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Fourth-quarter charges put dent in AGF's bottom line

OSC settlement, increased expenses shape firm's results


Mutual fund company AGF Management Ltd. turned in a loss for the fourth quarter amid rising costs -- including a $29.2-million settlement with the Ontario Securities Commission.

The Toronto-based wealth asset manager said its loss narrowed to $8.1-million, or 9 cents a share, for the three-month period ended Nov. 30 last year, from a loss of $25.9-million or 27 cents, in the year-earlier period. Quarterly revenue rose to $156.6-million, from $153.9-million in 2003.

The loss included a series of one-time charges and gains.

The largest item was last December's settlement with the OSC in which AGF agreed to refund unitholders $29.2-million for permitting some sophisticated investors to trade quickly in and out of its mutual funds, sometimes to the detriment of long-term holders. Other unusual items in the quarter included $5-million in tax benefits and a further $3-million in costs to integrate the company's offices.

Stripping out the impact of certain one-time items, analysts said the company's quarterly profit totals about 10 to 15 cents per share, far short of the 26-cent average estimate of three equity analysts that follow the company.

The bulk of the loss was due to a 49-per-cent increase in expenses to $134.8-million in the quarter, compared with costs of $90.5-million in the same period in 2003.

Costs have climbed as AGF struggles to stem redemptions within its core retail mutual fund operations. The company's emphasis on out-of-favour equity funds has seen retail assets under management slip to about $22.7-billion, down from $29.9-billion in 2001.

Over the past six months, AGF has bulked up its sales team, hired new fund managers, tweaked fund fees and launched a handful of new funds. Blake Goldring, AGF's president and chief executive officer, described 2004 as a "pivotal year" that "built a platform for growth."

"Our operating cash flow is an important driver of growth and the creation of shareholder value. We continue to be on the lookout for strategic acquisitions that fit our game plan and make the business even more robust," Mr. Goldring said in a statement.

But efforts to improve performance will come at a price. AGF warned it expects operating costs in the current fiscal year will remain near 2004 levels, while fee-generating assets under management may be flat.

"Bolstering our sales force, introducing new products and the competitive fee environment may result in reduced margins and a moderation of AGF's financial performance in 2005," the company said in its management's discussion and analysis.

In an interview, John Aiken of National Bank Financial Inc. said "investors may see fruit borne from the level of investment anticipated in 2005. However, that will have a negative impact on short-term profitability."

For the fiscal year ended Nov. 30, AGF said profit rose to $77.3-million or 84 cents a share from $44-million or 47 cents in 2003. Revenue increased 6.5 per cent to $639.9-million, up from $600.8-million in 2003.

For the full year, AGF reported cash flow from operations of $207.8-million or $2.26 a share compared with $208.5-million or $2.25 in fiscal 2003.

© 2007 The Globe and Mail. All rights reserved.

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