,36.9% and 34.4% respectively when compared to the same period in the prior year. Notably,advisory revenue in this business increased by 231.8% compared to the previous fiscal quarter. Our Canadian capital markets operations generated a loss before income taxes of $4.5 million in Q2/23,a decrease of 131.8% from income before income taxes of $14.1 million generated in the same period in the prior year.
Revenue in our UK & Europe capital markets operations decreased by 32.9% for the three-month period driven mainly by lower investment banking revenue. Advisory revenue in this business decreased by 18.4% year-over-year to $15.2 million for the second quarter. Excluding significant items(1),our UK & Europe capital markets business earned pre-tax net income of $4.7 million for the second quarter,and $8.1 million fiscal-year-to-date,year-over-year improvements of 25.6% and 18.6% respectively.
Second quarter revenue earned by our Australian capital markets business decreased 36.8% year-over-year,reflecting a 37.0% decrease in investment banking revenue when compared to the same period a year ago. Net income before income taxes for the quarter was $4.2 million compared to net income before income taxes of $9.2 million in the second quarter of fiscal 2022.
Summary of Corporate Developments
On August 5,at the Fiscal 2022 Annual General Meeting of Shareholders,Michael Auerbach was elected to the Company's Board of Directors. Mr. Auerbach is an entrepreneur,investor,business consultant,and private diplomat with deep experience in financial services,strategic intelligence,advisory and risk management.
On August 17,the Company completed its asset purchase agreement to acquire the business of Results International Group LLP ("Results"). Results is an independent advisory firm headquartered in London,UK,focused in the technology and healthcare sectors. This transaction complements recent investments by the Company to expand its global Advisory business with the acquisitions of Petsky Prunier (2019) and Sawaya Partners (2021) and expands its European domain expertise in the Healthcare and Technology sectors.
On August 18,the Company filed a notice to renew the normal course issuer bid (NCIB) to provide the Company with the choice to purchase up to a maximum 4,959,281 of its common shares during the period from August 21,to August 20,2023,through the facilities of the TSX and on alternative trading systems in accordance with the requirements of the TSX. The purpose of the purchase of common shares under the NCIB is to enable the Company to acquire shares for cancellation. The maximum number of shares that may be purchased under the current NCIB represents 5.0% of the Company's outstanding common shares at the time of the notice.
Results for the Second Quarter of Fiscal 2023 were impacted by the following significant items:
Reversal of fair value adjustments on certain warrants and illiquid or restricted marketable securities recorded for IFRS reporting purposes in prior periods net of adjustments recorded in the current period,but which are excluded for management reporting purposes and are not used by management to assess operating performance
Amortization of intangible assets acquired in connection with business combinations
Acquisition-related costs in connection with the acquisitions of PSW and Results
Certain incentive-based costs related to acquisitions
Certain development costs in Corporate & Other
Certain components of the non-controlling interest expense associated with CGWM UK
_____________________
(1)See Non-IFRS Measures on page 5
Summary of Results for Q2 and YTD Fiscal 2023 and Selected Financial Information Excluding Significant Items(
1):
Three months ended
September 30
Quarter-
over-
quarter
change
Six months ended
September 30
YTD over
YTD
change
(C$ thousands,except per share and % amounts)
2022
2021
2022
2021
Revenue
Revenue per IFRS
$380,522
$475,161
(19.9)%
$697,892
$993,992
(29.8)%
Significant items recorded in Corporate and Other
Reversal of fair value adjustments on certain warrants and
illiquid or restricted marketable securities(1)
$1,271
-
n.m.
$12,718
$5,000
154.4%
Total revenue excluding significant item
$381,793
$475,161
(19.6)%
$710,610
$998,992
(28.9)%
Expenses
Expenses per IFRS
$341,490
$388,124
(12.0)%
$656,966
$807,254
(18.6)%
Significant items recorded in Canaccord Genuity Capital Markets
Amortization of intangible assets
$1,535
$160
n.m.
$2,799
$453
n.m.
Acquisition- related costs
$1,477
-
n.m.
$1,477
-
n.m.
Incentive-based costs related to acquisitions(2)
$437
-
n.m.
$804
-
n.m.
Significant items recorded in Canaccord Genuity Wealth Management
Amortization of intangible assets
$5,944
$3,178
87.0%
$10,256
$6,326
62.1%
Acquisition-related costs
$(1,656)
$1,920
(186.3)%
$5,926
$1,920
208.6%
Incentive-based costs related to acquisitions(2)
$1,265
$2,095
(39.6)%
$1,851
$2,446
(24.3)%
Costs associated with reorganization of UK & Crown Dependencies
-
$794
(100.0)%
-
$794
(100.0)%
Significant items recorded in Corporate and Other
Costs in connection with redemption of convertible debentures
-
$468
(100.0)%
-
$5,932
(100.0)%
Development costs
$1,310
-
n.m.
$1,310
-
n.m.
Total significant items - expenses
$10,312
$8,615
19.7%
$24,423
$17,871
36.7%
Total expenses excluding significant items
$331,178
$379,509
(12.7)%
$632,543
$789,383
(19.9)%
Net income before taxes excluding significant items(1)
$50,615
$95,652
(47.1)%
$78,067
$209,609
(62.8)%
Income taxes – adjusted
$15,189
$25,933
(41.4)%
$22,706
$55,236
(58.9)%
Net income excluding significant items
$35,426
$69,719
(49.2)%
$55,361
$154,373
(64.1)%
Significant items impacting net income attributable to
common shareholders
Non-controlling interests - IFRS
$9,394
$5,202
80.6%
$16,563
$6,254
164.8%
Amortization of equity component of the non-controlling
interests in CGWM UK and other adjustments
$2,152
$1,160
85.5%
$3,755
$1,160
223.7%
Non-controlling interests (adjusted)(1)
$7,242
$4,042
79.2%
$12,808
$5,094
151.4%
Net income attributable to common shareholders,
excluding significant items
$25,793
$63,326
(59.3)%
$37,771
$144,577
(73.9)%
Earnings per common share excluding significant items – basic
$0.30
$0.66
(54.5)%
$0.43
$1.50
(71.3)%
Earnings per common share excluding significant items – diluted
$0.25
$0.58
(56.9)%
$0.36
$1.31
(72.5)%
(1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 5.
(2) Incentive-based costs related to the acquisitions and growth initiatives in the UK & Europe wealth management business,and in the US and UK capital markets.
__________________
(1)See Non-IFRS Measures on page 5
Diluted earnings per common share ("diluted EPS") is computed using the treasury stock method,giving effect to the exercise of all dilutive elements. The Convertible Preferred Shares issued by Canaccord Genuity Wealth Management Holdings (Jersey) Limited are factored into the diluted EPS by adjusting net income attributable to common shareholders of the Company to reflect our proportionate share of CGWM UK's earnings on an as converted basis if the calculation is dilutive. For the quarter and six months ended September 30,the effect of reflecting our proportionate share of CGWM UK's earnings is anti-dilutive for diluted EPS purposes under both IFRS and as determined excluding significant items(1). When the calculation is anti-dilutive the non-controlling interest reflects dividends paid on the Convertible Preferred Shares rather than the as-converted proportionate share of CGWM UK's earnings.
Financial Condition at the End of Second Quarter Fiscal 2023 vs. Fourth Quarter of Fiscal 2022:
Cash and cash equivalents balance of $946.6 million,a decrease of $841.7 million from $1.8 billion
Working capital of $693.5 million,a decrease of $100.9 million from $794.4 million
Total shareholders' equity of $1.1 billion,a decrease of $98.2 million from $1.2 billion
Common and Preferred Share Dividends:
On November 2,the Board of Directors approved a dividend of $0.085 per common share,payable on December 15,with a record date of December 2,2022.
On November 2,the Board approved a cash dividend of $0.25175 per Series A Preferred Share payable on January 3,2023 to Series A Preferred shareholders of record as at December 23,the Board approved a cash dividend of $0.42731 per Series C Preferred Share payable on January 3,2023 to Series C Preferred shareholders of record as at December 23,2022.
Non-IFRS Measures
Certain non-IFRS measures,non-IFRS ratios and supplementary financial measures are utilized by the Company as measures of financial performance. Non-IFRS measures,non-IFRS ratios and supplementary financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies.
Management believes that these non-IFRS measures,non-IFRS ratios and supplementary financial measures 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. Non-IFRS measures presented in this earnings release include certain figures from our statement of operations that are adjusted to exclude significant items. Although 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. Accordingly,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.
Non-IFRS Measures (Adjusted Figures)
Figures that exclude significant items provide useful information by excluding certain items that may not be indicative of the Company's core operating results. Financial statement items that exclude significant items are non-IFRS measures. To calculate these non-IFRS financial statement items,we exclude certain items from our financial results prepared in accordance with IFRS. The items which have been excluded are referred to herein as significant items. The following is a description of the composition of the non-IFRS measures used in this earnings release (note that some significant items excluded may not be applicable to the calculationof the non-IFRS measures for each comparative period): (i) revenue excluding significant items,which is composed of revenue per IFRS less any applicable fair value adjustments on certain illiquid or restricted marketable securities as recorded for IFRS reporting purposes but which are excluded for management reporting purposes and are not used by management to assess operating performance; (ii) expenses excluding significant items,which is composed of expenses per IFRS less any applicable amortization of intangible assets acquired in connection with a business combination,acquisition-related expense items,certain incentive-based costs related to the acquisitions and growth initiatives in CGWM UK,and the US and UK capital markets divisions and costs associated with the redemption of convertible debentures; (iii) net income before taxes excluding significant items,which is composed of revenue excluding significant items less expenses excluding significant items; (iv) income taxes (adjusted),which is composed of income taxes per IFRS adjusted to reflect the associated tax effect of the excluded significant items; (v) net income excluding significant items,which is net income before income taxes excluding significant items less income taxes (adjusted); (vi) non-controlling interests (adjusted),which is composed of non-controlling interests per IFRS less the amortization of the equity component of non-controlling interests in CGWM UK; and (vii) net income attributable to common shareholders excluding significant items,which is net income excluding significant items less non-controlling interests (adjusted) and preferred share dividends paid on the Series A and Series C Preferred Shares.
A reconciliation of non-IFRS measures that exclude significant items to the applicable IFRS measures from the interim condensed consolidated financial statements for the second quarter of fiscal 2023 can be found above in the table entitled "Summary of results for Q2 fiscal 2023 and year-to-date fiscal 2023 and selected financial information excluding significant items".
Non-IFRS Ratios
Non-IFRS ratios are calculated using the non-IFRS measures defined above. For the periods presented herein,we have used the following non-IFRS ratios: (i) total expenses excluding significant items as a percentage of revenue,which is calculated by dividing expenses excluding significant items by revenue excluding significant items; (ii) earnings per common share excluding significant items,which is calculated by dividing net income attributable to common shareholders excluding significant items by the weighted average number of common shares outstanding (basic); (iii) diluted earnings per common share excluding significant items which is calculated by dividing net income attributable to common shareholders excluding significant items by the weighted average number of common shares outstanding (diluted); and (iv) pre-tax profit margin which is calculated by dividing net income before taxes excluding significant items by revenue excluding significant items.
Supplementary Financial Measures
Client assets are supplementary financial measures that do not have any definitions prescribed under IFRS but do not meet the definition of a non-IFRS measure or non-IFRS ratio. Client assets,which include both assets under management (AUM) and assets under administration (AUA),is a measure that is common to the wealth management business. Client assets is the market value of client assets managed and administered by the Company from which the Company earns commissions and fees. This measure includes funds held in client accounts as well as the aggregate market value of long and short security positions. The Company's method of calculating client assets may differ from the methods used by other companies,and therefore these measures may not be comparable to other companies. Management uses these measures to assess operational performance of the Canaccord Genuity Wealth Management business segment.
ACCESS TO QUARTERLY RESULTS INFORMATION
Interested parties are invited to listen to Canaccord Genuity's second fiscal quarter results conference call via live webcast or a toll-free number. The conference call is scheduled for Thursday,November 3,at 8:00 a.m. Eastern time,5:00 a.m. Pacific time,12:00 p.m. UK time,8:00 p.m. China Standard Time,and 11:00 p.m. Australia AEDT. 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: www.cgf.com/investor-relations/news-and-events/conference-calls-and-webcasts/
Analysts and institutional investors can call in via telephone at:
416-764-8609 (within Toronto)
888-390-0605 (toll free in North America outside Toronto)
0-800-652-2435 (toll free from the United Kingdom)
0-800-916-834 (toll free from France)
10-800-714-1938 (toll free from Northern China)
10-800-140-1973 (toll free from Southern China)
1-800-076-068 (toll free from Australia)
80-003-570-3632 (toll free from United Arab Emirates)
Please ask to participate in the Canaccord Genuity Group Inc. Q2/23 results call. If a passcode is requested,please use 69130066.
A replay of the conference call will be made available from approximately two hours after the live call on November 3,until January 3,at 416-764-8677 or 1-888-390-0541 by entering passcode 130066 followed by the (#) key.
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 Wealth Management offices located in Canada,the UK,Guernsey,Jersey,the Isle of Man and Australia. The Company's international capital markets division operates in North America,UK & Europe,Asia,Australia,and the Middle East.
Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX.
None of the information on the Company's websites at www.cgf.com should be considered incorporated herein by reference.
Contact: Investor and media relations inquiries: Christina Marinoff,SVP,Head of Investor Relations &Global Corporate Communications,Phone: 416-687-5507,Email: cmarinoff@cgf.com,www.cgf.com/investor-relations
