GMP Capital Inc. reports fourth quarter and year-end 2016 results

  • Earned net income of $3.2 million and diluted earnings per share of $0.03 in fourth quarter, revenues increased 85%
  • Fourth quarter adjusted diluted earnings per share1 of $0.07 including meaningful contribution from GMP FirstEnergy

For further information about GMP Capital Inc., our results for fourth quarter and year-end 2016 and the meaning of certain references, this earnings release should be read in conjunction with our annual financial statements as at and for the year ended December 31, 2016 (2016 Annual Financial Statements), our management's discussion and analysis for the year ended December 31, 2016 (2016 Annual MD&A) and our annual information form, which can be accessed on our website at gmpcapital.com and on SEDAR at sedar.com. Unless otherwise indicated, all dollar amounts are expressed in Canadian dollars and have been taken from our 2016 Annual Financial Statements prepared in accordance with generally accepted accounting principles (GAAP) under International Financial Reporting Standards (IFRS).

TORONTO, March 3, 2017 /CNW/ - GMP Capital Inc. (GMP) (TSX: GMP) today reported revenue of $65.2 million in fourth quarter 2016 representing an 85% increase relative to the same period a year ago. GMP recorded net income of $3.2 million and diluted earnings per share (EPS) of $0.03 in fourth quarter 2016 compared with a net loss of $15.6 million and diluted loss per share of $0.26 in fourth quarter 2015. Adjusted EPS1 was $0.07 in fourth quarter 2016 compared with an adjusted diluted loss per share1 of $0.21 in the prior year quarter. "GMP benefited from a solid rebound in client activity in fourth quarter 2016 with a strong performance in our advisory franchise driving a 230% rise in investment banking fees compared with fourth quarter 2015," said Harris Fricker, President and Chief Executive Officer, GMP. "We are encouraged by our financial results this quarter which included an impressive contribution from GMP FirstEnergy and demonstrate the powerful  leverage we've embedded into our business over the last year." Fourth quarter 2015 results included pre-tax expenses of $21.5 million recorded in connection with the restructuring of the Capital Markets segment.

Full year revenue was $196.1 million in 2016, down 12% compared with 2015.  GMP recorded a net loss of $11.6 million and a diluted loss per share of $0.24 in 2016 compared with a net loss of $30.1 million and a diluted loss per share of $0.52 in 2015.  Adjusted net income1 was $5.5 million in 2016, generating an adjusted EPS of $0.01 compared with an adjusted net loss1 of  $20.4 million and adjusted diluted loss per share of $0.37 in 2015. Commenting further, Mr. Fricker said, "Operating conditions remained daunting in 2016 as a volatile and uncertain market environment, particularly in the first half of the year, weighed on client activity levels and, in turn, our financial performance. Over the last year we have carefully reviewed all aspects of our business, substantially reduced fixed costs and transformed our energy franchise. And with the integration of GMP FirstEnergy substantially complete, these efforts deliver an operationally lean firm focused on helping our clients manage through these uncertain times."

FINANCIAL HIGHLIGHTS

Fourth Quarter 2016 versus Fourth Quarter 2015

  • Revenue of $65.2 million compared with $35.3 million.
  • Net income of $3.2 million compared with net loss of $15.6 million.
  • On an adjusted basis1, net income of $6.9 million compared with net loss of $12.4 million.
  • EPS of $0.03 compared with diluted loss per share of $0.26.
  • Adjusted EPS of $0.07 compared with adjusted diluted loss per share of $0.21.
  • Annualized return on equity(ROE)1 was 4.0% compared with negative 29.4%.
  • Adjusted ROE1 was 10.2% compared with negative 23.4%.

2016 versus 2015

  • Revenue of $196.1 million compared with $221.8 million.
  • Net loss of $11.6 million compared with net loss of $30.1 million.
  • On an adjusted basis1, net income of $5.5 million compared with net loss of $20.4 million.
  • Diluted loss per share of $0.24 compared with a diluted loss per share of $0.52.
  • Adjusted EPS of $0.01 compared with adjusted diluted loss per share of $0.37.
  • ROE of negative 7.4% compared with negative 14.0%.
  • Adjusted ROE of 0.4% compared with negative 10.0%.

1.

Considered to be a non-GAAP financial measure. This measure does not have any standardized meaning prescribed by GAAP under IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers. This data should be read in conjunction with the "Non-GAAP Measures" section at the end of this press release and the "Presentation of Financial Information and Non-GAAP Measures" section in the 2016 Annual MD&A.   

 

FOURTH QUARTER 2016 BUSINESS SEGMENT FINANCIAL RESULTS

CAPITAL MARKETS

($000, except as otherwise noted)

Fourth
Quarter
2016


Fourth
Quarter
2015


%
increase/

(decrease)


2016


2015


%
increase/

(decrease)

Revenue

62,363


32,882


90


185,513


211,153


(12)


Investment banking

38,155


11,571


230


100,866


118,220


(15)


Commissions

14,020


9,154


53


44,628


46,375


(4)


Principal transactions

5,990


8,266


(28)


32,498


32,468



Interest

2,057


1,895


9


5,885


8,234


(29)


Other

2,141


1,996


7


1,636


5,856


(72)

Expenses

49,763


64,757


(23)


181,583


239,556


(24)


Employee compensation and benefits

35,105


47,158


(26)


126,456


177,327


(29)


Selling, general and administrative

12,962


15,072


(14)


47,811


55,082


(13)


Interest

1,007


987


2


2,743


3,345


(18)


Depreciation and amortization

689


1,540


(55)


4,573


3,802


20

Income (loss) before income taxes - reported

12,600


(31,875)


140


3,930


(28,403)


114

Pre-tax impact of adjusting items








Restructuring and related charges


21,521


(100)


13,181


21,521


(39)


Amortization of intangible asset

217



n.m.


217



n.m.


Retention Shares





435


(100)

Income (loss) before income taxes - adjusted1

12,817


(10,354)


224


17,328


(6,447)


369













n.m. = not meaningful












 

Fourth Quarter 2016 vs Fourth Quarter 2015

Revenue
Revenue of $62.4 million increased 90% compared with fourth quarter 2015 largely due to a tripling of investment banking fees. 

  • Investment banking revenue of $38.2 million increased 230% primarily driven by robust advisory activity.
  • Commission revenue of $14.0 million increased 53% reflecting strong contribution from GMP FirstEnergy.
  • Principal transactions generated a net gain of $6.0 million compared with $8.3 million on lower revenues from the U.S. fixed income business.

Expenses
Expenses of $49.8 million decreased 23% compared with fourth quarter 2015 which included a $21.5 million charge related to restructuring and related costs.

  • Excluding the restructuring charge in the prior year quarter, fourth quarter 2016 fixed costs decreased, reflecting the operating leverage embedded into our business over the last year.
  • Employee compensation and benefits elevated by higher variable compensation commensurate with revenue generation and includes $3.5 million in share-based compensation expense recorded in connection with the acquisition of GMP FirstEnergy.

Income (loss) before income taxes

  • Income before income taxes of $12.6 million compared with loss before income taxes of $31.9 million.
  • Adjusted income before income taxes of $12.8 million compared with adjusted loss before income taxes of $10.4 million.

WEALTH MANAGEMENT

($000, except as otherwise noted)

Fourth
Quarter
2016


Fourth
Quarter
2015


% increase/

(decrease)


2016


2015


% increase/

(decrease)

Revenue

10


26


(62)


43


1,888


(98)

Expenses

22


86


(74)


80


3,078


(97)


Employee compensation and benefits





1,871


(100)


Non-compensation expenses

22


86


(74)


80


1,207


(93)

Share of net (loss) income of associate

(889)


14,170


(106)


374


13,424


(97)

(Loss) income before income taxes - reported

(901)


14,110


(106)


337


12,234


(97)


Richardson GMP deferred tax asset


(15,747)


100



(15,747)


100


Wind-down of CQI fund operations





898


(100)

(Loss) income before income taxes - adjusted1

(901)


(1,637)


45


337


(2,615)


113

 

Fourth Quarter 2016 vs Fourth Quarter 2015

  • Wealth Management reported loss before income taxes of $0.9 million compared with income before income taxes of $14.1 million.
  • Financial performance in the prior year quarter primarily reflects Richardson GMP's recognition of a deferred tax asset and the resulting impact on our share of net income of associate.

Richardson GMP Highlights:

The following information sets forth an overview of the consolidated financial results of Richardson GMP, on a 100% basis; noting, however, that GMP owns an approximate 31% non-controlling interest of Richardson GMP as at December 31, 2016.

Fourth Quarter 2016 vs Fourth Quarter 2015

  • Revenue increased 11% to $73.4 million primarily driven by higher management fees and client trading commissions.
  • Adjusted EBITDA2 increased 88% to $8.4 million.
  • AUA of $29.4 billion increased 12%, administered by 199 advisor teams, average AUA per team of nearly $150 million.


2.

Considered to be a non-GAAP financial measure. This data should be read in conjunction with the "Supplemental Information" section at the end of this press release and in the 2016 Annual MD&A. 

 

2016 FINANCIAL HIGHLIGHTS

Selected Financial Information

($000, except as otherwise noted)

2016


2015


 %
increase/
(decrease)

Revenue

196,095


221,753


(12)


Investment banking

100,866


118,220


(15)


Commissions

44,628


46,375


(4)


Principal transactions

32,035


29,437


9


Interest

6,565


8,930


(26)


Other

12,001


18,791


(36)

Expenses

205,574


261,846


(21)


Employee compensation and benefits

136,977


185,100


(26)


Non-compensation expenses

68,597


76,746


(11)

Share of net income of associate

374


13,424


(97)

Loss before income taxes

(9,105)


(26,669)


66

Net loss

(11,647)


(30,115)


61







Net loss attributable to common shareholders:

(16,213)


(34,388)


53

Net loss per Common Share (dollars)








Basic

(0.24)


(0.52)


54



Diluted

(0.24)


(0.52)


54

Cash dividends declared per Common Share (dollars)


0.20


(100)

ROE1

(7.4)%


(14.0)%


47

Total assets

2,005,036


1,801,575


11

Adjusted measures1







Income (loss) before income taxes

10,684


(15,954)


167


Net income (loss)

5,460


(20,425)


127


Net income (loss) per Common Share (dollars):








Basic

0.01


(0.37)


103



Diluted

0.01


(0.37)


103


ROE

0.4%


(10.0)%


104

 

2016 vs. 2015

GMP reported a net loss of $11.6 million in 2016 compared with a net loss of $30.1 million in 2015.  On an adjusted basis, 2016 net income was $5.5 million compared with a net loss of $20.4 million in 2015.  The improved financial performance was primarily driven by lower expenses following initiatives undertaken over the last year to reduce fixed costs, highlighting the increased operating leverage embedded in our business.

Total revenues decreased 12% in 2016 compared with 2015 primarily due to lower investment banking fees which declined 15% on lower client M&A. Investment banking fees related to advisory mandates decreased 24% compared with the prior year due to anemic client activity in the second and third quarters. We experienced a rebound in client activity in fourth quarter 2016 particularly in the energy and mining sectors. Commissions declined moderately on lower client trading activity. Other income in the prior year reflects $1.8 million in dividends received in connection with our preferred share investments in Richardson GMP as well as higher foreign exchange gains.

Total expenses decreased 21% in 2016 compared with 2015, primarily reflecting efficiency gains from restructuring initiatives undertaken over the last year which significantly reduced fixed costs.  Reduced expenses also reflect the expiration of certain guaranteed compensation arrangements in our former U.S. energy business. Expenses in 2016 included $15.1 million in restructuring and related charges and $3.5 million related to the Transaction shares. We recorded $21.5 million in restructuring charges in 2015.

Share of net income (loss) of associate reflects our share of Richardson GMP's net income (loss) attributable to common shareholders. In 2015, Richardson GMP recognized a deferred tax asset that added $15.7 million to our share of Richardson GMP's net income. For more information on Richardson GMP's financial performance, refer to the "Supplemental Information" section within this MD&A.


DIVIDENDS

On March 2, 2017, the board of directors of GMP approved a quarterly cash dividend of $0.2257 per Cumulative 5-Year Rate Reset Preferred Share, Series B, and  $0.2095 per Cumulative Floating Rate Preferred Shares, Series C, each payable on March 31, 2017, to preferred shareholders of record on March 15, 2017.


CONFERENCE CALL

A conference call and live audio webcast to discuss GMP's fourth quarter and fiscal 2016 results will be held this morning at 10:00 a.m. (ET).  GMP executives will host the call followed by a question-and-answer session for analysts and institutional investors.  Interested parties are invited to access the quarterly conference call on a listen-only basis by dialing 416-340-2218 or 1-800-396-7098 (toll free) or via live audio webcast at http://www.gmpcapital.com/investor. A recording of the conference call will be available until Friday, March 10, 2017, by dialing 905-694-9451 or 1-800-408-3053 (toll free). The passcode is 1814050#. The webcast will be archived at http://www.gmpcapital.com/investor.


NON-GAAP MEASURES

We use certain measures to assess our financial performance that are not GAAP measures under IFRS. These measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of GMP's performance, liquidity, cash flows and profitability. For further information, refer to  the "Presentation of Financial Information and Non-GAAP Measures" section in the 2016 Annual MD&A.

The following table provides a reconciliation of GMP's reported results to its adjusted measures including the composition of the adjusted measures for the periods presented.

($000, except as otherwise noted)

2016


2015


Fourth
Quarter 2016


Fourth
Quarter 2015

Reported Results



(Loss) income before income taxes

(9,105)


(26,669)


5,692


(19,915)

Net (loss) income

(11,647)


(30,115)


3,234


(15,615)

Net (loss) income attributable to common shareholders

(16,213)


(34,388)


2,208


(17,052)

Reported Measures



Net (loss) income per Common Share (dollars):



  Basic

(0.24)


(0.52)


0.03


(0.26)

  Diluted

(0.24)


(0.52)


0.03


(0.26)

ROE 1

(7.4)%


(14.0)%


4.0%


(29.4)%

Pre-Tax Impact of Adjusting Items:




Restructuring and related charges

15,106


21,521



21,521


Transaction Shares

3,521



3,521



Amortization of intangible asset

217



217



Bond forward unrealized losses

945


3,608



576


Richardson GMP deferred tax asset


(15,747)



(15,747)


Retention Shares


435




Wind-down of fund operations


898



Impact of adjusting items on (loss) income before income taxes

19,789


10,715


3,738


6,350

After-Tax Impact of Adjusting Items:




Restructuring and related charges

12,716


18,507



18,507


Transaction Shares

3,521



3,521



Amortization of intangible asset

174



174



Bond forward unrealized losses

696


2,658



423


Richardson GMP deferred tax asset


(15,747)



(15,747)


Retention Shares


242




Wind-down of fund operations


662




Deferred tax asset write-down


3,368



Impact of adjusting items on net (loss) income

17,107


9,690


3,695


3,183

Adjusted Results 1



Income (loss) before income taxes

10,684


(15,954)


9,430


(13,565)

Net income (loss)

5,460


(20,425)


6,929


(12,432)

Net income (loss) attributable to common shareholders

894


(24,698)


5,903


(13,869)

Adjusted Measures 1



Net income (loss) per Common Share (dollars):



Basic

0.01


(0.37)


0.08


(0.21)

Diluted

0.01


(0.37)


0.07


(0.21)

ROE

0.4%


(10.0)%


10.2%


(23.4)%

 

SUPPLEMENTAL INFORMATION

The following supplemental information reflects how management of Richardson GMP assesses the financial performance of Richardson GMP.

Supplemental Financial Information - Richardson GMP

Richardson GMP's management assesses performance on both a reported and an adjusted basis and considers both bases to be useful in assessing underlying, ongoing business performance. Presenting results on both bases also permits readers to assess the impact of specified items on financial results. Richardson GMP's management uses certain measures to assess the financial performance of Richardson GMP that are not GAAP measures under IFRS. EBITDA and adjusted EBITDA do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. These Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of Richardson GMP's performance, liquidity, cash flows and profitability. Richardson GMP's management believes adjusting results by excluding the impact of the specified items is more reflective of ongoing financial performance and cash generating capabilities and provides readers with an enhanced understanding of how management views Richardson GMP's core performance. For further information, refer to the "Supplemental Information" section in the  2016 Annual MD&A.

The following table sets forth an overview of the consolidated financial results of Richardson GMP for the periods indicated, on a 100% basis; noting, however, that GMP owns an approximate 31% non-controlling interest of Richardson GMP as at December 31, 2016.

($000, except as otherwise noted)

Fourth
Quarter
2016

Fourth
Quarter
2015


 

%

increase/

(decrease)


2016


2015


%

increase/

(decrease)

Revenue

73,372


66,224


11


274,186


271,057


1

Expenses

70,162


69,571


1


261,516


271,457


(4)

Employee compensation and benefits

48,307


47,002


3


186,963


188,001


(1)

Non-compensation expenses

21,855


22,569


(3)


74,553


83,456


(11)

Income tax expense (recovery)

4,329


(51,468)


108


4,329


(51,468)


108

Net income - reported

(1,119)


48,121


n.m.


8,341

51,068


(84)

Pre-tax impact of adjusting items:


   Interest

802


731


10


3,216


5,364


(40)

   Income tax benefit

4,329


(51,468)


n.m.


4,329

(51,468)


n.m.

   Depreciation and amortization

1,300


1,641


(21)


5,280


6,233


(15)

   Transition assistance loan amortization

2,632


4,071


(35)


13,278


14,600


(9)

EBITDA1

7,944


3,096


157


34,444


25,797


34

   Share-based compensation

444


1,370


(68)


2,343


5,091


(54)

Adjusted EBITDA1

8,388


4,466


88


36,787


30,888


19

Number of advisory teams

199


192


4


AUA at period-end ($ millions)

29,397


26,332


12


 n.m. = not meaningful







 

1.

  Considered to be a non-GAAP financial measure. This data should be read in conjunction with the "Supplemental Information" section in the 2016 Annual MD&A.     

 

FORWARD-LOOKING INFORMATION

This press release contains "forward-looking information" as defined under applicable Canadian securities laws.   This information includes, but is not limited to, statements concerning our objectives, our strategies to achieve those objectives, as well as statements made with respect to management's beliefs, plans, estimates, projections and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Specifically, this press release contains forward-looking information concerning GMP's response to industry conditions, expectations regarding operating leverage, actions ensuring feasibility and enhanced competitive positioning. Forward-looking information generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "should", "plans" or "continue", or similar expressions suggesting future outcomes or events. Such forward-looking information reflects management's current beliefs and is based on information currently available to management.

Forward-looking information is not a guarantee of future performance and is subject to numerous risks and uncertainties, including those described in this press release. GMP's primary business activities are both competitive and subject to various risks. These risks include market, credit, liquidity, operational and legal and regulatory risks and other risk factors including, without limitation: variation in the market value of securities, volatility and liquidity of equity and fixed income trading markets, volume of new financings and mergers and acquisitions,  dependence on key personnel and sustainability of fees. Other factors, such as general economic conditions, including interest rate and exchange rate fluctuations, may also have an effect on GMP's results of operations. Many of these risks and uncertainties can affect GMP's actual results and could cause its actual results to differ materially from those expressed or implied in any forward-looking information disclosed by management or on its behalf.  For a description of additional risks that could cause our actual results to materially differ from our current expectations, see "Risk Management"  and "Risk Factors" in the 2016 Annual MD&A and "Risk Factors" in GMP's annual information form. These risks and uncertainties are not the only ones facing GMP together with its consolidated operations controlled by it and its predecessors (GMP Group).  Additional risks and uncertainties not currently known to us or that we currently consider immaterial may also impair the operations of the GMP Group.  Material assumptions or factors underlying the forward-looking information contained in this press release include, but are not limited to, "Business Environment - 2016 Highlights - Outlook", and "Liquidity and Capital Resources" sections of the 2016 Annual MD&A. Although forward-looking information contained in this press release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with this forward-looking information. Certain statements included in this press release may be considered a "financial outlook" for purposes of applicable Canadian securities laws, and as such the financial outlook may not be appropriate for purposes other than this press release. The forward-looking information contained in this press release is made as of the date of this press release, and should not be relied upon as representing GMP's views as of any date subsequent to the date of this press release. Except as required by applicable law, management and GMP's Board of Directors undertake no obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

ABOUT GMP CAPITAL INC.

GMP is a leading independent diversified financial services firm headquartered in Toronto, Canada, providing a wide range of financial products and services to a global client base that includes corporate clients, institutional investors and high-net-worth individuals in two integrated reporting segments. The Capital Markets segment provides investment banking, including advisory and underwriting services, institutional sales and trading and research through offices in Canada, the United States, the United Kingdom, Bahamas and Asia. Wealth Management consists of GMP's non-controlling ownership interest in Richardson GMP Limited. Richardson GMP Limited, Canada's largest independent wealth management firm, is focused on providing exclusive and comprehensive wealth management and investment services delivered by an experienced team of investment professionals. GMP is listed on the Toronto Stock Exchange under the symbol "GMP". For further information, please visit our corporate website at gmpcapital.com.

SOURCE GMP Capital Inc.

For further information: GMP Capital Inc., Rocco Colella, Director, Investor Relations, 145 King Street West, Suite 300, Toronto, Ontario M5H 1J8, Tel: (416) 941-0894; Fax: (416) 943-6175, rcolella@gmpcapital.com or investorrelations@gmpcapital.com


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