Chronicle Journal: Finance

Power Financial Reports First Quarter 2020 Financial Results

 

Readers are referred to the sections "Non-IFRS Financial Measures and Presentation" and "Forward-Looking Statements" at the end of this release.

 

MONTRÉAL, May 15, 2020 /CNW Telbec/ - Power Financial Corporation (Power Financial or the Corporation) today reported earnings results for the three months ended March 31, 2020.

Power Financial
Consolidated results for the period ended March 31

Highlights

  • Power Financial and Power Corporation of Canada (Power Corporation) completed a reorganization on February 13, 2020. Power Corporation now holds 100% of the issued and outstanding Power Financial common shares. Power Financial shares were delisted from the Toronto Stock Exchange on February 18, 2020. Power Financial preferred shares and debt securities remain outstanding.
  • Great-West Lifeco Inc.'s (Lifeco) consolidated assets under administration at March 31, 2020 were $1.5 trillion, a 6% decrease from December 31, 2019 primarily reflecting the COVID-19 market declines.
  • Lifeco declared a quarterly dividend of $0.4380 per common share payable June 30, 2020, unchanged from last quarter.
  • IGM Financial Inc. (IGM) assets under management at March 31, 2020 of $147.5 billion, a decrease of 8.1% from the prior year and 11.6% from December 31, 2019, due to financial market declines related to COVID-19.
  • IGM declared a quarterly common share dividend of $0.5625 per common share payable July 31, 2020, unchanged from the last quarter.
  • At its annual general meeting held on May 6, 2020, Pargesa Holding SA (Pargesa) approved a dividend of SF2.63 per share, a 2.7% increase.
  • Parjointco N.V. and Pargesa announced on March 11, 2020 a public exchange offer for all Pargesa shares not held by Parjointco to be exchanged for Groupe Bruxelles Lambert (GBL) shares. The offer, which is subject to certain restrictions, is open for acceptance from May 8 to June 8, 2020.

COVID-19
The outbreak of the novel strain of coronavirus, specifically identified as "COVID-19", has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions.

At Power Financial and its group companies, the focus has continued to be on managing the safety and well-being of its people, maintaining operational effectiveness, ensuring that the group can serve its customers, assessing impacts on earnings, liquidity and capital, planning for different potential scenarios and engaging with stakeholders. The respective boards of directors of Lifeco, IGM, Pargesa and GBL utilize their governance structures and processes to oversee the management of the risk and potential impacts presented by the current economic slowdown and other potential consequences due to COVID-19.

The duration and impact of the COVID-19 pandemic is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Corporation and its operating subsidiaries in future periods.

First Quarter
Net earnings attributable to common shareholders were $329 million or $0.50 per share, compared with $536 million or $0.75 per share in 2019.

Adjusted net earnings attributable to common shareholders (a non-IFRS financial measure, see Non-IFRS Financial Measures and Presentation below) were $470 million or $0.71 per share, compared with $474 million or $0.66 per share in 2019.

Contributions to Power Financial's net earnings per share and adjusted net earnings per share were:


2020 [1]

2019

(in dollars per Power Financial share)

Net Earnings

Adjusted Net
Earnings

Net Earnings

Adjusted Net
Earnings

·    Lifeco [2]

0.34

0.54

0.62

0.54

·    IGM

0.14

0.15

0.15

0.14

·    Pargesa

0.12

0.12

0.07

0.07

·    Power Financial Corporate and Other

(0.10)

(0.10)

(0.09)

(0.09)


0.50

0.71

0.75

0.66



[1]

The Corporation completed a substantial issuer bid in the second quarter of 2019 and repurchased 7.0% of its common shares.

[2]

The Corporation participated in Lifeco's substantial issuer bid, in the second quarter of 2019; the number of shares held by the Corporation decreased by 7.4%.

Adjustments in 2020, excluded from adjusted net earnings, were a negative net impact of $141 million or $0.21 per share mainly related to the Corporation's share of Lifeco's adjustments which consist of market-related impacts as well as actuarial assumption changes and management actions. Adjustments in the first quarter of 2019 were a net positive earnings impact of $62 million related to the market-related impacts as well as actuarial assumption changes.

Non-IFRS Financial Measure – Adjusted Net Earnings
Effective the first quarter of 2020, the Corporation introduced an enhanced definition of its non-IFRS earnings measure, Adjusted net earnings. This change is consistent with the introduction of base earnings by Lifeco which was introduced in the first quarter of 2020 to reflect management's view of the operating performance of Lifeco. The definition of Adjustments has been enhanced to include Lifeco's impact of actuarial assumption changes and management actions and direct equity and interest rate market impacts on insurance contract liabilities net of hedging. The comparative periods have been restated to reflect the introduction of this enhanced measure. For additional information, please refer to the Non-IFRS Financial Measures and Presentation section further in this news release.

Great-West Lifeco, IGM Financial and Pargesa
Results for the period ended March 31

GREAT-WEST LIFECO INC.

First Quarter
Net earnings attributable to common shareholders were $342 million or $0.37 per share, compared with $657 million or $0.67 per share in 2019. The sale of U.S. individual life insurance and annuity business closed in the second quarter of 2019, Lifeco's net earnings and adjusted net earnings for the first quarter of 2020 do not include any earnings from this business, which contributed $33 million to net earnings and adjusted net earnings in the first quarter of 2019. Reported net earnings per share for the first quarter of 2020 was $0.37, down from $0.67 in 2019, primarily due to approximately $300 million of market-related impacts including unfavourable basis changes reflecting significant market declines and volatility in the first quarter of 2020 driven by the COVID-19 pandemic.

Adjusted net earnings [1] attributable to common shareholders were $543 million or $0.59 per share, compared with $569 million or $0.58 per share in 2019.

[1]

Described as base earnings by Lifeco. For additional information, please refer to the Non-IFRS Financial Measures and Presentation section further in this news release.

IGM FINANCIAL INC.

First Quarter
Net earnings available to common shareholders were $161 million or $0.68 per share, compared with $168 million or $0.70 per share in 2019.

Assets under management at March 31, 2020 were $147.5 billion, a decrease of 11.6% in the quarter, due to financial market declines related to COVID-19.

PARGESA HOLDING SA

First Quarter
Pargesa reported net earnings of SF6 million, compared with SF91 million in 2019.

Adjusted net earnings were SF11 million, compared with SF94 million in 2019. Adjustments, not included in adjusted net earnings, were a charge of SF5 million in the first quarter.

Pargesa reported a net asset value at March 31, 2020 of SF8,300 million, representing SF98.0 per share, compared with SF10,946 million or SF129.2 per share at December 31, 2019. 

Pargesa adopted IFRS 9 in 2018. Power Financial continues to apply IAS 39; this results in an increase in its share of the contribution from Pargesa of $75 million in the first quarter of 2020, as further described in the table below.  

Dividends on Power Financial Preferred Shares

The Board of Directors declared quarterly dividends on the Corporation's preferred shares.

Dividends payable August 15, 2020 to shareholders of record July 24, 2020:

Series – Stock Symbol

Amount

Series A – PWF.PR.A

Floating rate [1]



[1]

Equal to one quarter of 70% of the average prime rate of two major Canadian chartered banks for the period April 1 to June 30, 2020.

Dividends payable July 31, 2020 to shareholders of record July 10, 2020:

Series

Stock Symbol

Amount


Series

Stock Symbol

Amount

Series D

PWF.PR.E

34.375¢


Series O

PWF.PR.O

36.25¢

Series E

PWF.PR.F

32.8125¢


Series P

PWF.PR.P

14.4125¢

Series F

PWF.PR.G

36.875¢


Series Q

PWF.PR.Q

11.5315¢

Series H

PWF.PR.H

35.9375¢


Series R

PWF.PR.R

34.375¢

Series I

PWF.PR.I

37.50¢


Series S

PWF.PR.S

30¢

Series K

PWF.PR.K

30.9375¢


Series T

PWF.PR.T

26.3438¢

Series L

PWF.PR.L

31.875¢


Series V

PWF.PR.Z

32.1875¢

Extension to provide information to make a Canadian income tax election with Power Corporation

In February 2020, Power Corporation acquired all of the issued and outstanding shares of Power Financial held by holders of Power Financial Common Shares other than Power Corporation and its wholly owned subsidiaries (Former Power Financial Shareholders). Former Power Financial Shareholders who were resident in Canada and did not hold Power Financial Common Shares in a tax-free account such as a registered retirement savings plan or a tax-free savings account would generally realize a taxable gain (or loss) as a result of the acquisition of their Power Financial Common Shares by Power Corporation. Certain Former Power Financial Shareholders can make an election with Power Corporation to defer all or a portion of the gain that might otherwise arise from the disposition of Power Financial Common Shares. As described in the Power Financial Management Proxy Circular, dated January 10, 2020, the deadline for Former Power Financial Shareholders to submit the required information to Power Corporation to make such an election is 120 days after the date of the acquisition of the Power Financial Common Shares. Accordingly, the deadline to provide such information to Power Corporation was originally set to be June 13, 2020.

Power Corporation is extending the deadline to submit the required information to Power Corporation to October 31, 2020. For greater certainty, the statutory deadlines for filing the tax elections with the taxation authorities are not affected by this extension.

Instructions on how to make a tax election with Power Corporation can be found on the Reorganization page in the Investors section of Power Corporation's website at:
https://www.powercorporation.com/en/investors/reorganization/.

About Power Financial

Power Financial, a wholly owned subsidiary of Power Corporation of Canada, is an international management and holding company with interests in financial services and asset management businesses in Canada, the United States and Europe. It also has significant holdings in a portfolio of global companies based in Europe. To learn more, visit www.PowerFinancial.com.

At March 31, 2020, Power Financial held the following economic interests:

 

[1] Undiluted equity interest held by Lifeco, IGM and the Corporation.


 

Earnings Summary


Earnings


(unaudited)

Three months ended

(in millions of Canadian dollars)

March 31,


2020

2019

Adjusted net earnings [1] 



Lifeco [2]

362

384

IGM [2]

99

108

Pargesa [2] 

79

46


540

538

Corporate operations [3]

(35)

(29)

Dividends on perpetual preferred shares

(35)

(35)

Adjusted net earnings [4]

470

474

Adjustments – see below

(141)

62

Net earnings [4]

329

536


Earnings per Share


(unaudited)

Three months ended

(in dollars per share)

March 31,


2020

2019

Adjusted net earnings per share - basic [1]



Lifeco [2]

0.54

0.54

IGM [2]

0.15

0.14

Pargesa [2] 

0.12

0.07


0.81

0.75

Corporate operations [3]

(0.05)

(0.04)

Dividends on perpetual preferred shares

(0.05)

(0.05)

Adjusted net earnings per share [4]  

0.71

0.66

Adjustments – see below

(0.21)

0.09

Net earnings per share [4]

0.50

0.75



[1]

Effective the first quarter of 2020, the Corporation introduced an enhanced definition of its Non-IFRS earnings measures, Adjusted net earnings. The comparative figures have been restated. For additional information, please refer to the Non-IFRS Financial Measures and Presentation section further in this news release.

[2]

The contributions from Lifeco and IGM include an allocation of the results of Wealthsimple Financial Corp., KOHO Financial Inc., Portag3 Ventures Limited Partnership, and Portag3 Ventures II Limited Partnership, based on their respective interests. The contributions from IGM and Pargesa reflect adjustments in accordance with IAS 39.

[3]

Includes operating expenses, financing charges, depreciation, income taxes, interest on cash and cash equivalents, foreign exchange gains (losses) and income (losses) from investments.

[4]

Attributable to common shareholders.


 

Adjustments (not included in adjusted net earnings)



(unaudited)

Three months ended

(in millions of Canadian dollars)

March 31,


2020

2019

Share of Lifeco's adjustments:



Actuarial assumption changes and management actions

(35)

88

Market-related impacts

(100)

(28)


(135)

60

Share of IGM's adjustments:



Share of Lifeco's adjustments [1]

(5)

2

Share of Pargesa's adjustments



Other charges

(1)


(141)

62



[1]

Includes IGM's share of Lifeco's Adjustments for the impact of actuarial assumption changes and management actions and market impacts on insurance contract liabilities, in accordance with the Corporation's definition of Adjusted net earnings.

 

Contribution to Power Financial's Adjusted Net Earnings





Three months ended March 31, 2020

(unaudited)

(in millions of Canadian dollars)

Contribution

to adjusted
net earnings

as reported

Consolidation
entries [1]

Contribution to
Power Financial's

adjusted
net earnings

Lifeco

363

(1)

362

IGM

100

(1)

99

Pargesa

4

75

79



[1]

The contributions from Lifeco and IGM include an allocation of the results of Wealthsimple Financial Corp., KOHO Financial Inc., Portag3 Ventures Limited Partnership, and Portag3 Ventures II Limited Partnership, based on their respective interests. The contributions from IGM and Pargesa reflect adjustments in accordance with IAS 39.

Adjustments to Pargesa's contribution

Power Financial has deferred the adoption of IFRS 9 and continues to apply IAS 39. The following table presents adjustments to the contribution of Pargesa to Power Financial's earnings in accordance with IAS 39:




(unaudited)

2020

2019

(in millions of Canadian dollars)

Q1

Q1

Disposal of interest in Total SA [1]

70

Partial disposal of interest in adidas [1]

18

Impairment charges [1]  

(40)

Disposal of private equity funds and other [2]

20

Reversal on unrealized gains (losses) on private equity funds and other [3]

25

(6)

Total

75

12



[1] 

On January 1, 2018, Pargesa adopted IFRS 9 which resulted in the reclassification of the majority of its investments (excluding private equity funds) from available for sale (AFS) to fair value through other comprehensive income (FVOCI). All changes in fair value of equity investments designated as FVOCI are recognized permanently in other comprehensive income. Power Financial continues to apply IAS 39 and has adjusted its share of these items.

[2]

During the first quarter of 2020, an investment held through private equity funds, classified as fair value through profit or loss (FVPL) in accordance with IFRS 9, was disposed of, resulting in a realized gain. Power Financial's share of the realized gain in accordance with IAS 39 was $10 million. As well, Power Financial recognized its share of a gain on the sale of an other investment in the amount of $10 million, which resulted from the reversal of a previous impairment.

[3]

Pargesa classifies private equity investments at FVPL in accordance with IFRS 9 and recognizes unrealized changes in fair value in earnings. Power Financial does not recognize these unrealized fair value changes in earnings as it continues to classify these private equity funds as available for sale in accordance with IAS 39.  

Net Asset Value

Net asset value represents management's estimate of the fair value of the common shareholders' equity of the Corporation. Net asset value is the fair value of Power Financial's non-consolidated assets less its net debt and preferred shares.




(in millions of Canadian dollars,
except per share amounts)

March 31, 2020

December 31, 2019


Non-consolidated
balance sheet

Fair value
adjustment

Net asset
value

Non-consolidated
balance sheet

Fair value
adjustment

Net asset
value

Assets







Investments







Lifeco 

14,161

917

15,078

13,654

6,976

20,630

IGM

2,813

641

3,454

2,720

2,795

5,515

Parjointco

3,406

(1,188)

2,218

3,954

(1,413)

2,541

Other [1] 

194

134

328

203

127

330

Cash and cash equivalents

1,027

1,027

1,021

1,021

Other assets [2]  

121

121

138

138

Total assets

21,722

504

22,226

21,690

8,485

30,175








Liabilities and preferred shares







Debentures

250

250

250

250

Other liabilities 

295

295

625

625

Perpetual preferred shares

2,830

2,830

2,830

2,830

Total liabilities and preferred shares

3,375

3,375

3,705

3,705








Net value







Common shareholders' equity / Net asset value

18,347

504

18,851

17,985

8,485

26,470








Per share

27.63


28.39

27.08


39.86



[1]

Fair value adjustment is related to Power Financial's investments in Wealthsimple Financial Corp., KOHO Financial Inc., Portag3 Ventures Limited Partnership, and Portag3 Ventures II Limited Partnership.

[2]  

Includes $83 million of dividends declared in the first quarter by IGM and received by the Corporation on April 30, 2020.

Non-IFRS Financial Measures and Presentation

Effective the first quarter of 2020, the Corporation introduced an enhanced definition of its non-IFRS earnings measure, Adjusted net earnings. This change is consistent with the introduction of base earnings (loss) by Lifeco which was introduced in the first quarter of 2020 to reflect management's view of the operating performance of Lifeco. Lifeco defines base earnings (loss) as net earnings excluding the impact of actuarial assumption changes and management actions, direct equity and interest rate market impacts on insurance contract liabilities net of hedging, and items that management believes are not indicative of the company's underlying business results. The definition of Adjustments includes what the Corporation previously presented as other items and also includes Lifeco's impact of actuarial assumption changes and management actions, and direct equity and interest rate market impacts on insurance contract liabilities net of hedging. The definition of Adjustments used in Adjusted net earnings is being adopted to enhance comparability of results between reporting periods and in anticipation of Lifeco's implementation of accounting changes related to IFRS 17, Insurance Contracts, on January 1, 2023. The comparative periods have been restated to reflect the introduction of this enhanced measure.

Net earnings attributable to common shareholders are comprised of:

  • Adjusted net earnings attributable to common shareholders; and
  • Adjustments, which include the after-tax impact of any item that in management's judgment would make the period-over-period comparison of results from operations less meaningful. Adjustments include the Corporation's share of Lifeco's impact of actuarial assumption changes and management actions, direct equity and interest rate market impacts on insurance contract liabilities net of hedging, as well as items that management believes are not indicative of the underlying business results which include those identified by a subsidiary or a jointly controlled corporation.

Management uses these financial measures in its presentation and analysis of the financial performance of Power Financial and believes that they provide additional meaningful information to readers in their analysis of the results of the Corporation. Adjusted net earnings, as defined by the Corporation, assist the reader in comparing the current period's results to those of previous periods as it reflects management's view of the operating performance of the Corporation and its subsidiaries and excludes items that are not considered to be part of the underlying business results from this non-IFRS financial measure.

Adjusted net earnings attributable to common shareholders and adjusted net earnings per share are non-IFRS financial measures that do not have a standard meaning and may not be comparable to similar measures used by other entities.

The Corporation also uses a non-consolidated basis of presentation to present and analyze its results whereby the Corporation's interests in Lifeco, IGM, Portag3 Ventures Limited Partnership, Portag3 Ventures II Limited Partnership, Wealthsimple Financial Corp. and KOHO Financial Inc. are accounted for using the equity method. Presentation on a non-consolidated basis is a non-IFRS presentation. However, it is useful to the reader as it presents the holding company's (parent) results separately from the results of its operating subsidiaries.

Net asset value is commonly used by holding companies to determine their value. Net asset value is the fair value of Power Financial's non-consolidated assets less its net debt and preferred shares. The investments held in public entities (Lifeco, IGM and Pargesa) are measured at their market value and investments in private entities are measured at management's estimate of fair value. Pargesa's net asset value is determined on the basis of current market values for listed shareholdings, plus the fair value of private equity activities and Groupe Bruxelles Lambert treasury shares, less net debt. This measure presents the fair value of the net assets of the holding company to management and investors and assists the reader in determining the value of the holding company.

This news release may also contain other non-IFRS financial measures which are publicly disclosed by the Corporation's subsidiaries such as sales, assets under management and assets under administration. Refer to the "Non-IFRS Financial Measures and Presentation" section of the Corporation's most recent Management's Discussion and Analysis for the definition of non-IFRS financial measures and their reconciliation with IFRS financial measures.

Eligible Dividends
For purposes of the Income Tax Act (Canada) and any similar provincial legislation, all of the above dividends on the Corporation's preferred shares are eligible dividends.

­­Forward-Looking Statements
Certain statements in this news release, other than statements of historical fact, are forward-looking statements based on certain assumptions and reflect the Corporation's current expectations, or with respect to disclosure regarding the Corporation's public subsidiaries, reflect such subsidiaries' disclosed current expectations. Forward-looking statements are provided for the purposes of assisting the reader in understanding the Corporation's financial performance, financial position and cash flows as at and for the periods ended on certain dates and to present information about management's current expectations and plans relating to the future and the reader is cautioned that such statements may not be appropriate for other purposes. These statements may include, without limitation, statements regarding the operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook of the Corporation and its subsidiaries, including the fintech strategy, the expected impact of the COVID-19 pandemic on the Corporation and its subsidiaries' operations, results and dividends, as well as the outlook for North American and international economies for the current fiscal year and subsequent periods, the intended effects of the Reorganization (as defined herein) and the proposed redemption by the Corporation and Power Corporation of certain classes of their First Preferred Shares. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "expects", "anticipates", "plans", "believes", "estimates", "seeks", "intends", "targets", "projects", "forecasts" or negative versions thereof and other similar expressions, or future or conditional verbs such as "may", "will", "should", "would" and "could".

By its nature, this information is subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, many of which are beyond the Corporation's and its subsidiaries' control, affect the operations, performance and results of the Corporation and its subsidiaries and their businesses, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. These factors include, but are not limited to: the impact or unanticipated impact of general economic, political and market factors in North America and internationally, fluctuations in interest rates, inflation and foreign exchange rates, monetary policies, business investment and the health of local and global equity and capital markets, management of market liquidity and funding risks, risks related to investments in private companies and illiquid securities, risks associated with financial instruments, changes in accounting policies and methods used to report financial condition (including uncertainties associated with significant judgments, estimates and assumptions), the effect of applying future accounting changes, business competition, operational and reputational risks, technological changes, cybersecurity risks, changes in government regulation and legislation, changes in tax laws, unexpected judicial or regulatory proceedings, catastrophic events, man-made disasters, terrorist attacks, wars and other conflicts, or an outbreak of a public health pandemic or other public health crises (such as COVID-19), the Corporation's and its subsidiaries' ability to complete strategic transactions, integrate acquisitions and implement other growth strategies, and the Corporation's and its subsidiaries' success in anticipating and managing the foregoing factors.

The reader is cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements. Information contained in forward-looking statements is based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management's perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are believed to be appropriate in the circumstances, including the availability of cash to redeem First Preferred Shares and that the list of factors in the previous paragraph, collectively, are not expected to have a material impact on the Corporation and its subsidiaries. While the Corporation considers these assumptions to be reasonable based on information currently available to management, they may prove to be incorrect.

Other than as specifically required by applicable Canadian law, the Corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.

Additional information about the risks and uncertainties of the Corporation's business and material factors or assumptions on which information contained in forward-looking statements is based is provided in its disclosure materials, including its most recent Management's Discussion and Analysis and Annual Information Form, filed with the securities regulatory authorities in Canada and available at www.sedar.com.

SOURCE Power Financial Corporation

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