CI Financial Corp (CIXX) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the CI Financial 2008 second quarter results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue for questions. (OPERATOR INSTRUCTIONS)

This presentation contains forward-looking statements reflecting management's current expectations regarding the future performance of CI and its products, including its business operation, and strategy and financial performance and conditions. Although, management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements.

For further information regarding factors that could cause actual results to differ from expectations, please refer to management's discussion and analysis available at www.CI.com/CIX. EBITDA, earnings before interest, taxes, depreciation, and amortization, adjusted EBITDA and distributable cash are not standardized earnings measure prescribed GAAP, Generally Accepted Accounting Principles; however, management believes that most of its unit holders, creditors, other stakeholder and analysis prefer to include the use in these performance measures in analyzing CI's results. CI's method of calculating these measures may not be comparable to similar measures presented by other companies. EBITDA is a measure of operating performance, a facilitator of valuation and proxy for cash flow. A reconciliation of EBITDA to net income is included in manager's discussion and analysis available at www.CI.com/CIX.

I would like to remind everyone that this conference call is being recorded on Thursday, August 14, 2008 at 5 p.m. Eastern time. I will turn the call over to William Holland, Chief Executive Officer of CI Financial Income Fund. Please go ahead, sir.

Thank you very much, Eric. Good afternoon. Couple of quick general comments. While clearly a very difficult quarter in the global markets, our business was remarkably strong. Our sales were up over 50%, over the same period last year. Our assets under management increased on a year-over-year basis by 7% to over $66 billion or just about $66 billion. While adjusted earnings were up about 4% and EBITDA, 3%. The adjustment reflects about a $6 drop in the unit price of CI over the same quarter in 2007.

As I said, the sales in the quarter were real terrific. Up above 50% over last year and the first couple of, the first half of this quarter is very strong. So I think we are on target to do sales a little better than what we had in '07 which was a pretty good year.

On a competitive basis, the sales are very good. Again, we are third right now and what is interesting right here is how the banks have really suffered here in a difficult market. So the banks which have been strong for the last few years have come off considerably in what has been a very difficult first half of the year. Just on distributable cash, we continue to distribute just about all of our- - our payout ratio was 96%. Our run rate right now is a little better than $0.17 a quarter which is our current payout. Just a final thought before I take questions. The positioning that we have right now is really very, very good. Our Cambridge Funds, which we started on January 1 of this year, now have assets of $500 million with terrific performance. And the performance of our line up overall is very, very good. Our Seg Fund sales continue to increase. We are doing over $10 million a day. About double the same time last year. July was by a considerable margin our best month of Seg Fund sales that we have had yet. And it just seems the momentum on this continues to pick up. After those very brief and general comments I will be glad to take any questions people have. Operator?

(OPERATOR INSTRUCTIONS). One moment please for your first question. Your first question comes from Gabriel Dechaine from Genuity Capital Markets Please go ahead.

I want to talk about the Seg funds. With the markets being pretty rocky, that's the attractiveness to the investors and you get the guarantees and all that. How much would you say is also being influenced by just the macro, the demographic factors, in aging and investment or client base looking to secure their capital and their capital and retirement years or is that less of a factor?

No. I think you are probably right. I think that's a big factor. The sales haven't, obviously they are increasing. Not decreasing, so they tend to be less market sensitive that's for sure and the point I brought up in the last meeting. In 2000, less than 10% of Merrill Lynch brokers sold variable annuities than the number today in the US, today it is well over 90%. You are starting to see it here. It is becoming a very, very main stream product. I do think a lot of it is based in the demographics. A phenomenon of people getting to, in age where these are just more attractive. So my sense is that these type of variable annuity type products will become much more popular over the next decade. I think we are probably very early in the game still.

What I am getting at. It is a secular shift so when conditions, when market conditions improve overall. You are going to have the Seg Fund sales that keep chugging and you will have on top of that the regular mutual fund sales and maybe they are not being used as substitutes right now and in addition to mutual fund.

I am not sure they are substitute. I don't think they are. A lot of the people who I talk to who use them it isn't money that was gone to Mutual Fund. And I would suspect in a better market you see much better Mutual Fund sales but Seg Fund sales will stay about the same.

Okay. Turning the Blackmont. One, a couple of things here. In your press release, the numbers you through out there on the increase in fee based products at Blackmont the increase was 183 million or 6%. So back into about 3 billion of fee based assets at Blackmont, is that $3 billion out of th 9 or 9.5 Blackmont AUA?

Yes.

That is quite a bit higher than I thought was in there?

Most of the brokerage firms are getting the fee based business. And the brokers who are attracted to Blackmont offer the last year and a half or two years, couple of years, people who have been recruited and brought in to Blackmont are people who do exclusively manage money, and the average book size is about 85, about $85 million. So it is the type of broker they are looking for. They are not looking for transaction brokers. They have a lot of them. But the one they are looking to recruit today are money oriented.

In terms of costs, last quarter you kind of expressed what I took as a bit of frustration in your ability to manage the cost of that operation. Is that still something you feel. And what are you doing to manage these costs better. Any level of guarantees on the capital markets business?

There is some. But, there is less and less of them all the time. We have reduced the size of the capital markets group and decided to take a much more focused view of things. We are not trying to be all things to all people here. We are going to try to specialize more and more. We have taken. It is about a third smaller than it was at its peak a year ago. I don't have to tell you. This is a very difficult time. Small, mid-sized broker. We are starting to manage the cost much, much better now. I am very complimentary of the management of Blackmont. And I think Kevin Dalton on the Capital Market side and Bruce Kegan on the retail side are doing a great job in what is about as bad as a market environment as the second quarter you could imagine. I would say I am far less frustrated this quarter on cost and thing like that than I was last. Business is worse right across the board.

Are there any, and I haven't seen any of broken out. Any severance cost or restructuring.

We didn't put them as restructuring costs. Sure, this is severance.

You care to comment, I hate to up rumors. It has been in the press a little bit over the past few weeks of any tie up of Blackmont. And a variety of iterations on that it.

I love commenting on rumors. We did not come close to doing a deal with DesJardin. (inaudible) And various forms of combinations and we are very comfortable owning Blackmont. We like the business. The people running it. That being said, if we could do it, sensible merger, that would bulk the company up and strengthen it, and consider it, but an out right sale, no. Not interested.

Okay. Thanks.

Your next question comes from John Reucassel from BMO Capital Markets. Please, go ahead.

I got the press release a little late. If I look at the numbers. What would you say clean earnings per unit were, I guess if I am reading things right. There are stock option benefit and some tax. What were the clean number would you say?

Well, if you just adjusted, the big adjustment we have is for the stock based compensation. And it is down $6 over the same period last year. Right. And so, I would say that the EBITDA is, the adjusted EBITDA is a clean number. If you look at it, one thing should stand out is the average assets were up 7%. And your adjusted EBITDA was up 3%. And it looks like more a margin erosion than you would like and the operating margins fell year-over-year from about 107 until 102. The actual operating margins of the business are not declining. We are getting more front end business and we do more iClass, iClass it is not a substitute for mutual funds. If you look of the margin decline, iClass is actual 4 bases and the assets are 3. And they have improved a little bit over the core business of last year.

It issue of mix?

It is an issue of we want to do more iClass business. (inaudible) I think we would be concerned about it if we thought it was a substitute for Mutual Fund, it's not in addition too.

You mentioned the same thing on Seg fund. Bill, if people had a choice as they got older at putting money in a Mutual Fund or a Seg Fund, some of the guarantees on a Seg Fund would be perhaps more attractive. There is more expense. You don't believe they are a substitute for each other.

I don't believe they are, they are nowhere near perfect substitutes. I talked to too many brokers who was looking at putting money into a GIC or 10 year bond, they moved to one of these Seg Fund products and the tickets hugh the tickets are averaging $100,00 now.

You mentioned the gross sales per day doubled in the last year.

And increasing.

And increasing is that an issue that the story getting it out there more and people understanding more or is that driven by the market.

No, it is the story. It takes awhile. These things are complicated. I truly don't understand them. And when we do the presentations, they last four hours. I would be sound asleep in 40 minutes. It takes a long time and it is an administrative process. I think the number of brokers selling this product is probably more than doubled. Maybe tripled. And started from a small base. I think that you will look at this a year from now and the numbers will be remarkably higher.

Your best guess, Bill the number of brokers that are selling it today. Are 30% of brokers.

No, it is less than 30.

It is less.

I would say it is a tenth. The tickets are so big. Our average account size, if you think about it, is about $10,000. A little less than $10,000 here. At and that's the average account size. The average account is about $100,000. (inaudible)

Okay. You mentioned the banks aren't doing particularly well. It is only three companies that are doing quite well. On the sales front. Is this just the banks that have to without their turn. Or why is it these particular three. What is going on in the market, that you can say the banks have softened here.

Well, this is the first difficult market sense they started to wrap up their fund business. I do not think for a second they are going to be the major competitors. I just find it interesting that their business has soften in a difficult market. The business is done by three phone companies. And and I think the kind of performance is a big deal. The three companies that are getting business CI Fidelity (inaudible). And they have very strong performance. If you look across the line up where we are doing very well. It is like Allan Radlow Cambridge. $500 million in six months, seven months is really a remarkable launch in this environment. Jerry Coalman continues to have strong performance and great sales. Same with Eric Bushnell. Performance is a big deal here.

No change it is in the leverage appetite over the last three months.

Are you meaning, do we want to have more of it. The answer is no. And you know, the one thing that is happening here is because our Seg Fund sales are so strong our deferred sales commission spend is increasing. We spent more on the second quarter thatn first quarter. And so, even if we had an appetite for debt, I think we should all be pretty clear about it. It as very unfriendly market. Try to put more debt on.

Last question. Is the issue of reconversion. You mentioned it was discussed at the board level. Any further discussion on that?

We had a long discussion on it. We should be happy with the rules that came out and converting back to a corporation. The issues are huge, being an income trust you have least favored nation status in Ottawa. It is hard. To get any clarity on what we can and can't do. I think it is difficult. And there is a lot of constraints for us. In term of how many units we can issue. And we will stay a trust. Until we have a good reason not to. But, it certainly is becoming a conversation. And I don't like the structure. Only because Ottawa doesn't and they are making it very difficult to operate. They being said. We will keep it for the foreseeable future. Any rationale today for converting.

(OPERATOR INSTRUCTIONS). Your next question is from Gabriel DeChaine.

Just a follow up. When you are talking about the brokers that are not selling Seg funds that represent potential for additional sales. Are you talking outside of the SunLife Agency for us and if so, when you sell to non-SunLife agencies. Is there a split between SunWise products where you get better margins or Manual Life product, is there one more popular than the other?.

With Manual Life, we are part of their products. We get the iClass business. With the SunWise product, which is representing a huge portion of our sales. That is all CI business. What is your question?

I am trying. And maybe I'm thinking about the wrong way. Trying to get a sense of this opportunity in the Independent adviser or broker channel. And it is easier to get them to buy SunWise products however it works.

And we are thrilled to get the business through Manual Life but we don't sell it. We sell only the SunWise. Be clear by a mile. Most of this business is coming outside of the SunLife sales force. It is coming from the independent brokers and planners. And that's where the real growth is. Most of the SunWise -- Sun Life sales force do so Seg Fund products, where the independent channel, the penetration is very low.

Thanks.

Your next question comes from Stephen Boland from JP Securities.

Thanks. I haven't heard my name like that for awhile. Just one question on the Cambridge Fund, Bill. You said when Allan came on board he opened up the broker channel a fair bit with his reputation and background. Is that the majority of where his sales are coming or have seen it creep into the planner channel a little more.

It is more IDAs than it is financial planners. The business is really good. But it is mostly still IDA.

There are no further questions at this time. Please continue.

Well, thank you very much. I look forward to updating you at the end of the quarter. Bye now.

This concludes the conference call for today. Thank you for participating. Please disconnect your lines.