(All dollar amounts are stated in Canadian dollars unless otherwise
indicated)
VANCOUVER, Aug. 6 /CNW/ - Canaccord Capital Inc.'s revenue for the first
quarter of fiscal year 2010, ended June 30, 2009, was $137.5 million, up 28.5%
from the previous quarter. Net income for the first quarter was $9.1 million,
up 148.6% from the previous quarter. Diluted earnings per share (EPS) for
fiscal Q1/10 were $0.16, an increase of $0.09 from the previous quarter.
Commenting on the quarter, Paul Reynolds, President and CEO said "Our results
this quarter are not only an indication of our improving business environment,
but also our commitment to improving margins. Though we are pleased with our
first quarter performance, we remain fully engaged in increasing the value of
Canaccord for shareholders."
First quarter 2010 vs. fourth quarter 2009
- Revenue of $137.5 million, up 28.5% or $30.5 million from
$107.0 million
- Expenses of $121.5 million, up 21.1% or $21.2 million from
$100.3 million
- Net income of $9.1 million compared to a net income of $3.7 million
- Diluted EPS of $0.16 compared to a diluted EPS of $0.07 in the fourth
quarter of 2009
Financial condition at end of first quarter 2010 vs. first quarter 2009
- Cash and cash equivalents balance of $734.3 million, up
$179.3 million from $555.0 million
- Working capital of $301.6 million, down $31.7 million from
$333.3 million due to a decrease in client receivables balance net of
client payables
- Total shareholders' equity of $385.4 million, down $54.5 million from
$439.9 million
- Book value per diluted common share for the period end was $6.73,
down 12.1% or $0.93 from $7.66
First quarter 2010 vs. first quarter 2009
- Revenue of $137.5 million, down 20.4% or $35.2 million from
$172.7 million
- Expenses of $121.5 million, down 18.6% or $27.7 million from
$149.2 million
- Net income of $9.1 million compared to a net income of $16.5 million
in the same period of the prior year
- Return on equity (ROE) of 9.7%, down from 15.7%
- Diluted EPS of $0.16 compared to a diluted EPS of $0.31
- On August 5, 2009 the Board of Directors considered the dividend
policy in the context of the market environment and Canaccord's
business activity and approved the continued suspension of
Canaccord's quarterly dividend for this quarter. This measure was
taken to enable Canaccord to preserve its working capital and book
value, as well as to position the Company to take advantage of growth
opportunities that may become available.
Highlights of Operations:
- Canaccord Adams led 23 transactions globally to raise total proceeds
of $551.8 million(1) during fiscal Q1/10
- Canaccord Adams participated in a total of 74 transactions globally
to raise total proceeds of $1.5 billion(1) during fiscal Q1/10
- During Q1/10, Canaccord Adams led or co-led the following equity
transactions:
- (pnds stlg)132.0 million for Heritage Oil Corporation (LSE)
- US$167.6 million for Itron Inc. (NASDAQ)
- C$162.3 million for TransAtlantic Petroleum Corp. (TSX)
- US$87.4 million for BPZ Resources, Inc. (AMEX)
- US$66.2 million for Telvent GIT S.A. (NASDAQ)
- C$50.1 million for Capstone Mining Corp. (TSX)
- Canaccord continued to rank first in Canada for block trading market
share on the TSX Venture, with 16.9% of market share in Q1/10, up
from 10.5% in Q1/09(2)
- Canaccord Adams completed 6 Private Investment in Public Equity
(PIPE) transactions in North America that raised US$151.1 million in
proceeds during fiscal Q1/10(3)
- Assets under administration of $10.3 billion, down 29.6% from
$14.7 billion at the end of Q1/09, and up 12.6% from $9.2 billion at
the end of Q4/09
- Assets under management of $443.0 million, down 40.7% from
$747.0 million at the end of Q1/09, and up 12.7% from $393.0 million
at the end of Q4/09
- As at June 30, 2009 Canaccord had 335 Advisory Teams(4), down 19 from
354 Advisory Teams as of June 30, 2009, and down three from 338 teams
as of March 31, 2009. The decrease is largely due to a strategic
review of our Private Client Services division.
- On June 23, 2009, George Karkoulas joined Canaccord Capital
Corporation as Senior Vice President & Head of Independent Financial
Management in Toronto.
- On June 29, 2009, Giles Fitzpatrick joined Canaccord Adams Limited as
President of Canaccord Adams' UK operations.
Non-GAAP Measures
Management believes that the non-GAAP measures presented provide useful
information by excluding certain items that may not be indicative of
Canaccord's core operating results. Management believes that these non-GAAP
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. Reference to
these non-GAAP measures should not be considered as a substitute for results
that are presented in a manner consistent with GAAP. These non-GAAP measures
are provided to enhance investors' overall understanding of Canaccord's
current financial performance.
A limitation of utilizing these non-GAAP measures is that the GAAP
accounting effects of the significant items do in fact reflect the underlying
financial results of Canaccord's business and these effects should not be
ignored in evaluating and analyzing Canaccord's financial results. Therefore,
management believes that Canaccord's GAAP measures of net income (loss) and
diluted earnings (loss) per share and the same respective non-GAAP measures of
financial performance should be considered together.
------------------------------
(1) Source: FPinfomart and Company information
(2) Source: Canada Equity. Market share by trade volume
(3) Source: Placement Tracker. Includes placements for companies
incorporated in Canada and the US
(4) 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 licenced 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.
LETTER TO SHAREHOLDERS
Overall, we were satisfied with Canaccord's performance during the first
quarter of fiscal 2010. While market volatility continued to keep some
investors and issuers on the sidelines during the quarter, all of our
divisions found opportunities to successfully leverage the current
marketplace. The cost containment initiatives that we announced over the
course of the year are also providing tangible results. Sequentially,
Canaccord's margins are improving, and we expect further gains from ongoing
cost-reduction programs.
Financial Overview
Revenues for the three months ended June 30th, 2009 totaled $137.5
million, a 29% increase compared to the previous quarter, but a 20% decrease
from revenues of $172.7 million for the first quarter of fiscal 2009. Expenses
declined 19% to $121.5 million compared to the same quarter last year, due
primarily to a 17% decrease in incentive compensation and a 38% reduction in
general and administrative costs. Net income was $9.1 million, a significant
improvement over the $3.7 million earned in the previous quarter, but a 45%
decline from the first quarter of fiscal 2009.
At 9.7%, our return on equity for the first quarter of 2010 was below
what we believe is a suitable long-term ROE for Canaccord. We are committed to
finding more efficiencies and revenue growth opportunities in all parts of the
organization, and ultimately expect to achieve a long-term target of 20%
average ROE over our next business cycle.
We will continue to make investments to support the growth of our
operations, but while we are committed to growth, we cannot support it at any
cost. Even as our businesses build revenues, they each must appropriately
contribute to our long-term ROE target. To ensure that all of Canaccord's
divisions are equally transparent to shareholders, beginning next quarter, we
will be providing additional financial disclosures to allocate certain direct
and other costs to our divisions. We believe this initiative will enhance
accountability as we continue being vigilant with costs. We are determined to
make whatever changes are necessary to unlock the inherent value we know
exists in all of our businesses.
Solid performance from Canaccord Adams
Canaccord Adams performed very well during the first quarter of 2010
despite general weakness in the global capital markets. Revenues from all
geographies declined 18% from the far more robust first quarter of our last
fiscal year. But there are signs that a gradual recovery is underway. Revenues
from our Canadian, U.K. and U.S. capital markets operations advanced 17%, 31%
and 60%, respectively since last quarter, a marked improvement due in part to
the improved capital markets during Q1.
Globally, the Canaccord Adams team led 23 transactions that raised more
than $550 million and participated in 74 transactions that raised total
proceeds of $1.5 billion. A number of significant transactions occurred during
the quarter as a result of our strong balance sheet, capital base and global
distribution for clients. These included a (pnds stlg)132 million offering for
Heritage Oil on the London Stock Exchange and a C$162 million underwriting on
the Toronto Stock Exchange for TransAtlantic Petroleum Corp.
Canaccord Adams acted as lead bookrunner on two U.S. underwritings that
were particularly notable - Itron Inc., a US$168 million offering, and Telvent
GIT, S.A., a US$66.2 million offering. These transactions demonstrated our
team's expertise in an emerging investment theme: energy efficiency and
infrastructure - the strength of both these companies.
In the UK, we were very pleased to welcome Giles Fitzpatrick as the new
president of Canaccord Adams Limited - our U.K. operations - at the end of the
quarter. Giles was formerly CEO of a highly regarded global investment bank
and his well-established relationships in Europe, Asia and North America will
enable us to continue to strengthen our U.K. equity capital markets business.
Progress in Private Client Services
Private Client Services' revenues were dampened by market volatility that
reduced trading activity during the first three months of fiscal 2010.
Revenues declined 30% from the comparable quarter last year. Sequentially,
however, revenues advanced about 8%, suggesting a gradual return of a more
normalized business environment. At $10.3 billion, our assets under
administration increased by 12.6% since last quarter, however AUA declined
29.6% year-over-year due primarily to lower market values.
PCS is making significant progress under the leadership of John Rothwell.
The division is in the first year of a three-year program of strategic
repositioning intended to build revenues through pricing, products and
services and to reduce costs through more-efficient use of resources. We
continue to have a strong commitment to advancing this group through quality
improvement programs, while also aggressively pursuing new opportunities for
growth.
We recently hired George Karkoulas to head PCS's new Independent
Financial Management initiative. This program is a new strategically
complementary segment of our Private Client platform that will leverage
Canaccord's independence, infrastructure and operational strengths. It also
provides an opportunity to recruit brokers who wish to retain their
independence but operate under the prominence of the Canaccord brand. George
is the ideal executive to lead this growth initiative for us, having built a
similar business for one of our peers over the past seven years.
Looking ahead
We remain cautiously optimistic about the immediate future for Canaccord.
We're pleased with the achievements we've had to date in reducing our
breakeven costs and the continuing success our teams are having in executing
great ideas for clients in still-challenging market conditions. With the
lingering global economic downturn, we feel the need to continue to protect
the strength of Canaccord's capital base in the event the global recovery is
more prolonged.
To our employees, we say thank you, as always, for your hard work and
dedication to the interests of our clients and shareholders. More importantly,
thank you for understanding the need for the changes we are making, and taking
them seriously. Progress requires change, and it is something we all know is
important for the ongoing success of Canaccord.
Paul D. Reynolds
President & Chief Executive Officer
ACCESS TO QUARTERLY RESULTS INFORMATION:
Interested investors, the media and others may review this quarterly
earnings release and supplementary financial information at
canaccord.com/investor/financialreports.
CONFERENCE CALL AND WEBCAST PRESENTATION:
Interested parties can listen to our fiscal first quarter 2010 results
conference call with analysts and institutional investors, live and archived,
via the Internet and a toll free number. The conference call is scheduled for
Thursday, August 6, 2009 at 8:30 a.m. (Pacific Time), 11:30 a.m. (Eastern
Time) and 4:30 p.m. (UK Time). At that time, senior executives will comment on
the results for the first quarter of fiscal 2010 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: canaccord.com/investor/webcast
Analysts and institutional investors can call in via telephone at:
- 416-644-3424 (within Toronto)
- 1-800-591-7539 (toll free outside Toronto)
- 00-800-2288-3501 (toll free from the United Kingdom)
A replay of the conference call can be accessed after 10:30 a.m. (Pacific
Time), 1:30 p.m. (Eastern Time) and 6:30 p.m. (UK Time) on August 6, 2009
until September 21, 2009 at 416-640-1917 or 1-877-289-8525 by entering
passcode 21310740 followed by the pound (No.) sign.
ABOUT CANACCORD CAPITAL INC.:
Through its principal subsidiaries, Canaccord Capital Inc. (TSX & AIM:
CCI) is a leading independent, full-service investment dealer in Canada with
capital markets operations in the United Kingdom and the United States of
America. Canaccord is publicly traded on both the Toronto Stock Exchange and
AIM, a market operated by the London Stock Exchange. Canaccord has operations
in two of the principal segments of the securities industry: capital markets
and private client services. Together, these operations offer a wide range of
complementary investment products, brokerage services and investment banking
services to Canaccord's private, institutional and corporate clients.
Canaccord has 31 offices worldwide, including 24 Private Client Services
offices located across Canada. Canaccord Adams, the international capital
markets division, has operations in Toronto, London, Boston, Vancouver, New
York, Calgary, Montreal, San Francisco, Houston and Barbados.
FOR FURTHER INFORMATION, CONTACT:
North American media:
Scott Davidson
Managing Director, Global Head of Marketing & Communications
Phone: 416-869-3875
Email: scott_davidson@canaccord.com
London media:
Bobby Morse or Ben Willey
Buchanan Communications (London)
Phone: +44 (0) 207 466 5000
Email: bobbym@buchanan.uk.com
Investor relations inquiries:
Joy Fenney
Vice President, Investor Relations
Phone: 416-869-3515
Email: joy_fenney@canaccord.com
Nominated Adviser and Broker:
Marc Milmo
Fox-Pitt, Kelton Limited
Phone: +44 (0) 207 663 6000
Email: marc.milmo@fpk.com
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None of the information on Canaccord's Web site at canaccord.com should
be considered incorporated herein by reference.
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Management's Discussion and Analysis
Fiscal first quarter 2010 for the three months ended June 30, 2009 - this
document is dated August 6, 2009
The following discussion of the financial condition and results of
operations for Canaccord Capital Inc. (Canaccord) is provided to enable the
reader to assess material changes in our financial condition and to assess
results for the three-month period ended June 30, 2009 compared to the
corresponding period in the preceding fiscal year. The three-month period
ended June 30, 2009 is also referred to as first quarter 2010, Q1/10 and
fiscal Q1/10 in the following discussion. This discussion should be read in
conjunction with the unaudited interim consolidated financial statements for
the three-month period ended June 30, 2009, beginning on page 23 of this
report; our Annual Information Form dated May 26, 2009; and the 2009 annual
Management's Discussion and Analysis (MD&A) including the audited consolidated
financial statements for the fiscal year ended March 31, 2009 (Audited Annual
Consolidated Financial Statements) in Canaccord's Annual Report dated May 20,
2009 (the Annual Report). There has been no material change to the information
contained in the annual MD&A for fiscal 2009 except as disclosed in this MD&A.
Canaccord's financial information is expressed in Canadian dollars unless
otherwise specified. The financial information presented in this document is
prepared in accordance with Canadian generally accepted accounting principles
(GAAP) unless specifically noted. This MD&A is based on unaudited interim and
Audited Annual Consolidated Financial Statements prepared in accordance with
Canadian GAAP.
Caution regarding forward-looking statements
This document may contain certain forward-looking statements. These
statements relate to future events or future performance and reflect
management's expectations or beliefs regarding future events including
business and economic conditions and Canaccord's growth, results of
operations, performance and business prospects and opportunities. Such
forward-looking statements reflect management's current beliefs and are based
on information currently available to management. In some cases,
forward-looking statements can be identified by terminology such as "may",
"will", "should", "expect", "plan", "anticipate", "believe", "estimate",
"predict", "potential", "continue", "target", "intend" or the negative of
these terms or other comparable terminology. By their very nature,
forward-looking statements involve inherent risks and uncertainties, both
general and specific, and a number of factors could cause actual events or
results to differ materially from the results discussed in the forward-looking
statements. In evaluating these statements, readers should specifically
consider various factors that may cause actual results to differ materially
from any forward-looking statement. These factors include, but are not limited
to, market and general economic conditions, the nature of the financial
services industry and the risks and uncertainties detailed from time to time
in Canaccord's interim and annual consolidated financial statements and its
Annual Report and Annual Information Form filed on sedar.com. These
forward-looking statements are made as of the date of this document, and
Canaccord assumes no obligation to update or revise them to reflect new events
or circumstances.
Non-GAAP measures
Certain non-GAAP measures are utilized by Canaccord as measures of
financial performance. Non-GAAP measures do not have any standardized meaning
prescribed by GAAP and are therefore unlikely to be comparable to similar
measures presented by other companies. Non-GAAP measures included are: return
on average common equity (ROE), assets under administration (AUA), assets
under management (AUM), expenses as a % of revenue, and book value per diluted
share.
Canaccord's capital is represented by common shareholders' equity and,
therefore, management uses return on average common equity (ROE) as a
performance measure.
Assets under administration (AUA) and assets under management (AUM) are
non-GAAP measures of client assets that are common to the wealth management
aspects of the private client services industry. AUA is the market value of
client assets administered by Canaccord from which Canaccord earns commissions
or fees. This measure includes funds held in client accounts as well as the
aggregate market value of long and short security positions. Canaccord's
method of calculating AUA may differ from the methods used by other companies
and therefore may not be comparable to other companies. Management uses this
measure to assess operational performance of the Private Client Services
business segment. AUM includes all assets managed on a discretionary basis
under our programs generally described as or known as the Alliance Program and
Private Investment Management. Services provided include the selection of
investments and the provision of investment advice. AUM is also administered
by Canaccord and is included in AUA.
BUSINESS OVERVIEW
Through its principal subsidiaries, Canaccord Capital Inc. (TSX & AIM:
CCI) is a leading independent, full-service investment dealer in Canada with
capital markets operations in the United Kingdom and the United States.
Canaccord is publicly traded on both the Toronto Stock Exchange (TSX) and AIM,
a market operated by the London Stock Exchange (LSE). The Company has
operations in two of the principal segments of the securities industry:
capital markets and private client services. Together, these operations offer
a wide range of complementary investment banking services, investment products
and brokerage services to Canaccord's institutional, corporate and private
clients.
Canaccord's business is cyclical and experiences considerable variations
in revenue and income from quarter to quarter and year to year due to factors
beyond Canaccord's control. Our business is affected by the overall condition
of the North American and European equity markets, including seasonal
fluctuations.
Business environment
Aggressive liquidity injections by governments and central banks
continued into the first quarter of Canaccord's 2010 fiscal year. Much of the
pessimism in fiscal Q4 2009 was replaced with a return of optimism. The
markets produced the best returns for equities since 2003 and the capital
environment saw great improvement as new issues occurred at a healthy pace.
Equity markets became a 'buy on pullback' opportunity versus the stance in Q4
2009 where investors looked to reduce exposure. Risky credit also saw much
reduced yields.
The real economy continued to be negatively impacted. Manufacturing
activity in both Canada and the US was weak. Capacity utilization remains low.
Higher loan delinquencies and heightened unemployment occurred, as did a US
budget gap that exceeded the $1 trillion mark sooner than any time in history.
The government-led restructuring of the US auto industry changed the nature of
American business.
Businesses continued to cut costs and many were forced to reorganize. In
some cases, they had to declare bankruptcy. With the assumption that emerging
nations such as China and India were in recovery, the price of raw materials
was bid-up. By quarter-end, weak demand from the real economy allowed for a
significant pullback in many commodity prices and new losses for speculative
traders.
Short interest rates were kept low by the central banks throughout fiscal
Q1 2010, however 10-year yields rose significantly. This is a concern for any
sustainable housing recovery in the US. Housing activity in Canada rose to
near historic levels and kept a brisk pace. The UK, especially in the city of
London, saw stabilization of prices and renewed activity.
By quarter's end however, many market participants believed that the
economic environment would be much improved by calendar year-end.
Market Data
The TSX, TSX Venture, and AIM all experienced gains in trading volumes
during fiscal Q1/10 compared to Q4/09, though volume on the NASDAQ decreased
slightly. The TSX and AIM recorded increases in trading volumes compared to
the first quarter of fiscal 2009, while trading volumes on the TSX Venture and
NASDAQ experienced lower trading volumes than a year ago.
Financing values were up significantly on the TSX/TSX Venture, AIM and
NASDAQ compared to last quarter, with financings on the NASDAQ nearly tripling
since last quarter. Compared to the same quarter last year, financings on the
AIM fell by 45%, while North American markets gained momentum with increased
financing values on the TSX/TSX Venture and NASDAQ.
Trading volume by exchange (billions of shares)
-------------------------------------------------------------------------
Change Change
from from
Fiscal fiscal fiscal
April 09 May 09 June 09 Q1/10 Q1/09 Q4/09
-------------------------------------------------------------------------
TSX 10.7 11.5 10.9 33.1 32.4% 10.3%
TSX Venture 3.1 3.8 4.2 11.1 (19.6)% 37.0%
AIM 15.0 22.4 17.9 55.3 40.7% 81.3%
NASDAQ 16.0 15.5 17.0 48.5 (13.6)% (6.1)%
-------------------------------------------------------------------------
Source: TSX Statistics, LSE AIM Statistics, Thomson One
Total financing value by exchange
-------------------------------------------------------------------------
Change Change
from from
Fiscal fiscal fiscal
April 09 May 09 June 09 Q1/10 Q1/09 Q4/09
-------------------------------------------------------------------------
TSX and TSX
Venture
(C$ billions) 4.0 2.5 8.0 14.5 27.2% 16.9%
AIM ((pnds stlg)
billions) 0.1 0.6 0.4 1.1 (45.0)% 83.3%
NASDAQ
(US$ billions) 2.8 3.3 5.9 12.0 135.3% 287.1%
-------------------------------------------------------------------------
Source: TSX Statistics, LSE AIM Statistics, Equidesk
Financing value for relevant AIM industry sectors
-------------------------------------------------------------------------
((pnds stlg)
millions, Change Change
except for from from
percentage Fiscal fiscal fiscal
amounts) April 09 May 09 June 09 Q1/10 Q1/09 Q4/09
-------------------------------------------------------------------------
Oil and gas 4.8 152.0 124.2 281.0 (8.9)% 1,452.5%
Mining 19.9 87.1 11.5 118.5 (74.1)% (47.9)%
Pharmaceutical
and Biotech 3.0 5.2 56.4 64.6 67.4% 994.9%
Media 1.0 1.8 20.5 23.3 25.9% 308.8%
Technology 3.1 3.6 51.0 57.7 (57.0)% 1,703.1%
------------------------------------------------------------
Total (of
relevant
sectors) 31.8 249.7 263.6 545.1 (43.1)% 109.4%
-------------------------------------------------------------------------
Source: LSE AIM Statistics
Financing value for relevant TSX and TSX Venture industry sectors
-------------------------------------------------------------------------
($ millions, Change Change
except for from from
percentage Fiscal fiscal fiscal
amounts) April 09 May 09 June 09 Q1/10 Q1/09 Q4/09
-------------------------------------------------------------------------
Oil and gas 162.4 1,014.2 1,110.7 2,287.3 (19.8)% 3.2%
Mining 34.7 1,697.2 1,057.4 2,789.3 127.8% 44.1%
Biotech - - - - (100.0)% n/c
Media - - - - (100.0)% n/c
Technology - 23.0 18.9 41.9 (25.0)% n/c
------------------------------------------------------------
Total (of
relevant
sectors) 197.1 2,734.4 2,187.0 5,118.5 13.7% 22.0%
-------------------------------------------------------------------------
Source: FPinfomart
n/c: No change
About Canaccord's operations
Canaccord Capital Inc.'s operations are divided into two business
segments: Canaccord Adams (our capital markets operations) and Private Client
Services. Together, these operations offer a wide range of complementary
investment banking services, investment products, and brokerage services to
Canaccord's institutional, corporate and private clients. Canaccord's
administrative segment is referred to as Corporate and Other.
Canaccord Adams
Canaccord Adams offers mid-market corporations and institutional
investors around the world an integrated platform for equity research, sales
and trading, and investment banking services that is built on extensive
operations in Canada, the United States and the United Kingdom.
- Canaccord's research analysts have deep knowledge of more than 600
companies across eight focus sectors: Mining and Metals, Energy,
Technology, Life Sciences, Consumer, Real Estate, Infrastructure and
Sustainability.
- Our Sales and Trading desk executes timely transactions for more than
1,500 institutional relationships around the world, operating as an
integrated team on one common platform.
- With more than 65 skilled investment bankers, Canaccord Adams
provides clients with deep sector expertise and broad equity
transaction and M&A advisory experience.
Revenue from Canaccord Adams is generated from commissions and fees
earned in connection with investment banking transactions and institutional
sales and trading activity, as well as trading gains and losses from
Canaccord's principal and international trading operations.
Private Client Services
As a leading independent investment dealer, Canaccord's Private Client
Services has built its reputation on the quality of our investment ideas. We
recognize that the growing complexity of many clients' financial circumstances
demands experienced Advisory Teams who can provide solutions and ideas that
meet our clients' needs. Many of our Investment Advisors have completed the
training required for advanced industry designations such as Chartered
Financial Analyst or Certified Investment Manager. We continue to provide our
advisors with ongoing training opportunities.
Revenue from Private Client Services is generated through traditional
commission-based brokerage services; the sale of fee-based products and
services; client-related interest; and fees and commissions earned by Advisory
Teams in respect of investment banking and venture capital transactions by
private clients.
Corporate and Other
Canaccord's administrative segment, described as Corporate and Other,
includes correspondent brokerage services, bank and other interest, foreign
exchange gains and losses, and expenses not specifically allocable to either
the Canaccord Adams or Private Client Services divisions. Also included in
this segment are Canaccord's operations and support services, which are
responsible for front and back-office information technology systems,
compliance and risk management, operations, finance and all administrative
functions.
CONSOLIDATED OPERATING RESULTS
First quarter and fiscal 2010 summary data(1)
-------------------------------------------------------------------------
(C$ thousands, except per Three months ended Year-
share, number of employee June 30 over-year
and % amounts) 2009 2008 change
-------------------------------------------------------------------------
Canaccord Capital Inc.
Revenue
Commission $55,456 $71,996 (23.0)%
Investment banking 55,886 76,147 (26.6)%
Principal trading 11,470 5,911 94.0%
Interest 3,476 12,329 (71.8)%
Other 11,175 6,325 76.7%
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Total revenue $137,463 $172,708 (20.4)%
Expenses
Incentive compensation $68,463 $82,727 (17.2)%
Salaries and benefits 13,802 15,443 (10.6)%
Other overhead expenses(2) 39,203 51,009 (23.1)%
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Total expenses $121,468 $149,179 (18.6)%
Income before income taxes 15,995 23,529 (32.0)%
Net income 9,112 16,459 (44.6)%
Earnings per share (EPS) - diluted 0.16 0.31 (48.4)%
Return on average common equity (ROE) 9.7% 15.7% (6.0)p.p.
Book value per share - period end 6.73 7.66 (12.1)%
Number of employees 1,509 1,698 (11.1)%
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(1) Data is considered to be GAAP except for ROE, book value per share
and number of employees.
(2) Consists of trading costs, premises and equipment, communication and
technology, interest, general and administrative, amortization and
development costs.
p.p.: percentage points
Geographic distribution of revenue for the first quarter of
fiscal 2009(1)
-------------------------------------------------------------------------
Three months ended Year-
June 30 over-year
(C$ thousands, except % amounts) 2009 2008 change
-------------------------------------------------------------------------
Canada $87,934 $108,898 (19.3)%
UK 20,925 33,718 (37.9)%
US 27,179 25,621 6.1%
Other Foreign Location 1,425 4,471 (68.1)%
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(1) For a business description of Canaccord's geographic distribution
please refer to the "About Canaccord's Operations" section on page
10.
First quarter 2010 vs. first quarter 2009
On a consolidated basis, revenue is generated through five activities:
commissions and fees associated with agency trading and private client wealth
management activity, investment banking, principal trading, interest and
other. Revenue for the three months ended June 30, 2009 was $137.5 million, a
decrease of 20.4% or $35.2 million compared to the same period a year ago.
For the first quarter of fiscal 2010, revenue generated from commissions
declined by $16.5 million to $55.5 million compared to the same period a year
ago. This decrease was largely attributed to a $12.7 million commission
revenue decline in our Private Client Services segment.
Investment banking revenue was $55.9 million, a decline of $20.3 million
or 26.6%, primarily due to a drop in capital markets activities from our UK
and Canadian operations. Revenue derived from principal trading was $11.5
million, an increase of $5.6 million or 94.0%. This increase was mainly due to
higher inventory gains from market making activities in UK and Other Foreign
Location.
Interest revenue was $3.5 million, which decreased by $8.9 million or
71.8% due to the decrease in the number and size of margin accounts and lower
interest rates.
Other revenue was $11.2 million, an increase of $4.9 million or 76.7%
which was mainly attributed to foreign exchange gains in the quarter.
First quarter revenue in Canada was $87.9 million, a decrease of 19.3% or
$21.0 million from the same period a year ago. Our operations were affected by
the weaker Canadian equity markets compared to Q1/09.
Revenue in the UK was $20.9 million, down 37.9% or $12.8 million compared
to the same period a year ago. Revenue from Other Foreign Location was $1.4
million, a decline of 68.1% or $3.0 million. These declines were due to the
global economic downturn that started during the last half of fiscal 2009.
Revenue in the US was $27.2 million, up $1.6 million or 6.1% from Q1/09.
Revenue in the US operations increased slightly compared to Q1/09 because of
our improved banking environment in certain focus sectors.
Expenses as a percentage of revenue
-------------------------------------------------------------------------
Three months ended Year-
June 30 over-year
2009 2008 change
-------------------------------------------------------------------------
Incentive compensation 49.8% 47.9% 1.9p.p.
Salaries and benefits 10.0% 8.9% 1.1p.p.
Other overhead expenses(1) 28.5% 29.6% (1.1)p.p.
-----------------------------------
Total 88.3% 86.4% 1.9p.p.
-------------------------------------------------------------------------
(1) Consists of trading costs, premises and equipment, communication and
technology, interest, general and administrative, amortization and
development costs.
p.p.: percentage points
First quarter 2010 vs. first quarter 2009
Expenses for the three months ended June 30, 2009 were $121.5 million,
down 18.6% or $27.7 million from a year ago.
Incentive compensation expense was $68.5 million for the quarter, a
decrease of 17.2% or $14.3 million, consistent with the decrease in
incentive-based revenue. Consolidated incentive compensation as a percentage
of total revenue was 49.8%, up 1.9 percentage points. Salaries and benefits
expense was $13.8 million, a decrease of 10.6% in the first quarter of fiscal
2010 from the same period a year ago. This decrease was due to a reduction of
employees' salaries during fiscal 2009 as part of the overall cost savings
initiative.
The total compensation (incentive compensation plus salaries) payout as a
percentage of consolidated revenue for Q1/10 was 59.8%, an increase of 3.0
percentage points from 56.8% in Q1/09.
Other overhead expenses
-------------------------------------------------------------------------
Three months ended Year-
June 30 over-year
(C$ thousands, except % amounts) 2009 2008 change
-------------------------------------------------------------------------
Trading costs $7,324 $6,321 15.9%
Premises and equipment 5,882 5,785 1.7%
Communication and technology 5,489 6,163 (10.9)%
Interest 845 3,959 (78.7)%
General and administrative 11,888 19,277 (38.3)%
Amortization 1,921 2,042 (5.9)%
Development costs 5,854 7,462 (21.5)%
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Total other overhead expenses $39,203 $51,009 (23.1)%
-------------------------------------------------------------------------
First quarter 2010 vs. first quarter 2009
Other overhead expenses decreased by 23.1% or $11.8 million from the
prior year to $39.2 million for the first quarter of fiscal 2010 mainly due to
the decrease in interest, development, and general and administrative expense.
Interest expense decreased by $3.1 million or 78.7%, which was
attributable to the decrease in interest rates compared to the prior year. The
US operations offered fewer hiring incentives during Q1/10, which was the
primary reason for the $1.6 million or 21.5% decrease in development costs
compared to Q1/09.
The main contributor to the decrease in general and administrative
expense was a $5.1 million or 61.6% decrease in promotion and travel expense
and a $1.4 million or 33.1% decrease in professional fees. Promotion and
travel expense decreased due to a firm-wide effort to decrease expenses
incurred by the firm as part of the restructuring plan. Expense recoveries
from compensation pools also contributed to the decline of promotion and
travel expense. Professional fees decreased in Q1/10 due to non-recurring
consultancy fees incurred in Q1/09 to upgrade internal infrastructure.
Net income for Q1/10 was $9.1 million compared to $16.5 million the same
period a year ago. Diluted EPS were $0.16 in Q1/10 compared to $0.31 in Q1/09.
ROE for Q1/10 was 9.7% compared to an ROE of 15.7% in Q1/09. Book value per
diluted share for Q1/10 was $6.73 versus $7.66 in Q1/09.
Income taxes were $6.9 million for the quarter, reflecting an effective
tax rate of 43.0%, an increase of 13.0 percentage points from 30.0% a year
ago.
