GMP Capital Trust Q1 profit halved to $21M; revenue off 18 per cent to $94.1M
May 9, 2008TORONTO - GMP Capital Trust (TSX:GMP.UN) should be well-positioned for growth in future quarters, given its strong balance sheet, CEO Kevin Sullivan told unitholders Friday after the investment house reported an 18 per cent drop in first-quarter revenue in "challenging market conditions."
While the GMP team was disappointed with the quarter, especially considering the record income it generated in the same period last year, Sullivan told the company's annual meeting "we are relatively pleased with this quarter... given the difficult market environment experienced by all investment dealers."
Nevertheless, he told a conference call before the annual meeting got underway in Montreal, it was the second-worst quarter in the Toronto-based company's history.
GMP also reported a 53 per cent profit setback in the quarter, and its shares sank more than six per cent in early afternoon trading Friday.
"It's purely how bad the markets were in January which contributed to the bulk of that loss," said Sullivan.
"January was a horrendously difficult month in which liquidity dried up to an even greater extent than we anticipated. You get caught in markets like that."
The only worse quarter, he said, "was the Asian meltdown crisis in August 1998, which saw a similar market performance to this quarter where you get a very steep sharp decline with at the same time liquidity drying up."
Despite the tough market conditions, Sullivan said, "we remain cautiously optimistic that our focus on diversifying our business by both business line and geography has provided us with the scaleable platform from which we are able to grow our earnings."
While many competitors have focused on strengthening their balance sheets over the last few months, "we used our strong balance sheet to invest in our businesses" during the first quarter, said Sullivan.
GMP reported Friday it had net income of $21 million in the January-March period, down from $44.5 million a year ago, as revenue receded to $94.1 million.
This was "largely due to lower equity sales and trading results and weaker results from our principle activities in our capital markets business," Sullivan said.
The turbulence in the credit markets during first quarter 2008 was "some of the worst I have seen in my 23 years in the industry," he said.
However, GMP maintained its distribution after posting a return on equity of 29 per cent, "which I believe is exceptional given the current environment," said Sullivan. Year-ago annualized return on equity was 64 per cent.
But, he said, "should the current business environment continue for much longer, it may impact our growth prospects and we would need to re-examine the sustainability of our current monthly distribution level of 14 cents."
Expenses were up nine per cent from a year earlier at $72.1 million, and distributable cash fell 47 per cent to $26.2 million or 41 cents per unit, raising the payout ratio to 102.7 per cent from 47.1 per cent, at 14 cents per unit monthly.
Capital markets revenue was $76.2 million, down 23 per cent from a year-ago top line boosted by the sale of Montreal Exchange Inc. shares.
Wealth management revenue, meanwhile, rose 23 per cent to $13.4 million with $270 million in client assets added during the quarter.
Revenue from alternative investments declined eight per cent to $5.6 million.
GMP also announced Friday that Thomas Budd, one of the co-founders of GMP, is retiring as president, vice-chairman and head of investment banking. Harris Fricker, vice-chairman of investment banking, will become head of investment banking, while Budd remains in a consulting role.
Going forward, said Sullivan, GMP "will continue our diversification and expansion strategy, which should help us withstand the impacts from future disruptions."
"We have not let the current environment deter us from executing our expansion strategies ... we remain committed to solidifying and diversifying our business for long term growth."
GMP shares were trading down $1.24, or 6.5 per cent, at $17.77 at the Toronto Stock Exchange.
