Source: The Canadian Press

AGF Management Ltd. executives say they expect growth to ramp up this year, after a weak finish to 2010, with the help of Acuity Funds Ltd., which it is slated to acquire next week.

“This important acquisition comes during a sluggish year of recovery for the global economy,” Blake Goldring, AGF’s chairman and CEO, said on a conference call to analysts Friday.

“It significantly enhances our retail and institutional business and diversifies AGF’s product line up.”

Shares of AGF (TSX:AGF.B) tumbled 5% or 93 cents to $17.93 in afternoon trading Friday after the Toronto-based company reported that its fourth quarter profit fell sharply on higher expenses, lower revenue and the absence of an income tax rebate recorded a year earlier.

Some of those quarterly expenses were related to closing costs from the proposed $325-million takeover of Acuity.

AGF, one of Canada’s remaining independent wealth managers, earned 34 cents per share while revenue was $155.9 million. Analysts, on the whole, had estimated 35 cents per share and $153.9 million in revenue according to figures compiled by Thomson Reuters.

Instead of announcing a dividend increase, as the company usually does at this time of year, it will instead hold it steady, Goldring said. He said the move is prudent as it works through the economic environment and the Acuity takeover. However, he added, the company will review the dividend policy every quarter.

Goldring said the Acuity takeover will help AGF cut costs and increase profit margins as it attempts to increase efficiency in an “ever-competitive environment.”

“The acquisition extends our presence into fixed income and balanced products and introduce our clients to the growing would of socially responsible investing,” he said.

The move combines two of Canada’s mid-sized independent fund managers in an attempt to grow its presence in an industry dominated by big banks and other large financial groups.

AGF said the acquisition will increase assets under management to $51 billion, up from $44 billion. Acuity manages about $7.4 billion for retail, institutional and high net worth investors.

Consolidation is becoming more common as independent firms face both pressures over their fees and competition from big banks who have a wider reach because they can sell mutual funds through their branches.

Banks also are increasing their focus on wealth management, a growing and profitable part of the financial services sector.

In further attempt to diversify, AGF has entered emerging market funds, which are growing in popularity and have been attracting attention from retail investors, Goldring said. It also opened a new office in Hong Kong.

However, many competitors have also been targeting Asian markets, and many have expanded their presence in the region to cash in on the rapidly growing economies and emerging middle classes who are looking to invest.

For the fourth quarter, consolidated profit was down from $45.5 million, or 50 cents per share, while revenue fell from $157.7 million a year earlier when it had benefited from a $9.8-million income tax reduction.

Investment management revenue was flat, but expenses were up by 4.4% to $76.1 million.

Meanwhile, expenses at AGF Trust rose by 4% to $13.7 million as its revenue fell 3.4% to $22.8 million. The revenue decline is due to an ongoing planned reduction in lending activity by the trust.

For the full year ended Nov. 30, consolidated revenue increased to $614.6 million compared to $586.1 million the previous year. Annual net income increased to $116.8 million, up 19.5% from fiscal 2009 or up $32.8% if the one-time income tax reduction in 2009 is excluded.

The annual profit amounted to $1.30 per share, up from $1.09 per share in 2009 or 98 cents per share excluding the income tax reduction.

Barclays Capital analyst John Aiken issued a report saying the fourth-quarter profit was within his expectations. Revenue from investment management was higher than anticipated but that was offset by higher expenses.

“While the Acuity acquisition should help improve profitability to a certain degree, net redemptions at AGF’s legacy business will likely continue to weigh on relative growth. Further lower efficiency will mean that bottom line growth will lag as well,” Aiken wrote.