Fiscal year 2006 net income up 67.0% and EPS up 56.8% driven by enhanced
global distribution capabilities
(All dollar amounts are stated in Canadian dollars unless otherwise
indicated)
VANCOUVER, May 17 /CNW/ - Canaccord Capital Inc. (CCI: TSX & AIM)
announced that revenue for its fourth quarter of fiscal 2006, ended March 31,
2006, was a record $207.1 million, up $64.1 million from $142.9 million for
the same period a year ago. Net income of $30.1 million for the fourth quarter
of fiscal 2006 was up $12.8 million from $17.3 million for the same period a
year ago, and diluted earnings per share (EPS) for the quarter was $0.63, up
$0.25, or 65.8% from $0.38 for the same period a year ago. Fiscal year 2006
revenue was a record $583.4 million, up $150.6 million from $432.8 million for
fiscal year 2005. Net income of $81.2 million for fiscal year 2006 was up
$32.6 million, or 67.0% from $48.6 million for fiscal 2005. Diluted EPS for
the year was $1.74, up $0.63, or 56.8% from $1.11 compared to fiscal year
2005.
"Our record success in fiscal 2006 reflects the continued execution of
our global strategy to be the pre-eminent investment dealer focused on the
small to mid cap market," said Peter Brown, Chairman & CEO. "We look to
continue our commitment to growth and operational excellence in fiscal 2007."
Michael G. Greenwood, President & COO, added, "We would like to thank our
integrated team of professionals in Private Client Services and Canaccord
Adams worldwide for their continued dedication. Their hard work has grown our
business and increased our shareholders' return to 103% this year, during a
period of expansion and change."
Highlights of the fourth quarter fiscal 2006 results (three months ended
March 31, 2006), compared to the fourth quarter fiscal 2005 results
(three months ended March 31, 2005):
- Revenue of $207.1 million, up 44.9%, or $64.1 million, from
$142.9 million
- Expenses of $163.6 million, up 39.2%, or $46.1 million, from
$117.5 million
- Total compensation payout as a percentage of revenue was 58.9%, down
430 basis points from 63.2%
- Net income of $30.1 million, up 73.7% , or $12.8 million, from
$17.3 million
- Diluted EPS of $0.63, up 65.8%, or $0.25, from $0.38
- Return on equity (ROE) of 45.7%, up from 32.2%
- Book value per common share at the period end increased to $6.02, up
24.9%, or $1.20 from $4.82
- The Board approved a common share dividend of $0.08 per share on May
16, 2006, payable on June 9, 2006, with a record date of May 26, 2006
Highlights for fiscal 2006 results (year ended March 31, 2006), compared
to fiscal 2005 results (year ended March 31, 2005):
- Revenue of $583.4 million, up 34.8%, or $150.6 million, from
$432.8 million
- Expenses of $464.4 million, up 29.0%, or $104.4 million, from
$360.0 million
- Total compensation payout as a percentage of revenue was 58.5%, down
300 basis points from 61.5%
- Net income of $81.2 million, up 67.0%, or $32.6 million, from
$48.6 million
- Diluted EPS of $1.74, up 56.8%, or $0.63, from $1.11
- ROE of 33.6%, up from 23.9%
- In fiscal Q1/06, Canaccord recognized a one time pre-tax gain of
$1.6 million, equivalent to approximately $0.03 per share after tax
(on a diluted basis), from the disposal of an investment in the Bourse
de MontrDeal
- Total cash and cash equivalents of $370.5 million at March 31, 2006,
up 5.9% from March 31, 2005
- 47,827,350 total issued shares outstanding on a diluted basis as of
May 16, 2006
Highlights of Operations:
- During Q4/06, our international capital markets team, Canaccord Adams,
led the following transactions:
- $144 million for a bought deal for UrAsia Energy (BVI) Ltd.
(TSX: UUU.V)
- $113 million for an AIM IPO for Excapsa Software Inc. (AIM: XCP),
a Canadian based online gaming firm
- $81 million for a TSX IPO for European Minerals Corp. (TSX: EPM)
- $60 million for a bought deal for Viceroy Resources (TSX: VYE)
- $51 million for an AIM IPO for Sandvine Corporation (AIM: SAND),
a Canadian technology firm
- $54 million for a TSX Venture Exchange IPO for Westfield Real
Estate Investment Trust (TSXV: WFD.UN)
In addition, our team co-lead the following transactions:
- $207 million for a best efforts offering for Coalcorp Mining Inc.
(TSX: CCJ.V)
- $150 million for a TSX initial public offering (IPO) for Eastern
Platinum Limited (TSX: ELR)
- During Q4/06, we experienced significant growth in market share in
Canaccord Adams' Canadian Sales and Trading operations. Market share
was 3.7% in terms of TSX-traded volume, up from 2.4% the same quarter
a year ago and 3.2% in fiscal Q3/06
- In the 5th Annual StarMine Analyst Awards, an evaluation of analyst
accuracy in stock picking and earnings estimation:
- Canaccord Adams was the fourth most award-winning firm in Canada,
with seven analysts ranked among the top five in their sectors and
the 'top stock picker' in the following sectors: Energy Trust;
Healthcare; Small Cap; Independent Power Producers and Energy; and
Real Estate & REITs
- Canaccord Adams had three 'top stock pickers' in the US in the
Communications Equipment Industry, Semiconductors & Semiconductors
Equipment Industry, and Software Industry
- In the Investment Executive's Annual Survey of Investment Advisors
2006 Report, Canaccord was ranked:
- Top investment firm in Canada for delivery on promises
- Top company for IPOs and new issues corporate finance
- In the top-three of all Canadian investment firms in Canadian
research
- Number one investment firm for trade execution/back office
ACCESS TO QUARTERLY RESULTS INFORMATION:
Interested investors, the media and others may review this quarterly
earnings release and supplementary financial information at:
www.canaccord.com/investor/financialreports.
QUARTERLY CONFERENCE CALL AND WEBCAST PRESENTATION:
Interested parties can listen to our fourth quarter fiscal 2006 results
conference call with analysts and institutional investors live and archived,
via the Internet and toll free telephone.
The conference call is scheduled for Wednesday, May 17, 2006 at 10:00
a.m. (Pacific Time (PDT))/1:00 p.m. (Eastern Time (EDT))/6:00 p.m. (UK Time
(BST)). At that time, senior executives will comment on the results for the
fourth quarter fiscal 2006 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.canaccord.com/investor/webcast
Analysts and institutional investors can call in via telephone at:
- 416-644-3424 (within Toronto)
- 1-800-814-4941 (toll-free outside Toronto)
- 00-800-0000-2288 (toll-free from the United Kingdom)
A replay of the conference call can be accessed after 12:00 p.m.
(PDT)/3:00 p.m. (EDT)/8:00 p.m. (BST) on May 17, 2006 until 12:00 a.m.
(PDT)/3:00 a.m. (EDT)/8:00 a.m. (BST) Friday, June 9, 2006 at 416-640-1917 or
1-877-289-8525 by entering passcode 21180116 followed by the number sign.
ABOUT CANACCORD CAPITAL INC.:
Through its principal subsidiaries, Canaccord Capital Inc. (CCI: TSX &
AIM) 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: private client
services and capital markets. 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 approximately 1,480 employees worldwide in 32 offices, including
26 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 and Houston.
FOR FURTHER INFORMATION CONTACT:
Anthony Ostler London:
Senior Vice President, Investor Bobby Morse or Ben Willey
Relations & Communications Buchanan Communications
Phone: 604-643-7647 Phone: +44 (0) 207 466 5000
Email: anthony_ostler(at)canaccord.com Email: bobbym(at)buchanan.uk.com
-------------------------------------------------------------------------
None of the information in Canaccord's Web site www.canaccord.com should
be considered incorporated herein by reference.
-------------------------------------------------------------------------
Management's Discussion and Analysis
Fourth quarter fiscal 2006 for the three months ended March 31, 2006 -
this document is dated May 17, 2006
Canaccord's fourth quarter fiscal 2006 was the three-month period ended
March 31, 2006, and is also referred to as fourth quarter fiscal 2006 and as
Q4/06 in this press release. Canaccord's fiscal year ended on March 31, 2006
and is also referred to herein as fiscal year 2006 and as 2006. This press
release should be read in conjunction with the Management's Discussion and
Analysis (MD&A) and the audited consolidated financial statements for the
fiscal year ended March 31, 2005, in Canaccord's Annual Report dated June 27,
2005 (the Annual Report). There has been no material change to the information
contained in the annual MD&A for fiscal 2005 except as disclosed in this MD&A
and in the MD&As for Q1/06, Q2/06 and Q3/06. Canaccord's financial information
is expressed in Canadian dollars unless otherwise specified. The interim
financial statements accompanying this document are prepared in accordance
with Canadian generally accepted accounting principles (GAAP) with
reconciliation to international financial reporting standards (IFRS) provided
in Note 15 to the interim consolidated financial statements. All the financial
data below is unaudited except for the annual fiscal year 2005 data.
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 which
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 financial statements and its Annual Report and Annual Information Form
filed on www.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.
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 in respect of 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 are assets discretionarily managed by
Canaccord as part of our Independence Accounts program that are beneficially
owned by clients. Services provided include the selection of investments and
the provision of investment advice. AUM are also administered by Canaccord and
are included in AUA.
Overview
Business environment
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 and, accordingly, revenue and net income are
expected to fluctuate as they have historically. Our business is subject to
the overall condition of the North American and the European equity markets,
including the seasonal variance in these markets. In general, North American
capital markets are slower during the first half of our fiscal year, during
which we typically generate approximately 35% to 40% of our annual revenue.
During the second half of our fiscal year we typically generate 60% to 65% of
our annual revenue. In early fiscal 2007, North American capital markets have
performed better compared to previous historical seasonality. During fiscal
2006, the Morgan Stanley Capital International Inc. (MSCI) Canada Index
returned 7.96% (in CDN$), and 8.1% (in US$) compared to 5.62% (in CDN$), and
6.15% (in US$) for the World Index. Canadian equities comprised 3.42% of the
World Index in calendar 2005, up from 2.94% the previous year, indicating a
strong attraction by foreign investors to Canadian equities, a trend that is
expected to continue should energy and commodity prices maintain or increase
from their current levels.
About Canaccord's operations
Canaccord Capital Inc.'s operations are divided into three segments: The
first two, Private Client Services and Canaccord Adams, are principally
operating segments, while the third one, Other, is mainly an administrative
segment.
Private Client Services provides brokerage services and investment advice
to retail or private clients primarily in Canada, and to a lesser degree, in
the US. Canaccord Adams (formerly known as Canaccord's Global Capital
Markets), includes investment banking, research and trading activities on
behalf of corporate, institutional and government clients as well as principal
trading activities in Canada, the United Kingdom and the United States of
America.
Canaccord acquired 100% of Adams Harkness Financial Group, Inc. (engaged
primarily in capital markets activities in the US), on January 3, 2006. As a
result of this acquisition, the Adams Harkness Financial Group, Inc. operating
subsidiary was renamed Canaccord Adams Inc. and Canaccord's Global Capital
Markets (Canada, UK and US) was re-branded globally as Canaccord Adams.
Canaccord Adams Inc. together with Canaccord Capital Corporation (USA), Inc.,
which includes US Private Client Services and Other operations, constitute
Canaccord's US geographic segment.
In addition, Canaccord Capital (Europe) Limited (engaged primarily in
capital markets activities in the United Kingdom), was renamed Canaccord Adams
Limited and it constitutes Canaccord's UK geographic segment.
The division of Canaccord Capital Corporation that is engaged in capital
markets activities in Canada was branded as Canaccord Adams, and together with
Canadian Private Client Services and Other operations, they constitute
Canaccord's Canada geographic segment.
Other includes correspondent brokerage services, interest and foreign
exchange revenue and expenses not specifically allocable to Private Client
Services and Canaccord Adams.
<<
Consolidated operating results
Fourth fiscal quarter and fiscal 2006 summary data(1)
-------------------------------------------------------------------------
Three months
ended Year-over- Year ended Year-over-
(C$ thousands, except per March 31 year March 31 year
share, employee and % increase increase
amounts) 2006 2005 (decrease) 2006 2005 (decrease)
-------------------------------------------------------------------------
Canaccord Capital Inc.
Revenue(2)
Commissions 88,846 54,598 62.7% 239,461 168,978 41.7%
Investment banking 87,977 69,558 26.5% 266,206 214,450 24.1%
Principal trading 13,677 7,795 75.5% 27,388 13,584 101.6%
Interest 11,424 7,723 47.9% 36,914 26,488 39.4%
Other 5,150 3,255 58.2% 13,446 9,278 44.9%
------------------------------------------------
Total Revenue 207,074 142,929 44.9% 583,415 432,778 34.8%
Expenses
Incentive
compensation 108,296 77,191 40.3% 299,188 220,454 35.7%
Salaries and benefits 13,716 13,130 4.5% 42,019 45,715 (8.1)%
Other overhead
expenses(3) 41,607 27,181 53.1% 123,178 93,853 31.2%
------------------------------------------------
Total Expenses 163,619 117,502 39.2% 464,385 360,022 29.0%
Income before income
taxes 43,455 25,427 70.9% 119,030 72,756 63.6%
Net income 30,070 17,307 73.7% 81,150 48,579 67.0%
Earnings per share (EPS)
- diluted(4) 0.63 0.38 65.8% 1.74 1.11 56.8%
Return on average common
equity (ROE)(4) 45.7% 32.2% 13.5% 33.6% 23.9% 9.7%
Book value per share -
period end 6.02 4.82 24.9%
Number of employees 1,488 1,260 18.1%
-------------------------------------------------------------------------
US geographic segment(5)
Revenue 20,106 - n.m. 20,106 - n.m.
Expenses - n.m. - n.m.
Incentive compensation 9,134 - n.m. 9,134 - n.m.
Salaries and benefits 1,613 - n.m. 1,613 - n.m.
Other overhead
expenses(3) 6,797 - n.m. 6,797 - n.m.
------------------------------------------------
Total Expenses 17,544 - n.m. 17,544 - n.m.
Income before income
taxes 2,562 - n.m. 2,562 - n.m.
Net income 1,716 - n.m. 1,716 - n.m.
-------------------------------------------------------------------------
Canaccord Capital Inc.
excluding US geographic
segment
Revenue 186,968 142,929 30.8% 563,309 432,778 30.2%
Expenses
Incentive
compensation 99,162 77,191 28.5% 290,054 220,454 31.6%
Salaries and benefits 12,103 13,130 (7.8)% 40,406 45,715 (11.6)%
Other overhead
expenses(3) 34,810 27,181 28.1% 116,381 93,853 24.0%
------------------------------------------------
Total Expenses 146,075 117,502 24.3% 446,841 360,022 24.1%
Income before income
taxes 40,893 25,427 60.8% 116,468 72,756 60.1%
Net income 28,354 17,307 63.8% 79,434 48,579 63.5%
-------------------------------------------------------------------------
(1) Some of this data is considered to be non-GAAP.
(2) To enhance our disclosure and to facilitate comparisons with other
companies in the industry, consolidated revenue has been changed from
'revenue by business segment' to 'revenue by activity'. For revenue
by business segment information please refer to the Results of
Operations section on page 12.
(3) Consists of trading costs, premises and equipment, communication and
technology, interest, general and administrative expense,
amortization, development costs and gain on disposal of investment.
(4) The slower growth in diluted EPS and ROE than net income for fiscal
2006 partially reflects the issuance of $70 million in equity on
June 30, 2004, and the issuance of shares in association with stock-
based compensation activities.
(5) Starting on January 3, 2006, revenues and expenses for Canaccord
Capital Corporation (USA), Inc. and Canaccord Adams Inc. are
disclosed together under the US geographic segment. Therefore, US
geographic segment results are not to be interpreted as generated
exclusively from Canaccord Adams Inc. or as a result of the
acquisition of Adams Harkness Financial Group, Inc. Includes revenue
associated with Canaccord Capital Corporation (USA), Inc.
n.m.: not meaningful
Geographic distribution of revenue
-------------------------------------------------------------------------
Three months
ended Year ended
March 31 Year-over- March 31 Year-over-
(C$ thousands, year year
except % amount) 2006 2005 increase 2006 2005 increase
-------------------------------------------------------------------------
Canada(1) 145,194 110,094 31.9% 437,409 316,688 38.1%
UK(2) 41,774 32,835 27.2% 125,900 116,090 8.5%
US(3) 20,106 - n.m. 20,106 - n.m.
-------------------------------------------------------------------------
(1) Canada geographic segment includes operations for Private Client
Services, Canaccord Adams (a division of Canaccord Capital
Corporation) and Other business segments.
(2) UK geographic segment includes operations for Canaccord Adams
Limited.
(3) Commencing on January 3, 2006, as a result of the acquisition of
Adams Harkness Financial Group, Inc., US geographic segment includes
operations for Canaccord Adams Inc. and Canaccord Capital Corporation
(USA), Inc., which also includes operations from Private Client
Services and Other business segments.
n.m.: not meaningful
Three-month summary
Revenue was a fourth quarter record of $207.1 million, up $64.1 million,
or 44.9%, compared to the same period a year ago. Revenue increased across all
lines of business due to favourable activity in capital markets in Canada and
in the UK during the quarter. Also, our growth initiatives including the
acquisitions of Enermarket Solutions Ltd. and Adams Harkness Financial Group,
Inc., contributed to the increase in revenue during Q4/06. On a consolidated
basis, revenue is generated through five activities: commissions, investment
banking, principal trading, interest, and other. Overall, fourth quarter 2006
revenue would have been $187.0 million, up $44.0 million, or 30.8% compared to
fiscal 2005, excluding the contribution of the US geographic segment (see
footnote (5) on page 6).
Revenue generated from commissions for the fourth quarter of fiscal 2006
was $88.8 million, up $34.3 million, or 62.7% from the same period a year ago,
in part due to higher transaction volumes, growth in client assets in Canada,
and the addition of Canaccord Adams Inc. in the US.
Investment banking revenue was $88.0 million, up $18.4 million, or 26.5%
mainly due to greater contributions from larger private placement
transactions, initial public offerings and secondary offerings; increase in
proceeds from the sale of fee shares received as compensation for investment
banking transactions; and the contribution of Canaccord Adams Inc. in the US.
Principal trading revenue was $13.7 million, up $5.9 million, or 75.5%
mainly due to favourable market conditions and increased activity in Canaccord
Adams. Canaccord Adams traders operate by taking principal positions and
making markets in equity securities.
Interest revenue was $11.4 million, up $3.7 million, or 47.9% mainly due
to an increase in the number and size of margin accounts and the increase in
interest rates in Canada since Q4/05.
Other revenue was $5.2 million, up $1.9 million, or 58.2% mainly due to
increases in foreign exchange gains.
Fourth quarter revenue in Canada increased to $145.2 million, up $35.1
million, or 31.9% from a year ago, reflecting robust market activity in
Canadian equity markets, largely due to rising global demand for commodities
and related equities. Similarly, revenue in the UK increased to $41.8 million,
up $8.9 million, or 27.2%, as the result of high levels of activity on AIM,
resulting in increased corporate finance revenue.
Fiscal 2006 revenue in the US was $20.1 million; this represents revenue
generated during the fourth fiscal quarter only, and includes revenue
generated by Canaccord Capital Corporation (USA), Inc. and Canaccord Adams
Inc., as a result of the acquisition of Adams Harkness Financial Group, Inc.,
which closed on January 3, 2006. Consequently, our US operations became a
reportable segment for the first time.
-------------------------------------------------------------------------
Expenses as a percentage of revenue Three months ended March 31
Year-over-year
Increase (decrease) in percentage increase
points 2006 2005 (decrease)
-------------------------------------------------------------------------
Incentive compensation 52.3% 54.0% (1.7)%
Salaries and benefits 6.6% 9.2% (2.6)%
Other overhead expenses(1) 20.1% 19.0% 1.1%
--------------------------------------
Total 79.0% 82.2% (3.2)%
-------------------------------------------------------------------------
(1) Consists of trading costs, premises and equipment, communication and
technology, interest, general and administrative expense,
amortization, development costs and gain on disposal of investment.
Expenses were $163.6 million, up $46.1 million, or 39.2%, from a year
ago. In addition to the $17.5 million of expenses incurred from the US
geographic segment, this increase is largely attributable to an increase in
incentive compensation, trading costs, and general and administrative expense,
which collectively grew at a slower pace than revenue. Overall, fourth quarter
2006 expenses would have been $146.1 million, up $28.6 million, or 24.3%,
compared to Q4/05 excluding the expenses incurred from the US geographic
segment.
For the quarter, incentive compensation expense was $108.3 million, up
$31.1 million, or 40.3%, largely due to the increase in fiscal fourth quarter
revenue posted by the Private Client Services and Canaccord Adams divisions.
However, incentive compensation as a percentage of revenue, decreased to 52.3%
compared to 54.0% for the same quarter a year ago, largely due to the
reorganization of the compensation structure of Canaccord Adams in Q1/06. This
includes a 3% National Health Insurance (NHI) tax applicable for UK-based
employees.
Salaries and benefits expense increased by $0.6 million for the fourth
quarter of fiscal 2006, compared to the same quarter a year ago. In Q4/06,
total compensation expense increased due to the addition of salaries and
benefits expenses associated with Canaccord Adams Inc. in the US. Total
compensation payout as a percentage of consolidated revenue for Q4/06 was
58.9%, down from 63.2% in Q4/05.
-------------------------------------------------------------------------
Other overhead expenses Three months ended March 31
Year-over-year
(C$ thousands) 2006 2005 increase
-------------------------------------------------------------------------
Trading costs 7,615 4,493 69.5%
Premises and equipment 5,068 3,025 67.5%
Communication and technology 5,087 3,719 36.8%
Interest 3,577 2,125 68.3%
General and administrative 14,726 10,866 35.5%
Amortization 1,969 952 106.8%
Development cost 3,565 2,001 78.2%
Gain on disposal of investment - - -
--------------------------------------
Total other overhead expenses 41,607 27,181 53.1%
-------------------------------------------------------------------------
Other overhead expenses increased by $14.4 million during the fourth
quarter of fiscal 2006, compared to the same quarter a year ago. This increase
is largely attributable to the increase in trading costs, up $3.1 million
mainly due to the increase in activity in our US geographic segment; interest,
up by $1.5 million; premises and equipment costs, up by $2.0 million due to
the move of our Toronto office into larger premises and the addition of rent
and leasing costs for Canaccord Adams Inc.; and general and administrative
expense, up $3.9 million.
Reflecting the strong revenue growth and increase in business activity,
general and administrative expense was $14.7 million, up $3.9 million, or
35.5%, from a year ago. The largest increases in general and administrative
expense were in professional fees, up $1.1 million; client expenses, up $1.6
million; and public company costs, up $0.6 million, related to Canaccord's
admission into AIM. Offsetting these increases was a reduction in reserves of
$1.5 million, related to unsecured client balances, reflecting changes in
client activity and market conditions.
-------------------------------------------------------------------------
Development costs Three months ended March 31
Year-over-year
(C$ thousands, except % amounts) 2006 2005 increase
-------------------------------------------------------------------------
Hiring incentives 2,314 995 132.6%
Systems development 1,251 1,006 24.4%
--------------------------------------
Total 3,565 2,001 78.2%
-------------------------------------------------------------------------
Development costs are also included as a component of other overhead
expenses and include hiring incentives and systems development costs. Hiring
incentives are one of our tools to recruit new Investment Advisors (IAs) or
capital markets professionals. The increase in hiring incentives in Q4/06 is
mainly due to the costs associated with the hiring and retention of Private
Client Service's employees in Canada, and the costs associated with Adams
Harkness Financial Group, Inc.'s employees. Systems development costs are
expenditures that Canaccord has made related to enhancing its information
technology platform.
Net income was a fourth quarter record of $30.1 million, up by $12.8
million, or 73.7%, from a year ago. Diluted EPS was $0.63, up by $0.25, or
65.8%, and ROE was 45.7% compared to a ROE of 32.2% a year ago. The slower
increase in EPS and ROE compared to the increase in net income is partially
associated with the issuance of 77,646 shares for the purchase of Enermarket
Solutions Ltd., on November 11, 2005, the issuance of 691,940 shares under the
incentive plan for recruiting purposes, and the issuance of 1,342,696 common
shares for the acquisition of Adams Harkness Financial Group, Inc., on January
3, 2006. Book value per common share increased by 24.9% to $6.02, up $1.20
from $4.82 a year ago reflecting an increase in retained earnings and share
capital.
The US geographic segment generated quarterly net income of $1.7 million,
equivalent to 5.7% of Canaccord's overall net income of $30.1 million.
Income taxes were $13.4 million for the quarter, reflecting an effective
tax rate of 30.8% compared to 31.9% a year ago. The decrease in the effective
tax rate in Q4/06 relative to Q4/05 is related to the geographical composition
of Canaccord's net income. Our effective tax rate will vary depending on the
geographic composition of our operating activities.
Year-end summary
Revenue was $583.4 million, up $150.6 million, or 34.8%, compared to
fiscal 2005. Fiscal 2006 revenue would have been $563.3 million, up $130.5
million, or 30.2%, excluding the contribution of the US geographic segment.
On a consolidated basis, revenue generated from commissions for fiscal
2006 was $239.5 million, up $70.5 million, or 41.7% for the same period a year
ago, in part due to strong market activity in North America, growth in client
assets, capital appreciation, and the addition of Canaccord Adams Inc. in the
US.
Investment banking revenue was $266.2 million, up $51.8 million, or
24.1%, due to increased market activity and larger transactions. Furthermore,
gains on the proceeds from the sale of securities received as compensation and
secondary offerings also contributed to the increase in investment banking
revenue.
Principal trading revenue was $27.4 million, up $13.8 million, or 101.6%
due to favourable market conditions and increased trading activity.
Interest revenue was $36.9 million, up $10.4 million, or 39.4% mainly due
to the increase in the number and size of margin accounts and the increase in
interest rates in Canada throughout the year.
Other revenue was $13.4 million, up $4.2 million, or 44.9% partially due
to an increase in activity in our correspondent brokerage services business
under the name of Pinnacle Correspondent Services, and also due to an increase
in foreign exchange gains.
Revenue in Canada was $437.4 million, up $120.7 million, or 38.1%,
reflecting rising demand for commodities and related equities during fiscal
year 2006 compared to fiscal 2005. In the UK, revenue was $125.9 million, up
by $9.8 million, or 8.5%, which is largely due to favourable market conditions
in the UK during the last six months of calendar 2005, particularly in the
Energy and Mining sectors. Revenue in the US was $20.1 million, representing
revenue generated during the fourth fiscal quarter by Canaccord Adams Inc.
(formerly Adams Harkness Financial Group, Inc., acquired on January 3, 2006)
and Canaccord Capital Corporation (USA), Inc.
-------------------------------------------------------------------------
Expenses as a percentage of revenue Year ended March 31
Year-over-year
Increase (decrease) in percentage increase
points 2006 2005 (decrease)
-------------------------------------------------------------------------
Incentive compensation 51.3% 50.9% 0.4%
Salaries and benefits 7.2% 10.6% (3.4)%
Other overhead expenses 21.1% 21.7% (0.6)%
--------------------------------------
Total 79.6% 83.2% (3.6)%
-------------------------------------------------------------------------
Expenses were $464.4 million, up $104.4 million, or 29.0%, from a year
ago. The increase reflects growth in incentive compensation expense (variable
with revenue), trading costs, premises and equipment, and general and
administrative expenses. Overall, fiscal 2006 expenses would have been $446.8
million, up $86.8 million, or 24.1%, excluding the contribution of expenses
from the US geographic segment.
Incentive compensation expense was $299.2 million, up $78.7 million, or
35.7%, and incentive compensation, as a percentage of revenue, increased to
51.3% compared to 50.9% in fiscal 2005. The percentage increase is largely due
to the increase in profit based incentive payouts in fiscal 2006. Increased
revenue resulted in higher total compensation payouts compared to last fiscal
year.
Salaries and benefits expense was $42.0 million, down $3.7 million, or
8.1% from fiscal 2005, which is largely due to the change in the Canaccord
Adams division's payout structure discussed on page 8. Therefore, the total
compensation payout as a percentage of revenue for fiscal year 2006 was 58.5%,
down from 61.5% for fiscal 2005.
-------------------------------------------------------------------------
Other overhead expenses Year ended March 31
Year-over-year
(C$ thousands) 2006 2005 increase
-------------------------------------------------------------------------
Trading costs 20,615 16,863 22.2%
Premises and equipment 15,843 11,849 33.7%
Communication and technology 16,598 14,037 18.2%
Interest 10,914 7,824 39.5%
General and administrative 46,227 32,171 43.7%
Amortization 4,817 3,185 51.2%
Development cost 9,797 7,924 23.6%
Gain on disposal of investment (1,633) - n.m.
--------------------------------------
Total other overhead expenses 123,178 93,853 31.2%
-------------------------------------------------------------------------
n.m.: not meaningful
Other overhead expenses increased by $29.3 million for fiscal year 2006
but decreased as a percentage of revenue by 0.6% compared to fiscal 2005. The
increase in other overhead expenses is largely attributed to increases in
trading costs, up $3.8 million, mainly incurred by Canaccord Adams' operations
in the US; premises and equipment expenses, up $4.0 million; interest, up $3.1
million; and communications and technology expenses, up $2.6 million, largely
due to the relocation of the Toronto office to larger premises and upgrades to
corporate-wide office information technology systems. General and
administrative expense increased by $14.1 million from a year ago. The
greatest increases in general and administrative expense were in promotion and
travel, up $5.6 million, or 50.0%, to support the overall increase in business
activity due to increased market activity and corporate expansion. Other items
include: client expenses, up $3.0 million; public company costs up $1.5
million, as a result of the AIM admission and other fees; and client reserve,
up $1.4 million, related to unsecured client balances, reflecting changes in
client activity and market conditions.
-------------------------------------------------------------------------
Development costs Year ended March 31
Year-over-year
increase
(C$ thousands, except % amounts) 2006 2005 (decrease)
-------------------------------------------------------------------------
Hiring incentives 5,404 3,344 61.6%
Systems development 4,393 4,580 (4.1)%
--------------------------------------
Total 9,797 7,924 23.6%
-------------------------------------------------------------------------
The increase in hiring incentives in fiscal 2006 is due to employee
incentive costs associated with Adams Harkness Financial Group, Inc. as a
result of the acquisition, on January 3, 2006, and the recruitment of other
professionals in both Canaccord Adams and Private Client Services in Canada.
Net income for fiscal year 2006 was $81.2 million, up $32.6 million, or
67.0%, from a year ago. Diluted EPS was $1.74, up $0.63, or 56.8%. ROE was
33.6% compared to a ROE of 23.9% last year. The slower increase in diluted EPS
and ROE compared to the increase in net income reflects the issuance of shares
from treasury for acquisitions and recruiting purposes as discussed in the
three-month summary and the additional equity resulting from the issuance from
treasury of 6,829,268 common shares in connection with the Initial Public
Offering (IPO) on the Toronto Stock Exchange on June 30, 2004.
Income taxes were $37.9 million for fiscal year 2006, reflecting an
effective tax rate of 31.8% compared to 33.2% a year ago. Our effective tax
rate is dependent on the geographic composition of our operating activities.
In addition, the decrease in our effective tax rate is partially the result of
a one time gain of $1.6 million resulting from the sale of our investment in
the Bourse de MontrDeal during Q1/06. Capital gains are taxed at a lower rate,
therefore reducing our effective income tax rate for the year by 0.24%. Also
contributing to the decrease in our consolidated tax rate was a revised
estimate of the UK income tax liability, which reduced our effective tax rate
for the year by an additional 0.25%. Offsetting these reductions was an
alignment of estimated taxes for fiscal 2005 to actual tax returns filed
contributing to an increase in the effective tax rate of 0.39%. Reflecting the
geographic composition of our operations and without these changes, our
effective tax rate would have been 31.9% for fiscal 2006.
Results of operations
Private Client Services
-------------------------------------------------------------------------
Three months ended Year ended
March 31 March 31
(C$ thousands, except assets
under administration and
assets under management,
which are in C$ millions, Year-over- Year-over-
employees, Investment year year
Advisors and % amounts) 2006 2005 increase 2006 2005 increase
-------------------------------------------------------------------------
Revenue 78,422 56,391 39.1% 225,194 178,176 26.4%
Expenses
Incentive compensation 37,372 26,660 40.2% 105,283 84,396 24.7%
Salaries and benefits 4,405 3,359 31.1% 13,053 11,158 17.0%
Other overhead expenses 14,208 9,728 46.1% 45,640 31,950 42.8%
-----------------------------------------------
Total Expenses 55,985 39,747 40.9% 163,976 127,504 28.6%
Income before income taxes 22,437 16,644 34.8% 61,218 50,672 20.8%
Assets under management
(AUM) 613 380 61.3%
Assets under administration
(AUA) 14,310 9,967 43.6%
Number of Investment
Advisors (IAs) 430 412 4.4%
Number of employees 689 657 4.9%
-------------------------------------------------------------------------
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 IAs in
respect of corporate finance and venture capital transactions by private
clients.
Three months ended March 31, 2006, compared with three months ended
March 31, 2005
Revenue from Private Client Services was $78.4 million, up $22.0 million,
or 39.1%, from a year ago due to strong activity in the North American equity
markets, particularly in Canada within the resource sectors during fiscal
Q4/06. Parallel with this revenue growth was a $4.3 billion increase in assets
under administration (AUA) to a total of $14.3 billion. The 43.6% increase in
AUA since fiscal Q4/05 reflects the strong increase in market values in North
American equity markets, the addition of assets through transfers with newly
hired IAs and additional assets added to existing accounts since Q4/05. There
were 430 IAs at the end of the fourth quarter of 2006, a net increase of 18
from a year ago in an extremely competitive recruiting environment. Fee-
related revenue as a percentage of total Private Client Services revenue
increased 0.8 percentage points to 18.3% compared to the same period a year
ago.
Expenses for Q4/06 were $56.0 million, up $16.2 million, or 40.9%. The
largest increases in expenses were recorded in incentive compensation expense,
up $10.7 million, or 40.2%, mainly due to the increase in revenue for the
quarter; salaries and benefits, up $1.0 million, or 31.1%, mainly due to
increases in benefits costs due to increased incentive compensation payouts
and the addition of the Employee Stock Purchase Plan (ESPP) which was
implemented in April 2005; interest, up $1.6 million, or 131.4%; and
development costs, up $0.6 million, or 75.2%. General and administrative
expense increased by $1.4 million, or 59.9%, compared to Q4/05. The components
of the increase in general and administrative expense were: client expenses,
up $1.3 million; professional fees, up $0.6 million; promotion and travel, up
$0.4 million, to support the overall increase in business activity due to
corporate expansion. Costs were offset by client reserves, down $1.6 million,
related to unsecured client balances, reflecting changes in client activity
and market conditions.
Income before income taxes for the quarter was $22.4 million, up 34.8%
from the same period a year ago.
Year ended March 31, 2006, compared with the year ended March 31, 2005
Fiscal 2006 revenue from Private Client Services was $225.2 million, up
$47.0 million, or 26.4% compared to fiscal 2005, largely reflecting sustained
market activity in North American equity markets relative to the same previous
year. Similarly, fee-related revenue as a percentage of total revenue
increased 2.5 percentage points to 20.2% from the same period a year ago.
Expenses for fiscal 2006 were $164.0 million, up $36.5 million, or 28.6%.
The largest increases in expenses were recorded in incentive compensation, up
$20.9 million, or 24.7%; general and administrative expense up $7.1 million,
or 139.4%; and interest was up $3.5 million, or 93.9%.
The greatest increases in general and administrative expenses in fiscal
2006 were recorded in client expenses, up $2.6 million, or 176.4%;
professional fees, up $0.9 million, or 139.3%; and reserves, up $1.6 million,
related to unsecured client balances, changes in client activity and market
conditions.
Income before income taxes for fiscal 2006 was $61.2 million, up 20.8%
from the same period a year ago reflecting the stronger market activity this
year and the contribution from IAs recruited in the past year.
Canaccord Adams
-------------------------------------------------------------------------
Three months
ended Year-over- Year ended Year-over-
March 31 year March 31 year
(C$ thousands, except increase increase
employees and % amounts) 2006 2005 (decrease) 2006 2005 (decrease)
-------------------------------------------------------------------------
Canaccord Adams(1)
Revenue 120,243 81,444 47.6% 333,666 239,654 39.2%
Expenses
Incentive compensation 63,800 46,578 37.0% 175,604 125,030 40.4%
Salaries and benefits 3,603 4,825 (25.3)% 8,435 16,577 (49.1)%
Other overhead
expenses 18,039 9,679 86.4% 47,644 32,128 48.3%
-----------------------------------------------
Total Expenses 85,442 61,082 39.9% 231,683 173,735 33.4%
Income before income
taxes 34,801 20,362 70.9% 101,983 65,919 54.7%
Number of employees 464 279 66.3%
-------------------------------------------------------------------------
US geographic segment(2)
Revenue 18,692 - n.m. 18,692 - n.m.
Expenses - n.m. - n.m.
Incentive compensation 8,547 - n.m. 8,547 - n.m.
Salaries and benefits 1,613 - n.m. 1,613 - n.m.
Other overhead
expenses 5,925 - n.m. 5,925 - n.m.
-----------------------------------------------
Total Expenses 16,085 - n.m. 16,085 - n.m.
Income before income
taxes 2,607 - n.m. 2,607 - n.m.
Number of employees 150 - n.m.
-------------------------------------------------------------------------
Canaccord Adams excluding
the US geographic segment
Revenue 101,551 81,444 24.7% 314,974 239,654 31.4%
Expenses
Incentive compensation 55,253 46,578 18.6% 167,057 125,030 33.6%
Salaries and benefits 1,990 4,825 (58.8)% 6,822 16,577 (58.8)%
Other overhead
expenses 12,114 9,679 25.2% 41,719 32,128 29.9%
-----------------------------------------------
Total Expenses 69,357 61,082 13.5% 215,598 173,735 24.1%
Income before income
taxes 32,194 20,362 58.1% 99,376 65,919 50.8%
Number of employees 314 279 12.5%
-------------------------------------------------------------------------
(1) Includes the global capital markets division of Canaccord Capital
Corporation in Canada; Canaccord Adams Limited in the UK; and
Canaccord Adams Inc. and Canaccord Capital Corporation (USA), Inc. in
the US.
(2) US geographic segment includes the operations of Canaccord Adams Inc.
and Canaccord Capital Corporation (USA), Inc.'s capital markets
activities only.
n.m.: not meaningful
Revenue in this business segment 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. Contribution to
Canaccord Adams' revenue comes from three regions: Canada, the UK and most
recently, from the US through the acquisition of Adams Harkness Financial
Group, Inc.
Three months ended March 31, 2006, compared with three months ended
March 31, 2005
Revenue from Canaccord Adams in Q4/06 was a quarterly record of
$120.2 million, up $38.8 million, or 47.6%, compared to the same quarter a
year ago due to strong capital markets activity in Canada and in the UK.
Excluding the contribution of the US geographic segment, Q4/06 revenue would
have been $101.6 million, up $20.1 million, or 24.7%, compared to Q4/05.
Revenue from Canadian operations
The quarterly record revenue from Canaccord Adams in Canada was derived
from four business sub-segments: Capital Markets ($44.9 million, up
$5.1 million, or 12.9%); International Trading ($7.8 million, up $3.1 million,
or 66.0%); Registered Traders ($4.1 million, up $2.2 million, or 118.6%); and
Fixed Income ($2.9 million, up $0.7 million, or 31.3%). The increase in this
sector is primarily due to an increase in market activity in Canadian equity
markets during Q4/06, largely due to rising global demand for commodities and
Canadian equities.
Revenue from UK operations
Operations related to Canaccord Adams Limited in the UK include
institutional sales and trading, corporate finance and research teams. Revenue
in this business was $41.8 million, up $8.9 million, or 27.2% from Q4/05. This
increase is a result of Canaccord Adams' leadership position as a Nominated
Advisor/Broker on AIM, increasing liquidity and international interest in that
market, and the successful expansion of our global securities distribution
platform.
Revenue from US operations
The US geographic segment's results reflect the contribution of Canaccord
Capital Corporation (USA), Inc. and Canaccord Adams Inc. (formerly Adams
Harkness Financial Group, Inc., acquired on January 3, 2006). Operational
results for this new geographic segment are being reported separately as of
January 3, 2006 and therefore have no historical data for comparative
purposes. Q4/06 revenue for Canaccord Adams Inc. and Canaccord Capital
Corporation (USA), Inc. in the US was $18.7 million.
Expenses for Q4/06 were $85.4 million, up $24.4 million, or 39.9%.
Excluding expenses from the US geographic segment, expenses would have been
$69.4 million, up $8.3 million, or 13.6%. The largest increases in
non-compensation expenses were in trading costs, up $2.6 million, or 133.9%
reflecting the addition of Canaccord Adams Inc.; premises and equipment, up
$1.4 million, or 154.2%; and general and administrative expense, up
$1.9 million, or 41.9%.
The increase in incentive compensation for the quarter by $17.2 million,
or 37.0%, is largely attributed to the 47.6% increase in revenue, which
resulted in higher payouts for the period. Also contributing to this increase
was the introduction of Canaccord's Employee Stock Incentive Plan (ESIP) in
Q2/06, which was primarily offered to key Canaccord Adams' employees. Salary
and benefits expense for the quarter decreased by 25.3% compared to a year ago
despite the fact that the US geographic segment added $1.6 million in new
salaries and benefits for the quarter. The overall decrease is largely
attributed to the changes in the variable compensation structure introduced on
April 1, 2005. For the quarter, the total compensation expense payout as a
percentage of revenue was 56.1%, down 7.0 percentage points compared to 63.1%
for the same period a year ago.
The greatest increases in general and administrative expense were in
promotion and travel, up $0.8 million, or 29.3%, to support the overall
increase in business activity due to corporate expansion; professional fees,
up $0.4 million, or 61.4%; and office expenses, up $0.3 million, or 48.7%.
Income before income taxes for the quarter was $34.8 million, up
$14.4 million, or 70.9%, compared to the same quarter a year ago.
Year ended March 31, 2006, compared with the year ended March 31, 2005
Fiscal 2006 revenue for Canaccord Adams was a record compared to all past
fiscal year periods. Combined revenue (Canada, UK and US) for fiscal 2006 was
$333.7 million, up $94.0 million, or 39.2%, compared to the same period a year
ago due to sustained capital markets activity in North America and increased
activity in the UK. Excluding the contribution of the US geographic segment,
revenue would have been $315.0 million, up $75.3 million, or 31.4%.
Revenue from Canadian operations
Revenue from Canaccord Adams in Canada for the fiscal year 2006 was a
record $189.1 million, up $65.5 million, or 53.0%, when compared to the same
period a year ago. This revenue was derived from: Capital Markets
($150.5 million, up $54.9 million, or 57.5%); International Trading
($20.9 million, up $5.5 million, or 35.5%); Registered Traders ($9.1 million,
up $4.8 million, or 113.4%); and Fixed Income ($8.5 million, up $0.3 million,
or 3.2%). The increase in this sector is primarily due to robust market
activity in Canadian equity markets, largely due to rising global demand for
commodities and related equities, record energy prices and a buoyant Canadian
economy.
Revenue from UK operations
Revenue from Canaccord Adams Limited in the UK for fiscal 2006 was
$125.9 million, an increase of $9.8 million, or 8.5% compared to fiscal year
2005. The relative slower growth in revenue from UK operations for fiscal 2006
compared to fiscal 2005 is due to the increase in value of the Canadian dollar
relative to the British Pound by approximately 22.5%.
Revenue from US operations
Revenue from Canaccord Adams' US operations for fiscal 2006 was
$18.7 million. The addition of the Canaccord Adams Inc. sector mix has
increased Canaccord's competitive position within the Life Sciences, Consumer
and Technology sectors.
Expenses for fiscal 2006 were $231.7 million, up $57.9 million, or 33.4%.
Excluding expenses incurred by the US geographic segment, expenses would have
been $215.6 million, up $41.9 million, or 24.1%. The largest increases in non-
compensation expenses were in interest, up $1.2 million, or 192.8%; and
general and administrative expense, up $6.6 million, or 48.7%.
The ratio of total fiscal 2006 compensation payout to total revenue was
55.2%, down by 3.9 percentage points from a ratio of 59.1% for fiscal 2005.
The total compensation payout ratio includes a 3% allocation to cover
applicable National Health Insurance (NHI) taxes for UK-based employees.
Salary and benefits expense for the fiscal year 2006 decreased by 49.1%,
compared to a year ago. This decrease is also largely attributed to the recent
change in the variable compensation structure. However, the increase in
incentive compensation for the fiscal year 2006, is largely due to the
increase in revenue, which resulted in higher payouts for the period and in
the introduction of the ESIP in Q2/06.
The greatest increases in general and administrative expense were in
promotion and travel, up $4.5 million, or 62.1%, to support the overall
increase in business activity due to corporate expansion; and professional
fees, up $0.8 million, or 49.9%.
Income before income taxes for the year ended March 31, 2006, was a
fiscal-year record $102.0 million, up $36.1 million, or 54.7%, when compared
to the same period a year ago.
Other segment
-------------------------------------------------------------------------
Three months
ended Year ended
March 31 Year-over- March 31 Year-over-
(C$ thousands, except year year
employees and % amounts) 2006 2005 increase 2006 2005 increase
-------------------------------------------------------------------------
Revenue 8,409 5,094 65.1% 24,555 14,948 64.3%
Expenses
Incentive compensation 7,124 3,953 80.2% 18,301 11,028 66.0%
Salaries and benefits 5,708 4,946 15.4% 20,531 17,980 14.2%
Other overhead
expenses 9,360 7,774 20.4% 29,894 29,775 0.4%
-------------------------------------------------
Total Expenses 22,192 16,673 33.1% 68,726 58,783 16.9%
(Loss) before income
taxes (13,783) (11,579) 19.0% (44,171) (43,835) 0.8%
Number of employees 335 324 3.4%
-------------------------------------------------------------------------
The Other segment includes correspondent brokerage services, interest,
foreign exchange revenue and expenses not specifically allocable to the
Private Client Services and Canaccord Adams 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.
Three months ended March 31, 2006, compared with three months ended
March 31, 2005
Revenue for the three months ended March 31, 2006 was $8.4 million, up
$3.3 million, or 65.1%, compared to the same quarter a year ago and is
primarily attributed to an increase in foreign exchange revenue, bank interest
and security rebate revenue.
Expenses for Q4/06 were $22.2 million, up $5.5 million, or 33.1%. The
largest increases in expenses were recorded in incentive compensation, up
$3.2 million, or 80.2%; and salaries and benefits, up $0.8 million, or 15.4%.
Expenses for Q4/06 in this segment were offset by a reduction in interest
expense of $0.5 million due to the sale of the remaining business related to
the Immigrant Investor Program of QuDebec in Q3/06.
General and administrative expense increased by $0.5 million, or 13.8%,
mainly attributable to increases in promotion and travel, up $0.4 million, or
74.1%.
Loss before income taxes was $13.8 million in the fourth quarter of
fiscal 2006, up $2.2 million, or 19.0% compared to a loss of $11.6 million in
the same quarter a year ago.
Year ended March 31, 2006, compared with the year ended March 31, 2005
Revenue for the fiscal year 2006 was $24.6 million, up $9.6 million, or
64.3%, compared to the same period a year ago and is largely attributed to an
increase of $4.1 million from bank interest revenue; $2.7 million from foreign
exchange revenue; and $1.9 million from securities and rebates.
Fiscal 2006 expenses were $68.7 million, up $9.9 million, or 16.9%. The
increase in expenses is largely attributable to an increase in incentive
compensation of $7.3 million, which includes costs related to the ESIP for key
employees of this business segment. Also contributing to the increase in
expenses are salaries and benefits up by $2.6 million, or 14.2%; premises and
equipment up by $1.3 million, or 39.7%; and public company costs due to
Canaccord's admission to AIM, up by $1.5 million, or 331.8%, compared to
fiscal 2005. However, fiscal year 2006 interest expense and professional fees
decreased by $1.6 million, or 44.9%, and $1.6 million, or 35.6%, respectively.
Expenses were also reduced by a one time gain of $1.6 million in Q1/06
resulting from the sale of our investment in the Bourse de MontrDeal. This gain
was equivalent to $1.3 million after tax and approximately $0.03 per share on
a diluted basis.
Loss before income taxes was $44.2 million for fiscal year 2006, an
increase of $0.3 million, or 0.8%, compared to a loss of $43.8 million in the
same period a year ago.
Liquidity and capital resources
Canaccord has a capital structure underpinned by shareholders' equity,
which is comprised of share capital, retained earnings and cumulative foreign
currency translation adjustments. As of March 31, 2006, total cash and cash
equivalents were $370.5 million, up $20.8 million from $349.7 million as of
March 31, 2005. During the fiscal year ended March 31, 2006, financing
activities used cash in the amount of $68.6 million, which was primarily due
to a decrease in notes payable of $41.6 million, payment of dividends of
$14.5 million and $14.5 million for the increase in unvested common share
purchase loans(+) related to Canaccord's ESIP and other stock plans. Investing
activities used cash for the acquisition of Adams Harkness Financial Group,
Inc. and Enermarket Solutions Ltd. in the amount of $15.7 million, and
$16.6 million for the purchase of equipment and leaseholds improvement. A
further reduction in cash of $9.6 million was attributed to the effect of
foreign exchange on cash balances. Operating activities provided cash in the
amount of $83.4 million, which was due to net changes in non-cash working
capital items, net income and items not affecting cash. Investing activities
also provided cash in the amount of $11.0 million, due to the decrease of
notes receivable in the amount of $41.6 million, and proceeds of $1.6 million
received from the sale of our investment in the Bourse de MontrDeal.
Canaccord's business requires capital for operating and regulatory
purposes. The current assets reflected on Canaccord's balance sheet are highly
liquid. The majority of the positions held as securities owned are readily
marketable and all are recorded at their market value. The market value of
these securities fluctuates daily as factors such as changes in market
conditions, economic conditions and investor outlook affect market prices.
Client receivables are secured by readily marketable securities and are
reviewed daily for impairment in value and collectibility. Receivables and
payables from brokers and dealers represent the following: current open
transactions which generally settle within the normal three-day settlement
cycle; collateralized securities that are borrowed and/or loaned in
transactions that can be closed within a few days on demand; and balances due
to introducing brokers representing net balances in connection with their
client accounts.
Outstanding share data
-------------------------------------------------------------------------
Outstanding shares as of
March 31
2006 2005
-------------------------------------------------------------------------
Issued shares outstanding - basic(1) 45,746,033 45,413,311
Issued shares outstanding - diluted(2)(3) 47,827,350 46,129,268
Average shares outstanding - basic 44,606,134 41,634,920
Average shares outstanding - diluted(4) 46,699,304 44,188,297
-------------------------------------------------------------------------
(1) Excludes 1,804,541 unvested shares that are outstanding relating to
share purchase loans for recruitment and retention programs and
276,776 shares related to stock-based compensation plans.
(2) Includes 1,804,541 unvested shares relating to share purchase loans
for recruitment and retention programs and 276,776 shares related to
stock-based compensation plans referred to in footnote (1) above.
(3) Excludes 49,163 common shares earned during Q4/06 associated with the
retention of key employees after the acquisition of Adams Harkness
Financial Group, Inc. These shares have not yet been issued and
remain in treasury.
(4) Includes the weighted average balance of 11,853 common shares
associated with footnote (3) above.
As of March 31, 2006, Canaccord had 47,827,350 common shares issued and
outstanding on a diluted basis, up 1,698,082 common shares from March 31,
2005, comprised of 1,420,342 common shares issued in connection with
acquisitions, and 691,940 common shares issued as part of the employee
treasury stock purchase plan offset by a reduction of 414,200 common shares,
which were purchased and cancelled during fiscal year 2006 through the normal
course issuer bid (NCIB).
--------------------
(+) These are forgivable loans granted to key employees in connection to
the purchase of common stock in the open market under the ESIP and
other incentive plans.
Issuance of share capital
-------------------------------------------------------------------------
Nine months
ended
Increase (decrease) number of shares Q4/06 December 31
-------------------------------------------------------------------------
Total common shares issued and outstanding as of
March 31, 2005 - diluted 46,129,268
-----------------------
Shares issued for acquisitions
Enermarket Solutions Ltd. 77,646
Adams Harkness Financial Group, Inc. 1,342,696
Shares issued for employee treasury stock purchase
plan 691,940
Shares purchased and cancelled under NCIB (414,200)
-----------------------
Total common shares issued and outstanding as of
March 31, 2006 - diluted 47,827,350
-------------------------------------------------------------------------
Canaccord's Board originally approved the implementation of the NCIB to
facilitate the purchase, for purposes of either subsequent resale or
cancellation of common shares released from escrow. Through this capital
management plan, the Board approved the further usage of the NCIB to also
acquire for the purpose of cancellation, shares to utilize capital that has
been generated in the last year. Although the amount and timing of any such
purchases will be determined by Canaccord, the Board of Directors approved at
the beginning of Q2/06 the purchase of up to 500,000 common shares through the
NCIB for cancellation by the end of the fiscal year, subject to trading
blackouts and availability of shares. At the beginning of Q3/06, the Board of
Directors approved an increase of 500,000 common shares, in the number of
shares that could be purchased for cancellation. Therefore, under this
expanded plan, Canaccord may purchase up to a maximum of 1,000,000 common
shares in total, subject to a maximum of up to 130,000 shares daily. During
fiscal year 2006, 414,200 common shares were cancelled at a weighted average
price of $11.18 per share; consequently there remain up to 585,800 common
shares that could be purchased for cancellation.
On December 22, 2005, Canaccord renewed its NCIB for one year commencing
on December 29, 2005 and ending on December 28, 2006. The NCIB allows for
purchases of up to 5% of Canaccord's issued and outstanding shares at the time
of the renewal. As of May 16, 2006, there are 2,324,233 common shares
available for purchase under the NCIB. Canaccord has agreed with the relevant
regulators to update its shareholders at a minimum rate of every two weeks and
will update shareholders immediately if more than 1% of its outstanding shares
are purchased in one day. Going forward and from time to time, Canaccord may
purchase its common shares for the purpose of resale or cancellation.
On January 3, 2006, Canaccord closed the acquisition of Adams Harkness
Financial Group, Inc., which was a privately held Boston, Massachusetts-based
institutional investment bank. The consideration consisted of US$8 million in
cash and the issuance of 1,342,696 common shares from treasury valued at
US$12 million. These shares will be held in escrow, with annual releases of
one-third per year, beginning on June 30, 2006 and ending on June 30, 2008.
Shares reserved for issuance as retention payment for Adams Harkness'
employees
-------------------------------------------------------------------------
Increase (decrease) number of shares Q4/06
-------------------------------------------------------------------------
Original allotment of shares reserved for issuance from
treasury for Adams Harkness employees 1,118,952
Shares forfeited by departed employees (72,733)
Shares earned from achievement of target performance
(unissued) (49,163)
Total remaining unearned shares available to be issued at the
end of the vesting period in January 2009 997,056
-------------------------------------------------------------------------
In addition, 1,118,952 common shares are reserved for issuance from
treasury as a retention incentive at an estimated cost of up to
US$10.0 million for certain key employees of Adams Harkness Financial Group,
Inc. to be paid after a three-year vesting period. The total number of shares
to be vested is also based on revenue earned by Canaccord Adams Inc.
subsequent to the date of acquisition. The aggregate number of common shares
which will vest and therefore issued at the end of the vesting period will be
that number, which is equal to the revenue earned by Canaccord Adams Inc.
during the vesting period divided by US$250.0 million multiplied by 1,118,952
subject to the maximum of 1,118,952 common shares adjusted for forfeitures and
cancellations. As such revenue levels are achieved during the vesting period,
the associated proportion of the retention payment will be recorded as
development costs and the applicable number of retention shares will be
included in weighted average diluted common shares outstanding. Of the
1,118,952 common shares, 49,163 common shares have been added to diluted share
capital as a result of revenue earned to the end of Q4/06. The associated
proportion of the retention payment for 49,163 shares was $513,755 and has
been recorded as a development cost. As of May 16, 2006, Canaccord had
47,827,350 common shares outstanding on a diluted basis.
On May 16, 2006, the Board approved two separate share issuances related
to stock-based compensation: (1) The issuance (subject to regulatory and
shareholder approval) of 25,000 shares at $14.00 per share to Arpad A. Busson
as stock based compensation for his becoming a director of Canaccord Capital
Inc. during fiscal 2006. These shares are subject to a two year escrow; 50%
will be released at the end of the first year and the balance at the end of
the second year; and (2) Pursuant to a one-time obligation which arose when
the approximate market price of the Company's shares was $20.13, the Board of
Directors of Canaccord has approved the issuance of 17,431 common shares at
$20.13 per share. These shares are associated with the recruitment of
Canaccord Adams professionals. This issue is subject to regulatory approval,
and 14,526 of these shares are restricted from sale until March 20, 2009.
Dividend policy
Although dividends are expected to be declared and paid quarterly, the
Board of Directors, in its sole discretion, will determine the amount and
timing of any dividends. All dividend payments will depend on general business
conditions, Canaccord's financial condition, results of operations and capital
requirements and such other factors as the Board determines to be relevant. In
fiscal year 2006, Canaccord paid a quarterly dividend of $0.06 per share per
quarter in respect of each of the first two quarters. However, Canaccord's
operating results as the year progressed supported a dividend increase of
$0.02 per share, or 33.3% to the regular quarterly common share dividend in
Q3/06. Canaccord intends to continue to pay a $0.08 regular quarterly common
share dividend in respect of Q4/06 and for each quarter in fiscal year 2007.
Dividend declaration
For the fourth quarter of fiscal 2006, the Board of Directors declared a
common share dividend of $0.08 per share, which is payable on June 9, 2006, to
shareholders of record on May 26, 2006. The common share dividend payment to
common shareholders will total approximately $3.8 million, or approximately
12.7% of fourth quarter net income.
Risks
The securities industry and Canaccord's activities are by their very
nature subject to a number of inherent risks. Economic conditions, competition
and market factors such as volatility in the Canadian and international
markets, interest rates, commodity prices, market prices, trading volumes and
liquidity will have a significant impact on Canaccord's profitability. An
investment in the common shares of Canaccord involves a number of risks,
including market, liquidity, credit, operational, legal and regulatory risks,
which could be substantial and are inherent in Canaccord's business. Private
Client Services' revenue is dependent on trading volumes and, as such, is
dependent on the level of market activity and investor confidence. Canaccord
Adams' revenue is dependent on financing activity by corporate issuers and the
willingness of institutional clients to actively trade and participate in
capital markets transactions. There may also be a lag between market
fluctuations and changes in business conditions and the level of Canaccord's
market activity and the impact that these factors have on Canaccord's
operating results and financial position. Furthermore, Canaccord may not
achieve its growth plans associated with the acquisition and integration of
Adams Harkness Financial Group, Inc. In addition to the risks previously
mentioned above, other risks have not changed substantially from those set out
in the Annual Report of June 27, 2005.
Additional information
A comprehensive discussion of our business, strategies, objectives and
risks is available in the Management's Discussion and Analysis, Annual
Information Form and audited annual financial statements in Canaccord's 2005
Annual Report which are available on our Web site at
www.canaccord.com/investor and on SEDAR at www.sedar.com.
Additional information relating to Canaccord, including Canaccord's
Annual Information Form and interim filings can also be found on our Web site
and on SEDAR at www.sedar.com.
Interim Consolidated Financial Statements
Canaccord Capital Inc.
Unaudited
For the three and twelve months ended March 31, 2006
(Expressed in Canadian dollars)
Canaccord Capital Inc.
INTERIM CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands of dollars)
As at March 31, March 31,
2006 2005
$ $
-------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 370,507 349,700
Securities owned, at market (note 2) 203,020 160,348
Accounts receivable (notes 4 and 10) 1,539,998 1,068,757
-------------------------------------------------------------------------
Total current assets 2,113,525 1,578,805
Equipment and leasehold improvements 25,750 13,750
Notes receivable (note 5) - 41,618
Future income taxes 10,769 3,992
Goodwill and other intangible assets
(notes 6 and 7) 27,929 -
-------------------------------------------------------------------------
2,177,973 1,638,165
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Call loans 4,684 -
Securities sold short, at market (note 2) 37,169 105,527
Accounts payable and accrued
liabilities (notes 4 and 10) 1,832,956 1,262,072
Income taxes payable 15,334 6,737
-------------------------------------------------------------------------
Total current liabilities 1,890,143 1,374,336
Notes payable (note 5) - 41,618
-------------------------------------------------------------------------
Total liabilities 1,890,143 1,415,954
-------------------------------------------------------------------------
Contingencies (note 12)
Shareholders' equity
Share capital (note 8) 157,644 151,030
Cumulative foreign currency translation
adjustment (6,277) (1,383)
Retained earnings 136,463 72,564
-------------------------------------------------------------------------
Total shareholders' equity 287,830 222,211
-------------------------------------------------------------------------
2,177,973 1,638,165
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes
Canaccord Capital Inc.
INTERIM CONSOLIDATED STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS (Unaudited)
(in thousands of dollars, except
per share amounts)
For the three For the twelve
months ended months ended
---------------------- ----------------------
March 31, March 31, March 31, March 31,
2006 2005 2006 2005
$ $ $ $
------------------------------------------------- ----------------------
REVENUE
Commission 88,846 54,598 239,461 168,978
Investment banking 87,977 69,558 266,206 214,450
Principal trading 13,677 7,795 27,388 13,584
Interest 11,424 7,723 36,914 26,488
Other 5,150 3,255 13,446 9,278
------------------------------------------------- ----------------------
207,074 142,929 583,415 432,778
------------------------------------------------- ----------------------
EXPENSES
Incentive compensation 108,296 77,191 299,188 220,454
Salaries and benefits 13,716 13,130 42,019 45,715
Trading costs 7,615 4,493 20,615 16,863
Premises and equipment 5,068 3,025 15,843 11,849
Communication and
technology 5,087 3,719 16,598 14,037
Interest 3,577 2,125 10,914 7,824
General and administrative 14,726 10,866 46,227 32,171
Amortization 1,969 952 4,817 3,185
Development costs 3,565 2,001 9,797 7,924
Gain on disposal of
investment (note 13) - - (1,633) -
------------------------------------------------- ----------------------
163,619 117,502 464,385 360,022
------------------------------------------------- ----------------------
Income before income taxes 43,455 25,427 119,030 72,756
Income tax expense
(recovery)
Current 21,404 10,278 44,657 29,142
Future (8,019) (2,158) (6,777) (4,965)
------------------------------------------------- ----------------------
Net income for the period 30,070 17,307 81,150 48,579
Retained earnings,
beginning of period 110,220 64,482 72,564 38,013
Cash dividends (3,827) (9,225) (14,455) (13,835)
Excess on redemption of
common shares (note 8 (iii)) - - (2,796) (193)
------------------------------------------------- ----------------------
Retained earnings,
end of period 136,463 72,564 136,463 72,564
------------------------------------------------- ----------------------
------------------------------------------------- ----------------------
Basic earnings per
share (note 8 (v)) 0.66 0.38 1.82 1.17
Diluted earnings per
share (note 8 (v)) 0.63 0.38 1.74 1.11
------------------------------------------------- ----------------------
------------------------------------------------- ----------------------
See accompanying notes
Canaccord Capital Inc.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands of dollars)
For the three For the twelve
months ended months ended
---------------------- ----------------------
March 31, March 31, March 31, March 31,
2006 2005 2006 2005
$ $ $ $
------------------------------------------------- ----------------------
OPERATING ACTIVITIES
Net income for the period 30,070 17,307 81,150 48,579
Items not affecting cash
Amortization 1,807 1,030 5,174 3,863
Future income tax recovery (8,019) (2,158) (6,777) (4,965)
Gain on disposal of
investment - - (1,633) -
Changes in non-cash
working capital
Decrease (increase) in
securities owned 15,653 24,547 (43,851) 216,099
Increase in accounts
receivable (449,072) (349,061) (491,473) (70,620)
Increase (decrease) in
securities sold short (95,312) 15,494 (68,359) (176,196)
Increase in accounts
payable and accrued
liabilities 640,731 399,490 599,930 213,677
Increase (decrease) in
income taxes payable 7,605 3,478 9,223 (10,168)
------------------------------------------------- ----------------------
Cash provided by
operating activities 143,463 110,127 83,384 220,269
------------------------------------------------- ----------------------
FINANCING ACTIVITIES
Increase (decrease)
in notes payable - 563 (41,618) 12,853
Redemption of convertible
debentures - - - (20)
Decrease in subordinated
debt - - - (10,000)
Issuance of share capital
(net of issuance costs) - 340 6,574 71,865
Decrease (increase) in
unvested common share
purchase loans 309 (466) (14,463) (1,415)
Redemption of share capital - - (4,631) (379)
Dividends paid (3,827) (9,225) (14,455) (13,835)
------------------------------------------------- ----------------------
Cash provided by (used in)
financing activities (3,518) (8,788) (68,593) 59,069
------------------------------------------------- ----------------------
INVESTING ACTIVITIES
Purchase of equipment and
leasehold improvements (4,852) (798) (16,630) (4,562)
Decrease (increase) in
notes receivable - (563) 41,618 (12,853)
Proceeds on disposal
of investment - - 1,639 -
Acquisition of subsidiaries
(note 6) (11,674) - (15,669) -
------------------------------------------------- ----------------------
Cash provided by (used in)
investing activities (16,526) (1,361) 10,958 (17,415)
------------------------------------------------- ----------------------
Effect of foreign exchange
on cash balances 1,369 (125) (9,626) (1,648)
------------------------------------------------- ----------------------
Increase in cash position 124,788 99,853 16,123 260,275
Cash position, beginning
of period 241,035 249,847 349,700 89,425
------------------------------------------------- ----------------------
Cash position, end of
period 365,823 349,700 365,823 349,700
------------------------------------------------- ----------------------
------------------------------------------------- ----------------------
Cash position is
comprised of:
Cash and cash equivalents 370,507 349,700 370,507 349,700
Call loans 4,684 - 4,684 -
------------------------------------------------- ----------------------
365,823 349,700 365,823 349,700
------------------------------------------------- ----------------------
------------------------------------------------- ----------------------
Supplemental cash flow
information
Interest paid 3,525 278 9,495 1,495
Income taxes paid 7,379 13,163 30,192 37,756
------------------------------------------------- ----------------------
------------------------------------------------- ----------------------
See accompanying notes
Canaccord Capital Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the three and twelve months ended March 31, 2006
(in thousands of dollars, except per share amounts)
Canaccord Capital Inc. (the "Company") is an independent full service
investment dealer. The Company has operations in each of the two principal
segments of the securities industry: private client services and capital
markets. Together these operations offer a wide range of complementary
investment products, brokerage services and investment banking services to the
Company's retail, institutional and corporate clients.
Historically, the Company's operating results are characterized by a
seasonal pattern and it earns the majority of its revenue in the last two
quarters of its fiscal year. However, during the first half of fiscal 2006,
North American capital markets performed better than compared to previous
historical seasonality.
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
These interim unaudited consolidated financial statements have been
prepared by the Company in accordance with Canadian generally accepted
accounting principles ("GAAP") with respect to interim financial
statements, applied on a consistent basis. These interim unaudited
consolidated financial statements follow the same accounting principles
and methods of application as those disclosed in Note 1 to the Company's
audited consolidated financial statements as at and for the year ended
March 31, 2005 ("Audited Annual Consolidated Financial Statements")
except as noted below. Accordingly, they do not include all the
information and footnotes required for compliance with Canadian GAAP for
annual financial statements. These interim unaudited consolidated
financial statements and notes thereon should be read in conjunction with
the Audited Annual Consolidated Financial Statements.
The preparation of these interim unaudited consolidated financial
statements and the accompanying notes requires management to make
estimates and assumptions that affect the amounts reported. In the
opinion of management, these interim unaudited consolidated financial
statements reflect all adjustments (which include only normal, recurring
adjustments) necessary to state fairly the results for the periods
presented. Actual results could vary from these estimates and the
operating results for the interim periods presented are not necessarily
indicative of the results expected for the full year.
Stock-based compensation plans
Stock-based compensation represents the cost related to stock-based
awards granted to employees. The Company uses the fair value method to
account for such awards. Under this method, the Company measures the fair
value of stock-based awards as of the grant date and recognizes the cost
as an expense over the applicable vesting period with a corresponding
increase in contributed surplus. In the case where vesting is also
dependent on performance criteria, the cost is recognized over the
vesting period in accordance with the rate at which such performance
criteria are achieved (net of estimated forfeitures). Otherwise, the cost
is recognized on a straight-line basis over the vesting period. When
stock-based compensation awards vest contributed surplus is reduced by
the applicable amount and share capital is increased by the same amount.
2. SECURITIES OWNED AND SECURITIES SOLD SHORT
March 31, 2006 March 31, 2005
----------------------- -----------------------
Securities Securities Securities Securities
owned sold short owned sold short
$ $ $ $
-------------------------------------------------------------------------
Corporate and government
debt 40,784 14,319 124,395 82,001
Equities and convertible
debentures 162,236 22,850 35,953 23,526
-------------------------------------------------------------------------
203,020 37,169 160,348 105,527
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at March 31, 2006, corporate and government debt maturities range from
2006 to 2053 (March 31, 2005 - 2005 to 2051) and bear interest ranging
from 2.05% to 14.00% (March 31, 2005 - 2.05% to 14.00%).
3. FINANCIAL INSTRUMENTS
Foreign exchange risk
Foreign exchange risk arises from the possibility that changes in the
price of foreign currencies will result in losses. The Company
periodically trades certain foreign exchange contracts to manage and
hedge foreign exchange risk on pending settlements in foreign currencies.
Realized and unrealized gains and losses related to these contracts are
recognized in income during the year.
Forward contracts outstanding at March 31, 2006:
Notional
amounts Average Fair value
(millions price (millions
of USD) (CAD/USD) Maturity of USD)
-------------------------------------------------------------------------
To sell US dollars $90.85 $1.16 April 5, 2006 $0.1
To buy US dollars $ 7.00 $1.16 April 3, 2006 ($0.1)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Forward contracts outstanding at March 31, 2005:
Notional
amounts Average Fair value
(millions price (millions
of USD) (CAD/USD) Maturity of USD)
-------------------------------------------------------------------------
To sell US dollars $22.75 $1.21 April 5, 2005 $0.1
To buy US dollars $10.25 $1.21 April 5, 2005 ($0.1)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts receivable
March 31, March 31,
2006 2005
$ $
-------------------------------------------------------------------------
Brokers and investment dealers 567,308 353,734
Clients 607,118 406,769
RRSP cash balances held in trust 320,766 293,595
Other 44,806 14,659
-------------------------------------------------------------------------
1,539,998 1,068,757
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accounts payable and accrued liabilities
March 31, March 31,
2006 2005
$ $
-------------------------------------------------------------------------
Brokers and investment dealers 397,733 358,711
Clients 1,172,511 719,195
Other 262,712 184,166
-------------------------------------------------------------------------
1,832,956 1,262,072
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accounts payable to clients include $320.8 million (March 31, 2005 -
$293.6 million) payable to clients for RRSP cash balances held in trust.
Client security purchases are entered into on either a cash or margin
basis. In the case of a margin account, the Company extends a loan to a
client for the purchase of securities, using securities purchased and/or
other securities in the client's account as collateral. Amounts loaned to
any client are limited by margin regulations of the Investment Dealers
Association of Canada and other regulatory authorities and are subject to
the Company's credit review and daily monitoring procedures.
Amounts due from and to clients are due by the settlement date of the
trade transaction. Margin loans are due on demand and are collateralized
by the assets in the client accounts. Interest on margin loans and
amounts due to clients is based on a floating rate (March 31, 2006 -
7.50% and 2.50%, respectively, and March 31, 2005 - 6.25% and 1.25%,
respectively).
5. IMMIGRANT INVESTOR PROGRAM OF QUEBEC
The Company sponsored an immigrant investor program that provided
assistance to Canadian immigrant applicants under the investor category
and to their professional consultants and advisors. Included in these
services was a program that enabled immigrant investors to borrow,
through a credit facility arranged by the Company, the requisite funds
for making a qualifying investment for immigration purposes. The Company
borrowed as notes payable the investment funds through a non-recourse
bank facility, loaned the borrowed funds to the immigrant investor by way
of notes receivable and then pledged the notes receivable to the lending
bank as collateral for the notes payable.
Effective September 15, 2005, the Company sold a significant portion of
all outstanding notes receivable under this program for total proceeds of
$34.4 million and repaid all corresponding outstanding notes payable in
the amount of $34.8 million for a net loss on disposition of
$0.4 million.
Effective December 23, 2005, the Company irrevocably assigned the
remaining outstanding notes receivable and notes payable under this
program at book value of $10.0 million.
(i) Notes receivable
Interest revenue of $nil and $1.4 million, respectively, for the three
and twelve months ended March 31, 2006 ($0.6 million and $2.1 million,
respectively, for the three and twelve months ended March 31, 2005) on
these loans is included in Other revenue.
(ii) Notes payable
Interest expense of $nil and $1.8 million, respectively, for the three
and twelve months ended March 31, 2006 ($0.6 million and $2.1 million,
respectively, for the three and twelve months ended March 31, 2005) on
these loans is included in Interest expense.
6. ACQUISITIONS
(i) Enermarket Solutions Ltd.
On November 11, 2005, the Company acquired a 100% interest in Enermarket
Solutions Ltd. ("Enermarket"), a property acquisition and divestiture
advisory services firm focused on the Energy sector and based in Calgary,
Alberta. The aggregate purchase price was $5.1 million including cash of
$4.0 million (comprised of $3.1 million and a working capital adjustment
of $0.9 million), $0.9 million comprised of 77,646 common shares of the
Company at $11.90 per share and costs related to the acquisition of
$0.2 million. The entity will operate as part of the Company's Canaccord
Adams group as Canaccord Enermarket. The assets and liabilities of
Enermarket have been included in the consolidated balance sheet of the
Company as of November 11, 2005 and its operating results have been
included in the consolidated statement of operations of the Company since
that date.
In connection with the acquisition, retention payments up to a total of
$0.3 million will be paid to key employees of Enermarket and its senior
management. The retention payments will involve the issuance of up to
25,210 common shares of the Company which will be paid after a two year
vesting period. These retention payments will be recorded as development
costs over the vesting period on a straight-line basis.
(ii) Adams Harkness Financial Group, Inc.
On January 3, 2006, the Company acquired a 100% interest in Adams
Harkness Financial Group, Inc. ("Adams Harkness"), the parent company of
Adams Harkness, Inc., an institutional investment bank based in Boston,
Massachusetts. The aggregate purchase price was US$21.8 million
(C$25.6 million) including cash of US$8.0 million (C$9.5 million), common
shares of the Company valued at US$12.0 million (C$14.1 million)
comprised of 1,342,696 common shares of the Company at C$10.50 per share
and costs related to the acquisition of US$1.8 million (C$2.0 million).
The common shares are held in escrow to be released as to one-third per
year beginning on June 30, 2006.
On completion of the acquisition, Adams Harkness, Inc. changed its name
to Canaccord Adams Inc. Canaccord Adams Inc. will operate as part of the
Company's capital markets operations, which commenced operations under
the global brand name of Canaccord Adams coincidental with the
acquisition. The assets and liabilities of Adams Harkness have been
included in the consolidated balance sheet of the Company as of
January 3, 2006 and its operating results have been included in the
consolidated statement of operations of the Company since that date.
In connection with the acquisition, retention payments up to an estimated
total of US$10.0 million will be paid to key employees of Adams Harkness.
The retention payments will involve the issuance of up to
1,118,952 common shares of the Company after a three year vesting period.
The total number of common shares to be vested is also based on revenue
earned by Canaccord Adams Inc. subsequent to the date of the acquisition
(Note 9).
The aggregate consideration paid and the fair value of the net assets
acquired in respect of these acquisitions are:
Adams Harkness Enermarket
Acquisition date January 3, November 11,
2006 2005
$ $
-------------------------------------------------------------------------
Aggregate consideration
Cash, including acquisition costs 11,533 4,136
Issuance of common shares 14,098 924
-------------------------------------------------------------------------
25,631 5,060
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fair value of net assets acquired
Cash and cash equivalents 4,542 232
Securities owned 1,063 -
Accounts receivable 23,320 677
Future income taxes 7,440 (321)
Equipment and leasehold improvements 2,704 124
Intangible assets apart from goodwill 4,650 1,000
Call loans (2,559) -
Accounts payable (21,250) (247)
Taxes payable (433) (72)
Subordinated debt (4,113) -
Accrued lease impairment (8,719) -
-------------------------------------------------------------------------
6,645 1,393
-------------------------------------------------------------------------
Goodwill 18,986 3,667
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. GOODWILL AND OTHER INTANGIBLE ASSETS
March 31, March 31,
2006 2005
$ $
-------------------------------------------------------------------------
Goodwill 22,653 -
-------------------------------------------------------------------------
Other intangible assets
Balance at beginning of year - -
Acquisitions 5,650 -
Amortization 374 -
-------------------------------------------------------------------------
Balance at end of year 5,276 -
-------------------------------------------------------------------------
27,929 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other intangible assets reflect assigned values related to acquired brand
names, customer relationships and technology and are amortized on a
straight-line basis over their estimated useful life of four years.
Goodwill and other intangible assets relate to the Canaccord Adams
operating segment.
8. SHARE CAPITAL
On June 21, 2004, the Company's shareholders approved a two-for-one
subdivision of the Company's outstanding Class A, Class B and Class C
common shares. All common share and per share data included herein have
been adjusted to reflect the two-for-one subdivision as if it had
occurred at the beginning of the periods reflected.
March 31, March 31,
2006 2005
$ $
-------------------------------------------------------------------------
Issued and fully paid
Share capital
Common shares 173,282 153,061
Unvested share purchase loans (20,577) (2,929)
Contributed surplus 4,939 898
-------------------------------------------------------------------------
157,644 151,030
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Share capital of Canaccord Capital Inc. is comprised of the following:
(i) Authorized
Unlimited common shares without par value
Unlimited preferred shares without par value
(ii) Issued and fully paid
Common shares
Common Shares Class B
No. of Amount No. of Amount
shares $ shares $
-------------------------------------------------------------------------
Balance, March 31, 2004 - - 26,751,482 51,292
Shares issued for cash - - 897,454 3,568
Shares cancelled - - (95,826) (186)
Shares issued on
conversion of Class 4
preferred shares Series A - - 82,816 190
Shares issued on
conversion of
convertible debentures - - 7,378,660 20,357
Exchange into
common shares(1) 39,266,210 86,757 (35,014,586) (75,221)
Shares issued in
connection with initial
public offering(2) 6,829,268 66,170 - -
Shares issued for cash(3) 33,790 134 - -
-------------------------------------------------------------------------
Balance, March 31, 2005 46,129,268 153,061 - -
Shares issued for cash 691,940 6,574 - -
Shares issued in
connection with
acquisitions 1,420,342 15,022 - -
Shares cancelled (414,200) (1,375) - -
-------------------------------------------------------------------------
Balance, March 31, 2006 47,827,350 173,282 - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Class C Total
No. of Amount No. of Amount
shares $ shares $
-------------------------------------------------------------------------
Balance, March 31, 2004 3,809,524 10,000 30,561,006 61,292
Shares issued for cash 442,100 1,536 1,339,554 5,104
Shares cancelled - - (95,826) (186)
Shares issued on
conversion of Class 4
preferred shares Series A - - 82,816 190
Shares issued on
conversion of
convertible debentures - - 7,378,660 20,357
Exchange into
common shares(1) (4,251,624) (11,536) - -
Shares issued in
connection with initial
public offering(2) - - 6,829,268 66,170
Shares issued for cash(3) - - 33,790 134
-------------------------------------------------------------------------
Balance, March 31, 2005 - - 46,129,268 153,061
Shares issued for cash - - 691,940 6,574
Shares issued in
connection with
acquisitions - - 1,420,342 15,022
Shares cancelled - - (414,200) (1,375)
-------------------------------------------------------------------------
Balance, March 31, 2006 - - 47,827,350 173,282
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Pursuant to an order obtained on June 22, 2004 from the Supreme Court
of British Columbia, a capital reorganization which included the
creation of a class of common shares and the exchange of all Class B
and C common shares for common shares was approved.
(2) Net of share issue costs. Final costs were $3.8 million.
(3) Sale of shares held by a subsidiary in the group.
Pursuant to the Company's normal course issuer bid, as approved by the
Toronto Stock Exchange, the Company was entitled to acquire up to
2,306,463, or 5.0%, of its shares from December 29, 2004 to December 28,
2005. Under the normal course issuer bid, the Company has purchased for
resale a total of 222,548 common shares between December 29, 2004 and
March 31, 2005 and purchased for cancellation 414,200 common shares
during the twelve months ended March 31, 2006 with a book value of
$1.3 million for aggregate cash consideration of $4.6 million. The excess
has been recorded to contributed surplus and retained earnings.
The Company has renewed its normal course issuer bid and is entitled to
acquire from December 29, 2005 to December 28, 2006, up to 2,324,233 of
its shares, which represents 5% of its shares outstanding as of
December 20, 2005. There were no share transactions under the NCIB
between December 20, 2005 and March 31, 2006.
Preferred shares Class 4 Series A
No. of Amount
shares $
-------------------------------------------------------------------------
Balance, March 31, 2004 190,477 190
Exchange into common shares(1) (190,477) (190)
-------------------------------------------------------------------------
Balance, March 31, 2005 and 2006 - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Pursuant to an order obtained on June 22, 2004 from the Supreme Court
of British Columbia, a capital reorganization which included the
creation of a class of common shares and the exchange of all
preferred shares for common shares was approved.
(iii) Excess on redemption of common shares
The excess on redemption of common shares represents amounts paid to
shareholders, by the Company and its subsidiaries, on redemption of their
shares in excess of the book value of those shares at the time of
redemption. The excess on redemption of common shares has been charged
against contributed surplus ($0.5 million) and retained earnings
($2.8 million).
For the three For the twelve
months ended months ended
---------------------- ----------------------
March 31, March 31, March 31, March 31,
2006 2005 2006 2005
$ $ $ $
-------------------------------------------------------------------------
Redemption price - - 4,631 379
Book value - - 1,375 186
-------------------------------------------------------------------------
Excess on redemption
of common shares - - 3,256 193
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(iv) Distribution of acquired common shares
On November 24, 2005, the Company repurchased 132,000 common shares from
departed employees at cost for total cash consideration of $0.5 million.
These shares were subsequently distributed to existing employees at an
average market price of $14.00 per share for total cash proceeds of
$1.8 million. This excess on distribution of $1.3 million has been
credited to contributed surplus.
Contributed Surplus
$
-------------------------------------------------------------------------
Balance, March 31, 2005 898
Unvested share purchase loans 3,186
Excess on redemption of common shares (460)
Excess on distribution of acquired common shares 1,315
-------------------------------------------------------------------------
Balance, March 31, 2006 4,939
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(v) Earnings per share
For the three For the twelve
months ended months ended
---------------------- ----------------------
March 31, March 31, March 31, March 31,
2006 2005 2006 2005
$ $ $ $
-------------------------------------------------------------------------
Basic earnings per share
Net income for the period 30,070 17,307 81,150 48,579
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number of
common shares (number) 45,716,195 45,352,770 44,606,134 41,634,920
Basic earnings per
share ($) 0.66 0.38 1.82 1.17
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings per share
Net income for the period 30,070 17,307 81,150 48,579
Income effect of
convertible debentures - - - 282
-------------------------------------------------------------------------
Adjusted net income
for the period 30,070 17,307 81,150 48,861
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number
of common shares
(number) 45,716,195 45,352,770 44,606,134 41,634,920
Dilutive effect of
convertible debentures
(number) - - - 1,817,000
Dilutive effect of
preferred shares (number) - - - 20,420
Dilutive effect of
unvested shares (number) 1,804,541 715,957 1,903,119 715,957
Dilutive effect of
stock-based compensation
plans (number) (note 9) 324,846 - 190,051 -
-------------------------------------------------------------------------
Adjusted weighted average
number of common shares
(number) 47,845,582 46,068,727 46,699,304 44,188,297
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings per
share ($) 0.63 0.38 1.74 1.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
9. STOCK-BASED COMPENSATION PLANS
Retention Plans
As described under Notes 6(i) and 6(ii), in connection with the
acquisitions of Enermarket and Adams Harkness, the Company established
two retention plans.
The plan for Enermarket consists of the issuance of up to 25,210 common
shares of the Company which will be paid after a two year vesting period.
The plan for Adams Harkness provides for the issuance of up to 1,118,952
common shares of the Company after a three year vesting period. The total
number of shares which will vest is also based on revenue earned by
Canaccord Adams Inc. during the vesting period. The aggregate number of
common shares which vest will be that number which is equal to the
revenue earned by Canaccord Adams Inc. during the vesting period divided
by US$250.0 million multiplied by 1,118,952 subject to the maximum of
1,118,952 common shares adjusted for forfeitures and cancellations. As
such revenue levels are achieved during the vesting period, the
associated proportion of the retention payment will be recorded as a
development cost and the applicable number of retention shares will be
included in diluted common shares outstanding (Note 8(v)).
Employee Treasury Stock Purchase Plan
In August 2005 the Company established an employee treasury stock
purchase plan under which the Company made a forgivable loan to an
employee for the purpose of paying 40% of the aggregate purchase price of
common shares of the Company issued from treasury. A repayable loan in
the amount of 35% of the aggregate purchase price of the common shares
was also made to the employee. Subject to continued employment one-third
of the number of common shares purchased utilizing the forgivable loan
portion of the aggregate purchase will vest on each anniversary of the
date of the purchase and the forgivable loan portion related to amounts
vested will be forgiven. The applicable number of shares under this
employee treasury stock purchase plan will be included in diluted common
shares outstanding (Note 8(v)).
The following table details the activity under the Company's retention
plans and employee treasury stock purchase plan:
For the three For the twelve
months ended months ended
---------------------- ----------------------
March 31, March 31, March 31, March 31,
2006 2005 2006 2005
---- ---- ---- ----
Number of common shares
subject to the Enermarket
retention plan:
Beginning of period 25,210 - - -
Grants - - 25,210 -
-------------------------------------------------------------------------
End of period 25,210 - 25,210 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Number of common shares
subject to the Adams
Harkness retention plan:
Beginning of period - - - -
Grants 1,118,952 - 1,118,952 -
Forfeitures (72,733) - (72,733) -
-------------------------------------------------------------------------
End of period 1,046,219 - 1,046,219 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Number of common shares
subject to the employee
treasury stock purchase
plan:
Beginning of period 276,776 - - -
Issued - - 276,776 -
-------------------------------------------------------------------------
End of period 276,776 - 276,776 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Under the fair value method the aggregate cost of the grants made under
the retention plans are estimated to be $12.0 million - $0.3 million
relating to Enermarket and $11.7 million (US$10.0 million) for Adams
Harkness. The cost of the retention plans will be recognized in the
financial statements of the Company in accordance with the vesting terms
of the respective plans.
The forgivable loan amount in respect of the common shares issued under
the employee treasury stock purchase plan is $2.6 million. This amount
will be recognized in the financial statements of the Company over the
vesting period on a straight-line basis.
10. RELATED PARTY TRANSACTIONS
Security trades executed by the Company for employees, officers and
shareholders are transacted in accordance with the terms and conditions
applicable to all clients. Commission income on such transactions in the
aggregate is not material in relation to the overall operations of the
Company.
Accounts receivable and accounts payable and accrued liabilities include
the following balances with related parties:
March 31, March 31,
2006 2005
$ $
-------------------------------------------------------------------------
Accounts receivable 34,582 31,698
Accounts payable and accrued liabilities 88,506 54,691
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. SEGMENTED INFORMATION
The Company has two operating segments:
Private Client Services - provides brokerage services and investment
advice to retail or private clients in Canada.
Canaccord Adams - includes investment banking, research and trading
activities on behalf of corporate, institutional and government
clients as well as principal trading activities in Canada, the United
Kingdom and the United States of America.
Corporate and Other includes correspondent brokerage services, interest
and foreign exchange revenue and expenses not specifically allocable to
Private Client Services and Canaccord Adams.
The Company's industry segments are managed separately because each
business offers different services and requires different personnel and
marketing strategies. The Company evaluates the performance of each
business based on income (loss) before income taxes.
The Company does not allocate total assets or equipment and leasehold
improvements to the segments. Amortization is allocated to the segments
based on square footage occupied. There are no significant inter-segment
revenues.
For the three months ended March 31,
2006 2005
------------------------------------------------------------------
Private Corporate Private Corporate
Client Canaccord and Client Canaccord and
Services Adams Other Total Services Adams Other Total
$ $ $ $ $ $ $ $
-------------------------------------------------------------------------
Revenues 78,422 120,243 8,409 207,074 56,391 81,444 5,094 142,929
Expenses 54,107 83,601 20,377 158,085 38,621 60,517 15,411 114,549
Amortiz-
ation 462 800 707 1,969 318 331 303 952
Development,
restruct-
uring
and other
costs 1,416 1,041 1,108 3,565 808 234 959 2,001
-------------------------------------------------------------------------
Income
(loss)
before
income
taxes 22,437 34,801 (13,783) 43,455 16,644 20,362 (11,579) 25,427
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the twelve months ended March 31,
2006 2005
------------------------------------------------------------------
Private Corporate Private Corporate
Client Canaccord and Client Canaccord and
Services Adams Other Total Services Adams Other Total
$ $ $ $ $ $ $ $
-------------------------------------------------------------------------
Revenues 225,194 333,666 24,555 583,415 178,176 239,654 14,948 432,778
Expenses 158,235 228,534 63,002 449,771 123,619 171,849 53,445 348,913
Amortiz-
ation 1,439 1,910 1,468 4,817 1,087 1,204 894 3,185
Development,
restruct-
uring and
other
costs 4,302 1,239 4,256 9,797 2,798 682 4,444 7,924
-------------------------------------------------------------------------
Income
(loss)
before
income
taxes 61,218 101,983 (44,171) 119,030 50,672 65,919 (43,835) 72,756
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Company's business operations are grouped into three geographic
segments as follows:
For the three For the twelve
months ended months ended
---------------------- ----------------------
March 31, March 31, March 31, March 31,
2006 2005 2006 2005
$ $ $ $
------------------------------------------------- ----------------------
Canada
Revenue 145,194 110,094 437,409 316,688
Net income 17,406 11,193 49,442 28,211
Equipment and leasehold
improvements 21,635 11,888 21,635 11,888
Goodwill and other
intangible assets 4,584 - 4,584 -
United States
Revenue 20,106 - 20,106 -
Net income 1,716 - 1,716 -
Equipment and leasehold
improvements 2,576 - 2,576 -
Goodwill and other
intangible assets 23,345 - 23,345 -
United Kingdom
Revenue 41,774 32,835 125,900 116,090
Net income 10,948 6,114 29,992 20,368
Equipment and leasehold
improvements 1,539 1,862 1,539 1,862
------------------------------------------------- ----------------------
------------------------------------------------- ----------------------
12. CONTINGENCIES
During the period, there have been no material changes to the Company's
contingencies from those described in note 16 of the March 31, 2005
Audited Annual Consolidated Financial Statements.
13. GAIN ON DISPOSAL OF INVESTMENT
During the three months ended June 30, 2005, the Company recognized a
gain of $1.6 million from the sale of its investment in shares of the
Bourse de MontrDeal.
14. SUBSEQUENT EVENT
Dividend
On May 16, 2006, the Board of Directors declared a common share dividend
of $0.08 per share payable on June 9, 2006, with a record date of
May 26, 2006.
15. CANADIAN AND INTERNATIONAL FINANCIAL REPORTING STANDARDS DIFFERENCES
These consolidated financial statements have been prepared in accordance
with Canadian GAAP with respect to interim financial statements. In
certain respects, International Financial Reporting Standards ("IFRS")
adopted by the International Accounting Standards Board differ from those
applied in Canada.
If IFRS were employed, there would be no material adjustment to net
income or earnings per share and consolidated shareholders' equity of the
Company for the twelve months ended March 31, 2006 and 2005.
The area of material difference between GAAP and IFRS and its impact on
the consolidated financial statements of the Company is in the
consolidated statement of changes in shareholders' equity. IFRS requires
the inclusion of a consolidated statement of changes in shareholders'
equity for each statement of income year, as follows:
March 31, March 31,
2006 2005
$ $
-------------------------------------------------------------------------
ISSUED AND PAID SHARE CAPITAL
Common shares
Balance at the beginning of the year 153,061 61,292
Shares issued for cash 6,574 5,104
Shares cancelled (1,375) (186)
Shares issued on conversion of Class 4 preferred
shares Series A - 190
Shares issued on conversion of serial debentures - 20,357
Shares issued in connection with initial public offering - 66,170
Shares issued for cash - 134
Shares issued in connection with acquisitions 15,022 -
-------------------------------------------------------------------------
Balance at the end of the year 173,282 153,061
-------------------------------------------------------------------------
Unvested share purchase loans
Balance at the beginning of the year (2,929) (1,514)
Movements during the year (17,648) (1,415)
-------------------------------------------------------------------------
Balance at the end of the year (20,577) (2,929)
-------------------------------------------------------------------------
Preferred shares
Balance at the beginning of the year - 190
Exchange into common shares - (190)
-------------------------------------------------------------------------
Balance at the end of the year - -
-------------------------------------------------------------------------
Contributed surplus
Balance at the beginning of the year 898 441
Movements during the year 4,041 457
-------------------------------------------------------------------------
Balance at the end of the year 4,939 898
-------------------------------------------------------------------------
157,644 151,030
-------------------------------------------------------------------------
-------------------------------------------------------------------------
March 31, March 31,
2006 2005
$ $
-------------------------------------------------------------------------
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at the beginning of the year (1,383) 265
Movements during the year (4,894) (1,648)
-------------------------------------------------------------------------
Balance at the end of the year (6,277) (1,383)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
RETAINED EARNINGS
Balance at the beginning of the year 72,564 38,013
Net income for the year 81,150 48,579
Excess on redemption of common shares (2,796) (193)
Cash dividends (14,455) (13,835)
-------------------------------------------------------------------------
Balance at the end of the year 136,463 72,564
-------------------------------------------------------------------------
16. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the
fiscal 2006 annual financial statement presentation.
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