For further information about GMP Capital Inc., our results for fiscal 2011 and the meaning of certain references, this earnings release should be
read in conjunction with our 2011 Annual Financial Statements and Management’s Discussion and Analysis for the year ended December 31, 2011
and our 2011 Annual Information Form, which can be accessed on our website at gmpcapital.com and on sedar.com. Unless otherwise indicated,
all dollar amounts are expressed in Canadian dollars and have been taken from our 2011 Annual Financial Statements prepared in accordance
with International Financial Reporting Standards (“IFRS”).
Toronto, ON. (March 14, 2012) – GMP Capital Inc. (“GMP”) (TSX: GMP) today reported revenue of $72.7 million in
fourth quarter 2011, representing a 53% decrease compared with the same period a year ago primarily due to
weaker performance in our Capital Markets segment amid ongoing challenging market conditions. Net income was
$2.4 million ($0.02 per basic share) in fourth quarter 2011 compared with net income of $46.0 million ($0.55 per basic
share) in fourth quarter 2010, generating an annualized return on common shareholders’ equity (“ROE”)1 of 2.3% in
fourth quarter 2011.
GMP’s results for fourth quarter 2011 were affected by the following items of note aggregating to a negative impact of $0.03 per basic share:
• $1.7 million ($1.0 million after-tax) share-based compensation expense recorded in connection with the common shares of GMP (“Common Shares”) issued to certain key employees in connection with the acquisition of Miller Tabak Roberts Securities, LLC (“MTR”); and
• $1.3 million ($1.0 million after-tax) non-cash impairment charge relating to the intangible assets of EdgeStone Capital Partners, L.P. (“EdgeStone”).
“Our financial results in fourth quarter 2011 were adversely affected by the continued challenging market conditions which dominated much of the year,” said Harris Fricker, Chief Executive Officer, GMP. “Trading and underwriting activity in Capital Markets remained relatively muted this quarter although M&A advisory revenues were 59% highe rthan fourth quarter 2010. Results in Alternative Investments were impacted by lower performance fees and unrealized losses on our fund investments while our Wealth Management returns reflect lower results at Richardson GMP which was also impacted by the weaker capital markets activity. Although our financial performance was negatively affected by market conditions this quarter, we continued to focus on our clients and the prudent management of all aspects of our business. One of GMP’s greatest competitive advantages remains our proven ability to adapt and succeed in changing markets, and it is that ability that leaves me optimistic about our prospects for growth as we enter 2012.”
Revenue was $301.8 million for 2011, representing a year-over-year decrease of 33%. Net income was $29.1 million ($0.31 per basic share) compared with net income of $31.2 million ($0.30 per basic share) in 2010, generating a ROE1 of 7.3% for the year compared with 7.2% in 2010. Adjusted net income1 in fiscal 2011 was $35.0 million, adjusted earnings per basic share1 was $0.40, and adjusted ROE1 was 9.3%. Adjusted net income1 for fiscal 2010 was $107.7
million, adjusted earnings per basic share1 was $1.39, and adjusted ROE1 was 27.4%.
1 Considered to be a non-GAAP financial measure. This measure does not have any standardized meaning prescribed by generally accepted accounting principles (“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.
Fourth Quarter 2011 versus Fourth Quarter 2010
2011 versus 2010
Commenting further, Mr. Fricker said, “Our financial results do not reflect the many operational and strategic accomplishments achieved in 2011 and it’s here that I am most pleased with GMP’s resilience. In 2011, we accelerated the build out of our fixed income capabilities through the acquisition of Miller Tabak Roberts Securities, LLC and we continued our international expansion with further enhancements to our European capabilities and the launch of new operations in Australia. We strengthened our balance sheet and capital position through the issuance of preferred shares, the redemption of all outstanding long-term debt and the return of significant capital back to our shareholders under our normal course issuer bid. We believe that, collectively, these initiatives have made us stronger and better positioned to withstand prolonged economic headwinds, and have added notably to GMP’s global reach and product expertise to better serve a growing global client base. The success of our client-centric business model is made possible by the dedication of our professionals and I thank them for remaining focused on the needs of our clients during these challenging times.”
ANNUAL BUSINESS HIGHLIGHTS
• Advanced its international expansion strategy through the addition of several senior members to its team of professionals in London, England in the areas of sales and trading, research and investment banking;
• Leveraged its core capabilities and leadership in the mid-market resource sector through the launch of operations in Australia;
• Accelerated the build-out of its fixed income capabilities through the acquisition of MTR (subsequently renamed GMP Securities, LLC), which tangibly adds fixed income expertise to GMP’s overall client proposition;
• GMP Securities L.P. (“GMP Securities”) ranked sixth in the dollar value of common equity underwriting transactions completed in Canada for which we were lead or co-lead;2
• GMP Securities ranked sixth in Canada for equity block trading volumes on the Toronto Stock Exchange (“TSX”) and TSX Venture Exchange (“TSXV”), achieving a 6.8% market share;3 and
• GMP Securities participated in 196 underwriting transactions completed in Canada helping raise approximately $15.4 billion on behalf of clients, leading or co-leading 83 of these transactions4.
2 Source: FPinfomart as at February 6, 2012.
3 Source: CanadaEquity.com as at February 6, 2012.
4 Source: GMP Capital Inc. internal reports.
The Wealth Management segment is comprised of GMP’s non-controlling ownership interest in Richardson GMP Limited (“Richardson GMP”).
2011 business highlights for Richardson GMP include:
• finished 2011 with assets under administration (“AUA”)1 of $13.3 billion and 109 investment advisory teams;
• recorded its first annual profit despite challenging market conditions in 2011;
• ranked first overall in the annual Investment Executive Brokerage Report Card for the last two consecutive
• expanded its team of multi-disciplinary professionals located across Canada, enhancing the ability to provide clients with integrated tax and estate planning strategies.
During 2011, GMP Investment Management L.P. (“GMP Investment Management”):
• increased assets under management (“AUM”)1 by $145.4 million or 33%, ending the year with AUM1 of $589.0 million;
• launched the GMPIM Equity Opportunities Fund and the GMPIM Equity Opportunities Class F Fund (collectively, the “GMPIM Equity Funds”), quantitatively driven long/short investment funds focused on investing in North American equities;
• was appointed portfolio advisor to Diversified Alpha Fund II, a closed-end exchange traded fund; and
• generated a return of 9.8%4 in 2011 for the Canadian ABCP Fund LP, net of fees, making it one of the top performing credit funds in 2011, outperforming the Merrill Lynch High Yield Index which generated a return of 4.5%5 before fees in 2011.
5 Source: Bloomberg.
On March 13, 2012, the board of directors of GMP (the “Board of Directors”) declared a quarterly cash dividend of $0.10 per Common Share, and a quarterly cash dividend of $0.3438 per Cumulative 5-Year Rate Reset Preferred Share, Series B, each payable on March 31, 20126, to the respective shareholders of record on March 22, 2012.
6 In the event that the payment date is not a business day, such dividend shall be paid on the next succeeding day that is a business day.
NORMAL COURSE ISSUER BID RENEWED
During fiscal 2011, we purchased for cancellation 5,475,584 Common Shares at a weighted average price of $13.15 per share for an aggregate cost of $72.0 million under our normal course issuer bid. On March 13, 2012, the Board of Directors approved the renewal of GMP’s normal course issuer bid, which has been accepted by the TSX (“2012 NCIB”). As at February 29, 2012, GMP had 70,019,445 Common Shares outstanding. Under the 2012 NCIB, GMP may purchase for cancellation up to 4,862,583 Common Shares, representing 10% of the public float of 48,625,826 Common Shares on February 29, 2012, from time to time over the 12-month period commencing on March 16, 2012 and ending on the earlier of the date on which purchases under the 2012 NCIB have been completed and March 15, 2013.
Daily repurchases will be limited to 54,388 Common Shares, subject to certain prescribed exemptions, including block purchase exceptions. The daily repurchase limit represents 25% of the average daily trading volume of 217,554 Common Shares for the six-month period ended February 29, 2012 (excluding purchases we made under our normal course issuer bid). All purchases will be made in accordance with TSX requirements and the price which GMP will pay for any Common Shares acquired will be the prevailing market price of Common Shares at the time of acquisition. The actual number of Common Shares that may be purchased and the timing of any such purchases will be determined at GMP’s discretion, subject to the limitations referred to above. All purchases will be effected by GMP Securities through the facilities of the TSX and will be funded from GMP’s working capital. GMP believes that the purchase of outstanding Common Shares may at certain times enhance value to shareholders and in these circumstances, represents an appropriate use of funds.
QUARTERLY FINANCIAL HIGHLIGHTS
Fourth quarter 2011 revenue decreased $80.8 million or 53% to $72.7 million compared with fourth quarter 2010 primarily due to weaker revenue performance in the Capital Markets segment.
Capital Markets’ fourth quarter 2011 revenue decreased $64.5 million or 49% to $67.1 million amid unfavourable market conditions in fourth quarter 2011, which resulted in lower investment banking revenue, lower returns generated in client facilitation and principal activities and a decrease in commission revenue. In Alternative Investments, revenue decreased $16.7 million or 93% in fourth quarter 2011 primarily due to lower performance fees recorded in connection with funds managed by GMP Investment Management compared with fourth quarter 2010. Revenues were also impacted by negative mark to market valuation adjustments recorded on GMP’s investments in funds managed by GMP Investment Management and EdgeStone during fourth quarter 2011. Wealth Management reported a loss before income taxes of $0.7 million in fourth quarter 2011 compared with income before income taxes of $0.9 million in fourth quarter 2010 as weak capital market activity adversely impacted Richardson GMP’s commission revenue due to lower client trading volumes.
Expenses for GMP decreased $25.8 million or 28% in fourth quarter 2011 compared with fourth quarter 2010 driven by a decrease in employee compensation and benefits expense largely due to lower variable compensation recorded in the Capital Markets segment commensurate with weaker revenue generation. Non-compensation related expenses decreased $7.7 million or 31% in fourth quarter 2011 compared with fourth quarter 2010. Lower
selling, general and administrative expenses in the Capital Markets segment represented the majority of the overall decrease, with the Corporate segment also experiencing a decline.
GMP recorded net income of $2.4 million ($0.02 per basic share) in fourth quarter 2011 compared with net income of $46.0 million ($0.55 per basic share) in fourth quarter 2010. For fourth quarter 2011, GMP reported a ROE1 of 2.3% compared with a ROE1 of 49.2% in fourth quarter 2010. Fourth quarter 2011 adjusted net income1 was $4.3 million, adjusted earnings per basic share1 was $0.05, and adjusted ROE1 was 5.3%. Fourth quarter 2010 adjusted net income1 was $46.5 million, adjusted earnings per basic share1 was $0.55 and adjusted ROE1 was 49.7%.
QUARTERLY FINANCIAL PERFORMANCE – BY BUSINESS SEGMENT
For further details relating to segmented information see Note 28 to the 2011 Annual Financial Statements.
Capital Markets’ fourth quarter 2011 revenue decreased $64.5 million or 49% to $67.1 million compared with fourth quarter 2010. Investment banking revenue declined $25.5 million or 37% to $43.9 million compared with fourth quarter 2010 due to lower underwriting revenue which declined $32.5 million or 57% to $24.8 million in fourth quarter 2011. The decline in underwriting revenue reflects the continued challenging market conditions in fourth quarter 2011, which were in sharp contrast to robust activity in the comparable quarter of the prior year. During fourth quarter 2011, GMP Securities led or co-led 18 underwriting transactions completed in Canada having an aggregate dollar value of approximately $0.9 billion. Despite the unfavourable market conditions, M&A advisory revenue rose $7.0 million in fourth quarter 2011 compared with fourth quarter 2010.
Capital Markets generated net gains of $5.0 million in client facilitation and principal activities in fourth quarter 2011 compared with net gains of $26.5 million in fourth quarter 2010. This decrease reflects significantly lower gains recorded on our principal inventories and higher facilitation losses resulting from volatile equity markets.
Commission revenue decreased $16.5 million or 51% to $15.6 million in fourth quarter 2011 compared with fourth quarter 2010 largely due to a 63% decrease in the volume of trades executed by GMP Securities on the TSX and TSXV over the same period. According to CanadaEquity.com, GMP Securities ranked ninth in equity block trading volume on the TSX and TSXV during fourth quarter 2011, achieving a market share of 4.4% compared with a market
share of 9.2% and a ranking of third in fourth quarter 2010.
Expenses decreased $21.1 million or 27% to $55.7 million in fourth quarter 2011 compared with fourth quarter 2010 driven by a decrease in employee compensation and benefits expense primarily due to lower variable compensation recorded in the period. Fixed salaries and benefits reflected a $2.4 million (pre-tax) charge recorded in connection with a consulting arrangement entered into with a former executive as well as the inclusion of fixed salaries and benefits for the newly acquired MTR. Shared-based compensation also increased in fourth quarter 2011 due to a $1.7 million expense recorded in connection with Common Shares issued to certain key employees of MTR.
Selling, general and administrative expenses decreased largely due to lower investment banking deal related expenses, lower levels of charitable giving and lower transactional costs associated with our trading activities.
Capital Markets recorded income before income taxes of $11.4 million for fourth quarter 2011 compared with $54.9 million in fourth quarter 2010. Adjusted income before income taxes1 was $13.2 million in fourth quarter 2011.
Wealth Management reported a loss before income taxes of $0.7 million in fourth quarter 2011 compared with income before income taxes of $0.9 million in fourth quarter 2010. The loss before income taxes in fourth quarter 2011 interrupted several consecutive quarters of profitability at Richardson GMP as weak capital market activity adversely impacted commission revenue due to lower client trading volumes.
Alternative Investments’ revenue decreased $16.7 million or 93% in fourth quarter 2011. Fourth quarter 2010 was bolstered by $9.6 million in performance fees recorded by GMP Investment Management and its affiliates in connection with performance of the funds managed by GMP Investment Management compared with $0.3 million in performance fees recognized in fourth quarter 2011. Other revenue in fourth quarter 2010 also reflected carried interest revenue of $2.3 million following the disposition of a portfolio company by the EdgeStone Venture Fund compared with no such carried interest recorded in fourth quarter 2011. Principal activities in fourth quarter 2011 include an unrealized loss of $1.5 million on our investment in the EdgeStone Capital Energy Fund-I, L.P. following the completion of a valuation assessment by EdgeStone, while fourth quarter 2010 included $1.5 million in unrealized gains on GMP’s investment in the GMP Diversified Alpha Fund. Also contributing to the decrease was lower investment management and fee income relating to EdgeStone.
Expenses decreased $0.6 million or 11% to $5.3 million in fourth quarter 2011 compared with fourth quarter 2010 due primarily to lower employee compensation and benefits expense relating to EdgeStone, partly offset by higher salaries and benefits expense in GMP Investment Management due to the addition of professionals to its team. Non-compensation related expenses were largely unchanged.
Alternative Investments reported a loss before income taxes of $3.9 million in fourth quarter 2011 compared with income before income taxes of $12.1 million in fourth quarter 2010.
Revenue in fourth quarter 2011 includes $4.1 million in revenue received in support of carrying broker and other administrative support services provided to Richardson GMP. This compares with $3.6 million in such revenue earned in fourth quarter 2010.
Total expenses decreased in fourth quarter 2011 compared with fourth quarter 2010 largely due to lower employee compensation and benefits expenses and lower amortization expense recorded in connection with the EdgeStone intangible assets following impairment charges recorded on these assets. Interest expense also decreased in fourth quarter 2011 compared with fourth quarter 2010 as a result of the redemption of all issued and outstanding senior unsecured notes issued by Griffiths McBurney L.P. (the “Notes”), an indirect, wholly-owned subsidiary of GMP, in the first quarter of 2011.
GMP executives will host a conference call and live audio webcast today at 10:00 a.m. (ET) to discuss GMP’s fourth quarter and fiscal 2011 results. Interested parties are invited to access the call by dialing 416-644-3414 or 1-800-814-4859 (toll free) or via live audio webcast at http://www.gmpcapital.com/investor. A recording of the conference call will be available until Wednesday, March 21, 2012, by dialing 416-640-1917 or 1-877-289-8525 (toll free) and entering access code 4507690#. The webcast will be archived at http://www.gmpcapital.com/investor.
Consistent with GMP’s management framework, management uses certain Non-GAAP financial measures to assess GMP’s financial performance, which are not generally accepted accounting principle measures (“GAAP”) 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.
Return on Common Equity
GMP also evaluates the performance of its consolidated operations using ROE. Our ROE calculation is based on net income available to common shareholders divided by total average common shareholder equity for the period, which are measures derived from information contained in our 2011 Annual Financial Statements, which were prepared in accordance with IFRS.
Assets under Administration/Management
AUA is a measure of the market value of client assets administered by Richardson GMP and in respect of which Richardson GMP earns commissions or fees. AUA is used by management in assessing the performance of the Wealth Management segment because such commissions or fees earned by Richardson GMP impact the performance of GMP’s Wealth Management segment through GMP’s proportionate share of Richardson GMP’s net income. AUM is a measure of the net asset value of funds managed by GMP Investment Management (the “GMP IM Funds”) and in respect of which GMP Investment Management earns management fees and may also earn performance fees. Up until November 30, 2011, AUM also included the amount of committed and/or invested capital in the funds managed by EdgeStone in respect of which EdgeStone earned management fee income or received general partner
distributions. The amount of management fees earned by GMP is directly related to the level of AUM in the Alternative Investments segment. The amount of performance fees earned is related to both the investment performance and the level of AUM of the GMP IM Funds. AUM is used by management in assessing the performance of GMP’s Alternative Investments segment because it is a key driver of revenues for the segment. AUA and AUM are not included in GMP’s Consolidated Balance Sheets.
Management believes that presenting certain results and measures on an adjusted basis which excludes the impacts of specified items may be more reflective of ongoing operating results and provides readers with an enhanced understanding of how management views GMP’s core performance. 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 the specified items on the results for the periods presented. We exclude the following to arrive at our adjusted measures:
(i) from fiscal 2011 financial results, the impact of the one-time redemption costs (the “Redemption Costs”) recorded in connection with the redemption of all of the outstanding Notes that was completed during fiscal 2011; the share-based compensation expense recorded in connection with the common shares of GMP issued to certain key employees of MTR in connection with the acquisition of MTR in fiscal 2011; the impact of goodwill and intangible asset impairment charges recorded during fiscal 2011; and
(ii) from fiscal 2010 financial results, the impact of goodwill and intangible asset impairment charges recorded during fiscal 2010.
Management has excluded the Redemption Costs in presenting fiscal 2011 adjusted measures on the basis that such costs are not expected to re-occur and therefore unlikely to be reflective of GMP’s core performance. The sharebased compensation expense arising from the deferred share-based awards issued in connection with the acquisition of MTR has also been excluded from fiscal 2011 adjusted results as management regards these shares as part of the purchase price consideration, notwithstanding the accounting treatment which treats these shares as share-based compensation due to the obligations imposed on the key employees to forfeit their unvested shares in the event they cease to be an employee of the GMP Group. Impairment charges have been excluded from fiscal 2011 and fiscal 2010 adjusted measures due to their potential impact on trend analysis.
The following table provides a reconciliation of GMP’s reported results to its adjusted measures:
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 2012 objectives, our strategies to achieve those objectives, as well as statements made with respect to management’s beliefs, estimates, projections and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. 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 o r 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, variations in the market value of securities, the volatility and liquidity of equity and fixed income trading markets, the volume of new financings and mergers and acquisitions (“M&A”), 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 our 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” in GMP’s 2011 Annual MD&A and “Risk Factors” in GMP’s annual information form, dated March 13, 2012. Material assumptions or factors underlying the forward-looking information contained in this press release are set out in the “Business Environment – 2011 Highlights - Market Outlook” section of the 2011 Annual MD&A and include, without limitation: recurring concerns over European sovereign debt, global production supply chain disruptions, the ongoing budget debate in the United States, expectations for a continued low interest rate environment and moderate economic growth in Canada. 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 the 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 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 client base that includes corporate clients, institutional investors and high-net-worth individuals in three integrated reporting segments. The Capital Markets segment provides investment banking, including advisory and underwriting services, institutional sales and trading
and research through offices located in Toronto, Montreal, Calgary, New York, Miami, Dallas, London, Perth and Sydney. The Capital Markets segment conducts its business through the following operating entities: GMP Securities L.P., GMP Securities, LLC, Griffiths McBurney Corp., GMP Securities Europe LLP and GMP Securities Australia Pty Limited. Wealth Management consists of GMP’s non-controlling ownership interest in Richardson GMP Limited, a
full-service independent firm focused on providing exclusive and comprehensive wealth management and investment services delivered by an experienced team of investment professionals. The Alternative Investments segment consists of the investment management and alternative investment products provided by GMP Investment Management L.P. GMP is listed on the Toronto Stock Exchange under the symbol “GMP”. For further information, please visit our corporate website at gmpcapital.com.
FOR FURTHER INFORMATION PLEASE CONTACT:
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
firstname.lastname@example.org or email@example.com