SEAMARK Asset Management Ltd. Reports Third Quarter Financial Results
28 October 2006
SEAMARK Asset Management Ltd. today announced third quarter earnings of $0.07 per share, compared to $0.09 per share during the second quarter. Costs related to a corporate reorganization undertaken during the third quarter reduced earnings by approximately $0.02 per share.
"Over the past three months we have made progress towards enhancing investment performance and improving the delivery of service to clients," said Stuart R. Raftus, President & CEO. "Investment performance was strong across all asset classes during the quarter, demonstrating the continued strength of SEAMARK's investment process. The reorganization we undertook in August has created investment and client relations teams who are focused on meeting the expectations of our clients. The steps we have taken this quarter will help us deliver results for both clients and shareholders as we move forward."
SEAMARK will host a conference call to discuss these results tomorrow, October 24 at 9:30 a.m. Atlantic time (8:30 a.m. Eastern). The call will be web-cast live by CNW Group and available for replay for thirty days. A link to the call is available from the shareholder information section of: www.seamark.ca
SEAMARK Asset Management Ltd. (TSX:SM) provides investment management services across Canada to institutional clients, mutual fund companies, private clients, and the managed portfolio advisory programs (wrap programs) of many of Canada's leading investment dealers.
<<
SUMMARY OF RESULTS
UNAUDITED
For the period ended
September 30 Three months Year to date
($ in thousands,
except per share) 2006 2005 2006 2005
-------------------------------------------------------------------------
Total revenue $ 3,990 $ 6,674 $ 16,351 $ 20,451
Earnings before income
taxes 1,265 4,808 8,200 13,345
Net earnings 777 2,981 5,008 8,274
Per Share
Basic earnings per share $ 0.07 $ 0.28 $ 0.47 $ 0.78
Diluted earnings per share 0.07 0.28 0.44 0.77
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Certain information regarding SEAMARK Asset Management Ltd. contained herein may constitute forward looking statements within the meaning of applicable securities laws. Forward looking statements include estimates, plans, expectations, opinions, forecasts, projections, guidance or other statements that are not statements of fact. These statements reflect management's current expectations based on the business conditions under which the company is currently operating, and are believed to be reasonable, but management can give no assurance that such expectations will prove to have been correct.
By their very nature, forward-looking statements involve inherent risks and uncertainties, as actual results and events will be affected by a number of factors, many of which are beyond the company's control. Actual results and events may therefore differ materially from those predicted by the forward looking statements. Readers are cautioned not to place undue reliance on any forward looking statement. Forward looking statements are expressly qualified in their entirety by this cautionary statement.
FINANCIAL RESULTS
Earnings for the quarter were $0.07 per share compared to $0.28 for the third quarter 2005. Year-to-date, earnings are $0.44 in 2006 compared to $0.77 in 2005. Severance costs during the quarter reduced earnings by approximately $0.02 per share. Year to date earnings for 2005 and 2006 have also been impacted by costs incurred as a result of a change in CEO, which reduced diluted earnings per share by $0.06 in both 2006 and 2005.
Revenues for the quarter were $4.0 million, down from $6.8 million for the third quarter 2005. Year-to-date, revenues are $16.4 million, down from $20.5 million for the first nine months of 2005. The decline in revenue quarter and year-to-date is the result of lower assets under management compared to 2005.
Earnings before income taxes represented 32% of revenues for the quarter and 50% year-to-date in 2006, compared with 2005's margins of 71% and 65% respectively. After including the impact of income taxes, net earnings as a percentage of revenues were 19% for the third quarter and 31% year-to-date 2006, compared to 44% for the quarter and 40% year-to-date for the same period in 2005. The severance costs noted above were a significant contributor to the decline in margins for the quarter, while the year-to-date margins also reflect costs related to the change in CEO and the decline in revenue.
LIQUIDITY & CAPITAL RESOURCES
There has been little change to SEAMARK's liquidity during the quarter. Total available liquid assets, consisting of cash, short-term investments and temporary investments, stood at $11.6 million as of September 30, 2006, compared to $11.7 at the beginning of the quarter and a year ago. Cash and short-term investments represented $6.2 million of this total, up from $6.0 million at the beginning of the quarter and $6.1 million a year ago. Temporary investments were $5.4 million, down from $5.7 beginning of the quarter and up from $5.6 million a year ago.
OPERATIONAL RESULTS
Assets under management ("AUM") were $5.13 billion as of September 30, 2006, down from $5.27 billion at the beginning of the quarter and $10.22 billion a year ago. The following table summarizes the changes in AUM during third quarter and year-to-date:
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Quarterly Change in AUM Summary (in billions)
-------------------------------------------------------------------------
3rd Quarter 2006 3rd Quarter 2005
AUM AUM AUM AUM
End of End of End of End of
3rd Net Market 2nd 3rd Net Market 2nd
Quarter New Value Quarter Quarter New Value Quarter
2006 Assets Change 2006 2005 Assets Change 2005
-------------------------------------------------------------------------
Total
Firm $ 5.13 (0.34) 0.20 $ 5.27 $10.22 (0.49) 0.40 $10.31
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Insti-
tutional
clients 3.16 (0.24) 0.14 3.25 4.78 (0.32) 0.21 4.89
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Mutual
funds 0.25 (0.01) 0.01 0.25 3.22 - 0.06 3.16
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Wrap
programs 1.56 (0.12) 0.05 1.63 2.05 (0.16) 0.12 2.09
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Private
clients 0.17 0.03 - 0.14 0.17 (0.01) 0.01 0.17
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Year to Date Change in AUM Summary (in billions)
-------------------------------------------------------------------------
Year to Date 2006 Year to Date 2005
AUM AUM AUM AUM
End of End of End of End of
3rd Net Market 4th 3rd Net Market 4th
Quarter New Value Quarter Quarter New Value Quarter
2006 Assets Change 2005 2005 Assets Change 2004
-------------------------------------------------------------------------
Total
Firm $ 5.13 (4.65) 0.44 $ 9.34 $10.22 (1.25) 0.60 $10.86
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Insti-
tutional
clients 3.16 (1.19) 0.22 4.13 4.78 (0.58) 0.38 4.98
-------------------------------------------------------------------------
Mutual
funds 0.25 (3.05) 0.13 3.16 3.22 (0.03) 0.03 3.22
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Wrap
programs 1.56 (0.40) 0.07 1.88 2.05 (0.62) 0.19 2.47
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Private
clients 0.17 (0.01) 0.01 0.17 0.17 (0.02) - 0.19
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The decline in AUM during the quarter is the result of net asset withdrawals offsetting market value appreciation from strong investment performance. The decline year-to-date includes the termination of the ClaringtonFunds Inc. relationship, which resulted in approximately $3 billion in net asset withdrawals from mutual funds, as noted in the table above.
OUTLOOK
During the third quarter, management implemented a series of organizational changes to strengthen the firm and revitalize its focus on investment performance and client relations. Thomas R. MacLaren, a 17 year veteran of SEAMARK, was appointed Chief Investment Officer, taking over from Peter Marshall. Marshall, whose duties as Chief Executive Officer had been assumed by Stuart Raftus in March, retired from SEAMARK's Board of Directors in October. MacLaren's appointment ensures continuity in investment approach and certainty with respect to the long-term occupant of this key position. Portfolio management and client relation responsibilities across the company were reviewed and re-aligned, creating an investment and client relations team structure that will improve the company's ability to deliver consistent investment performance and superior client service.
This revitalized organizational structure is expected to improve SEAMARK's ability to attract and retain client assets. It will take time for the benefit of these efforts to reflect positively in SEAMARK's assets under management. To meet the expectations of clients and restore SEAMARK's competitive position in the industry, recent improvement in relative investment performance must be sustained. It will also require time for the enhanced focus on client service to be reflected in client retention rates. Past relative investment performance issues and the organizational changes described above will impact the company's ability to win new business and retain existing client assets in the near term as consultants and clients become comfortable that there will be consistency in SEAMARK's investment discipline and its investment personnel and sustained improvement in investment results.
Management will continue to focus on three key priorities: enhancing investment performance, strengthening existing client relationships, and building new relationships.
BALANCE SHEET
(UNAUDITED)
-------------------------------------------------------------------------
As at September 30, 2006 and December 31, 2005
($ in thousands) 2006 2005
-------------------------------------------------------------------------
ASSETS
Current
Cash and short-term investments $ 6,210 $ 6,387
Temporary investments (note 2) 5,378 5,652
Accounts receivable and prepaid expenses 4,249 7,322
Income tax receivable 146 294
----------------------
15,983 19,655
Goodwill and other intangibles (note 3) 526 -
Capital assets (note 4) 705 753
----------------------
$ 17,214 $ 20,408
----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 1,679 1,651
Future income tax 76 -
----------------------
1,755 1,651
----------------------
Shareholders' Equity
Capital stock (note 3) 5,909 5,797
Less share purchase financing (note 7) (4,867) -
Contributed surplus 332 228
Retained earnings 14,085 12,732
----------------------
15,459 18,757
----------------------
----------------------
$ 17,214 20,408
----------------------
See accompanying notes
STATEMENT OF OPERATIONS (UNAUDITED)
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For the period ended
September 30
($ in thousands, Three Months Year to date
except per share) 2006 2005 2006 2005
-------------------------------------------------------------------------
REVENUE
Institutional clients $ 1,806 $ 2,654 $ 5,788 $ 7,949
Mutual fund clients 162 1,630 4,151 4,783
Private clients
and WRAP accounts 1,896 2,378 6,068 7,451
Investment income 126 102 344 268
---------------------------------------------
3,990 6,764 16,351 20,451
---------------------------------------------
EXPENSES
General and administrative 2,671 1,908 6,978 5,901
Amortization 54 48 153 105
---------------------------------------------
2,725 1,956 7,131 6,006
---------------------------------------------
Earnings before
the following 1,265 4,808 9,220 14,445
Unusual item (note 6) - - 1,020 1,100
---------------------------------------------
Earnings before income taxes 1,265 4,808 8,200 13,345
---------------------------------------------
Income taxes
Current income taxes 483 1,827 3,116 5,071
Future income taxes 5 - 76 -
---------------------------------------------
488 1,827 3,192 5,071
---------------------------------------------
---------------------------------------------
Net earnings $ 777 $ 2,981 $ 5,008 $ 8,274
---------------------------------------------
---------------------------------------------
EARNINGS PER SHARE
Basic $ 0.07 $ 0.28 $ 0.47 $ 0.78
Diluted $ 0.07 $ 0.28 $ 0.44 $ 0.77
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(in thousands)
Basic 10,711 10,717 10,718 10,663
Diluted 11,376 10,786 11,418 10,773
STATEMENT OF RETAINED EARNINGS (UNAUDITED)
-------------------------------------------------------------------------
For the period ended
September 30 Three Months Year to date
($ in thousands) 2006 2005 2006 2005
-------------------------------------------------------------------------
Retained earnings
- beginning of period $ 14,068 $ 12,393 $ 12,732 $ 12,626
Net earnings 777 2,981 5,008 8,274
---------------------------------------------
14,845 15,374 17,740 20,900
Less
Dividends paid 760 2,788 3,655 8,314
-----------------------
---------------------------------------------
Retained earnings
- end of period $ 14,085 $ 12,586 $ 14,085 $ 12,586
---------------------------------------------
---------------------------------------------
STATEMENT OF CASH FLOWS (UNAUDITED)
-------------------------------------------------------------------------
For the period ended
September 30 Three Months Year to date
($ in thousands) 2006 2005 2006 2005
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings
for the period $ 777 $ 2,981 $ 5,008 $ 8,274
Items not affecting cash
Amortization 54 48 153 105
Non-cash compensation
expense 30 28 104 140
Future income tax 5 - 76 -
Gain on disposal of
temporary investments (12) - (12) -
Share purchase
financing (note 7) (117) - (4,867) -
---------------------------------------------
737 3,057 462 8,519
Changes in non-cash
working capital
related to operations 356 708 3,249 (1,044)
---------------------------------------------
Increase in cash from
operating activities 1,093 3,765 3,711 7,475
---------------------------------------------
FINANCING ACTIVITIES
Proceeds from exercised
stock options - 319 - 1,111
Dividends paid (760) (2,788) (3,655) (8,314)
Share issue costs (4) - (4) -
---------------------------------------------
Decrease in cash from
financing activities (764) (2,469) (3,659) (7,203)
---------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (52) (29) (105) (386)
Purchase of
temporary investments (3) (4) (13) (945)
Business
acquisition (note 3) (410) - (410) -
Proceed from sale of
temporary investments 299 - 299 -
---------------------------------------------
Decrease in cash from
investing activities (166) (33) (229) (1,331)
---------------------------------------------
Increase (decrease) in cash
and short-term investments 163 1,263 (177) (1,059)
Cash and short-term
investments
- beginning of period 6,047 4,809 6,387 7,131
---------------------------------------------
Cash and short-term
investments
- end of period $ 6,210 $ 6,072 $ 6,210 $ 6,072
---------------------------------------------
Cash is comprised of
Cash $ 435 $ 525 $ 435 $ 525
Short-term investments 5,775 5,547 5,775 5,547
---------------------------------------------
$ 6,210 $ 6,072 $ 6,210 $ 6,072
---------------------------------------------
See accompanying notes
NOTES TO FINANCIAL STATEMENTS September 30, 2006 AND 2005
(UNAUDITED)
1) Summary of Significant Accounting Policies
These interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles for interim financial information and, accordingly, do not include all disclosures required for annual financial statements.
These statements should be read in conjunction with the December 31, 2005 annual financial statements included in the 2005 Annual Report. These financial statements reflect the same significant accounting policies as those described in the notes to the audited financial statements of SEAMARK Asset Management Ltd. for the year ended December 31, 2005 except for the following:
a) Business Acquisitions
The Company accounts for business acquisitions as purchase transactions. Accordingly, the purchase price of a business transaction is allocated to its identifiable net assets on the basis of estimated fair values as at the date of purchase, including identifiable intangible assets and associated future income tax effects, with any excess being assigned to goodwill.
b) Goodwill and Other Intangibles
Goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment at least annually or when circumstances suggest that impairment may have occurred. Intangible assets with a definite life are amortized on a straight-line basis over their useful life.
2) Temporary Investments
Temporary investments are valued at the lower of cost or market. The market value of temporary investments at September 30, 2006 was $5,784,000 (2005 - $6,050,000).
3) Business Acquisition
On July 31, 2006 the Company acquired 100% of Rudderham Norwood Ellison Investment Counsel Ltd. ("RNE"), an investment counsel company, for consideration of $375,000 in cash and the issuance of 134,088 common shares. The shares are held in escrow and had a weighted average price of $6.82 based on the weighted average share price, the day of, five days before, and five days after the announcement date of the acquisition.
The purchase price may be reduced by $450,000 in the event that RNE does not meet certain revenue targets. Once the outcome is known the contingent consideration will be allocated between the purchase price allocation and compensation expense.
In addition, the release of 51,079 shares from escrow is based on the continued employment of principal shareholders and is automatically forfeited if employment terminates. The shares, held in escrow will be treated as compensation expense over a four year period based on the continued employment of the principal shareholders of the acquired company.
The total purchase price of $526,000 including $35,000 in transactions costs was accounted for using the purchase method and the operating results of RNE have been included in the financial statements as of the acquisition date. The purchase price allocation below is preliminary and management is currently in the process of the identification and valuation of intangible assets. As a result the actual amount allocated to each identifiable asset may vary from the initial recorded amounts.
The preliminary purchase price allocation is as follows:
Assets $
Accounts receivable and prepaid 18
Capital assets 8
Goodwill and other intangibles 526
----------
552
Liabilities
Accounts payable (26)
----------
Total purchase price allocation 526
----------
Consideration is comprised of:
Cash 375
Issuance of shares 116
----------
Total consideration 491
Transaction costs incurred 35
----------
Total purchase price 526
----------
4) Capital Assets
(in thousands)
As at September 30, 2006
Accumulated
Amorti-
Cost zation NBV
-------------------------------------------------------------------------
$ $ $
Furniture and office equipment 589 318 271
Computer equipment 480 287 193
Software 294 75 219
Leasehold improvements 66 44 22
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1,429 724 705
-------------------------------------------------------------------------
As at December 31, 2005
Accumulated
Amorti-
Cost zation NBV
-------------------------------------------------------------------------
$ $
Furniture and office equipment 584 271 $313
Computer equipment 433 239 194
Software 243 25 218
Leasehold improvements 64 36 28
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1,324 571 753
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5) Employee Benefit Plan
The Company contributed $40,000 for the quarter (2005 - $40,000) and $127,000 for the nine months ended September 30, 2006 (2005 - $124,000) to its defined contribution pension plan.
6) Unusual Item
The Company incurred costs of $1,020,000 for the nine months ended September 30, 2006 (2005 - $1,100,000) related to a change in Chief Executive Officer.
7) Share Purchase Financing
The Company advanced two equal forgivable loans totaling $5,000,000 to the President and CEO of the Company in connection with an employment agreement. Under the terms of the agreement the President and CEO is obligated to purchase $7,500,000 of the Company's common shares. The employment agreement provides for forgiveness of $250,000 of the first loan annually subject to the achievement of certain performance criteria. The second loan is also forgivable at $250,000 annually and is subject to the President and CEO fulfilling equivalent service requirements. The loans are also forgivable in the event of termination of employment without cause. The loans are non-interest bearing, have full recourse against the President and CEO and the Company is the beneficiary of a life insurance policy on the life of the President and CEO.
The Company advanced a forgivable loan of $250,000 to a new employee in connection with an employment agreement and for the purchase of common shares of the Company. The employment agreement provides for the forgiveness of $50,000 annually subject to the employee fulfilling equivalent service requirements. The loan is non-interest bearing and the shares are held by the company as security. The shares are released annually in installments of 20%. The current market value of the shares at September 30, 2006 was $254,000.
The loans, less earned or accrued forgiveness, outstanding of $4,867,000 are accounted for in the accompanying balance sheet as share purchase financing and as a result are deducted from shareholders' equity. The related earned or accrued forgiveness of $133,000 for the quarter (2005 - nil) and $383,000 for the nine months ended September 30, 2006 (2005 - nil) is accounted for as compensation expense in the accompanying statement of operations.
8) Stock Option Plan
The Company has reserved 1,000,000 common shares pursuant to a Company stock option plan of which 779,000 remain available for issuance at September 30, 2006. Of the 779,000 remaining, 732,000 are subject to outstanding options issued and 47,000 are available for new option grants. The exercise price of the option is determined by the Compensation Committee of the Board of Directors at the time the option is granted, but cannot be less than the average price of the shares on the last five trading dates preceding the date of the grant. The expiry date of the options is determined by the Compensation Committee of the Board of Directors at the time the option is granted, but cannot be more than ten years from the date of the grant. Options become exercisable either on the anniversary of the grant date or over time at the rate of 20% of the total options granted on each anniversary of the grant date.
The following summarizes the status of the Company's stock options plan as of September 30, 2006 and September 30, 2005 and changes during the periods then ended:
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2006 2005
-------------------------------------------------------------------------
Number Price(*) Number Price(*)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance at June 30 777,000 15.40 529,000 14.29
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Granted nil 100,000 18.29
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Forfeited 45,000 19.90 nil
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Exercised nil 29,000 11.00
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Balance at September 30 732,000 13.34 600,000 15.40
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Total options exercisable 440,200 13.68 327,000 13.81
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(*) weighted average exercise price
The following table summarizes information for stock options outstanding at September 30, 2006:
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Options Outstanding Options Exercisable
-------------------------------------------------------------------------
Remaining
Range of exercise life
prices Number (years)(*) Price(*) Number Price(*)
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$8.69 to $8.69 190,000 9.31 8.69 nil
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$11.00 to $11.00 303,000 4.72 11.00 303,000 11.00
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$16.86 to $17.68 37,000 5.27 17.44 25,000 17.44
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$18.29 to $18.29 85,000 8.72 18.29 17,000 18.29
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$20.19 to $20.98 48,000 6.57 20.57 36,000 15.97
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$23.00 to $23.29 69,000 5.93 23.08 59,200 23.10
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732,000 440,200
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(*) weighted average
>>
Total compensation cost that has been charged against income for the stock option plan for the year is $104,000 (2005 - $140,000).
No options were granted during the quarter ended September 30, 2006 (2005 - 100,000).
The Company's pro-forma net income would be reduced by $35,000 for the quarter ended September 30, 2006 (2005 - $36,000) and $107,000 for the nine months ended September 30, 2006 (2005 - $107,000) had the fair value method been adopted for options granted in 2002. Basic earnings per share would remain unchanged from $0.07 for the quarter and reduced from $0.47 to $0.46 for the nine months ended September 30, 2006 (2005 - reduced from $0.28 to $0.27 and reduced from $0.78 to $0.77, respectively). Diluted earnings per share would remain unchanged from $0.07 for the quarter and reduced from $0.44 to $0.43 for the nine months ended September 30, 2006 (2005 - reduced from $0.28 to $0.27 and reduced from $0.77 to $0.76, respectively).
%SEDAR: 00016315E
For further information: Brent Barrie, Vice-President & Corporate Secretary, SEAMARK Asset Management Ltd., (902) 423-9367
Source: newswire
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