(All dollar amounts are stated in Canadian dollars unless otherwise indicated)¹

VANCOUVER, Aug. 3, 2011 /PRNewswire/ - Canaccord Financial Inc. CF (AIM: CF.) generated revenue of $159.8 million and net income of $13.2 million in the first quarter of fiscal 2012, the quarter ended June 30, 2011. Revenue was 5% higher than the same quarter last year and net income for the first quarter was 154% higher compared to net income of $5.2 million recorded in the first quarter of fiscal 2011. Diluted earnings per common share (EPS) for fiscal Q1/12 were $0.16, compared to diluted EPS of $0.07 in the same quarter last year. Excluding acquisition-related items, net income was $14.1 million, down slightly from $14.2 million in the comparable quarter last year, and EPS was $0.17 compared to $0.19.

"We see great opportunities for our business through the growth initiatives we're undertaking and believe we're very well positioned for the eventual market resurgence.  Our recently announced partnership with BGF Equities will significantly grow our distribution capabilities through licenses to operate on the Australian and Hong Kong stock exchanges, and will also enhance Canaccord's access to Australia's robust resource sector," noted Paul Reynolds, President and CEO of Canaccord Financial Inc.  "Nevertheless, the difficult market environment that persisted throughout our fiscal first quarter led to lower trading volumes and heightened market volatility, which impacted client activity in some of our core businesses."

First quarter of fiscal 2012 vs. first quarter of fiscal 2011

• Revenue of $159.8 million, up 5% or $7.9 million from $151.9 million
• Expenses of $144.0 million, down $0.3 million from $144.3 million
• Net income of $13.2 million, up 154% or $8.0 million compared to net income of $5.2 million
• Return on common equity (ROE) of 7.0%, up from 3.9% ⁽²⁾⁽³⁾
• Diluted EPS of $0.16 compared to diluted EPS of $0.07

Excluding acquisition-related expense items⁽²⁾⁽⁴⁾

• Expenses of $143.1 million, up 8% or $11.2 million from $131.9 million
• Net income of $14.1 million, down 1% or $0.1 million compared to net income of $14.2 million
• ROE of 7.3%, down from 10.5%^{(2) (3)}
• Diluted EPS of $0.17 compared to diluted EPS of $0.19

First quarter of fiscal 2012 vs. fourth quarter of fiscal 2011

• Revenue of $159.8 million, down 35% or $87.8 million from $247.6 million
• Expenses of $144.0 million, down 24% or $45.3 million from $189.3 million
• Net income of $13.2 million, down 68% or $28.1 million compared to net income of $41.3 million
• ROE of 7.0%, down from 22.6%⁽²⁾⁽³⁾
• Diluted EPS of $0.16 compared to diluted EPS of $0.49 in the fourth quarter of 2011

Excluding acquisition-related expense items⁽²⁾⁽⁴⁾

• Expenses of $143.1 million, down 24% or $45.2 million from $188.3 million
• Net income of $14.1 million, down 67% or $28.2 million compared to net income of $42.3 million
• ROE of 7.3%, down from 22.6% ⁽²⁾⁽³⁾
• Diluted EPS of $0.17 compared to diluted EPS of $0.50 in the fourth quarter of 2011

Financial condition at end of first quarter 2012 vs. first quarter 2011

• Cash and cash equivalents balance of $710.7 million, up $140.7 million from $570.0 million
• Working capital of $486.0 million, up $174.4 million from $311.6 million
• Total shareholders' equity of $848.2 million, up $177.2 million from $671.0 million
• Book value per diluted common share for the period end was $8.71, up 11% or $0.85 from $7.86⁽²⁾
• On August 3, 2011, the Board of Directors approved a quarterly dividend of $0.10 per common share payable on September 15, 2011 with a record date of August 26, 2011
• On August 3, 2011, the Company also declared the initial cash dividend of $0.37295 per Series A Preferred Share payable on September 30, 2011 with a record date of September 16, 2011

SUMMARY OF OPERATIONS

Corporate

• On April 15, 2011, Canaccord Financial Inc. shareholders approved amendments to the Company's corporate articles, allowing for the issuance of preferred shares
• On June 6, 2011, Canaccord Financial Inc. announced the offering of Series A Rate Reset Preferred Shares priced at $25.00 each to raise capital for general corporate purposes
• On June 23, 2011, the Series A Preferred Share offering closed with the listing of 4,000,000 Series A Preferred Shares, trading on the TSX under the symbol CF.PR.A.
• Subsequent to quarter end, on July 7, 2011, the syndicate of investment dealers exercised an over-allotment option, and the Company issued an additional 540,000 Series A Preferred Shares
• In total, the issuance of 4,540,000 Series A Rate-Reset Preferred Shares raised $113.5 million in gross proceeds
• At the Company's 2011 Annual General Meeting held on June 24, 2011, shareholders approved the re-election of all nine of the corporate directors nominated for Canaccord Financial Inc.'s Board of Directors
• During the quarter, Canaccord Financial Inc. announced the filing of a Normal Course Issuer Bid, to allow for the purchase of up to 2,000,000 common shares for cancellation over a one-year period ending June 12, 2012

Capital Markets

• Canaccord Genuity led 46 transactions globally to raise total proceeds of $1.5 billion⁽⁵⁾ during fiscal Q1/12
• Canaccord Genuity participated in a total of 106 transactions globally to raise total proceeds of $3.2 billion⁽⁵⁾  during fiscal Q1/12
• During fiscal Q1/12, Canaccord Genuity led or co-led the following transactions:
• US$550 million for Manabi Holdings S.A. (non-exchange listed)
• US$230 million for Neo Material Technologies Inc. on the TSX
• C$113.5 million for Canaccord Financial Inc. on the TSX
• US$100.6 million for Aveo Pharmaceuticals on the NASDAQ
• C$100.1 million for Artis REIT on the TSX
• US$74.0 million for Dexcom Inc. on the NASDAQ
• C$59.9 million for Pure Industrial Real Estate Trust on the TSX Venture
• C$55.0 million for Bellatrix Exploration Ltd. on the TSX
• US$50.0 million for Anthera Pharmaceuticals on the NASDAQ
• US$47.0 million for Inhibitex Inc. on the NASDAQ
• £45.6 million for Bahamas Petroleum Company Plc. on AIM
• C$43.7 million for NexJ Systems Inc. on the TSX
• C$40.2 million for Levon Resources Ltd. on the TSX Venture
• Canaccord Genuity recorded advisory revenues of $22.5 million during fiscal Q1/12, an increase of 9% compared to the same quarter last year
• During fiscal Q1/12, Canaccord Genuity advised on the following M&A and advisory transactions:
• SynthRx, Inc. on its acquisition by ADVENTRX Pharmaceuticals, Inc.
• Adenyo Inc. on its acquisition by Motricity, Inc.
• Renegade Petroleum Ltd. on its acquisition of Petro Uno Resources Ltd.
• NuLoch Resources Inc. on its acquisition by Magnum Hunter Resources Corp.
• Blinkx Plc. on its acquisition of Burst Media Corp.
• MENA Hydrocarbons Inc. on its reverse takeover of MENA (formerly SKANA Capital Corp.)
• Insulet Corp. on its acquisition of Neighborhood Diabetes Inc.
• New Gold Inc. on its acquisition of Richfield Ventures Corp.
• Canadian Satellite Radio Holdings Inc. on its merger with Sirius Canada Inc.
• Luminex Corp. on its acquisition of EraGen Biosciences
• EADS on its acquisition of Vector Aerospace Corporation
• Petrowest Energy Services Trust on its debt financing

Wealth Management

• Canaccord Wealth Management recorded $2.5 million of net income before taxes in Q1/12
• Assets under administration were $15.7 billion, up 25% from $12.6 billion at the end of Q1/11, and down 8% from $17.0 billion at the end of Q4/11⁽²⁾
• Assets under management were $575 million, up 33% from $431 million at the end of Q1/11, and up 5% from $546 million at the end of Q4/11⁽²⁾
• As at June 30, 2011, Canaccord had 263 Advisory Teams⁽⁶⁾, down eight from 271 Advisory Teams as of March 31, 2011 and down 27 from 290 Advisory Teams as of June 30, 2010
• This decrease is largely due to an ongoing strategic review of our Wealth Management division and the conversion of corporate branches to the Independent Wealth Management (IWM) platform, where each branch is led by one Investment Advisor (IA) and is counted as one Advisory Team
• During the first quarter of Canaccord's fiscal year, the IWM platform added two branches and closed one location:
• A new Kitchener, Ontario, IWM branch was opened on May 10, 2011
• The corporate Thunder Bay, Ontario, branch converted to the IWM platform on July 1, 2011
• The Whitehorse, Yukon, IWM branch closed on May 31, 2011
• Canaccord Wealth Management now has 32 branches across Canada, including 19 operating on the IWM platform

Subsequent to June 30, 2011

• On July 7, 2011, the over-allotment option was exercised for Canaccord's preferred share offering, prompting the issuance of 540,000 additional preferred shares.  In total, 4,540,000 Series A Preferred Shares were issued by Canaccord, raising $113.5 million in gross proceeds.
• On July 31, 2011, Canaccord announced that it has entered into a definitive agreement to acquire a 50% equity interest in BGF Capital Group Pty Ltd (BGF), commonly referred to as BGF Equities, which will expand Canaccord's operations into Australia and Hong Kong.
• Consideration of AUD$40 million will be provided for the 50% interest in BGF, payable in cash and, subject to TSX approval, CF common shares.  The transaction is not intended to be dilutive.  Canaccord intends to purchase and cancel a like number of shares under its NCIB.
• The transaction is expected to close during Canaccord's third quarter of fiscal 2012 (the fourth quarter of calendar 2011), at which point BGF Equities will be re-branded Canaccord BGF
• Canaccord has also been granted the option to purchase the remaining 50% equity interest in the company during a three-month period commencing on the fifth anniversary of the initial investment
• Canaccord will have the right to appoint three of the six corporate directors of Canaccord BGF

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, return on common equity and figures that exclude acquisition-related expense items. 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 acquisition-related expense 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 acquisition-related expense items is that the IFRS accounting effects of the acquisition-related expense 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.

Acquisition-related expense items in the first quarter 2012 and fourth quarter 2011 include $0.9 million of amortization of intangible assets in connection with the acquisition of Genuity Capital Markets (Genuity). Acquisition-related expense items in the first quarter 2011 include $11.0 million of acquisition-related costs and $1.4 million of amortization of intangible assets in connection with the acquisition of Genuity.

TO OUR SHAREHOLDERS:

On July 31^st, we were very pleased to announce the expansion of our operations into Australia and Hong Kong through the acquisition of 50% of BGF Equities⁷, which will be renamed Canaccord BGF when the transaction is completed during our fiscal third quarter.  We had been evaluating opportunities to strengthen our presence in the Asia-Pacific region for some time, and we're very pleased to have found a partner that met all of our acquisition criteria.

Canaccord's commitment of AUD$40 million will be paid in cash and, subject to TSX approval, Canaccord common shares.  As our intention is to repurchase and cancel the same amount of shares from the market through our NCIB, any shares provided as consideration will not be dilutive to our shareholders.  Importantly, the purchase agreement also provides us with the option to acquire the remaining 50% of the company in 2016.  On a pro-forma basis, we expect the acquisition will be accretive to Canaccord's earnings.

This strategically important partnership provides Canaccord with increased access to the thriving resource market in Australia.  It also allows us to develop relationships with emerging and growing companies that can expand into other facets of our business as their advisory and financing needs change.  Just as important, our partnership dramatically enhances Canaccord's distribution capabilities through licenses to operate on both the Australian and Hong Kong stock exchanges.  There are tremendous opportunities for our business in both these markets, particularly as it relates to our resource sector expertise and robust investor demand from Asia.

Our new colleagues from BGF Equities share our values and entrepreneurial culture and, like Canaccord, understand that the success of their business is based on strong client relationships.  We're certain they will complement Canaccord's existing team well, and we're eager to see the results that our combined sector expertise, relationships and distribution capabilities can provide clients and shareholders.

We expect our expansion in the Asia-Pacific region will greatly benefit our existing operations in China.  Our distribution and listing capabilities on the Hong Kong stock exchange will significantly enhance the value we can provide clients and strengthen our competitive position in this region. We are continuing to invest in our Chinese operations but believe it will be several quarters before Canaccord Genuity Asia begins showing consistent returns.  Our pipeline is developing well and we're pleased with the corporate relationships we're building; however, we are facing headwinds as a result of changing investor sentiment in North America related to Chinese companies.

The expansion of our global platform is well underway, and it continues to be a core component of our growth strategy.  By establishing a presence in higher-growth markets and in geographies with growing opportunities in key sectors, we're building a stronger business to benefit from the eventual market resurgence, while also helping to temper the seasonality of some of our core businesses.

QUARTERLY UPDATE

While the first half of our fiscal year is traditionally slower for our business, this seasonality has been magnified by challenging market conditions.  As was the case with many industry participants, the results of our fiscal first quarter were impacted by the dramatic slowdown in trading volumes and increasingly cautious investor sentiment.  I'm generally pleased with how our business units are performing within this market environment; however, we are continuing with efforts to lower our costs and best align our resources to operate within a period of reduced capital markets activity in some of our core markets.  We're confident in our strategy and believe the investments we're making, and growth initiatives we're undertaking, are strengthening our business and best positioning Canaccord for the eventual market recovery.

Canaccord's revenue of $159.8 million was 5.2% higher than the same quarter last year.  Our UK operations had a particularly difficult quarter, as the industry-wide slowdown in this market continues.  We expect revenue contributions from this geography will be inconsistent in upcoming quarters, as our European pipeline remains strong but market opportunities remain sporadic.

Net income for the fiscal first quarter was $13.2 million, up significantly from $5.2 million in the same quarter last year, when costs associated with the expansion of our Canadian capital markets team were booked.  Diluted earnings per common share for the first quarter of fiscal 2012 were $0.16, or $0.17 excluding acquisition-related expenses.

We have had some success in hitting our expense reduction targets.  While non-comp expenses from pre-existing operations have declined, especially within our wealth management division, new costs have been incurred as a result of our expansion initiatives and changing operational needs.  We have identified what we need to do to capture more cost savings, and we're making some long term structural and operational changes to achieve our objectives.

CANACCORD GENUITY

The market environment was challenging for most of our fiscal first quarter, marked by increased volatility, lower trading volumes and waning investor confidence.  Revenue from Canaccord's investment banking, commission and principal trading lines were negatively impacted as a result.  In the three months ended June 30, 2011, Canaccord Genuity generated $97.4 million in revenue, down 2.8% compared to the same quarter last year and 40.5% from the second best results for the division last quarter.

Canaccord Genuity's investment banking operations performed relatively well within this market context, leading or co-leading 46 transactions globally to raise $1.5 billion in gross proceeds for our clients.  Notably, Canaccord co-led a US$550 million private placement for Manabi Holdings S.A. in May.  This was a cross-border transaction that we matched with multiple international investors - highlighting the strength of our firm's global reach and institutional relationships.  Revenue from investment banking operations declined compared to last quarter as a result of having an overall smaller position of the total transactions we participated in during the quarter.

As was the case with many industry participants, revenue from our trading operations declined as a result of reduced client activity and trading volumes.  Market volatility also had a marked impact on trading results.  It, combined with our efforts to assist clients with liquidity during the downturn, led to higher than anticipated facilitation losses during the quarter.  We are taking measures to prudently control capital use for trading activity and are continuing to monitor market fluctuations closely.

The strength of our M&A and advisory pipeline provided a solid contribution to our investment banking team during the quarter.  Advisory activities generated $22.5 million in revenue during fiscal Q1/12, up 9.1% from the same quarter last year, but down 12.3% from the record advisory revenue we achieved last quarter.  Our pipeline of M&A transactions remains very strong, evident by the five new transactions that we announced advisory assignments for during the quarter.  Subsequent to quarter end, it was also announced that Canaccord Genuity is acting as financial advisor to the noteholders of OPTI Canada in its acquisition by CNOOC and acting as financial advisor to Primero Mining Corp. in its merger with Northgate Minerals Corporation - two prominent transactions in Canada that underscore the strength of our expanded M&A and advisory team.

CANACCORD WEALTH MANAGEMENT

Canaccord Wealth Management performed reasonably well during our typically slower first quarter, even within a period of reduced market activity.  The division generated $54.8 million in revenue during fiscal Q1/12, up 16.0% compared to the same quarter last year, but down 24.6% from the revenue we achieved in last quarter's more robust market environment.  Despite reduced client activity, the business recorded net income before taxes of $2.5 million compared to a net loss of $1.7 million in the year-ago quarter.  We are pleased that Canaccord Wealth Management has generated profitable returns for the third consecutive quarter, but as divisional revenues are highly correlated to market volumes, we are watching the impact of the market slowdown carefully.  Strengthening the core business and building our managed accounts platform remain important components of our business plan, and together they will improve the division's ability to provide consistent returns to our shareholders.  Much like last year, and in line with historical trends, we anticipate that retail trading and client activity will increase in late summer or early fall as individual investors refocus on their investment portfolios.

LOOKING FORWARD

The sovereign debt issues facing the global economy continue to impact investor confidence and market stability; however, we believe a sustained recovery will likely build during the second half of our fiscal year.  Our long term strategy remains focused on best positioning the company for the eventual market resurgence.

Our international expansion initiatives and our investments in certain sector verticals are laying a strong foundation for our continued growth.  We're confident that our decisions to deploy capital in these key markets will enhance the value of the services we provide our clients, and grow the long term value of our company for shareholders.

Paul D. Reynolds,
President & CEO

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 first quarter fiscal 2012 results conference call with analysts and institutional investors, via a live webcast or a toll free number. The conference call is scheduled for Thursday, August 4, 2011 at 8:00 a.m. (Pacific Time), 11:00 a.m. (Eastern Time), 4:00 p.m. (UK Time) and 11:00 p.m. (China Standard Time). At that time, senior executives will comment on the results for the first quarter of the fiscal 2012 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: 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 outside Toronto)
• 0-800-051-7107 (toll free from the UK)
• 10-800-714-1191 (toll free from Northern China)
• 10-800-140-1195 (toll free from Southern China)

Please request to participate in Canaccord Financial's Q1/12 earnings call.

A replay of the conference call can be accessed after 11:00 a.m. (Pacific Time), 2:00 p.m. (Eastern Time), 7:00 p.m. (UK Time) on August 4, 2011, and 2:00 a.m. (China Standard Time) on August 5, 2011 until September 17, 2011 at 416-849-0833 or 1-855-859-2056 by entering passcode 83510514 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 46 offices worldwide, including 32 Wealth Management offices located across Canada.  Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, China and Barbados.

Canaccord Financial Inc. is publicly traded under the symbol CF on the TSX and the symbol CF. on AIM, a market operated by the London Stock Exchange.  Canaccord's Series A Preferred Shares are listed on the TSX under the symbol CF.PR.A.

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

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¹As required by the Canadian Accounting Standards Board (AcSB), the Company adopted International Financial Reporting Standards (IFRS) effective April 1, 2011. All financial information provided for Q1/12 is in accordance with IFRS, and all comparative financial information for the four quarters of fiscal 2011 has been restated and presented in accordance with IFRS.
² See non-IFRS measures.
³ ROE is presented on an annualized basis. ROE for the quarter is calculated by dividing the annualized net income available to common shareholders for the period over the average common shareholders' equity. See non-IFRS measures.
⁴ Acquisition-related expense items are related to the acquisition of Genuity Capital Markets. See non-IFRS measures.
⁵ Source: Placement Tracker. Includes placements for companies incorporated in Canada and the US.
⁶ 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. 
⁷ Canaccord Financial Inc. has agreed to acquire a 50% equity interest in BGF Capital Group Pty Ltd, commonly known as BGF Equities.

 

 

SOURCE Canaccord Financial Inc.