TORONTO, Oct. 30 /CNW/ - Sprott Inc. (TSX:SII) ("Sprott" or the "Company") today announced its financial results for the three- and nine-month periods ended September 30, 2008.
Q3 2008 Highlights
- Assets under management (AUM) of $5.6 billion, compared to
$7.7 billion as at June 30, 2008 and $5.5 billion as at
September 30, 2007
- Management fees were $32.9 million, an increase of 19% compared to
$27.7 million in Q3 2007
- Base EBITDA rose 9% year-over-year to $15.2 million
- Net income was $3.7 million ($0.02 per share) versus $3.5 million in
Q3 2007
- Launched the Sprott All Cap Fund in September
- One of three lead managers for Star Hedge Managers Corp., which
raised gross proceeds of $75 million in September
- Declared a third quarter dividend of $0.025 per share on
October 28, 2008
"The financial markets have suffered unprecedented declines since the beginning of July across all sectors, causing our assets under management, like most investment managers, to decrease considerably during the third quarter. While we anticipated a market downturn in 2008 and positioned our portfolios defensively, we did not expect investors to punish real, hard assets, in particular gold and gold stocks," said Eric Sprott, President and CEO. "Despite the difficult market conditions, net sales were positive during the period, which we believe is a true testament to our performance track record. However, given the impact of the financial crisis on hedge funds globally, we have increased the liquidity in our hedge funds to deal with possible redemptions."
Mr. Sprott continued: "Throughout our history, we have witnessed a number of performance declines due to adverse market events, and most of these downturns have been followed by periods of significant outperformance in our funds. We remain confident that our investment strategies will deliver strong growth over the long term and support our efforts to increase our market share of the Canadian and global asset management industries. With a strong brand name and portfolio managers with exceptional track records, we believe we have a tremendous growth opportunity ahead of us."
Financial Review
For the three months ended September 30, 2008, AUM decreased by $2.1 billion, or 27%, to $5.6 billion from $7.7 billion as at June 30, 2008. Net sales were $122 million, however, market value depreciation contributed $2.2 billion to the decline in AUM. This compares to net sales of $255 million and gains from investment performance of $131 million in Q3 2007. Since December 31, 2007, AUM has declined by $609 million, or 10%. The decrease reflects net sales of $680 million and market value depreciation of $1.3 billion.
The funds that were affected most by the market turmoil were the "long only" funds, which accounted for 42% of AUM at the end of September compared to 51% at the end of June.
On a year-over-year basis, AUM increased by 1% as a result of net sales of $1.2 billion and market value depreciation of $1.1 billion.
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3 months 3 months 9 months 9 months 12 months
$ millions ended ended ended ended ended
September September September September December
30, 2008 30, 2007 30, 2008 30, 2007 31, 2007
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AUM, beginning
of period 7,726 5,151 6,215 4,239 4,239
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Net sales 122 255 680 876(x) 1,350
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Market value
appreciation of
portfolios (2,242) 131 (1,289) 422 626
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AUM, end of period 5,606 5,537 5,606 5,537 6,215
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(x) Includes the initial public offering of Sprott Molybdenum
Participation Corporation.
In Q3 2008, total revenue increased by 18% to $25.4 million from $21.6 million in Q3 2007. Total revenue consists of management fees, crystallized performance fees, gains (losses) from proprietary investments, and interest and other income. While management fees are earned throughout the year, performance fees (with the exception of one fund and performance fees attributable to redeemed units together termed as crystallized performance fees) are earned on the last day of the fiscal year and therefore are not included in the financial results for the first three quarters of the year.
Management fees rose by 19% to $32.9 million, from $27.7 million in Q3 2007, as average AUM increased by 25% over the same period to $6.7 billion from $5.3 billion.
Crystallized performance fees were $1.3 million, compared to $1.1 million for the corresponding period in 2007. The Sprott offshore funds were the largest contributors to the increase in 2008.
Unrealized losses from proprietary investments totaled $9.7 million. As discussed in the Company's Prospectus dated May 8, 2008, Sprott Asset Management Inc. (SAM) sold the majority of its proprietary investments in anticipation of the initial public offering (IPO). However, SAM retained certain investments that, on a mark-to-market basis, resulted in a net loss from investments for the quarter. In Q3 2007, revenue was negatively impacted by a $0.9 million loss on these investments, as well as a $6.4 million impairment of long-term investments. The long-term investments consisted of investments in oil and gas properties and were distributed to SAM shareholders by way of a dividend-in-kind in April 2008.
Interest and other income increased to $1.0 million, compared to $0.1 million in Q3 2007. The increase is mainly due to early redemption fees and foreign exchange gains on fees receivable from offshore funds.
Expenses were $19.8 million, compared with $12.1 million in Q3 2007. The increase in expenses reflects costs associated with a higher average AUM and management fees, primarily trailer fees, additional employees, as well as the change in the way the Company accounts for quarterly employee bonuses.
Net income was $3.7 million ($0.02 per share), compared with $3.5 million in Q3 2007.
For the nine months ended September 30, 2008, total revenue rose 68% year-over-year to $108.1 million. Management fees increased 33% to $102.3 million, from $76.8 million in the prior year period. Crystallized performance fees were $5.6 million, compared to $1.5 million in the first nine months of 2007. Losses from proprietary investments totaled $4.3 million. Interest and other income increased to $4.6 million, versus $1.1 million in the prior year period. Expenses were $60.6 million compared to $37.5 million for the corresponding period in 2007. Net income was $31.8 million, or $0.22 per share, versus net income of $14.6 million in the nine months ended September 30, 2007.
Third Quarter Dividend
The Company announced on October 28, 2008 that it has declared a dividend of $0.025 per share for the quarter ended September 30, 2008. The dividend will be paid on November 28, 2008 to shareholders of record on November 10, 2008.
Conference Call and Webcast
A conference call and webcast will be held today, Thursday, October 30, 2008, at 11:30 am ET to discuss the company's financial results and outlook for 2008. To access the call, please dial 416-644-3417 or 1-800-732-6179. To access the live webcast, please visit www.sprottinc.com or www.newswire.ca. Participants will require Windows Media Player(TM) to listen to the webcast.
Non-GAAP Financial Measures
This press release includes financial terms (including AUM and net sales) that the Company utilizes to assess the financial performance of its business that are not measures recognized under Canadian generally accepted accounting principles (GAAP). These non-GAAP measures should not be considered alternatives to performance measures determined in accordance with GAAP and may not be comparable to similar measures presented by other issuers. For additional information regarding the Company's use of non-GAAP measures, including the calculation of these measures, please refer to the "Non-GAAP Financial Measures" section of the Company's Management's Discussion and Analysis and its financial statements available on the Company's website at www.sprottinc.com and on SEDAR at www.sedar.com.
Forward-Looking Statements
This release contains "forward-looking statements" which reflect the current expectations of the Company. These statements reflect management's current beliefs with respect to future events and are based on information currently available to management. Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements including, without limitation, those listed under the heading "Risk Factors" in the Company's prospectus. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by the forward-looking statements contained in this release. Although the forward-looking statements contained in this release are based upon what the Company and Sprott Asset Management (SAM) believe to be reasonable assumptions, neither the Company nor SAM can assure investors that actual results, performance or achievements will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this release and neither the Company nor SAM assumes any obligation to update or revise them to reflect new events or circumstances.
About Sprott Inc.
Sprott Inc., through its wholly-owned subsidiary Sprott Asset Management Inc., is an independent asset management company dedicated to achieving superior returns for its investors over time. Sprott Asset Management manages assets primarily for high net worth individuals and institutions, and is the investment manager of the Sprott family of funds. For more information about the Company, please visit www.sprottinc.com.
Summary Financial Information
Balance Sheet Information
----------------------------------
As at As at
September 30, December 31,
2008 2007
$ $
Total Assets 83,302,860 280,872,838
Total Liabilities 20,980,273 142,785,169
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Shareholders' Equity 62,322,587 138,087,669
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2008 2007 2008 2007
$ $ $ $
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Assets Under Management (at period end)
------------------------------------------------------------
Assets
Under
Management 5,606,001,789 5,536,723,922 5,606,001,789 5,536,723,922
Income Statement Information
------------------------------------------------------------
Revenue
Management
fees 32,860,329 27,663,787 102,250,941 76,771,697
Crystallized
Performance
Fees 1,257,621 1,116,281 5,554,039 1,462,060
Unrealized and
realized losses
on proprietary
investments (9,706,266) (887,565) (4,310,148) (7,452,106)
Impairment of
long term
assets - (6,400,000) - (7,537,945)
Other income 720,752 32,013 3,781,373 594,058
Interest income 293,753 72,863 778,087 500,382
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Total revenue 25,426,189 21,597,379 108,054,292 64,338,146
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Expenses
Compensation
and benefits 9,512,719 3,992,356 29,313,289 14,521,230
Trailer fees 7,022,042 6,142,583 22,077,649 17,503,378
General and
administration 2,721,014 1,471,536 7,795,713 3,814,674
Donations 305,778 11,528 996,608 42,428
Amortization 269,031 182,088 382,332 570,253
Interest expense - 284,465 1,024,364
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Total expenses 19,830,584 12,084,556 60,565,591 37,476,327
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Income (loss)
before income
taxes 5,595,605 9,512,823 47,488,701 26,861,819
Provision for
income taxes 1,927,165 5,989,252 15,720,000 12,227,252
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Net income and
comprehensive
income for the
period 3,668,440 3,523,571 31,768,701 14,634,567
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