CI Financial Corp (CIXX) 2012 Q4 法說會逐字稿

Good afternoon. My name is Marcelo and I will be your conference operator today. At this time I would like to welcome everyone to the CI Financial 2012 fourth-quarter results conference call. All lines are in a listen-only mode. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

This presentation contains forward-looking statements concerning anticipated future events, results, circumstances, performance, or expectations with respect to CI and its products and services, including its business operations, strategy, and financial performance and condition. Although management believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements involve risks and uncertainties. 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.CIFinancial.com.

This presentation includes several non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. However, Management believes that most shareholders, creditors, other stakeholders, and investment analysts prefer to include the use of these financial measures in analyzing CI's results. These non-IFRS measures and reconciliations to IFRS, where necessary, are included in Management's Discussion and Analysis, available at www.CIFinancial.com.

I would now like to turn the call over to Mr. Stephen MacPhail, President and CEO of CI Financial. Mr. MacPhail, you may begin.

Thank you. And welcome to CI's conference call for our fourth-quarter 2012 results.

I will start off with some of the highlights. It was another excellent quarter for CI, as is evident from our results. Earnings per share of CAD0.34 were up 6.3% from the prior quarter, and up 10% from CAD0.31 per share we earned in the fourth quarter of 2011. For the year, CI had gross sales of CAD10.6 billion, up 16% from 2011. Our net sales for the year were CAD973 million, triple the net sales for CI in 2011. We were positive retail net sales in each month in the quarter again.

Our average assets under management were up 2.6% from the third quarter, and up 7.2% on a year-over-year basis. And as a result of our profitability and high cash flows, CI's net debt declined 5% from Q3 to Q4, taking materially below our annual EBITDA levels.

Focusing purely on the consecutive quarters -- average assets under management, up 3%. Net income, CAD95 million for the quarter, up 4%. Earnings per share, CAD0.34, up 6%. EBITDA, CAD178.8 million, up 2%, and on a per share basis, CAD0.63 per share, again, up 2%. We paid CAD68 million in dividends during the quarter. And our net debt declined to CAD526 million.

Turning to sales. Gross sales in the quarter totaled CAD3.5 billion, up 44% from the prior quarter. Net sales for the quarter hit CAD724 million, double that of the prior quarter. Every month again had positive retail sales. And similar to Q3, we experienced net sales improvements in all channels on a consecutive quarter and year-over-year basis. Equally important, both institutional and retail businesses were significant contributors in Q4, with over one-third of our net sales being classic retail business.

From a sales outlook perspective, CI has experienced its best January since 2001 for both gross and net sales. But just as important, it was essentially all retail business for CI. Performance of our funds continues to be outstanding, with over 80% of our assets under management being first or second quartile over 10 years. Signature, Cambridge, Harbor, and Black Creek, all key CI investment and management groups, have had continuing good performance, positioning CI very well for 2013. If we look at the chart of fund performance, you can see that clearly a variety of CI funds had outstanding performance. And not only that, it is well-diversified amongst fund types and fund managers, putting CI in an excellent position with our clients.

And with that, I will turn it over to Doug Jamieson, CI's Chief Financial Officer. Go ahead, Doug.

Thank you, Steve.

Our next slide has the quarterly highlights comparing the fourth quarter this year with the fourth quarter of last year. Average assets under management were up over 7%, from CAD69.3 billion a year ago to CAD74.3 billion. Net income at CAD95 million was up 8% from CAD87.8 million last year. And earnings per share was up to CAD0.34 from CAD0.31 last year, an increase of 10%. EBITDA per share was up CAD0.02 to CAD0.63, a 3% increase. And dividends paid were up 6% as CI paid out CAD64.1 million last year at a rate of CAD0.075 per month, and CAD67.9 million this year at a rate of CAD0.08 per month.

And as Steve mentioned, net debt down to CAD526.5 million. This is total debt, less cash and marketable securities not required for regulatory working capital, and a drop more than CAD200 million over the past year. The CAD526 million represents public debt outstanding of CAD500 million plus CAD94 million drawn on our CAD250 million facility, less almost CAD68 million of excess cash and marketable securities. This gives CI a debt to EBITDA ratio of under 7.5 to 1. And this provides significant financial flexibility going forward.

CI's EBITDA margin continues to hold steady above 48%, reflecting the fact that even as top-line management fees as a percentage of AUM declined due to the mix of business, we are holding the line on overall profitability of revenues, including the increase in institutional and fixed income assets that we have seen over the past couple of years.

Looking at CI's SG&A -- and here as a percentage of assets under management and shown in basis points -- has declined from last year. As we saw from the quarterly highlights slide, CI's average AUM grew by more than 7% from last year. SG&A spend grew by less than 5%, which gives us a 2.5% net overall drop, or 1 basis point from last year. Now, the spend is up from the third quarter, as CI has initiated a television advertising campaign and increased spend on conferences and road shows during the fourth quarter, which we believe is excellent timing, given the stellar relative performance of our funds and the improvement in financial markets.

Next we have the last five quarters of free cash flow. Free cash was steady at CAD110 million from last quarter, as both operating cash flow and deferred sales commission spend each moved up by CAD3 million. Free cash flow is up CAD6 million from last year, as operating cash flow was CAD7 million higher and the spend on sales commissions was only up CAD1 million. Typically the first quarter has the highest DSC spend during our ski season, and we can see that quarter has a dip in free cash in the second column of this chart. Here on the first part of the chart on return to shareholders is the detail on the free cash flow for the last two quarters. Last quarter's operating cash flow of CAD136 million, less commissions of CAD26 million, giving us CAD110 million in free cash. And this quarter we had CAD139 million of operating cash and CAD29 million of commissions paid.

The next section details the amounts returned to shareholders as share buybacks and dividends. And again the past two quarters are identical. And that CI bought back CAD6million worth of stock and paid CAD68 million in dividends, for a total of CAD74 million returned to shareholders. And this left a net surplus of CAD36 million this quarter, which we used to reduce net debt by CAD26 million.

The growth in our income and cash flow, as supported by the growth in the assets under management, made this an easy decision to increase CI's monthly dividend to CAD0.085 cents per share per month, up from CAD0.08 per share. Our forecast payout ratios are well within historical levels, and net debt is declining, giving us the flexibility for future quarters. And here on slide 12, we have the annual dividends paid over five years, from CAD167 million in CI's first year after converting back to a corporate structure, to an estimated CAD286 million in 2013, based on the new monthly dividend rate. This is an annual dividend growth rate of 14%.

I will now turn it back to Steve.

Thank you, Doug.

With the growth in assets and sales CI has experienced recently, I'll admit, I really like this chart. If you just focus on 2013, which is the right-hand side, you can see that our AUM is now just shy of CAD80 billion -- quite an increase from CAD66 billion that was our assets under management just five quarters ago. As of yesterday, our AUM was up 6% from the Q4 2012 average, positioning CI for a very good first quarter, and more than justify the dividend increase of CAD0.05 per month that Doug just talked about.

Briefly looking ahead, as I just mentioned, our current assets under management are almost CAD80 billion. And that is an all-time high for CI. We have seen investor interest in equity-oriented investments increasing, and that is very positive news. From an activity perspective, CI is intensifying our focus on all sales channels. And that was reflected in some of those expense numbers that Doug talked about in the fourth quarter. We are adding to our investment management teams to continue to build those teams for future growth. Training, technology, service, value-added to advisors -- all are top and key initiatives for CI in 2013, and we think one of the key ingredients to continuing the growth that we've been experiencing.

With that, that completes the formal part of our presentation. And I would like to open it up for any questions people might have on this Valentine's Day. Thank you.

Thank you. We will now be taking questions from the telephone line.

(Operator Instructions)

Your first question is from a participant. Please state your name and company and ask your question. Your line is now open. We are unable to hear you. If you are using a speaker phone, please lift the handset. Hearing no response, we will move on to the next question. Please state your name and company and ask your question.

Operator?

Yes, your line is open.

It's John Reucassel from BMO Capital Markets. Can you hear me?

Yes, John, I can hear you.

Okay, just -- the operator might have to call out the name of the person because they might not know to press the button. Anyway, Steve, just a question for you. On the spending side, Steve, on the last slide, you talk about training, technology, service. So, when we think about your SG&A expense going forward, assuming that the markets are there, should see on a basis point basis the SG&A go up? Or is it going to try and stay stable through the course of the year?

You know, I spent a little bit of time on budgets for 2013. And we've got some interesting cost savings initiatives. I know we continue to pull the rabbit out of the hat on this one. And I don't know where these guys that work for CI find it, but they seem to find money all the time. But I would say that -- I'm just looking at our position right now, John, and I kind of like it that we are ahead of the race right now and you've got two choices, to go slower, the same, or run faster. And I would rather be running faster right now. And I think if that means spending a little extra to provide better service, then that can be warranted. Because we will be rewarded with it with extra assets and extra sales. And I think that will pay for it in the end.

So you know, it's possible on a one-quarter basis we could be a little higher. But we are not going to go crazy here, by any stretch. But I do think we are looking at every opportunity. A great example would be -- we had an opportunity to hire someone two weeks ago that had very key relationships with one of the channels that we deal with. And to me it was a lay-up. We said, this woman is a great hire, let's bring her in because we're going to get great payback. Well, that might take three or four or five or six months to start to get payback on it, but I think it's a worthwhile investment.

We are looking at across the board right now. I think when I look at the Assante channel, that a big priority for me there is continuing to invest in the technology there. We really do have kind of the premier independent firm there right now. And we've got to figure out every way we can invest in that business to make it better. And I think that is going to take a little bit more money up front.

Okay.

And so, it's all those type of things. So the answer is, sure, it can go up a little bit. But I don't think you have to worry all of a sudden it's going to jump up three or four basis points on you.

Okay. And then you talked about 33% of your sales came from the classic kind of retail channel. Can you give us a sense how much was institutional versus I Class?

Well in the -- in the fourth quarter of last year, a lot of what we will call the Institutional business was concentrated in two big relationships. And you know, one was what I'll call an I Class business, where we were participating in a big fund-to-fund program, so, where they want to use the CI name. And the other was where we were taking over a large part of their business. And it was like institutional business, but you had to have a specific skill set that most -- I would say pretty well every other institutional provider couldn't do, because it involved segregated fund management and things like that. So, I would say that would be the uniqueness of those. We did do a bit of classic institutional business in the fourth quarter. But, those would have been the two big things. But I thought the most important part was the magnitude of what we will call the classic Retail business.

Okay. And then, I know it's early. But February is usually a better month than January. Would that -- you said you've had the best January since '01. Would you say February is tracking much better than January?

Oh, yes, absolutely.

Okay. Do want to give us any numbers?

No.

Okay, all right. Thank you.

(laughter) It's just better.

Okay.

Geoff Kwan of RBC Capital Markets.

Just had one question. Just looking at your institutional business in terms of where you're able to grow that. Is it a matter of wanting to expand by offering more products than you offer right now? And also is there opportunities to be targeting different parts of the institutional market that you may not be dealing with right now?

I think it's more of the former than the latter, Geoff. Right now one of our -- our one key product is a balanced product offered by Signature Funds, and it's an excellent product. We've got a reasonable amount of business with it. But ultimately, the market for balanced product is a limited market. Where we see the big opportunity is really in global equities. Because A, the pools of cash you can win in those cases are much bigger. And we have spent a lot of time building out on the global side with Eric Bushell's Group. And just going through that whole process of gaining on all the consultants' lists the approved list for the other funds.

So that is really the key to us. And I spoke about that last conference call, and I think even one before, saying the key for us is to continue to expand the offering. But you can't just flick a switch and say okay, tomorrow I'm going to have that offering. A lot of these things take years and years to put in play. And we've been working on them for years and years, and they are starting to come to fruition.

Okay, thank you.

(Operator Instructions)

Stephen Boland of GMP Securities.

Good afternoon. (laughter)

Are you related to Stephen Boland?

Yes. That sounds (multiple speakers).

Okay, I just wanted to know.

I guess, Steve, are you surprised at the strength at which it appears that net sales or interest in funds come back in -- it seems like the last month or two that we are just starting to get all this momentum built in the sales channel. I mean, is it -- or is it you kind of anticipated this? Or we are just -- it seems to be ahead of where maybe the market is, or economic conditions.

You know, we were looking at improvements and we've got -- I look back all over 2012. And you might recall, I talked about the last meeting how year-over-year consecutive quarters we saw improvement in all our channels. So we saw the process really starting to happen last year. And the momentum seems to have really built. Are we surprised it's happening? No, we are not surprised it's happening. Are we surprised at the magnitude of the sales increase that we've seen? I would say we are really pleasantly surprised on that side. But we're not shocked.

I mean, this is just a continuation of what we saw before. And I think we've all just been quite cautious in the numbers that we saw in November -- October, November and December. We said, wow, if this trend continues, we could see a really good 2013. And I think in CI's case, everything has just lined up well. Our relationship with the advisors is great. The performance of our funds is great. So a lot of things are working. And all of a sudden people are willing and wanting to put money back into their investments. So, it was a question of having done all the right things. I believed for a long time, and now it's just come to fruition and yes, we are pretty happy about it. And so I would say -- pleasantly surprised.

Can you just comment whether -- you know, is this the advisor going in and buying a stand-alone fund? Or is it the advisor -- and when I mean that, is it full risk-on type of purchase? Or is it still the advisor buying a fund-to-fund product where CI has a part of the shelf?

Well, I wouldn't say when advisors are buying individual fund, that we call that full risk-on. When I look at the funds that they are buying within CI, we tend not have particularly volatile funds, and you can see that in our performance numbers. But what we do see a lot of purchasing is from, what I'll say successful advisors within the Assante channel, is where we've been particularly successful in the money -- managed money solutions that CI offers. We see a lot of flows into those. But they just happen to be involved in equity and fixed income underlying funds. So, there's certainly been an increase in that. But the investor is still being conservative. But reaching out into equity funds now.

Okay, thanks.

(Operator Instructions)

There are no further questions at this time. I would like to turn the meeting back over to Mr. MacPhail.

Well, I would just like to say thank you very much, everyone, for attending. And look forward to speaking to you at the next quarterly call. I believe we just filed for our annual meeting, and that will be mid-June, just so you know, June 13. We will be doing it then, so we can provide a good mid-year kind of recap for all the investors at that point in time. Thank you very much, and have a happy Valentine's Day.

Thank you. The conference call has now ended. Please disconnect your telephone lines at this time, and we think you for your participation.