CF Canaccord Genuity Group Inc

Excluding significant items, quarterly earnings per common share of $0.16 ⁽¹⁾
Third quarter dividend of $0.085 per common share

TORONTO, Feb. 8, 2023 /PRNewswire/ -- Canaccord Genuity Group Inc. (Canaccord Genuity Group, the Company) (TSX: CF) today announced its financial results for the third fiscal quarter and nine months ended December 31, 2022.

"Our third quarter results reflect a continuance of the challenging environment that impacted volumes in our underwriting segment and decelerated the pace of M&A completions, which has led to more transactions being carried forward. The importance of our commitment to investing in the growth of our global wealth management businesses was particularly evident this quarter, with contributions from fee-based and managed accounts helping to offset the downturn in transactional activity," said Dan Daviau, President & CEO of Canaccord Genuity Group Inc. "While we are beginning to see a modest uptick in client activity levels, we expect continued instability in the capital markets until there is greater certainty with respect to the outlook for inflation, interest rates and the broader economy."

Third fiscal quarter and nine-month fiscal year-to-date highlights:
(All dollar amounts are stated in thousands of Canadian dollars unless otherwise indicated)

• Third quarter revenue excluding significant items ⁽¹⁾ of $382.3 million, in line with the previous fiscal quarter
• Net income before taxes excluding significant items⁽¹⁾ of $31.5 million in the third quarter and $109.5 million fiscal year-to-date
• Diluted earnings per common share excluding significant items⁽[1]⁾ for the third fiscal quarter of $0.16 per share (diluted loss per common share of $1.10 on an IFRS basis)
• Diluted earnings per common share excluding significant items ⁽¹⁾ for the first nine months of fiscal 2023 of $0.53 (diluted loss per common share of $1.06 on an IFRS basis)
• Fiscal-year-to-date capital markets advisory revenue of $258.7 million, ahead of all full year contributions in prior periods other than the record set in fiscal 2022
• Total client assets⁽¹⁾ in our global wealth management business were $94.4 billion at December 31, 2022, an increase of 6.5% compared to Q2/23 and a decrease of 7.4% year-over-year, primarily reflecting lower asset values, partially offset by the additions of new assets in connection with the acquisitions of Punter Southall Wealth Limited (PSW) and Adam & Company in the UK & Crown Dependencies
• The Company recorded a non-cash goodwill and intangible assets impairment charge of $102.6 million related to its Canadian capital markets operations due to significantly reduced levels of activity and, in particular, reduced levels of underwriting and investment banking activity, which led to low revenue and material losses in this operation on a year-to-date basis.
• Third quarter common share dividend of $0.085 per share

Core business performance highlights:

Canaccord Genuity Wealth Management

The Company's combined global wealth management operations earned revenue of $179.7 million for the third fiscal quarter, a year-over-year decrease of 2.8%. Net income before taxes excluding significant items⁽¹⁾ for this segment amounted to $36.5 million, an increase of 31.8% compared to Q2/23 and a decrease of 7.3% year-over-year. When measured on a year-to-date basis, revenue amounted to $511.2 million, a decrease of 6.4% compared to the first nine months of the prior fiscal year, and in-line with fiscal 2020 full-year revenue.

• Wealth management operations in the UK & Crown Dependencies generated third quarter revenue of $85.7 million, an increase of 5.8% compared to Q2/23 and an increase of 4.8% compared to the same period last year. This was the highest quarterly revenue on record for this business. Measured in local currency (GBP), revenue was £53.7 million in Q3/23 compared to £48.1 million in Q3/22, an increase of 11.7% compared to the same quarter last year. Net income before taxes excluding significant items⁽¹⁾ for this business was $22.9 million in Q3/23, up 3.3% year-over-year, as net contribution from higher revenue was partially offset by higher interest expense on additional bank loans obtained to acquire PSW and Adam & Company.
• Canaccord Genuity Wealth Management (North America) generated $77.4 million in third quarter revenue, an increase of 5.4% compared to Q2/23 and a year-over-year decrease of 6.3%. Third quarter interest income in this business amounted to $13.5 million, an increase of 160.7% year-over-year due to the higher interest rate environment. Excluding significant items⁽¹⁾ net income before taxes for this business was $12.4 million in Q3/23, an increase of 27.2% compared to Q2/23 and a year-over-year decrease of 18.4%.
• Wealth management operations in Australia generated $16.6 million in third quarter revenue, an increase of 11.7% compared to Q2/23 and a decrease of 19.1% compared to the third quarter of last year. Excluding significant items(1) net income before taxes for this business was $1.2 million in Q3/23, down from net income of $2.0 million in Q3/22.

Total client assets in the Company's global wealth management businesses at the end of the third fiscal quarter amounted to $94.4 billion, a decrease of $7.6 billion or 7.4% from Q3/22.

• Client assets in the UK & Crown Dependencies were $54.4 billion (£33.2 billion) as at December 31, 2022, an increase of 8.8% (increase of 2.6% in local currency) from $50.0 billion (£32.3 billion) at the end of the previous quarter, and a decrease of 8.4% (decrease of 4.5% in local currency) from $59.4 billion (£34.8 billion) at December 31, 2021, primarily attributable to a 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 $34.7 billion as at December 31, 2022, an increase of 3.0% from $33.7 billion at the end of the previous quarter and a decrease of 7.3% from $37.5 billion at December 31, 2021 due to a 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 $5.3 billion (AUD 5.7 billion) at December 31, 2022, an increase of 7.7% from $4.9 billion (AUD 5.5 billion) at the end of the previous quarter and an increase of 3.7% from $5.1 billion (AUD 5.5 billion) at December 31, 2021. In addition, client assets⁽¹⁾ totalling $14.6 billion (AUD 15.8 billion) are also held on record in less active and transactional accounts through our Australian platform.

Canaccord Genuity Capital Markets

Globally, Canaccord Genuity Capital Markets earned revenue of $196.9 million for the third fiscal quarter, a year-over-year decrease of 45.6%. The decrease primarily reflected substantially lower investment banking revenues in all geographies in connection with the continued significant decline in industry-wide new issue activity. Advisory revenue of $75.2 million for the three-month period accounted for 38.2% of total capital markets revenue in the three-month period. Net income before taxes excluding significant items⁽¹⁾ for this segment was $5.9 million for the quarter, a year-over-year decrease of 93.7%.

Canaccord Genuity Capital Markets participated in 276 investment banking transactions globally, including led and co-led transactions, raising total proceeds of $14.4 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 $115.6 million, or 58.7% of total global capital markets revenue. This business contributed advisory fees revenue of $52.8 million for Q3/23, a decrease of 48.3% from the same period in the prior year, reflecting the more challenging environment for completions despite a strong pipeline. Investment banking revenue for the three-month period decreased by 80.9% to $5.5 million when compared to the third quarter of the prior year because of reduced new issue activity. Principal trading revenue also decreased by 7.5% from the prior year but increased 20.3% sequentially to $30.7 million due to increased volatility and activity  in the third quarter. Excluding significant items⁽1⁾, the pre-tax net income contribution from this business amounted to $10.8 million for the three-month period.

Third quarter revenue of $31.5 million in our Canadian capital markets business decreased by 66.3% when compared to Q3/22. Third quarter investment banking, advisory, and commissions and fees revenue declined by 89.9%, 67.7% and 42.0% respectively when compared to the same period in the prior year. Excluding significant items⁽¹⁾, our Canadian capital markets operations generated a loss before income taxes of $10.1 million in Q3/23, a decrease of 136.3% from income before income taxes of $27.7 million generated in the same period in the prior year.

Due to the effect of weak equity market conditions globally, our Canadian capital markets operation experienced declines in business activity, revenue and profitability.  With these adverse changes in the business environment, continued weakness in commodity prices and a challenging outlook as negative economic conditions persist, it was determined that the carrying value of our Canadian capital markets operation exceeded its fair value as of December 31, 2022 in accordance with applicable accounting standards.  As a result, the Company recorded a non-cash charge for the impairment of goodwill of $101.8 million in Q3/23.  In addition, the Company recorded an impairment charge related to the unamortized intangible assets of $0.8 million allocated to  Canadian capital markets .  These impairment charges will have no impact on capital or on the ongoing operations of this operating unit. Notwithstanding this accounting charge, our Canadian operations continue to be a critical component of our Canadian franchise and our global capital markets business and we are confident that it will be a meaningful contributor going forward as markets recover and we return to levels of activity that we have seen historically.

Revenue in our UK, Europe & Dubai capital markets operations decreased by 33.7% compared to Q3/22, driven mainly by reduced investment banking activity and the more challenging environment for M&A completions. Excluding significant items ⁽¹⁾, this business incurred a pre-tax net loss of $2.4 million for the third quarter, and $5.7 million pre-tax profit fiscal-year-to-date compared to pre-tax income of $3.4 million and $10.2 million, respectively, in the prior year.

Third quarter revenue earned by our Australian capital markets business increased by 40.1% compared to Q2/23, reflecting  increased  investment banking activity in our core focus sectors. When compared to the same period a year ago, revenue in this business decreased 38.9% reflecting a 41.8% decrease in investment banking revenue.  Net income before income taxes for the  quarter was $7.6 million compared to net income before income taxes of $16.4 million in the third quarter of fiscal 2022.

Summary of Corporate Developments

• Subsequent to the end of the third fiscal quarter on January 9, 2023, 1373313 B.C. Ltd (the "Offeror") on behalf of itself and a management-led group consisting of officers and employees of Canaccord Genuity Group Inc. and its subsidiaries (collectively, the "CG Employee Group"), announced that it intends to commence a takeover bid (the "Proposed Offer") to acquire all of the issued and outstanding common shares of the Company (other than certain common shares beneficially owned by the CG Employee Group) at a price of $11.25 per common share. In accordance with applicable securities laws, an Early Warning Report was filed on January 11, 2023, and is available on SEDAR at www.sedar.com.
• On January 9, 2023, in response to the announcement of the Proposed Offer, a Special Committee of independent directors of the Company announced its intention to provide its formal recommendation to shareholders within 15 days of the mailing of a takeover-bid circular.
• On February 1, 2023, the Company announced that it has entered into a definitive agreement with Mercer Global Investments Canada Limited ("Mercer") to acquire Mercer's Canadian private wealth business. The acquisition is expected to add approximately $1.5 billion to total client assets. The transaction is expected to close within three months from the date of the agreement and is subject to a number of closing conditions, including regulatory approval.

Results for the Third 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
• Certain incentive-based costs related to acquisitions
• Certain costs included in Corporate & Other development costs related to the proposed management-led take over bid for the common shares of the Company
• Certain components of the non-controlling interest expense associated with CGWM UK
• Impairment of goodwill and intangible assets in the Canadian capital markets division

Summary of Results for Q3 and YTD Fiscal 2023 and Selected Financial Information Excluding Significant Items⁽1⁾:

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 nine months ended December 31, 2022, the effect of reflecting our proportionate share of CGWM UK's earnings is anti-dilutive for diluted EPS purposes under  IFRS but dilutive for the purpose of determining diluted EPS excluding significant items ⁽¹⁾.  As such, the diluted EPS under IFRS is computed based on net income attributable to common shareholders less accrued  dividends on the Convertible Preferred Shares issued by CGWM UK.  Net income attributable to common shareholders excluding significant items⁽¹⁾reflects the Company's proportionate share of CGWM UK's net income excluding significant items⁽¹⁾  on an  as converted basis.

Financial Condition at the End of Third Quarter Fiscal 2023 vs. Fourth Quarter of Fiscal 2022:

• Cash and cash equivalents balance of $893.1 million, a decrease of $895.2 million from $1.8 billion
• Working capital of $723.7 million, a decrease of $70.7 million from $794.4 million
• Total shareholders' equity of $1.0 billion, a decrease of $175.3 million from $1.2 billion

Common and Preferred Share Dividends: 

On February 8, 2023, the Board of Directors approved a dividend of $0.085 per common share, payable on March 10, 2023, with a record date of February 24, 2023. 

On February 8, 2023, the Board approved a cash dividend of $0.25175 per Series A Preferred Share payable on March 31, 2023 to Series A Preferred shareholders of record as at March 17, 2023. 

On February 8, 2023, the Board approved a cash dividend of $0.42731 per Series C Preferred Share payable on March 31, 2023 to Series C Preferred shareholders of record as at March 17, 2023. 

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 calculation

of 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, certain  costs included in Corporate & Other development costs related to the proposed management-led takeover bid for the common shares of the Company, and impairment of goodwill and intangible assets in our Canadian capital markets operations; (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 third quarter of fiscal 2023 can be found above in the table entitled "Summary of results for Q3 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 third fiscal quarter results conference call via live webcast or a toll-free number. The conference call is scheduled for Thursday, February 9, 2023, at 8:00 a.m. Eastern time, 5:00 a.m. Pacific time, 1:00 p.m. UK time, 9:00 p.m. China Standard Time, and midnight, Australia AEDT.

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. Q3/23 results call.  If a passcode is requested, please use 87985953.

A replay of the conference call will be made available from approximately two hours after the live call on February 9, 2023, until March 9, 2023, at 416-764-8677 or 1-888-390-0541 by entering passcode 985953 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.

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

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