Canaccord Genuity Group
Annual Report 2014

Plain-text annual report

To us there are no foreign markets.™ 2014 Annual Report ABOUT CANACCORD GENUITY GROUP INC. Through its principal subsidiaries, Canaccord Genuity Group Inc. (the Company) is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: wealth management and capital markets. Since its establishment in 1950, the Company has been driven by an unwavering commitment to building lasting client relationships. We achieve this by generating value for our individual, institutional and corporate clients through comprehensive investment solutions, brokerage services and investment banking services. The Company has offices in 11 countries worldwide, including wealth management offices located in Canada, Australia, the UK and Europe. Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, France, Germany, Ireland, Hong Kong, mainland China, Singapore, Australia and Barbados. Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX and the symbol CF. on the London Stock Exchange. View the Company’s 2014 online Annual Report canaccordgenuitygroup.com LONDON Two years ago, in the midst of a historic global correction, we harnessed an opportunity to create a business combination that expanded our global footprint and significantly enhanced our relevance to our clients. Our commitment to this strategy has enabled us to improve our competitive position in each of our core markets, and Canaccord Genuity is now a uniquely positioned global investment bank focused on the mid- market. Today, more than two-thirds of our revenue is generated outside of Canada, a testament to the importance of the global platform we have created. To us there are no foreign markets.™ CONTENTS 02 08 16 GLOBAL PERFORMANCE HIGHLIGHTS CANACCORD GENUITY CANACCORD GENUITY WEALTH MANAGEMENT LETTER TO SHAREHOLDERS FINANCIAL HIGHLIGHTS THE VALUE OF OUR GLOBAL PERSPECTIVE OUR VALUES SHAREHOLDER INFORMATION 04 06 07 20 INSIDE BACK COVER CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 1 1 Global Performance Highlights Canaccord Genuity earned record revenue in 2014. Assisted by a resurgent global market environment, our growth can be attributed to strong performances from many of our foreign operations, particularly in investment banking and principal trading. Additionally, our commitment to cost containment and improvements to the operational efficiency of our business has directly and positively impacted our profitability. REVENUE FOR FISCAL 2014 (C$ millions) NET INCOME FOR FISCAL 2014 (C$ millions, excluding significant items) DILUTED EARNINGS PER SHARE (C$, excluding significant items) GEOGRAPHIC DISTRIBUTION OF REVENUE (Percent of total fiscal year revenue) 6 . 3 0 8 $ 2 . 5 5 8 $ 1 . 7 9 7 $ 1 . 4 1 1 $ 0 4 . 1 $ 5 . 7 7 5 $ 9 . 4 0 6 $ . 8 8 6 $ 6 7 . 0 $ . 0 2 4 $ . 2 5 2 $ . 6 5 2 $ 4 5 . 0 $ 5 2 . 0 $ 4 1 . 0 $ 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 UK US Other Canada NEW YORK 2 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT Canaccord Genuity Group Inc. is the publicly traded parent company of a group of financial services businesses that provide investment banking and wealth management services to corporate, institutional and private clients around the world. The two main operating divisions of the Company are Canaccord Genuity, our global capital markets division, and Canaccord Genuity Wealth Management, our global wealth management operation. In fiscal 2014, all our businesses were rebranded under the Canaccord Genuity banner. 68% OF FISCAL 2014 REVENUE WAS GENERATED OUTSIDE CANADA $0.20 PER SHARE FISCAL 2014 DIVIDEND DISTRIBUTION $855 million in annual revenue NCIB PROGRAMME As part of our commitment to improving value for shareholders, we purchased 3,294,144 shares for cancellation under our normal course issuer bid (NCIB) buy-back programme, at an average cost per share of $6.43 during fiscal 2014. FISCAL 2014 REVENUE BY DIVISION 2% 26% 72% Canaccord Genuity Canaccord Genuity Wealth Management Corporate and Other CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 3 LETTER TO SHAREHOLDERS Fellow Shareholders: PAUL D. REYNOLDS Two years ago, in the midst of a historic global correction, we harnessed an opportunity to create a business combination that expanded our global footprint and significantly enhanced our relevance to our clients. The distressed European market allowed us to leverage the strength of the Canadian dollar and complete our strategic acquisition of Collins Stewart Hawkpoint in 2012 at a very attractive valuation. We believed this transaction would prove highly accretive for our business, and deliver the long term growth and quality of earnings that our shareholders expect. As a result, more than two-thirds of Canaccord Genuity’s revenue is currently generated outside of Canada, a testament to the importance of the global platform we have created. During fiscal 2014, we focused on ensuring we were delivering a consistent client experience and invested strategically in areas like fixed income, equity research and investment banking. We also continued to add to the quality and depth of our leadership teams in each of our regions and divisions, and appointed global management for each of our disciplines. In doing so, we have created a platform that encourages cross-border collaboration and generates stronger outcomes for our clients. Our commitment to this strategy has enabled us to improve our competitive position in each of our markets, and Canaccord Genuity is now a uniquely positioned global investment banking firm focused on the mid-market. For the fiscal year, Canaccord Genuity earned $855.2 million in revenue, a record for our business. Assisted by a resurgent global market environment, our growth can be attributed to strong performances from many of our global operations, particularly in investment banking and principal trading. Expenses for the year were $790.7 million, a decrease of 4% from the previous year and evidence that we are growing our business in an efficient and controlled manner. Our increased revenue, in combination with our commitment to cost containment and improvements to the operational efficiency of our business, allowed us to grow our net income excluding significant items to $68.8 million. I am pleased to confirm that our Board of Directors approved a total dividend distribution of $0.20 for the fiscal year. We also continue to be active in share buybacks, and during fiscal 2014, we purchased a total of 3,294,144 shares for cancellation under our normal course issuer bid buy-back programme, as part of our commitment to enhancing value for our shareholders. GLOBAL CAPITAL MARKETS Our capital markets division continues to be a primary driver of our business, earning 72% of the Company’s total revenue for the fiscal year, with the largest contributions coming from our US and UK operations. In all of our regions, we are capturing more lead mandates and growing our market share, as we diversify our coverage and assume a lead bookrunner mentality. The impact of our global expansion efforts was demonstrated in a number of our key geographies this year. Our US capital markets team experienced a 158% increase in underwriting revenues. In the UK, we established consistent advisory and equity transaction leadership and ranked third amongst all UK investment banks for the greatest number of corporate broking clients. In the Asia-Pacific region, we diversified sectorial coverage and increased investment banking revenue by 73%. Our Australian capital markets business was named Best Equities House in the Non-bank Owned category of the 2013 East Coles survey. Our advisory teams also participated in a number of landmark transactions that showcased our firm’s cross-border expertise. Notably, Canaccord Genuity acted as the sole financial advisor to Canada Goose on the sale of its majority stake to Bain Capital, to Ontario Teachers’ Pension Plan on its acquisition of Burton’s Holdings and on the sale of France’s Orpéa to Canada Pension Plan Investment Board. 4 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT “Our global scale and diversified sector coverage make us relevant to a growing number of clients. Our high employee ownership makes us accountable to our business and our shareholders. Our entrepreneurial culture and independent thinking allow us to be nimble and responsive to the evolving needs of our clients.” In the Canadian capital markets, we have had to contend with a decline in the traditionally dominant mining sector. A recent resurgence in volumes and transactional activity in the real estate, technology and industrials sectors has given us confidence that the slowdown is behind us. In fact, we are already seeing an increase in transaction and advisory mandates in our business. Our strong pipeline, in combination with our optimistic outlook for the global economy, gives us confidence in the mid to long term outlook for this business. In our capital markets division, we have actively promoted collaboration between our global specialist teams in all geographies, giving us the ability to share best practices and better coordinate research coverage, trading efforts and deal marketing across regions. STRENGTHENING OUR WEALTH MANAGEMENT DIVISION On a global basis, our wealth management operations generated $228.8 million in revenue for the fiscal year. At the end of fiscal 2014, Canaccord Genuity Wealth Management managed and administered over $30.9 billion of client assets, approximately 65% of which was through our UK and European operations. In Australia, our wealth management business is gaining traction and we are well positioned to gain market share in this geography. During the year, we continued the strategic refocusing of the Canadian wealth management division and significantly reduced operating costs for this business. Despite a challenging market environment, our Canadian wealth management business grew its fee-based advisory business to 32% of revenue, consistent with our goal to increase this stream of business. Reflecting the success of this approach, discretionary assets under management in Canada increased by 44% during the year. These steps, combined with the pending launch of our proprietary portfolio management product, are expected to help drive higher fee generation and enhance the margins of this business. POSITIONED FOR LEADERSHIP IN THE GLOBAL MID-MARKET At Canaccord Genuity, we believe the unique cross-border capabilities and global perspective that we offer our clients are what differentiate us from our competitors, most of whom are mainly focused on their domestic markets and limited in scope. Our priority for the year ahead will be to continue to strengthen collaboration between our global teams with the goal of enhancing and delivering a consistent client experience across all our regions and disciplines. We will continue to support the growth of our businesses through disciplined investment in key personnel and verticals to better serve our growing client base. I would like to thank everyone at Canaccord Genuity for their hard work and dedication to the evolution and growth of our firm. I am pleased to see our teams working together so effectively, as we continue to find opportunities to increase collaboration and better serve our clients in all of our regions. Our global scale and diversified sector coverage make us relevant to a growing number of clients. Our high employee ownership makes us accountable to our business and our shareholders, and our entrepreneurial culture and independent thinking allow us to be nimble and responsive to the evolving needs of our clients. To us there are no foreign markets. Paul D. Reynolds President & Chief Executive Officer June 2014 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 5 Financial Highlights SELECTED FINANCIAL INFORMATION(1)(2) (C$ thousands, except per share and % amounts) 2014 2013 2014/2013 change For the years ended March 31 Canaccord Genuity Group Inc. (CGGI) Revenue Commissions and fees Investment banking Advisory fees Principal trading Interest Other Total revenue Expenses Incentive compensation Salaries and benefits Other overhead expenses(3) Restructuring costs(4) Acquisition-related costs $ 361,647 221,410 139,142 91,313 24,549 17,183 $ 353,125 145,772 179,690 66,406 29,199 22,930 855,244 797,122 $ 413,289 91,135 280,746 5,486 — $ 406,724 88,522 292,242 31,617 1,719 Total expenses 790,656 820,824 Income (loss) before income taxes Net income (loss) Net income (loss) attributable to CGGI shareholders Non-controlling interests Earnings (loss) per common share (EPS) – basic Earnings (loss) per common share (EPS) – diluted Dividends per common share Book value per diluted common share(5) Excluding significant items(6) Total expenses Income before income taxes Net income Net income attributable to CGGI shareholders EPS – basic EPS – diluted Balance sheet data Total assets Total liabilities Non-controlling interests Total shareholders’ equity 64,588 52,057 51,413 644 0.42 0.39 0.20 9.05 $ $ $ $ $ $ $ $ 770,587 84,657 $ 68,846 $ 67,211 $ 0.59 $ 0.54 $ $ 5,014,622 3,831,030 14,912 1,168,680 (23,702) (18,775) (16,819) (1,956) (0.31) (0.31) 0.20 7.68 $ $ $ $ $ $ $ $ 766,893 30,229 $ 25,644 $ 26,207 $ 0.16 $ 0.14 $ $ 4,603,502 3,538,170 16,169 1,049,163 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 8,522 75,638 (40,548) 24,907 (4,650) (5,747) 58,122 6,565 2,613 (11,496) (26,131) (1,719) (30,168) 88,290 70,832 68,232 2,600 0.73 0.70 — 1.37 3,694 54,428 43,202 41,004 0.43 0.40 $ 411,120 292,860 (1,257) 119,517 2.4% 51.9% (22.6)% 37.5% (15.9)% (25.1)% 7.3% 1.6% 3.0% (3.9)% (82.6)% (100.0)% (3.7)% n.m. n.m. n.m. 132.9% 235.5% 225.8% — 17.8% 0.5% 180.1% 168.5% 156.5% 268.8% 285.7% 8.9% 8.3% (7.8)% 11.4% (1) Data is in accordance with IFRS except for book value per diluted common share and figures excluding significant items. See Non-IFRS Measures on page 21. (2) The operating results of the Australian operations have been fully consolidated and a 50% non-controlling interest has been recognized. Results of former Collins Stewart Hawkpoint plc (CSHP) since March 22, 2012 and the wealth management business of Eden Financial Ltd. since October 1, 2012 are also included. (3) Consists of trading costs, premises and equipment, communication and technology, interest, general and administrative, amortization of tangible and intangible assets, and development costs. (4) Consists of restructuring costs mainly in connection with restructuring of our sales and trading operations in Canada and the UK and Europe, as well as certain office closure costs in fiscal 2014. Fiscal 2013 restructuring costs include expense incurred for staff restructuring and reorganization. (5) Book value per diluted common share is calculated as total common shareholders’ equity divided by the number of diluted common shares outstanding and, commencing in fiscal 2014, adjusted for shares purchased under the normal course issuer bid and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. (6) Net income and earnings per common share excluding significant items reflect tax-effected adjustments related to such items. See the Selected Financial Information Excluding Significant Items table on page 30. n.m.: not meaningful Unless otherwise noted, all figures in this report are presented in Canadian dollars and year-over-year percentage changes are calculated based on figures as reported in Canadian dollars. 6 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT The Value of Our Global Perspective In recent years, we have made strategic investments to improve our competitive position and further integrate our global operations to deliver a consistent client experience in all the regions we operate in. At Canaccord Genuity, we are committed to building lasting client relationships, generating innovative ideas and creating shareholder value. Below are some of the ways we are delivering on this promise: 1 STRENGTHENING OUR COMPETITIVE POSITION to become more relevant in each of our core markets • Improved global coordination of investment banking, equity research, and sales and trading capabilities • Global equity research coverage of more than 1,000 companies, reaching all of our clients in Canada, the US, the UK and Europe, and the Asia-Pacific region • Expanded capabilities in fixed income and structured products • Ability to list companies in six countries on 10 exchanges 2 GROWING OUR GLOBAL WEALTH MANAGEMENT BUSINESS and guiding Canadian wealth management back to profitability • Complete Canaccord approach to global wealth management, facilitating growth of managed and fee-based accounts in all regions • Worldwide launch of Global Portfolio Solutions (GPS) portfolio management product expected in 2015 • Launched “Project Dragonfly”, a sophisticated software platform to promote increased use of electronic processing throughout our UK and Europe wealth management business • Invested in advanced advisor training programs to provide our wealth managers with the necessary tools to meet the evolving needs of our growing wealth management client base 3 MAINTAINING A SOLID FINANCIAL POSITION and providing growing returns to shareholders • Diversified geographic, sector and revenue mix • Preserved our strong, liquid balance sheet to support increasing business volumes and investments in our growth • Stable and healthy dividend, $0.20 for the fiscal year • Purchased 3,294,144 shares for cancellation under our normal course issuer bid buy-back programme • Book value of $9.05 per share EMPLOYEES BY GEOGRAPHY (As at March 31, 2014) 5% 14% 48% 33% Canada UK and Europe US Asia-Pacific and Other EMPLOYEES BY DIVISION (As at March 31, 2014) 16% 36% 48% Canaccord Genuity Canaccord Genuity Wealth Management Corporate and Other CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 7 Canaccord Genuity Our capital markets division offers corporations and institutional investors around the world an integrated platform for equity research, sales and trading, advisory and investment banking services that is built on extensive operations in Canada, the US, the UK and Europe, China, Singapore, Australia and Barbados. CANACCORD GENUITY REVENUE 2010–2014 (C$ millions, fiscal years) 8 . 5 1 6 $ 0 . 1 4 5 $ 6 . 8 3 5 $ 6 . 3 6 3 $ 5 . 3 7 3 $ 2010 2011 2012 2013 2014 $616 million in global revenue $36.5 BILLION CANACCORD GENUITY RAISED $36.5 BILLION DURING FISCAL 2014 345 TRANSACTIONS CANACCORD GENUITY PARTICIPATED IN 345 TRANSACTIONS(1) (1) Transactions over $1.5 million. LONDON 8 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT Canaccord Genuity provides investment banking, advisory, sales and trading, research and fixed income services to corporate and institutional clients in 11 countries worldwide. We pride ourselves on our ability to provide clients with a genuinely global perspective on opportunities to grow the value of their businesses and investments. During 2014, we continued to improve global coordination of our investment banking, equity research, and sales and trading capabilities. We also continued to add to the quality and depth of our leadership teams in each of our regions and divisions, and appointed global management for each of our disciplines. In doing so, we have created a platform that encourages cross-border collaboration, and creates stronger outcomes for our clients. In all of our regions, we have diversified our coverage and adopted a lead bookrunner mentality, which has led to a 69% increase in our global underwriting revenue for the fiscal year. By establishing consistent advisory and equity transaction leadership across our global platform, we have increased our market share and continue to improve our relevance to clients. We will continue to support the growth of our business by adding key personnel and verticals to serve our growing client base. Our focus will be on continuing to establish leadership in our global capital markets business. Additionally, in the year ahead, we expect to develop robust sales, trading and research presence in the strategic Singapore market. Our strong pipeline, in combination with our optimistic outlook for the global economy over the coming years, gives us confidence in continued year-over-year improvements across our global capital markets business. FISCAL 2013 REVENUE BY ACTIVITY FISCAL 2014 REVENUE BY ACTIVITY 2% 12% 33% 23% 30% 2% 15% 33% 23% 27% Advisory Commissions Investment Banking Principal Trading Interest and Other CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 9 CANACCORD GENUITY A leading independent investment bank with a global presence FRANKFURT With record revenue from our UK and Europe, US and Asia-Pacific regions, our capital markets division was a significant driver of our performance during fiscal 2014. Our operating results demonstrate the strength of our global business and the success of our efforts to diversify our revenue streams. COMPREHENSIVE AND DIVERSIFIED SECTOR COVERAGE Canaccord Genuity’s global team of investment banking, equity research, and sales and trading professionals are dedicated to providing clients with actionable ideas and opportunities in 18 key sectors of the global economy. Aerospace & Defence Media & Telecommunications Agriculture Metals & Mining CleanTech & Sustainability Paper & Forestry Products Consumer & Retail Real Estate & Hospitality Energy Financials Support Services Technology Healthcare & Life Sciences Transportation & Industrials Infrastructure Leisure Investment Companies Private Equity Canaccord Genuity delivers exceptional value to clients through our unique understanding of global issues and opportunities and our diverse institutional distribution capability. Our integrated full-service platform and highly ranked global research team allow for extensive access to investors around the world. With experienced professionals located in 11 countries worldwide and deep institutional relationships, we take pride in having the broadest account coverage of any mid-market bank. Our unparalleled service offering, in addition to our growing cross-border capabilities, has become a key differentiator of our business. As we continue to focus on integrating our global capital markets business, we expect the momentum built last year to continue through fiscal 2015. That is, Canaccord Genuity should continue to enjoy strong contributions from its various geographical platforms. 29.4% GROWTH IN M&A AND ADVISORY REVENUES SINCE COLLINS STEWART HAWKPOINT ACQUISITION 10 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 1,000 COMPANIES OUR AWARD-WINNING EQUITY RESEARCH TEAM PROVIDES IDEA-DRIVEN COVERAGE OF MORE THAN 1,000 COMPANIES CHICAGO VANCOUVER BEIJING GLOBAL ADVISORY CAPABILITY We have talented professionals forming a unified multilingual team operating from our offices in Canada, the US, the UK, Ireland, France, Germany, China and Australia. Our worldwide M&A capabilities link our clients to opportunities on a global scale. 13.8% INCREASE IN ANNUAL REVENUE GEOGRAPHIC BREAKDOWN OF GLOBAL M&A AND ADVISORY REVENUE DURING FISCAL 2014 3% 12% 21% 64% Canada UK and Europe US Asia-Pacific and Other INVESTMENT BANKING TRANSACTIONS AND REVENUE BY SECTOR DURING FISCAL 2014 Sector Technology Healthcare & Life Sciences Energy Metals & Mining Real Estate & Hospitality Investment Companies Financials Consumer & Retail CleanTech & Sustainability Media & Telecommunications Structured Products Other As a % of investment banking transactions As a % of investment banking revenue 13.8% 12.9% 13.5% 9.0% 9.6% 0.8% 5.9% 2.8% 2.2% 0.6% 21.9% 7.0% 26.4% 15.4% 11.9% 10.5% 7.8% 4.9% 4.6% 4.5% 3.9% 2.6% 0.7% 6.8% Total 100.0% 100.0% ABILITY TO LIST COMPANIES IN SIX COUNTRIES ON 10 EXCHANGES CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 11 CANACCORD GENUITY 34.3% INCREASE IN REVENUE YEAR OVER YEAR DUBLIN PARIS LONDON UK AND EUROPE Canaccord Genuity achieved a record performance in the UK and Europe during fiscal 2014, and we have established ourselves as a market leader in this geography. The breadth and quality of our service offering is being recognized by clients now more than ever before as we continue to win more lead mandates and outperform our peers across key sectors of the market. 35.6% INCREASE IN ADVISORY REVENUE 80.0% INCREASE IN UNDERWRITING REVENUE UK AND EUROPE CAPITAL MARKETS REVENUE (C$ millions, fiscal years) . 3 2 1 2 $ . 1 8 5 1 $ . 7 2 9 $ . 5 2 8 $ . 2 1 5 $ 2010 2011 2012 2013 2014 In the UK and Europe, Canaccord Genuity demonstrated the strength of our competitive advantage during fiscal 2014, generating $212.3 million in revenue for fiscal 2014, a 34.3% increase from the previous year and a record for this business. The strong performance was driven largely by our investment banking division, which boasted revenue of $60.2 million, an 80.0% increase from the previous year. The scale of our investment banking practice was evident throughout the year as we held leading roles in several high-profile IPO transactions including: • £431 million IPO of Poundland Group PLC • £429 million IPO of Foxtons Group PLC • £300 million IPO of The Renewables Infrastructure Group • £208 million IPO of Arrow Group Global PLC • £160 million IPO of Tungsten Corporation PLC RANKED FIRST IN UK BY NUMBER OF IPOs (All UK IPOs during period from 2006 through April 2014) Rank Bank 1 Canaccord Genuity JP Morgan 2 3 Investec 4 Credit Suisse 5 Citi Source: Bloomberg, Dealogic as at April 8, 2014 Total deal value ($US billions) $ 14.9 61.5 9.2 41.7 55.7 Deal count 92 72 49 43 41 12 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 35.2% OF CANACCORD GENUITY’S TOTAL 2014 REVENUE WAS GENERATED IN THE US BOSTON SAN FRANCISCO In the United States, Canaccord Genuity’s capital UNITED STATES markets group earned record revenues, demonstrating the strength of this business, and the impact of strategic initiatives we have taken to grow this business. Our US capital markets business generated a record $216.5 million in revenue during fiscal 2014 – a 41.2% increase from the previous year. This performance was largely attributable to the success of our investment banking business, with revenue of $62.0 million, a 158.4% increase from the prior year. In addition, the active financing market throughout fiscal 2014 was coupled with a strong performance from our International Equities Group, which increased revenues by 52.1%. Our expansion efforts in banking, research, and sales and trading provide us with greater opportunities and make our business well positioned for continuing success. 158.4% INCREASE IN INVESTMENT BANKING REVENUE IN THE US COMPARED TO THE PREVIOUS YEAR The American market remains a major opportunity for Canaccord Genuity, and we are committed to growing our relevance in this market. During the fiscal year, we built upon our existing US fixed income capabilities with the addition of a High Yield and Loan team, giving us an immediate presence in the secondary high yield institutional market, and the ability to reach a growing mid-market client base in the US. We also added significant depth and experience to our research team through new hires in the Healthcare & Life Sciences and Technology sectors, and senior investment bankers covering Technology, Consumer & Retail and Transportation & Industrials. RECORD US REVENUE (C$ millions, fiscal years) . 5 6 1 2 $ . 4 3 5 1 $ . 2 6 0 1 $ . 6 7 9 $ . 5 9 7 $ 2010 2011 2012 2013 2014 On October 23, 2013, our US capital markets division held a charity trading day, where designated agency commissions on that day were donated to Youth, I.N.C. In total, Canaccord Genuity’s US team generated approximately US$1.0 million for at-risk children through the eighth annual Trading Day for Kids. CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 13 CANACCORD GENUITY TORONTO 17.9% GROWTH IN UNDERWRITING REVENUES MONTRÉAL CANADA In Canada, Canaccord Genuity experienced subdued growth as a result of the market environment that persisted throughout fiscal 2014. Despite the macro challenges in this geography, our Canadian business contributed 24% to Canaccord Genuity’s overall revenue during the fiscal year. Canaccord Genuity continues to be the leading independent full-service investment bank in Canada. This business generated $148.5 million in revenue during fiscal 2014, led primarily by an 18% growth in underwriting revenues. Throughout the year, our investment banking team led several prominent M&A and advisory transactions, highlighting the value of our long-standing institutional and corporate relationships: • Canada Goose Inc. on its sale of a majority stake to Bain Capital • Xsens Technologies on its sale to Fairchild Semiconductor • Uranium One Inc. on its sale to ARMZ Uranium Holding Company The strength of our equity underwriting business in Canada remains a fundamental component of our success in this geography. Throughout the year, we led or co-led 39 transactions over $1.5 million in Canada, raising $1.6 billion for clients. The deep sector knowledge of our Canadian research team was recognized this year as Canaccord Genuity was ranked as the top independent dealer in the 2013 Brendan Wood International Canadian Institutional Equity Report. In the 2014 Thomson Reuters StarMine Broker Awards for Canada, Canaccord Genuity’s research was ranked third overall, earning nine awards in total. These honours underscore the quality and relevance of investment ideas that we provide our clients. In total, we participated in 204 transactions, raising $18.6 billion on behalf of clients. Our outlook remains optimistic for fiscal 2015 as all indicators point toward a resurgence in Canadian capital markets activity. M&A AND ADVISORY RANKINGS (C$ millions, fiscal 2014. Transactions completed in Canada by Canadian investment banks) Rank Bank TD Securities 1 RBC Capital Markets 2 CIBC 3 BMO Capital Markets 3 5 Scotiabank 6 Canaccord Genuity Corp. 6 National Bank Financial Inc. 8 GMP Securities 9 FirstEnergy Capital Corp. Source: Bloomberg Deal count 71 41 38 38 33 23 23 18 15 Total deal value (M) $ 34,814 25,700 23,587 15,419 24,150 7,232 7,109 3,838 2,167 14 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT MELBOURNE SINGAPORE 54.4% INCREASE IN REVENUES FOR FISCAL 2014 HONG KONG ASIA-PACIFIC With an expanded service offering and diversified sector coverage, our Asia-Pacific capital markets team has successfully captured greater investment banking and advisory mandates, and built a strong pipeline of activity across sector verticals. During 2014, our investment banking revenue in the region increased by 73%. For the fiscal year, our Asia-Pacific operations participated in 26 transactions, raising $635.6 million for clients. Canaccord Genuity is a leading mid-market investment bank on Singapore’s junior exchange, SGX Catalist, sponsoring 22 companies on this growth-oriented market, which attracts international deals from China, South and Southeast Asia, and Australia. As we continue to establish our capability in the region, we have taken an integrated approach to leadership. Marcus Freeman will now lead Canaccord Genuity’s Asia-Pacific business, in coordination with Alex Tan in our Singapore operation. In addition to overseeing our Australian operations, Marcus will now drive Canaccord Genuity’s coordination efforts with Singapore, and lead efforts in Beijing and Hong Kong, to facilitate a seamless approach to providing our differentiated service offering to clients. In the year ahead, we expect to develop robust sales, trading and research presence in the strategic Singapore market. Notable mandates during fiscal 2014 include: • Financial advisor to Hartawan Holdings Limited on the reverse takeover of Wilton Resources Holdings Pte Ltd. • Two transactions totalling AUD$180.6 million for G8 Education Limited on the ASX • Two transactions totalling AUD$117.0 million for Donaco International Limited on the ASX • SGD$43.5 million IPO for Kim Heng Offshore & Marine Holdings Limited • SGD$70.4 million for ValueMax Group Limited on the SGX AUSTRALIAN CAPITAL MARKETS BUSINESS NAMED BEST EQUITIES HOUSE IN THE NON-BANK OWNED CATEGORY OF THE 2013 EAST COLES SURVEY CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 15 Canaccord Genuity Wealth Management Canaccord Genuity Wealth Management provides comprehensive wealth management solutions and brokerage services to individual investors, private clients, charities and intermediaries, through a full suite of services tailored to the needs of our clients. Our advisors are entrusted with $30.9 billion in assets under administration and management worldwide and operate from 21 offices in Canada, Australia, the UK and the Channel Islands. Canaccord Genuity Wealth Management provides clients with the focused, personalized service they expect from a local investment manager, along with the benefits and backing of a global financial institution. During fiscal 2015, we expect to launch our proprietary Global Portfolio Solutions (GPS) product, which combines research and portfolio management with forward-looking risk management solutions. Canaccord’s product is based on our similar, successful model in the UK, which has been recognized as a best-in-class investing discipline and is therefore expected to be well received by wealth management clients across all our geographies. GLOBAL ASSETS UNDER ADMINISTRATION AND MANAGEMENT (C$ billions, fiscal years) GLOBAL WEALTH MANAGEMENT REVENUE (C$ millions, fiscal years) 1 . 5 3 2 8 . 8 2 2 0 . 3 3 2 3 . 1 0 2 0 . 7 8 1 9 . 0 3 . 9 7 2 8 . 6 2 0 . 7 1 9 . 2 1 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 SYDNEY 16 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT Through acquisitions made over the last two years, we have strategically expanded our wealth management platform into new geographies, enhancing the consistency of our revenue streams through market diversification and increasing our fee-based wealth management revenues. In fiscal 2014, all of our wealth management businesses were rebranded Canaccord Genuity Wealth Management and we invested in a global advertising campaign to support our value proposition. The seamless transition was well received by clients and further strengthens our brand as a global leader in wealth management. During the second half of the fiscal year, we appointed new regional leadership in both our UK and Canadian wealth management operations to advance the operational efficiency of the businesses and improve cross-selling and co-operation between our global offices. Our smaller Australian wealth management operation is also gaining traction, thanks in part to improved brand recognition in the region. Our ongoing priorities for Canaccord Genuity Wealth Management will be focused on strengthening the performance of our Canadian business and continuing to grow assets under administration and management and fee-based revenues globally. $229 million in global revenue $30.9 BILLION IN TOTAL ASSETS UNDER ADMINISTRATION AND MANAGEMENT 21 WORLDWIDE WEALTH MANAGEMENT OFFICES Complete Canaccord embodies our holistic approach to wealth planning by offering a high level of personalized service alongside integrated investment management and financial planning solutions. Canaccord Genuity Wealth Management advisors are committed to providing investors with a broad array of solutions to simplify their busy lives, achieve their financial objectives and map an efficient course towards the coordinates of their life’s destinations. CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 17 CANACCORD GENUITY WEALTH MANAGEMENT ISLE OF MAN 26.5% INCREASE IN ASSETS UNDER MANAGEMENT FOR THE FISCAL YEAR LONDON $20.2 BILLION IN ASSETS UNDER MANAGEMENT REVENUE (C$ millions) . 0 3 1 1 $ . 8 1 9 $ UK AND EUROPE Canaccord Genuity Wealth Management has quickly become an important participant in the UK and European marketplace. With $20.2 billion in assets under management, our UK and Europe wealth management operations earned $113.0 million in revenue. Our 118 investment professionals and fund managers provide highly tailored wealth management, stockbroking and portfolio management services to individual investors, institutions and charities across the region. To prepare for continued growth in the region, fiscal 2014 marked the kickoff of Project Dragonfly, the implementation of a sophisticated software platform designed to increase electronic processing throughout our UK and Europe wealth management business. Our investment in this world-class infrastructure will help further facilitate significant business expansion, and this transformational project is expected to be complete within the 2014 calendar year. The highly competitive UK wealth management industry is in the midst of a consolidation period, and we expect to be a major participant in the aggregation activity in the region. In March, David Esfandi was appointed Chief Executive of Canaccord Genuity Wealth Management in the UK. Concurrent with this appointment, Stephen Massey assumed the role of Chairman of Canaccord Genuity Wealth Management in the UK. Together, David and Stephen possess the necessary leadership to help propel the growth of this business in the coming years. 60.6% FEE-BASED REVENUE 118 PROFESSIONALS IN FIVE OFFICES 2013 2014 ASSETS UNDER MANAGEMENT (C$ billions) . 2 0 2 $ . 9 5 1 $ 2013 2014 18 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT CALGARY 22.2% DECREASE IN ANNUAL EXPENSES SYDNEY ASSETS UNDER MANAGEMENT – DISCRETIONARY, AND FEE-BASED REVENUE AS % OF TOTAL REVENUE 32.2% 26.2% 4 0 2 1 $ , 18.9% 7 7 6 $ 5 3 8 $ 12.8% 13.0% 6 4 5 $ 5 4 4 $ 2010 2011 2012 2013 2014 Assets under management – discretionary (C$ millions) Fee-based revenue as a % of total revenue In our Canadian wealth management CANADA business, an increase in fee-based and managed accounts led to a 44% increase in total assets under management and grew fee-based revenue to 32%, a new record for this region. Throughout the year, we continued the strategic repositioning of this division and made important changes to better align our service offering with the changing needs and preferences of our Canadian clients. In January, we appointed Stuart Raftus as President of Canaccord Genuity Wealth Management in Canada. With more than 28 years of experience in the securities business, Stuart’s proven expertise in enhancing operational environments and exceptional commitment to client service make him well suited to lead this division. We have focused in markets where we have developed a significant presence and those that show prospects for market share growth. We have implemented training programs to ensure our wealth management professionals have the tools and expertise to provide holistic wealth management advice to clients with diverse financial planning needs. And importantly, we have made operational and administrative adjustments which will meaningfully impact our margins. These steps, in combination with a more robust Canadian market, are expected to help this division become a greater contributor to the overall franchise. We are committed to growing our assets under management and advisory fees and, with our stronger client service philosophy, gaining new client relationships and increasing share-of-wallet from our existing clients. ASIA-PACIFIC Canaccord Genuity Wealth Management has offices located in Melbourne and Sydney and offers services to a growing number of Australian and Southeast Asian investors. Our team of nine advisors has continued to build momentum, increasing assets under management by 23% during fiscal 2014, to $555 million. As we build out our global wealth management offering, we expect to expand our presence in this important geography. ASSETS UNDER MANAGEMENT (C$ millions) . 0 5 5 5 $ . 0 1 5 4 $ 2013 2014 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 19 Our Values Seven key values drive Canaccord Genuity employees and management in delivering results to our shareholders, clients and community. These values support our unwavering commitment to building lasting client relationships, creating shareholder value and generating innovative ideas. Pursuing and living up to these values is something we take great pride in. 1 WE PUT OUR CLIENTS FIRST. We develop deep trust with our clients through detailed consultation, appropriate investment ideas and value-added services. 2 A GOOD REPUTATION IS OUR MOST-VALUED CURRENCY. Integrity and respect for client confidentiality are the basis of all our relationships. 3 IDEAS ARE THE ENGINE OF OUR BUSINESS. Our ability to generate original, quality ideas – for clients and for ourselves – positions us ahead of the competition globally. 4 WE ARE AN ENTREPRENEURIAL, HARD-WORKING CULTURE. We believe that highly qualified, motivated professionals working together in an entrepreneurial environment results in superior client service and shareholder value. 5 WE STRIVE FOR CLIENT INTIMACY. The more detailed our understanding of our clients’ needs and objectives, the better positioned we are to meet them. 6 WE ARE DEDICATED TO CREATING EXEMPLARY SHAREHOLDER VALUE. We are committed to aligning the interests of our people with fellow Canaccord shareholders through high employee share ownership. We believe that ownership motivates the ideas and efforts that lead to value creation. 7 TO US THERE ARE NO FOREIGN MARKETS.™ Our clients benefit from our truly global perspective. We deliver insightful, actionable ideas from local and international markets through our continued pursuit and evaluation of global opportunities. 20 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT To us there are no foreign markets.™ Fiscal 2014 Annual MD&A and Financial Statements Financial Review 21 21 21 23 24 27 27 28 29 33 36 48 49 49 50 50 51 Management’s Discussion and Analysis Non-Ifrs Measures Business Overview Market Data Key Developments During fiscal 2014 Market Environment During fiscal 2014 fiscal 2015 Outlook Overview of Preceding Years – fiscal 2013 vs. 2012 financial Overview Quarterly financial Information Business segment results financial Condition Off-Balance sheet Arrangements Liquidity and Capital resources Preferred shares Outstanding Preferred share Data Outstanding Common share Data 52 53 53 53 55 58 58 share-Based Payment Plans International financial Centre foreign Exchange related Party Transactions Critical Accounting Policies and Estimates future Changes in Accounting Policies and Estimates Disclosure Controls and Procedures and Internal Control over financial reporting risk Management Dividend Policy Dividend Declaration Additional Information Independent Auditors’ report Consolidated financial statements and Notes 59 62 62 62 63 64 110 supplemental Information 116 Glossary Caution RegaRding FoRwaRd-looking statements: This document may contain “forward-looking statements” (as defined under applicable securities laws). These statements relate to future events or future performance and reflect management’s expectations, beliefs, plans, estimates, intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts, including business and economic conditions and Canaccord’s growth, results of operations, performance and business prospects and opportunities. such forward-looking statements reflect management’s current beliefs and are based on information currently available to management. In some cases, forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, “target”, “intend”, “could” or the negative of these terms or other comparable terminology. Disclosure identified as an “Outlook” including the section entitled “fiscal 2015 Outlook” contains forward-looking information. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and a number of factors could cause actual events or results to differ materially from the results discussed in the forward-looking statements. In evaluating these statements, readers should specifically consider various factors that may cause actual results to differ materially from any forward-looking statement. These factors include, but are not limited to, market and general economic conditions, the nature of the financial services industry and the risks and uncertainties discussed from time to time in the Company’s interim condensed and annual consolidated financial statements and its annual report and AIf filed on www.sedar.com as well as the factors discussed in the section entitled “risk Management” in this MD&A, which include market, liquidity, credit, operational, legal and regulatory risks. Material factors or assumptions that were used by the Company to develop the forward-looking information contained in this document include, but are not limited to, those set out in the fiscal 2015 Outlook section in the annual MD&A and those discussed from time to time in the Company’s interim condensed and annual consolidated financial statements and its annual report and AIf filed on www.sedar.com. The preceding list is not exhaustive of all possible risk factors that may influence actual results. readers are cautioned that the preceding list of material factors or assumptions is not exhaustive. Although the forward-looking information contained in this document is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. The forward-looking statements contained in this document are made as of the date of this document and should not be relied upon as representing the Company’s views as of any date subsequent to the date of this document. Certain statements included in this document may be considered “financial outlook” for purposes of applicable Canadian securities laws, and such financial outlook may not be appropriate for purposes other than this document. Except as may be required by applicable law, the Company does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking information, whether as a result of new information, further developments or otherwise. management’s discussion and analysis fiscal year 2014 ended March 31, 2014 – this document is dated June 3, 2014. The following discussion of Canaccord Genuity Group Inc.’s financial condition, financial performance and cash flows is provided to enable a reader to assess material changes in the financial condition, financial performance and cash flows for the year ended March 31, 2014 compared to the preceding fiscal year, with an emphasis on the most recent year. Unless otherwise indicated or the context otherwise requires, the “Company” refers to Canaccord Genuity Group Inc. and “Canaccord” refers to the Company and its direct and indirect subsidiaries. “Canaccord Genuity” refers to the investment banking and capital markets segment of the Company. The Management’s Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements for the years ended March 31, 2014 and 2013, beginning on page 63 of this report. Canaccord’s financial information is expressed in Canadian dollars unless otherwise specified. The Company’s consolidated financial statements for the years ended March 31, 2014 and 2013 are prepared in accordance with International financial reporting standards (Ifrs). non-iFRs measures Certain non-Ifrs measures are utilized by Canaccord as measures of financial performance. Non-Ifrs measures do not have any standardized meaning prescribed by Ifrs and are therefore unlikely to be comparable to similar measures presented by other companies. Non-Ifrs measures presented include assets under administration, assets under management, book value per diluted common share, return on common equity and figures that exclude significant items. Canaccord’s capital is represented by common shareholders’ equity and, therefore, management uses return on common equity (rOE) as a performance measure. Also used by the Company as a performance measure is book value per diluted common share. Book value per diluted common share is calculated as total common shareholders’ equity divided by the number of diluted common shares outstanding and, commencing in Q1/14, adjusted for shares purchased under the normal course issuer bid (NCIB) and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. Assets under administration (AUA) and assets under management (AUM) are non-Ifrs measures of client assets that are common to the wealth management business. AUA – Canada, AUM – UK and Europe, or AUM – Australia is the market value of client assets managed and administered by Canaccord from which Canaccord earns commissions or fees. This measure includes funds held in client accounts as well as the aggregate market value of long and short security positions. AUM – Canada includes all assets managed on a discretionary basis under programs that are generally described as or known as the Complete Canaccord Investment Counselling Program and the Complete Canaccord Private Investment Management Program. services provided include the selection of investments and the provision of investment advice. Canaccord’s method of calculating AUA – Canada, AUM – Canada, AUM – UK and Europe or AUM – Australia may differ from the methods used by other companies and therefore may not be comparable to other companies. Management uses these measures to assess operational performance of the Canaccord Genuity Wealth Management business segment. AUM – Canada is also administered by Canaccord and is included in AUA – Canada. financial statement items that exclude significant items are non-Ifrs measures. significant items for these purposes are defined as including restructuring costs, amortization of intangible assets and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions. see the selected financial Information Excluding significant Items table on page 30. Management believes that these non-Ifrs measures will allow for a better evaluation of the operating performance of Canaccord’s business and facilitate meaningful comparison of results in the current period to those in prior periods and future periods. figures that exclude significant items provide useful information by excluding certain items that may not be indicative of Canaccord’s core operating results. A limitation of utilizing these figures that exclude significant items is that the Ifrs accounting for these items does in fact reflect the underlying financial results of Canaccord’s business; thus, these effects should not be ignored in evaluating and analyzing Canaccord’s financial results. Therefore, management believes that Canaccord’s Ifrs measures of financial performance and the respective non-Ifrs measures should be considered together. Business overview Through its principal subsidiaries, Canaccord Genuity Group Inc. is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: wealth management and capital markets. since its establishment in 1950, Canaccord has been driven by an unwavering commitment to building lasting client relationships. We achieve this by generating value for our individual, institutional and corporate clients through comprehensive investment solutions, brokerage services and investment banking services. Canaccord has offices in 11 countries worldwide, including wealth management offices located in Canada, Australia, the UK and Europe. Canaccord Genuity, the Company’s international capital markets division, has operations in Canada, the Us, the UK, france, Germany, Ireland, Hong Kong, mainland China, singapore, Australia and Barbados. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 21 MANAGEMENT’s DIsCUssION AND ANALYsIs Canaccord Genuity Group Inc. is publicly traded under the symbol Cf on the TsX and the symbol Cf. on the London stock Exchange. Canaccord series A Preferred shares are listed on the TsX under the symbol Cf.Pr.A. Canaccord series C Preferred shares are listed on the TsX under the symbol Cf.Pr.C. Our business is affected by the overall condition of the worldwide equity and debt markets. aBout CanaCCoRd’s opeRations Canaccord Genuity Group Inc.’s operations are divided into two business segments: Canaccord Genuity (investment banking and capital markets operations) and Canaccord Genuity Wealth Management. Together, these operations offer a wide range of complementary investment banking services, investment products and brokerage services to Canaccord’s institutional, corporate and private clients. Canaccord’s administrative segment is referred to as Corporate and Other. Canaccord genuity Canaccord Genuity offers corporations and institutional investors around the world an integrated platform for equity research, sales and trading, and investment banking services that is built on extensive operations in Canada, the UK, Europe, the Us, China, singapore, Australia and Barbados. Canaccord genuity wealth management Canaccord’s wealth management operations provide comprehensive wealth management solutions and brokerage services to individual investors, private clients, charities and intermediaries, through a full suite of services tailored to the needs of clients in each of the markets the division operates in. Canaccord’s growing wealth management division now has Investment Advisors (IAs), investment professionals and fund managers in Canada, Australia, the UK and offshore locations (the Channel Islands and the Isle of Man). Corporate and other Canaccord’s administrative segment, described as Corporate and Other, includes revenues and expenses associated with providing correspondent brokerage services, bank and other interest, foreign exchange gains and losses, and activities not specifically allocable to either the Canaccord Genuity or Canaccord Genuity Wealth Management divisions. Also included in this segment are Canaccord’s operations and support services, which are responsible for front- and back-office information technology systems, compliance and risk management, operations, legal, finance, and all administrative functions. Corporate structure Canaccord Genuity Group Inc. US sub-group 50% Canaccord Genuity Corp. (Canada) Canaccord Genuity Wealth Management (USA) Inc. Canaccord Genuity Inc. (US) Canaccord Genuity Wealth (International) Limited (Channel Islands) Canaccord Genuity Wealth Limited (UK) Canaccord Genuity Limited (UK) Canaccord Genuity Asia (China and Hong Kong) Canaccord Genuity (Australia) Limited Canaccord Genuity (Barbados) Ltd. Canaccord Genuity Singapore Pte Ltd. The chart shows principal operating companies of the Canaccord group. 22 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs Business aCtivity Our business is subject to the overall condition of the worldwide debt and equity markets. The timing of revenue recognition can also materially affect Canaccord’s quarterly results. The majority of revenue from underwriting and advisory transactions is recorded when the transaction has closed and, as a result, quarterly results can also be affected by the timing of our capital markets business. Canaccord has taken steps to reduce its exposure to variances in the equity markets and local economies by diversifying not only its industry sector coverage but also its international scope. Historically, the Company’s diversification across major financial centres has allowed it to benefit from strong equity markets. market data total FinanCing value By exChange Q1/14 Q2/14 Q3/14 Q4/14 Fiscal 2014 fiscal 2013 fiscal 2014/ 2013 change TsX and TsX Venture (C$ billions) AIM (£ billions) NAsDAQ (Us$ billions) 10.9 0.8 15.0 8.9 0.7 16.1 14.1 1.7 21.4 14.8 1.9 19.8 48.7 5.1 72.3 45.8 2.8 49.5 6.3% 82.1% 46.1% source: TsX statistics, LsE AIM statistics, Equidesk Total financing values on each of the TsX, TsX Venture Exchange, AIM, and NAsDAQ experienced increases compared to the previous year. impaCt oF Changes in Capital maRkets aCtivity As a brokerage firm, Canaccord derives its revenue primarily from sales commissions, underwriting and advisory fees, and trading activity. As a result, the Company’s business is materially affected by conditions in the financial marketplace and the economic environment, primarily in North America and Europe, and to some degree Asia and Australia. Canaccord’s long term international business development initiatives over the past several years have laid a solid foundation for revenue diversification. Canaccord’s conservative capital strategy allows the Company to remain competitive in today’s changing financial landscape. During fiscal 2014, Canaccord’s capital markets activities were focused on the following sectors: Metals and Mining, Energy, Technology, Health Care and Life sciences, Agriculture, Media and Telecommunications, financials, Consumer and retail, real Estate and Hospitality, Infrastructure, Transportation and Industrials, Paper and forestry Products, CleanTech and sustainability, support services, Aerospace and Defense, Leisure, Diversified, Private Equity and Investment Companies. Coverage of these sectors included investment banking, mergers and acquisitions (M&A) and advisory services, and institutional equity activities, such as sales, trading and research. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 23 MANAGEMENT’s DIsCUssION AND ANALYsIs key developments during Fiscal 2014 CoRpoRate • On July 9, 2013, Canaccord Genuity announced that Paul Reynolds assumed the position of Chairman of Canaccord Genuity Limited in the UK • On August 7, 2013, the Company held its 2013 Annual General Meeting of shareholders, where all nominated directors were re-elected to the Board • On August 8, 2013, the Company renewed its normal course issuer bid (NCIB)/buy-back programme, which provides the Company with the ability to purchase, at its discretion, up to 5,136,948 of its common shares through the facilities of the TsX for cancellation. During fiscal 2014, the Company purchased 3,294,144 of its common shares under the terms of its NCIB • 3,248,544 common shares purchased under the NCIB up to the end of fiscal 2014 were cancelled and the remaining 45,600 common shares purchased during fiscal 2014 were held in treasury until subsequently cancelled on April 30, 2014 • On October 1, 2013, Canaccord Financial Inc. was renamed Canaccord Genuity Group Inc. • On October 23, 2013, Canaccord Genuity Inc. (Canaccord Genuity’s US capital markets division) held a charity trading day, where designated commissions from equity, electronic and agency options trades on that day were donated to Youth, I.N.C. In total, Canaccord Genuity’s Us team generated approximately Us$1.0 million for at-risk children through the eighth annual Trading Day for Kids • On January 15, 2014, Canaccord Genuity appointed Stuart Raftus as President of Canaccord Genuity Wealth Management in Canada • On March 26, 2014, Canaccord Genuity appointed David Esfandi as Chief Executive of Canaccord Genuity Wealth Management in the UK • On March 26, 2014, Canaccord Genuity announced that Stephen Massey assumed the position of Chairman of Canaccord Genuity Wealth Management in the UK CanaCCoRd genuity • Canaccord Genuity generated record revenue of $615.8 million in fiscal 2014 • Net income before taxes excluding significant items(1) was $86.6 million, an increase of $52.6 million compared to the prior year • Canaccord Genuity led 79 transactions globally, each over $1.5 million, to raise total proceeds of C$4.0 billion during fiscal 2014. Of this: • Canada led 39 transactions, which raised C$1.6 billion • The UK led 12 transactions, which raised C$1.4 billion • The US led 15 transactions, which raised C$754.7 million • Asia and Australia operations led 13 transactions, which raised C$316.1 million • During fiscal 2014, Canaccord Genuity participated in a total of 345 transactions globally, each over $1.5 million, to raise gross proceeds of C$36.5 billion. Of this: • Canada participated in 204 transactions, which raised C$18.6 billion • The UK participated in 31 transactions, which raised C$6.4 billion • The US participated in 84 transactions, which raised C$10.9 billion • Asia and Australia operations participated in 26 transactions, which raised C$635.6 million • During fiscal 2014, Canaccord Genuity led or co-led the following transactions: • £431.0 million for Poundland Group PLC on the LSE • £428.7 million for Foxtons Group PLC on the LSE • US$700.4 million for Abengoa S.A. on the NASDAQ • Two transactions totalling £366.2 million for The Renewables Infrastructure Group Limited on the LSE • £326.3 million for Playtech PLC on the LSE • £240.0 million for Brit Insurance PLC on the LSE figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) 24 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs • £211.0 million for Circassia Pharmaceuticals PLC on the LSE • £210.5 million for Quindell PLC on AIM • £207.8 million for Arrow Global Group PLC on the LSE • US$345.0 million for 3D Systems on the NYSE • £169.0 million for Optimal Payments PLC on AIM • £160.0 million for Tungsten Corporation PLC on AIM • Two transactions totalling C$258.9 million for Pure Industrial Real Estate Trust on the TSX • £125.4 million for Caracal Energy Inc. on the LSE • £125.0 million for Saffron Housing Finance PLC on the LSE • Two transactions totalling US$199.8 million for Emerald Oil, Inc. on the NYSE • C$224.3 million for Goldcorp Inc. in a secondary offering of Primero Mining Corp. shares on the TSX • £109.2 million for Monitise PLC on AIM • Two transactions totalling AUD$180.6 million for G8 Education Limited on the ASX • C$175.0 million for Bellatrix Exploration Limited on the TSX • Two transactions totalling C$173.6 million for DHX Media Ltd. on the TSX • C$172.5 million for Artis REIT on the TSX • £86.0 million for HICL Infrastructure Company Limited on the LSE • Three transactions totalling C$187.8 million for HealthLease Properties REIT on the TSX • £73.0 million for Tyman PLC on AIM • US$116.2 million for Lannett Company, Inc. on the NYSE • US$113.0 million for DP Aircraft I Limited on the Specialist Fund Market of the LSE and CISE • Two transactions totalling AUD$117.0 million for Donaco International Limited on the ASX • US$90.1 million for Synergy Pharmaceuticals on the NASDAQ • £48.8 million for MedicX Fund Limited on the LSE • US$86.3 million for Derma Sciences, Inc. on the NASDAQ • C$75.0 million for Redknee Solutions Inc. on the TSX • £39.9 million for Brewin Dolphin PLC on the LSE • Two transactions totalling C$102.1 million for Concordia Healthcare Corporation on the TSX • Two transactions totalling C$87.7 million for Halogen Software Inc. on the TSX • C$65.0 million for MINT Income Fund on the TSX • SGD$70.4 million for ValueMax Group Limited on the SGX • In Canada, Canaccord Genuity raised $853.1 million for government bond issuances and $74.6 million for corporate bond issuances during fiscal 2014 • During fiscal 2014, Canaccord Genuity advised on 63 transactions, including the following: • Xsens Technologies on its sale to Fairchild Semiconductor • Canada Goose Inc. on its sale of a majority stake to Bain Capital • Uranium One Inc. on its sale to ARMZ Uranium Holding Company • The Co-operative Bank PLC on its financial restructuring • Encore Capital Group and J.C. Flowers & Co. on the acquisition of Cabot Credit Management • Independent News & Media PLC on the sale of its South African subsidiary • Montagu Private Equity on the disposal of Unifeeder A/S to Nordic Capital • Marlin Financial Group on its disposal to Cabot Credit Management Limited CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 25 MANAGEMENT’s DIsCUssION AND ANALYsIs • Caffè Nero on the refinancing of its debt facilities • May Gurney Integrated Services PLC on the recommended takeover offer by Kier Group PLC • Dr. Jean-Claude Marian on the sale of a 15% stake in Orpéa to the Canada Pension Plan Investment Board • William Investments Limited on the disposal of Norland Managed Services Limited to CBRE Group, Inc. • Camac Energy on the acquisition of an interest in the OML 120/121 blocks offshore Nigeria • Ontario Teachers’ Pension Plan on its acquisition of Burton’s Holdings Limited • AXA Private Equity and Trescal Group’s Management team on its acquisition of Trescal • Investcorp on the disposal of TDX Group to Equifax Inc. • Afferro Mining Inc. on its disposal to International Mining & Infrastructure Corporation PLC • KEYreit on its acquisition by Plazacorp Retail Properties Limited • Safran Group on its joint venture with Albany International Corp. • Oaktree Capital Management on its co-investment in the new chemical fleet with Navig8 • Palomar Medical Technologies, Inc. on its acquisition by Cynosure, Inc. wealth management (gloBal) • Globally, Canaccord Genuity Wealth Management generated $228.8 million in revenue during fiscal 2014 • Total assets under administration in Canada and assets under management in the UK, Europe and Australia were $30.9 billion at March 31, 2014(1) wealth management (noRth ameRiCa) • Canaccord Genuity Wealth Management (North America) generated $111.0 million in revenue during fiscal 2014 • Net loss before income taxes was $18.1 million • Assets under administration were $10.2 billion as of March 31, 2014, down 3% from $10.4 billion at the end of fiscal 2013(1) • Assets under management were $1.2 billion, up 44% from $835 million at the end of fiscal 2013(1) • At March 31, 2014, Canaccord Genuity Wealth Management had 160 Advisory Teams in Canada(2), a decrease of 18 Advisory Teams from March 31, 2013 wealth management (uk and euRope) • Canaccord Genuity Wealth Management (UK and Europe) generated $113.0 million in revenue and, excluding significant items, recorded net income of $18.6 million before taxes in fiscal 2014(3) • Assets under management (discretionary and non-discretionary) were $20.1 billion (£10.9 billion), an increase of 27% from $15.9 billion (£10.2 billion) at the end of fiscal 2013(1) • At March 31, 2014, Canaccord Genuity Wealth Management had 118 investment professionals and fund managers in the UK and Europe see Non-Ifrs Measures on page 21. Advisory Teams are normally comprised of one or more IAs and their assistants and associates, who together manage a shared set of client accounts. Advisory Teams that are led by, or only include, an IA who has been licensed for less than three years are not included in our Advisory Team count, as it typically takes a new IA approximately three years to build an average-sized book of business. figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) (2) (3) 26 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs market environment during Fiscal 2014 A strengthening of the Us economy led investors to expect a tapering of the Us federal reserve’s bond purchase programs early in fiscal 2014. As a result, Us 10-year government bond yields rose above the 2.5% threshold in the second quarter of calendar 2013 for the first time since the second quarter of calendar 2011. The reset in bond yields was global, and emerging markets were impacted the most as a result of the correction, forcing the central banks in Brazil and India to increase interest rates in order to halt capital outflows. This monetary tightening, coupled with an economic slowdown in China, compounded fears of a possible slowdown in developed economies. fortunately, the Us federal reserve and the European Central Bank both indicated that lending rates would remain low for an extended period of time. The Bank of Canada also dropped its interest rate hike bias, which consequently triggered a phase of depreciation in the Canadian dollar. Despite much easier monetary conditions in Canada, the s&P/TsX barely advanced through the first half of fiscal 2014, strongly underperforming in comparison to its world counterparts. Through the second half of fiscal 2014, unsatisfied by progress on the employment front and facing a political stalemate in Washington, the Us federal reserve announced in september 2013 that it was postponing the tapering of its bond purchases until December. Also, Janet Yellen was named the new Us federal reserve Chairman and made various comments reaffirming former Chairman Ben Bernanke’s dovish strategy, which contributed to keeping equities buoyant in the fourth quarter of calendar 2013. In Europe, a muted economic recovery fuelled deflation, which put pressure on the European Central Bank to ease or implement Quantitative Easing. However, the central bank did not succumb, instead preferring to talk interest rates down. In the first quarter of calendar 2014, Chinese authorities took various steps to clamp down speculation related to the Chinese yuan appreciation. The impact of tightened liquidity conditions engineered by the People’s Bank of China, combined with the impact of the sharp yuan appreciation relative to emerging market economies’ currencies, triggered another Chinese growth scare. The People’s Bank of China responded promptly by injecting liquidity again. This about-face reaction led to a re-rating in emerging market equities, including the s&P/TsX, which strongly outperformed the sPX and world equities. In fact, through fiscal 2014, Canadian equities rose by 12.1%, outperforming both Us and global equities, which gained 11.3% and 7.1%, respectively. Despite the fact that the s&P/TsX ended fiscal 2014 on a strong note by rising by 12%, the index lagged behind the s&P 500, which rose by 19%, due to the weak showing of commodity prices such as gold, which declined by 19%, and base metals, which declined by 11%. Underlying gold and base metal equities lost 27% and 8%, respectively, through the period. The exit of investors from commodities was particularly detrimental to small-cap resources stocks, with the s&P/TsX Venture Exchange falling by 10% in fiscal 2014. finally, the strong Canadian dollar depreciation of 8% was another negative factor as it kept global investors away from Canada while Canadian investors kept adding to their foreign equity exposure, benefiting from strong currency-adjusted returns in global markets. Fiscal 2015 outlook We expect world economic growth, led by developed economies, to maintain a moderate pace of acceleration as the negative impacts of global austerity measures weaken, and tame inflationary pressures worldwide allow policymakers to act as a backstop for banks and financial markets. That being said, with emerging market economies accounting for more than 70% of world GDP growth in calendar 2014, one key risk consideration for global growth is a policy mistake in China as the government seems determined to prioritize long term quality growth as opposed to near term economic fluctuations. should China’s GDP drop below 7%, we expect that fears of a hard landing could erupt swiftly. fortunately, receding inflation in other emerging markets could allow several local central banks to initiate a monetary easing cycle and rekindle growth. Obviously, such a development would be a net positive for emerging markets proxies such as Canada, considering that reflation would turn global. Overall, it is our expectation that monetary and fiscal policymakers will continue to provide downside protection to economic growth. As such, capital markets are expected to take their cues from a steady decline in the equity risk premium, which remains above historical averages. With regard to capital markets activities, we expect the momentum built last year to persist through fiscal 2015. That is, Canaccord Genuity should continue to enjoy strong contributions from its various geographical platforms. One encouraging development is in Canada, where activity levels are improving as a result of the resurgence in equity issuance. As for agency revenues, trading volumes have begun to improve as renewed global growth prospects have allowed commodity prices to stabilize. Moreover, when the Canadian dollar depreciation is considered, many export-sensitive and resource-based companies should be able to shore up their profitability markedly through calendar 2014. A pick-up in relative earnings strength should also allow the s&P/TsX to stage a performance catch-up in comparison to its world counterparts, hence contributing to increased capital markets activity in Canada. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 27 MANAGEMENT’s DIsCUssION AND ANALYsIs While we expect calendar 2014 to mark the synchronization in world monetary policies, it should also give rise to a re-coupling between developed economies and emerging economic regions before the Us federal reserve begins to gradually normalize interest rates in calendar 2015. Uncertainty about the exact timing of the federal reserve’s tightening policy may keep the markets volatile throughout the fiscal year. overview of preceding years – Fiscal 2013 vs. 2012 Total revenue for the year ended March 31, 2013 (fiscal 2013) was $797.1 million, an increase of $192.3 million or 31.8% compared to the previous year. This increase was primarily due to the strong economic and market conditions during fiscal 2013 and Canaccord’s global geographic diversification. Most major indices also experienced increases during fiscal 2013 with the TsX up 3%, the fTsE 100 up 11%, and the NAsDAQ up 6%. However, the TsX Venture Exchange experienced a decrease of 30%. Canaccord recorded a net loss of $18.8 million during fiscal 2013, which included $53.9 million of restructuring costs and other acquisition-related expense items. Excluding these significant items(1), net income for fiscal 2013 was $25.6 million. figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) 28 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT Financial overview seleCted FinanCial inFoRmation(1)(2) (C$ thousands, except per share and % amounts, and number of employees) Canaccord genuity group inc. (Cggi) revenue Commissions and fees Investment banking Advisory fees Principal trading Interest Other total revenue Expenses Incentive compensation salaries and benefits Other overhead expenses(3) restructuring costs(4) Acquisition-related costs Income (loss) before income taxes net income (loss) net income (loss) attributable to Cggi shareholders Non-controlling interests Earnings (loss) per common share (EPs) – basic Earnings (loss) per common share (EPs) – diluted return on common equity (rOE) Dividends per common share Book value per diluted common share(5) excluding significant items(6) Total expenses Income before income taxes Net income Net income attributable to CGGI shareholders EPs – basic EPs – diluted Balance sheet data Total assets Total liabilities Non-controlling interests Total shareholders’ equity Number of employees MANAGEMENT’s DIsCUssION AND ANALYsIs for the years ended March 31 2014 2013 2012 2014/2013 change $ 361,647 $ 353,125 $ 252,877 $ 8,522 221,410 139,142 91,313 24,549 17,183 145,772 179,690 66,406 29,199 22,930 175,225 107,370 10,647 31,799 26,946 855,244 797,122 604,864 413,289 91,135 280,746 5,486 — 406,724 88,522 292,242 31,617 1,719 304,908 63,924 200,842 35,253 16,056 64,588 52,057 51,413 644 0.42 0.39 4.4% 0.20 9.05 770,587 84,657 68,846 67,211 0.59 0.54 (23,702) (18,775) (16,819) (1,956) (0.31) (0.31) (3.3)% 0.20 7.68 766,893 30,229 25,644 26,207 0.16 0.14 $ $ $ $ $ $ $ $ $ $ $ $ $ (16,119) (21,346) (20,307) (1,039) (0.33) (0.33) (3.1)% 0.40 8.26 564,182 40,682 25,193 25,591 0.28 0.25 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 75,638 (40,548) 24,907 (4,650) (5,747) 58,122 6,565 2,613 (11,496) (26,131) (1,719) (30,168) 88,290 70,832 68,232 2,600 0.73 0.70 7.7 p.p. — 1.37 3,694 54,428 43,202 41,004 0.43 0.40 $ 5,014,622 $ 4,603,502 $ 5,762,723 $ 411,120 3,831,030 3,538,170 4,753,144 14,912 16,169 1,168,680 1,049,163 2,004 2,060 17,454 992,125 2,428 292,860 (1,257) 119,517 (56) 2.4% 51.9% (22.6)% 37.5% (15.9)% (25.1)% 7.3% 1.6% 3.0% (3.9)% (82.6)% (100.0)% (3.7)% n.m. n.m. n.m. 132.9% 235.5% 225.8% — 17.8% 0.5% 180.1% 168.5% 156.5% 268.8% 285.7% 8.9% 8.3% (7.8)% 11.4% (2.7)% total expenses 790,656 820,824 620,983 (1) (2) (3) (4) (5) (6) Data is in accordance with Ifrs except for rOE, book value per diluted common share, figures excluding significant items and number of employees. see Non-Ifrs Measures on page 21. The operating results of the Australian operations have been fully consolidated and a 50% non-controlling interest has been recognized. results of former Collins stewart Hawkpoint plc (CsHP) since March 22, 2012 and the wealth management business of Eden financial Ltd. since October 1, 2012 are also included. Consists of trading costs, premises and equipment, communication and technology, interest, general and administrative, amortization of tangible and intangible assets, and development costs. Consists of restructuring costs mainly in connection with restructuring of our sales and trading operations in Canada and the UK and Europe, as well as certain office closure costs in fiscal 2014. fiscal 2013 and 2012 restructuring costs include expense incurred for staff restructuring and reorganization. Book value per diluted common share is calculated as total common shareholders’ equity divided by the number of diluted common shares outstanding and, commencing in fiscal 2014, adjusted for shares purchased under the normal course issuer bid and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. Net income and earnings per common share excluding significant items reflect tax-effected adjustments related to such items. see the selected financial Information Excluding significant Items table on the next page. n.m.: not meaningful p.p.: percentage points CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 29 MANAGEMENT’s DIsCUssION AND ANALYsIs seleCted FinanCial inFoRmation exCluding signiFiCant items(1) for the years ended March 31 (C$ thousands, except per share and % amounts) 2014 2013 2012 2014/2013 change Total revenue per Ifrs Total expenses per Ifrs $ 855,244 $ 797,122 $ 604,864 $ 58,122 790,656 820,824 620,983 (30,168) Significant items recorded in Canaccord Genuity Amortization of intangible assets restructuring costs Acquisition-related costs Significant items recorded in Canaccord Genuity Wealth Management Amortization of intangible assets restructuring costs Acquisition-related costs Significant items recorded in Corporate and Other restructuring costs Acquisition-related costs Total significant items Total expenses excluding significant items Net income before taxes – adjusted Income taxes – adjusted Net income – adjusted EPs – basic, adjusted EPs – diluted, adjusted 6,742 5,486 — 7,841 — — — — 20,069 770,587 84,657 15,811 68,846 0.59 0.54 14,740 15,232 388 5,855 15,485 1,331 900 — 53,931 766,893 30,229 4,585 25,644 0.16 0.14 $ $ $ 5,492 29,078 10,466 — 900 4,077 5,275 1,513 56,801 564,182 40,682 15,489 25,193 0.28 0.25 $ $ $ $ $ $ (7,998) (9,746) (388) 1,986 (15,485) (1,331) (900) — (33,862) 3,694 54,428 11,226 43,202 0.43 0.40 $ $ $ 7.3% (3.7)% (54.3)% (64.0)% (100.0)% 33.9% (100.0)% (100.0)% (100.0)% — (62.8)% 0.5% 180.1% 244.8% 168.5% 268.8% 285.7% figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) Revenue On a consolidated basis, revenue is generated through six activities: commissions and fees associated with agency trading and private client wealth management activity, investment banking, advisory fees, principal trading, interest and other. revenue for fiscal 2014 was $855.2 million, an increase of 7.3% or $58.1 million from fiscal 2013, and represented a record high for the Company. This demonstrated the strength of our global business and the success of our efforts to diversify our revenue streams. Overall, the growth in revenue for the year ended March 31, 2014 was mainly due to the strong performances of our foreign operations, particularly in investment banking and principal trading revenue. As a result of improved market conditions and increased activity by corporate issuers in our focus sectors, our Us and UK and Europe operations were able to achieve record revenue in the current fiscal year. The capital markets segment of our UK and Europe operations contributed $54.2 million to the revenue increase while the wealth management segment contributed $21.3 million. revenue in the Us for the year ended March 31, 2014 was $218.1 million, up $62.5 million or 40.2% from the prior year, and was driven mostly by the strong performance of our International Equities Group. Our Other foreign Locations operations increased revenue by $13.2 million to $38.5 million in fiscal 2014, mostly as a result of the improved performance of our Australian team. Our Canadian operations generated total revenue of $273.3 million for fiscal 2014, a decline of $93.2 million as a result of a reduction in activity in both our Canaccord Genuity and Canaccord Genuity Wealth Management operating segments. While the strength of our global business and diversified revenue streams were the main drivers of our strong revenue performance in fiscal 2014, the impact of foreign currency translation also partially contributed to the increase in revenue over the prior year. revenues from our foreign operations are initially recorded in their respective functional currencies and translated into Canadian dollars at exchange rates prevailing during the period. Therefore, the appreciation of foreign currencies, particularly the pound sterling and the Us dollar, against the Canadian dollar during fiscal 2014 resulted in higher revenue measured in Canadian dollars. Commissions and fees revenue is primarily generated from private client trading activity and institutional sales and trading. revenue generated from commissions and fees increased by $8.5 million or 2.4% from fiscal 2013 to $361.6 million in fiscal 2014. Our Canaccord Genuity Wealth Management segment contributed $194.4 million while our Canaccord Genuity segment contributed $167.2 million. Commissions and fees revenue earned in Canada declined by $18.4 million as a result of reduced trading volumes. The decrease in Canada was offset by increases of $19.0 million and $7.0 million in the UK and Europe and the Us, respectively. 30 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs Investment banking revenue was $221.4 million in fiscal 2014, up $75.6 million or 51.9% from fiscal 2013. The growth in investment banking revenue was most notable in the UK and Europe and the Us, with increases of $26.6 million and $38.0 million, respectively, due to increased financing activity in these regions. The Company’s operations in the Other foreign Locations geographic region, which includes operations in Australia, singapore, mainland China, Hong Kong and Barbados, also contributed $9.9 million to the increase in investment banking revenue, primarily due to the growth in our Australian operations. Advisory fees of $139.1 million represented a decrease of 22.6%, or $40.5 million, compared to the prior year. This was primarily due to lower activity in our capital markets operations in Canada, where advisory fees decreased by $60.0 million compared to fiscal 2013, which was a record high for our Canadian operations as a result of two substantial mandates completed during the prior year. Offsetting the decrease in Canada was an increase of $23.2 million in our advisory fees revenue from our UK and Europe operations. Our UK and Europe operations generated $88.2 million in advisory fees in fiscal 2014, a record high for the operations, largely driven by the success of our advisory and equity transaction leadership in this market. revenue derived from principal trading increased by $24.9 million to $91.3 million for the year ended March 31, 2014, primarily due to the expansion of our UK and Europe and Us operations. Principal trading revenue in our Us operations increased by $20.9 million compared to the prior year, and was mainly due to the strong performance of our International Equities Group. Our UK and Europe operations also experienced a $4.6 million increase in principal trading revenue as a result of strength in the investment company trust market during this fiscal year. Interest revenue decreased by $4.7 million compared to fiscal 2013, mostly as a result of reductions in our North American wealth management operations. Other revenue of $17.2 million was $5.7 million or 25.1% lower than in the prior year, largely as a result of a decrease in our correspondent brokerage services operations as well as lower foreign exchange gains. expenses expenses as a percentage of revenue for the years ended March 31 Incentive compensation salaries and benefits Other overhead expenses(1) restructuring costs(2)(3) Acquisition-related costs(2) Total 2014 48.3% 10.7% 32.8% 0.6% — 92.4% 2013 51.0% 11.1% 36.7% 4.0% 0.2% 2014/2013 change (2.7) p.p. (0.4) p.p. (3.9) p.p. (3.4) p.p. (0.2) p.p. 103.0% (10.6) p.p. (1) (2) (3) Consists of trading costs, premises and equipment, communication and technology, interest, general and administrative, amortization of tangible and intangible assets and development costs. refer to the selected financial Information Excluding significant Items table on page 30. Consists of restructuring costs mainly in connection with restructuring of our sales and trading operations in Canada and the UK and Europe, as well as certain office closure costs in fiscal 2014. fiscal 2013 and 2012 restructuring costs include expense incurred for staff restructuring and reorganization. p.p.: percentage points Expenses for fiscal 2014 were $790.7 million, a decrease of 3.7% or $30.2 million compared to last year. Excluding significant items(1), total expenses were $770.6 million, up $3.7 million or 0.5% from fiscal 2013. Total expenses as a percentage of revenue dropped by 10.6 percentage points compared to the prior year. The impact of the appreciation of foreign currencies against the Canadian dollar partially contributed to the increase in overall expenses, as operating results of foreign operations are translated into Canadian dollars using the exchange rates prevailing during the period. Despite the foreign exchange impact and increase in revenue, total expenses excluding significant items(1) only increased by 0.5% compared to the prior year as a result of our cost reduction initiatives. Compensation expenses Incentive compensation expense was $413.3 million, an increase of $6.6 million or 1.6%, which was a smaller increase compared to the growth in incentive-based revenue achieved as a result of our efforts to monitor the compensation structure and payout ratios. Incentive compensation expense as a percentage of total revenue decreased by 2.7 percentage points from fiscal 2013, to 48.3% in fiscal 2014. salaries and benefits expense was $91.1 million, an increase of 3.0% from the prior year. The increase in salaries and benefits expense compared to fiscal 2013 was mainly due to staff redundancy costs incurred in our UK and Europe operations and reclassification of certain costs to salaries and benefits expense. figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 31 MANAGEMENT’s DIsCUssION AND ANALYsIs The total compensation (incentive compensation plus salaries and benefits) expense as a percentage of consolidated revenue was 59.0%, down 3.1 percentage points compared to 62.1% in fiscal 2013. other overhead expenses (C$ thousands, except % amounts) Trading costs Premises and equipment Communication and technology Interest General and administrative Amortization(1) Development costs Total other overhead expenses for the years ended March 31 2014 2013 2014/2013 change $ 47,872 $ 43,892 38,461 46,065 16,359 83,834 26,786 21,369 41,124 49,115 15,302 89,504 33,779 19,526 $ 280,746 $ 292,242 9.1% (6.5)% (6.2)% 6.9% (6.3)% (20.7)% 9.4% (3.9)% (1) Includes $14.6 million and $20.6 million of amortization of intangible assets for the years ended March 31, 2014 and March 31, 2013, respectively. see the selected financial Information Excluding significant Items table on page 30. Other overhead expenses were $280.7 million or 3.9% lower in fiscal 2014, which as a percentage of revenue represented a decrease of 3.9 percentage points compared to fiscal 2013. The Company continued to monitor its overhead costs and implemented global cost reduction strategies, which led to the decrease in total overhead expenses as a percentage of revenue in fiscal 2014. The overall decline in other overhead expenses was driven by lower premises and equipment, communication and technology, general and administrative and amortization expenses. These decreases were partially offset by increases in trading costs, interest expense and development costs. Premises and equipment expense was $2.7 million lower compared to fiscal 2013 due to the consolidation of office space in our UK capital markets operations and fewer branches in our Canadian wealth management operations. Communication and technology expense decreased by $3.1 million, to $46.1 million, primarily as a result of cost synergies realized in our Us and our UK and Europe operations. General and administrative expense, which includes reserve expense, promotion and travel expense, office expense, professional fees and donations expense, was down $5.7 million as a result of cost saving initiatives adopted across all geographies. A decline in the amortization expense associated with intangible assets acquired through the acquisition of CsHP was the main reason for the $7.0 million decrease in amortization expense, as certain intangible assets are now fully amortized. Higher trading volume in our Us capital markets operations was the main reason for the $4.0 million increase in trading costs in fiscal 2014 compared to the year ended March 31, 2013. Development costs increased by $1.8 million, mainly due to the amortization cost of the CsH Inducement Plan, offset by lower hiring incentives in our North American wealth management operation. Interest expense increased by $1.1 million compared to the year ended March 31, 2013, primarily as a result of an increase in activity in our International Equities Group in the Us in fiscal 2014. net inCome (loss) Net income for fiscal 2014 was $52.1 million, up from a loss of $18.8 million in fiscal 2013. Diluted earnings per share (EPs) was $0.39 in fiscal 2014 compared to a loss per share of $0.31 in the prior year. The increase in net income was attributable to higher revenue generated by our capital markets division in the Us, the UK and Europe and Other foreign Locations as a result of strong performances in our focus sectors. The increase in revenue in our foreign jurisdictions was offset by a decline in the revenue generated by the wealth management and capital markets divisions in Canada. In addition, our compensation expense decreased as a result of changes in the compensation structure and a reduced payout ratio. Overhead expenses in fiscal 2014 also decreased compared to last year as a result of cost synergies and efficiencies achieved from the continued restructuring efforts made throughout fiscal 2014 and 2013, particularly in general and administrative expense and communication and technology expense. Excluding significant items(1), net income for fiscal 2014 was $68.8 million versus a net income of $25.6 million in fiscal 2013, and diluted EPs was $0.54 compared to diluted EPs of $0.14 in fiscal 2013. figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) 32 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs Income tax expense was $12.5 million for fiscal 2014, reflecting an effective tax rate of 19.4% compared to an effective tax recovery rate of (20.8)% in the prior year. The effective tax rate for fiscal 2014 was mainly driven by temporary differences not recognized in prior periods by subsidiaries outside of Canada and various permanent items. A further discussion of our taxes is provided in the Critical Accounting Policies and Estimates section of the MD&A on page 55. Quarterly Financial information(1)(2) The following table provides selected quarterly financial information for the eight most recently completed financial quarters ended March 31, 2014. This information is unaudited, but reflects all adjustments of a recurring nature that are, in the opinion of management, necessary to present a fair statement of the results of operations for the periods. Quarter-to-quarter comparisons of financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. (C$ thousands, except per share amounts) revenue Q4 Q3 Q2 Fiscal 2014 Q1 Q4 Q3 fiscal 2013 Q1 Q2 Commissions and fees $ 102,199 $ 87,581 $ 81,832 $ 90,035 $ 87,438 $ 89,415 $ 87,525 $ 88,747 Investment banking Advisory fees Principal trading Interest Other Total revenue Total expenses Net income (loss) before taxes 78,453 33,585 31,027 5,908 2,576 70,841 40,283 31,833 38,541 40,609 37,961 28,661 39,758 29,894 35,905 56,145 21,863 18,883 19,540 22,780 5,704 5,212 6,132 6,282 6,805 3,113 6,758 6,309 69,348 18,670 7,291 4,670 28,571 25,626 17,109 6,758 8,675 7,847 8,392 3,276 253,748 230,959 183,306 187,231 217,971 230,003 186,599 162,549 221,737 206,539 184,262 178,118 211,984 216,882 204,910 187,048 32,011 24,420 (956) 9,113 5,987 13,121 (18,311) (24,499) Net income (loss) $ 25,920 $ 18,334 $ (80) $ 7,883 $ 6,424 $ 10,264 $ (14,841) $ (20,622) Earnings (loss) per share – basic Earnings (loss) per share – diluted $ $ excluding significant items(3) 0.24 $ 0.15 $ (0.03) $ 0.06 $ 0.04 $ 0.09 $ (0.19) $ (0.24) 0.22 $ 0.14 $ (0.03) $ 0.06 $ 0.04 $ 0.08 $ (0.19) $ (0.24) Net income (loss) $ 29,075 $ 21,227 $ 6,734 $ 11,810 $ 15,579 $ 20,453 $ 5,907 $ (16,295) Earnings (loss) per share – basic Earnings (loss) per share – diluted $ $ 0.28 $ 0.18 $ 0.03 $ 0.10 $ 0.14 $ 0.19 $ 0.03 $ (0.20) 0.25 $ 0.17 $ 0.03 $ 0.09 $ 0.12 $ 0.17 $ 0.03 $ (0.20) Data is in accordance with Ifrs except for figures excluding significant items. see Non-Ifrs Measures on page 21. The operating results of our Australian operations have been fully consolidated and a 50% non-controlling interest has been recognized. results of the wealth management business of Eden financial Ltd. since October 1, 2012 are also included. figures excluding significant items are non-Ifrs measures. see the Quarterly financial Information Excluding significant Items table on the next page. (1) (2) (3) figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 33 MANAGEMENT’s DIsCUssION AND ANALYsIs QuaRteRly FinanCial inFoRmation exCluding signiFiCant items(1)(2) (C$ thousands, except per share amounts) Q4 Q3 Q2 Fiscal 2014 Q1 Q4 Q3 fiscal 2013 Q1 Q2 Total revenue per Ifrs $ 253,748 $ 230,959 $ 183,306 $ 187,231 $ 217,971 $ 230,003 $ 186,599 $ 162,549 Total expenses per Ifrs 221,737 206,539 184,262 178,118 211,984 216,882 204,910 187,048 Significant items recorded in Canaccord Genuity restructuring costs Acquisition-related costs Amortization of — — — — 5,486 — — — 5,561 5,276 4,395 — — 388 — — intangible assets 1,702 1,680 1,658 1,702 3,458 3,473 3,436 4,373 Significant items recorded in Canaccord Genuity Wealth Management restructuring costs Acquisition-related costs Amortization of — — — — — — — — 884 1,034 13,567 — 431 900 — — intangible assets 2,256 1,945 1,751 1,889 1,600 1,643 1,614 998 Significant items recorded in Corporate and Other restructuring costs Acquisition-related costs — — — — — — — — — — — — 900 — — — Total significant items 3,958 3,625 8,895 3,591 11,503 11,857 25,200 5,371 Total expenses excluding significant items 217,779 202,914 175,367 174,527 200,481 205,025 179,710 181,677 Net income (loss) before taxes – adjusted 35,969 28,045 7,939 12,704 17,490 24,978 6,889 (19,128) Income taxes (recovery) – adjusted Net income (loss) – 6,894 6,818 1,205 894 1,911 4,525 982 (2,833) adjusted $ 29,075 $ 21,227 $ 6,734 $ 11,810 $ 15,579 $ 20,453 EPs – basic – adjusted EPs – diluted – adjusted $ $ 0.28 $ 0.18 $ 0.03 $ 0.10 $ 0.25 $ 0.17 $ 0.03 $ 0.09 $ 0.14 0.12 $ $ 0.19 0.17 $ $ $ 5,907 $ (16,295) 0.03 0.03 $ $ (0.20) (0.20) (1) (2) figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. The operating results of our Australian operations have been fully consolidated and a 50% non-controlling interest has been recognized. results of the wealth management business of Eden financial Ltd. since October 1, 2012 are also included. Quarterly trends and risks Our quarterly results are not significantly affected by seasonal factors. However, Canaccord’s revenue and income can experience considerable variations from quarter to quarter and year to year due to factors beyond Canaccord’s control. The business is affected by the overall condition of the worldwide market. The timing of revenue recognition can also materially affect Canaccord’s quarterly results. Canaccord’s revenue from an underwriting transaction is recorded only when the transaction has closed. During the first half of fiscal 2014, our quarterly results were affected by the challenging market conditions as well as by costs related to restructuring initiatives. However, with market activity returning to a more stabilized level and synergies achieved through our acquisitions, our operating results started to show a positive trend during the second half of fiscal 2014. The Canaccord Genuity (capital markets) division is gaining traction from its CsHP acquisition, as reflected by the strong performances of our Us and UK and Europe operations. Our UK and Europe operations generated record revenue in Q3/14, while Us investment banking revenue and principal trading revenue experienced a growth trend over the past eight quarters and attained record revenue in 34 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs Q4/14. In Canada, our capital markets division was impacted by the difficult market environment, particularly in the resource sector, and, as a result, we have not been able to maintain the same level of revenue as in fiscal 2013, particularly in advisory fees revenue. However, during the last two quarters of fiscal 2014, revenue for Canaccord Genuity in Canada increased over the first half of fiscal 2014 as market activity improved, resulting in a 31.4% growth in revenue compared to the first half of fiscal 2014. revenue for our Other foreign Locations operations also increased, growing by 88.2% in the second half of fiscal 2014 compared to the first six months of the fiscal year, primarily driven by the performance of our partners in Australia and singapore. The Canaccord Genuity Wealth Management North America operations continued to experience lower revenue trends in fiscal 2014 compared to fiscal 2013 due to reduced trading volumes. However, the operations experienced an increasing trend in their assets under management, beginning the year with $880.0 million at Q1/14 and rising to $1.2 billion at Q4/14, a solid indication of growth in our managed and fee-based accounts. The Canaccord Genuity Wealth Management UK and Europe operations continued to experience steady revenue growth, reflecting the synergies obtained through the acquisition of Eden financial Ltd. The fee-related revenue in this division has also been steadily increasing. It now stands at 60.7% for Q4/14, a 2.8 percentage point increase from the same quarter a year ago. Assets under management for this group have also continued to grow over the past eight completed financial quarters and increased to $20.2 billion as at March 31, 2014. Our UK-based wealth management division recognized higher revenue in each of the quarters in fiscal 2014, compared to the same periods in fiscal 2013. At Q4/14, it also recognized record revenue at $33.2 million, 24.4% higher than Q4/13. Fourth quarter 2014 performance revenue for the fourth quarter was $253.7 million, an increase of $35.8 million or 16.4% compared to the same period in the previous year, due to the growth in investment banking, principal trading, and commissions and fees revenues, offset partially by a drop in advisory fees and other revenue. The increase in investment banking revenue was mainly attributable to our UK and Europe and Us operations, which contributed $15.1 million and $12.9 million to the increase, respectively. Our Us group also increased its principal trading revenue to $22.6 million in Q4/14, an increase of 69.1% compared to Q4/13, a record high for this operation. Our Canadian capital markets group contributed $10.0 million to the increase in investment banking revenue in Q4/14 compared to Q4/13. However, advisory fees revenue in Canada decreased by $24.3 million compared to the same period last year as a result of reduced market activity. Expenses were $221.7 million, up $9.8 million or 4.6% from Q4/13. This increase was largely attributable to higher compensation expense, trading costs, and development costs compared to Q4/13. Total expenses excluding significant items(1) were $217.8 million, an increase of $17.3 million or 8.6% from the same period last year. Incentive compensation expense was $11.3 million higher compared to Q4/13, consistent with the higher incentive-based revenue. Total compensation expense as a percentage of revenue was down 3.4 percentage points to 59.0% in Q4/14, attributable to higher revenue and certain changes in the compensation structure in our UK and Europe capital markets operations. In addition, in our Us operations, there was higher incentive compensation in the form of restricted share units that will be amortized over the vesting period. The increase in salaries and benefits expense of $2.3 million to $25.2 million in Q4/14 was mostly related to redundancy costs incurred in our UK and Europe operations. Trading costs were up $3.5 million compared to the same quarter of the prior year, mainly due to higher trading activity in the Us. Development costs were up $1.4 million or 36.3%, mainly due to a recovery of hiring incentive expense in Q4/13 in the Other foreign Locations geographic segment. Net income for the fourth quarter of fiscal 2014 was $25.9 million, compared to $6.4 million in Q4/13. The increase in net income was mainly related to higher revenue generated in our foreign operations, combined with a reduced compensation payout ratio and lower non-compensation expenses. Diluted earnings per share in the current quarter was $0.22, compared to $0.04 in Q4/13. Book value per diluted common share increased by 17.8%, from $7.68 in Q4/13 to $9.05 in Q4/14. There were $4.0 million and $11.5 million of significant items included in the fourth quarters of 2014 and 2013, respectively. Excluding significant items(1), net income for Q4/14 was $29.1 million, compared to net income of $15.6 million in Q4/13, and diluted EPs was $0.25, compared to diluted EPs of $0.12 in Q4/13. figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 35 MANAGEMENT’s DIsCUssION AND ANALYsIs Business segment Results(1)(2) for the years ended March 31 Canaccord genuity wealth genuity management Canaccord Corporate and other 2014 total Canaccord Genuity Wealth Genuity Management Canaccord Corporate and Other 2013 Total $ 148,514 $ 109,344 $ 15,418 $ 273,276 $ 204,337 $ 137,625 $ 24,477 $ 366,439 (C$ thousands, except number of employees) revenue Canada UK and Europe 212,307 113,046 Us Other foreign Locations Total revenue Expenses 216,485 1,646 38,484 — — — — 325,353 158,054 218,131 153,355 91,757 2,230 — — 249,811 155,585 38,484 25,287 — — 25,287 615,790 224,036 15,418 855,244 541,033 231,612 24,477 797,122 532,862 206,706 51,088 790,656 533,827 225,359 61,638 820,824 Intersegment allocations 8,537 24,719 (33,256) — 3,566 42,231 (45,797) — Income (loss) before income taxes $ 74,391 $ (7,389) $ (2,414) $ 64,588 $ 3,640 $ (35,978) $ 8,636 $ (23,702) excluding significant items(3) Expenses 520,634 198,865 51,088 770,587 503,467 202,688 60,738 766,893 Intersegment allocations 8,537 24,719 (33,256) — 3,566 42,231 (45,797) — Income (loss) before income taxes $ 86,619 $ 452 $ (2,414) $ 84,657 $ 34,000 $ (13,307) $ 9,536 $ 30,229 Number of employees 974 714 316 2,004 973 755 332 2,060 Data is in accordance with Ifrs except for figures excluding significant items and number of employees. see Non-Ifrs Measures on page 21. Detailed financial results for the business segments are shown in Note 21 of the Audited Consolidated financial statements on page 105. The operating results of Canaccord Genuity (Australia) Limited have been consolidated and a 50% non-controlling interest has been recognized and included in the Canaccord Genuity business segment. results of the wealth management business of Eden financial Ltd. since October 1, 2012 are also included in the Canaccord Genuity Wealth Management business segment. see the selected financial Information Excluding significant Items table on page 30. (1) (2) (3) Canaccord’s operations are divided into three segments: Canaccord Genuity and Canaccord Genuity Wealth Management are the main operating segments while Corporate and Other is mainly an administrative segment. CanaCCoRd genuity overview Canaccord Genuity provides investment banking, research, and sales and trading services to corporate, institutional and government clients as well as conducting principal trading activities in Canada, the Us, the UK and Europe, and Other foreign Locations. Canaccord Genuity has 20 locations in 11 countries worldwide. The operating results of fiscal 2014 demonstrate the strength of our global business and the success of our efforts to diversify our revenue streams. Over 75% of total Canaccord Genuity revenue was earned outside of Canada compared to 62% in fiscal 2013. Canaccord Genuity’s expansion efforts in the UK over the past few years have firmly positioned the Company as a leading independent investment bank in that market. As at March 31, 2014, Canaccord Genuity ranked third of all UK investment banks for the greatest number of corporate broking clients. Canaccord Genuity participated in 345 transactions globally for clients, each over $1.5 million, which raised gross proceeds of $36.5 billion(1). Of these, Canaccord Genuity led or co-led 79 transactions globally, raising total proceeds of $4.0 billion. sector diversification remains a core component of the Company’s strategy. resource-related revenue was 23% of Canaccord Genuity’s total investment banking revenue in fiscal 2014, versus 21% in fiscal 2013. resource-related transactions comprised 22% of the total number of Canaccord Genuity’s investment banking transactions in fiscal 2014, a decrease of 9% from fiscal 2013. Transactions over $1.5 million (1) 36 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs outlook Canaccord Genuity remains very well positioned in many of the Company’s key markets. In the year ahead, management intends to focus on capturing operating efficiencies and generating revenue synergies through further integrating aspects of its global capital markets platform and encouraging further cross-border coordination. In addition, the Company may pursue opportunities to add small teams to specific sector verticals or key service offerings to further strengthen our operations in areas we believe we can capture additional market share in. Expanding our capabilities in fixed income services is a focus of management. We believe Canaccord Genuity’s global platform provides a competitive advantage for the business compared to many of the domestically focused firms we compete with. smaller regional or local investment dealers are increasingly under pressure, and some international competitors have recently retrenched to focus on local markets. We believe this changing competitive landscape provides a significant opportunity for Canaccord Genuity in the mid-market, as this space is currently relatively underserviced by other global investment banks. Canaccord Genuity’s mid-market strategy focused on key sectors differentiates the firm from its competition. The continued shift towards electronic trading, and trading on alternative platforms, is expected to move some trading market share away from the main stock exchanges. In response to this, Canaccord Genuity is active in offering trading services on many of the alternative exchanges (Chi-X, CX2, Alpha, Pure, CsE (Canadian stock Exchange), Omega, Lynx, Triact). The Company has also developed a strong presence in the Us with its American Depository receipts (ADr) and foreign equity trading capabilities from our International Equities Group. The Company will continue to vigilantly monitor shifts in the capital markets and regulatory environment. Canaccord Genuity remains committed to operating as efficiently as possible in order to sustain its global platform during periods of slower capital markets activity. A culture of cost containment continues to be reinforced throughout the Company, and strategies to lower operating costs over the long term continue to be explored. The management team believes the investments Canaccord has made over the last two years to improve the Company’s global presence and broaden its service offering have positioned the business very well for the future. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 37 MANAGEMENT’s DIsCUssION AND ANALYsIs FinanCial peRFoRmanCe(1)(2) for the years ended March 31 2014 Canada uk and europe other Foreign locations us total Canada UK and Europe Other foreign Locations Us 2013 Total $ 148,514 $ 212,307 $ 216,485 $ 38,484 $ 615,790 $ 204,337 $ 158,054 $ 153,355 $ 25,287 $ 541,033 (C$ thousands, except number of employees) revenue Expenses Incentive compensation 72,042 106,339 107,243 21,072 306,696 101,082 93,503 82,353 15,652 292,590 salaries and benefits 4,819 16,671 9,933 3,366 34,789 6,822 15,593 10,064 2,762 35,241 Other overhead expenses 45,167 55,519 69,718 15,487 185,891 48,926 61,721 63,538 16,191 190,376 restructuring costs 4,179 1,307 Acquisition-related costs — — — — — 5,486 575 7,852 6,805 — 15,232 — — 388 — — — 388 Total expenses 126,207 179,836 186,894 39,925 532,862 157,793 178,669 162,760 34,605 533,827 Intersegment allocations Income (loss) before income taxes(3) excluding significant items(4) 9,919 (4,233) 2,701 150 8,537 10,302 (6,736) — — 3,566 $ 12,388 $ 36,704 $ 26,890 $ (1,591) $ 74,391 $ 36,242 $ (13,879) $ (9,405) $ (9,318) $ 3,640 Total expenses 118,306 178,529 186,890 36,909 520,634 153,110 165,961 155,947 28,449 503,467 Intersegment allocations Income (loss) before income taxes 9,919 (4,233) 2,701 150 8,537 10,302 (6,736) — — 3,566 (recovery) $ 20,289 $ 38,011 $ 26,894 $ 1,425 $ 86,619 $ 40,925 $ (1,171) $ (2,592) $ (3,162) $ 34,000 Number of employees 215 372 286 101 974 222 400 253 98 973 Data is in accordance with Ifrs except for figures excluding significant items and number of employees. see Non-Ifrs Measures on page 21. The operating results of Canaccord Genuity (Australia) Limited have been consolidated and a 50% non-controlling interest has been recognized and included in the Canaccord Genuity segment. see the Intersegment Allocated Costs section on page 47. refer to the selected financial Information Excluding significant Items table on page 30. (1) (2) (3) (4) Revenue Revenue by geography as a percentage of Canaccord genuity revenue (in percentage points) revenue generated in: Canada UK and Europe Us Other foreign Locations p.p.: percentage points 38 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT for the years ended March 31 2014 2013 24.1% 34.5% 35.2% 6.2% 37.8% 29.2% 28.3% 4.7% 100.0% 100.0% 2014/2013 change (13.7) p.p. 5.3 p.p. 6.9 p.p. 1.5 p.p. MANAGEMENT’s DIsCUssION AND ANALYsIs As a result of improved market conditions in our foreign operations and the Company’s continued focus on global integration of our capital markets teams, Canaccord Genuity generated revenue of $615.8 million, 13.8% or $74.8 million higher than in fiscal 2013, and a record high for this operating segment. revenue from our UK and Europe and our Us operations increased by 34.3% and 41.2%, respectively, both representing unprecedented revenue levels for the respective geographies. revenue from our Other foreign Locations increased by 52.2% in fiscal 2014 compared to the prior year, mainly due to increased activity in our Australian operations. The increase in revenue in our foreign operations was offset by slower activity in our Canadian operations during fiscal 2014, mainly as a result of the subdued pace of equity underwritings, which led to a decline in revenue of 27.3%. Although improved markets in the UK and Europe and the Us, along with the success of our global strategy, were the main drivers of our record performance from these foreign operations, the effect of foreign currency translation also partially contributed to the increase in revenue. revenues from our foreign operations are recorded in their respective functional currencies and translated into Canadian dollars at average exchange rates prevailing during the period. Therefore, the depreciation of the Canadian dollar against the reporting currencies of our foreign operations during fiscal 2014 partially contributed to the increase in revenue compared to fiscal 2013. In particular, our UK and Europe and Us operations were most affected by foreign exchange translation as the pound sterling and the Us dollar have both appreciated significantly against the Canadian dollar compared to the prior year. investment banking activity During fiscal 2014, Canaccord participated in raising $36.5 billion in 345 equity offerings of $1.5 million and greater, excluding venture capital. Canaccord Genuity’s sector mix in fiscal 2014 showed increasing diversity, with 78% of the transactions occurring in sectors outside of Metals & Mining and Energy, which have traditionally been Canaccord’s strengths. Canaccord Genuity’s transactions and revenue by focus sectors are detailed below. CanaCCoRd genuity – oveRall investment banking transactions and revenue by sector sector Technology Healthcare & Life sciences Energy Metals & Mining real Estate & Hospitality Diversified Investment Companies financials Consumer & retail CleanTech & sustainability Media & Telecommunications structured Products Other Total for the year ended March 31, 2014 as % of investment banking transactions as % of investment banking revenue 13.8% 12.9% 13.5% 9.0% 9.6% 6.2% 0.8% 5.9% 2.8% 2.2% 0.6% 21.9% 0.8% 26.4% 15.4% 11.9% 10.5% 7.8% 6.2% 4.9% 4.6% 4.5% 3.9% 2.6% 0.7% 0.6% 100.0% 100.0% CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 39 MANAGEMENT’s DIsCUssION AND ANALYsIs CanaCCoRd genuity – By geogRaphy investment banking transactions by sector (as % of investment banking transactions for each geographic region) for the year ended March 31, 2014 sector Technology Healthcare & Life sciences Energy Metals & Mining real Estate & Hospitality Diversified Investment Companies financials Consumer & retail CleanTech & sustainability Media & Telecommunications structured Products Other Total Canada UK and Europe 4.4% 1.5% 14.1% 8.7% 16.0% 9.2% — 6.3% — — 1.0% 37.9% 0.9% 100.0% 20.7% 10.3% 6.9% 3.4% 3.4% 10.3% 10.3% 20.7% — — — — 14.0% 100.0% Us 34.4% 42.2% 13.3% — — — — — 3.4% 6.7% — — — Other foreign Locations 9.7% 6.5% 16.1% 41.9% — — — 6.5% 16.1% — — — 3.2% 100.0% 100.0% investment banking revenue by sector (as % of investment banking revenue for each geographic region) for the year ended March 31, 2014 sector Technology Healthcare & Life sciences Energy Metals & Mining real Estate & Hospitality Diversified Investment Companies financials Consumer & retail CleanTech & sustainability Media & Telecommunications structured Products Other Total Canada UK and Europe 12.7% 5.0% 19.3% 16.1% 16.0% 13.8% — 2.9% — — 10.0% 2.8% 1.4% 33.7% 2.5% 3.0% 12.4% 10.9% 8.0% 16.3% 8.4% — — — — 4.8% Us 36.8% 39.1% 9.9% — — — — — 2.0% 12.2% — — — Other foreign Locations 10.2% 8.9% 23.7% 21.6% — — — 11.4% 21.2% — — — 3.0% 100.0% 100.0% 100.0% 100.0% 40 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs expenses Expenses for fiscal 2014 were $532.9 million, relatively unchanged with a 0.2% decrease year over year. The Canaccord Genuity segment recognized $12.2 million of significant items in fiscal 2014 including restructuring costs incurred in connection with the restructuring of our sales and trading operations in Canada and the UK and Europe, as well as certain office closure costs, and amortization of intangible assets. In the prior year, Canaccord Genuity recognized $30.4 million of significant items, including staff restructuring and reorganization expenses and acquisition-related expense items in relation to its acquisition of Kenosis Capital Partners. Excluding significant items(1), total expenses for fiscal 2014 were $520.6 million, an increase of 3.4% or $17.2 million compared to fiscal 2013. incentive compensation and salaries and benefits Incentive compensation expense for fiscal 2014 grew by $14.1 million or 4.8% compared to fiscal 2013 as a result of the growth in incentive-based revenue. Incentive compensation expense as a percentage of revenue was 49.8%, down 4.3 percentage points from fiscal 2013 due to certain changes in the compensation structure arising from the Company’s efforts to continuously monitor its payout ratios. salaries and benefits expense for fiscal 2014 decreased slightly by $0.5 million or 1.3% compared to fiscal 2013. Total compensation expense as a percentage of revenue, which decreased across all geographies, was 5.1 percentage points lower at 55.5% for the year ended March 31, 2014. Higher revenue combined with lower compensation levels arising from combining our capital markets and advisory operations in the UK and Europe led to a drop of 11.1 percentage points in the total compensation ratio in this geography. The 1.1 percentage point decrease in total compensation expense as a percentage of revenue in Canada was attributable mostly to lower amortization of long-term incentive plan (LTIP) awards. Despite higher share- based incentive compensation expense and increased expenses associated with the expansion of the fixed income group, total compensation as a percentage of revenue in our Us operations decreased by 6.1 percentage points as a result of increased revenue as well as higher incentive compensation in the form of restricted stock units that will be amortized over the vesting period. Our Other foreign Locations segment experienced a 9.3 percentage point decrease in the total compensation ratio, mostly as a result of an increase in revenue and certain changes to the payout ratio. Canaccord genuity incentive compensation expense as a percentage of revenue by geography (in percentage points) Incentive compensation expense as a percentage of revenue Canada UK and Europe Us Other foreign Locations Canaccord genuity (total) p.p.: percentage points for the years ended March 31 2014 2013 2014/2013 change 48.5% 50.1% 49.5% 54.8% 49.8% 49.5% 59.2% 53.7% 61.9% 54.1% (1.0) p.p. (9.1) p.p. (4.2) p.p. (7.1) p.p. (4.3) p.p. (1) figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 41 MANAGEMENT’s DIsCUssION AND ANALYsIs total Compensation as a % oF CanaCCoRd genuity Revenue – oveRall total Compensation as a % oF CanaCCoRd genuity Revenue – Canada 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 4.2% 53.7% 3.0% 46.7% 4.7% 52.1% 6.5% 54.1% 5.7% 49.8% Salaries and benefits Incentive compensation 2.6% 52.4% 1.7% 43.1% 2.4% 47.0% 3.3% 49.5% 3.3% 48.5% Salaries and benefits Incentive compensation 57.9% 49.7% 56.8% 60.6% 55.5% Total 55.0% 44.8% 49.4% 52.8% 51.8% Total total Compensation as a % oF CanaCCoRd genuity Revenue – uk and euRope total Compensation as a % oF CanaCCoRd genuity Revenue – us 2010 2011 2012 2013 2014 1.9% 7.8% 53.9% 1.8% 5.5% 49.9% 5.3% 10.7% 60.1% 2.8% 9.9% 56.3% 2.6% 7.9% 47.4% National Insurance Tax Salaries and benefits Incentive compensation 2010 2011 2012 2013 2014 4.5% 55.1% 4.6% 54.0% 5.7% 58.3% 6.6% 53.7% 4.6% 49.5% Salaries and benefits Incentive compensation 63.6% 57.2% 76.1% 69.0% 57.9% Total 59.6% 58.6% 64.0% 60.3% 54.1% Total total Compensation as a % oF CanaCCoRd genuity Revenue – otheR FoReign loCations 2010 2011 2012 2013 2014 0.6% 38.5% 53.2% 8.9% 22.0% 51.7% 10.9% 61.9% 8.7% 54.8% Salaries and benefits Incentive compensation 39.1% 62.1% 73.7% 72.8% 63.5% Total other overhead expenses Other overhead expenses excluding significant items(1) were $179.1 million for fiscal 2014, an increase of $3.5 million from the prior year. The largest fluctuation in other overhead expenses was a $10.6 million increase in trading costs. The increase in trading costs was offset by a $6.2 million decrease in amortization expense, a $5.0 million decrease in general and administrative expense, a $3.6 million decrease in communication and technology expense and a $2.9 million decrease in premises and equipment expense. figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) 42 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs Premises and equipment expense was $2.9 million lower compared to fiscal 2013 due to the consolidation of office space. Communication and technology expense decreased by $3.6 million, to $29.3 million for the year ended March 31, 2014, primarily as a result of cost synergies realized in our Us and our UK and Europe operations. General and administrative expense decreased by $5.0 million, mainly due to our cost reduction efforts and lower reserve expense against unsecured balances. The $6.2 million decrease in amortization expense related to a decrease in the amortization of intangible assets as certain intangible assets are fully amortized. Prior to fiscal 2014, certain trading, clearing and settlement charges were included with the intersegment allocated costs in Canada. Beginning in fiscal 2014, the basis for determining these charges was changed and the charges were classified as a trading cost in the applicable business unit and as a trading cost recovery in the Corporate and Other segment. This change led to a $2.2 million increase in trading costs in Canada compared to fiscal 2013. Trading costs in the Us were up by $6.8 million as a result of higher customer and principal trading activity. Trading costs increased by $1.2 million in the UK and Europe compared to fiscal 2013 as a result of higher trading volumes. In addition to the reasons stated above, the foreign exchange translation of the expenses of our foreign operations into Canadian dollars also partially accounted for the variances from prior year due to the appreciation of the foreign currencies against the Canadian dollar, particularly for our UK and Europe and Us operations. Despite the foreign exchange impact and an increase in overall revenue of 13.8% over fiscal 2013, total expenses excluding significant items(1) only increased by 3.4% compared to the prior year as a result of our continued focus on cost efficiencies. inCome BeFoRe inCome taxes Income before income taxes in fiscal 2014 was $74.4 million compared to $3.6 million in fiscal 2013. Excluding significant items(1), income before income taxes was $86.6 million compared to $34.0 million in fiscal 2013. The record revenue earned in our Us and UK and Europe operations as well as the reduced compensation ratio and lower operating expenses resulted in a 7.8 percentage point improvement in our pre-tax profit margin excluding significant items(1) compared to fiscal 2013. CanaCCoRd genuity wealth management overview Canaccord’s wealth management division provides a range of comprehensive financial services and investment products to individual investors (private clients), institutions and intermediaries, and charities. revenue from wealth management is generated through traditional commission-based brokerage services; the sale of fee-based products and services; client-related interest; and fees and commissions earned by IAs for investment banking and venture capital transactions. Canaccord now has wealth management operations in Canada, the UK and Europe, and Australia. Through acquisition activity over the last two years, Canaccord has strategically expanded its wealth management platform into new geographies to enhance the consistency of its revenue streams through market diversification and the addition of largely fee- based wealth management operations. At March 31, 2014, Canaccord Genuity Wealth Management had 16 offices located across Canada, including eight Independent Wealth Management (IWM) locations. In the UK and Europe, Canaccord Genuity Wealth Management has five locations, including offices in the UK, the Channel Islands and the Isle of Man. revenue earned by this business is largely generated through fee-based accounts and portfolio management activities. With 60.6% of its revenue generated from fee-based activity, this geography has a significantly higher proportion of fee- based revenue than Canaccord’s Canadian wealth management business. The business caters to both onshore (UK) and offshore client accounts and provides clients with investing options from both third party and proprietary financial products, including 27 funds managed by Canaccord Genuity Wealth Management portfolio managers. During fiscal 2014, Canaccord continued the strategic refocusing of its Canadian wealth management division, targeting its operations in core Canadian centres. The Company believes this strategy will help to strengthen its Canadian wealth management platform by centering its investments and support services in markets where it has developed a significant presence and in markets that show prospects for market share growth. On January 15, 2014, stuart raftus was appointed as President of Canaccord Genuity Wealth Management in Canada. Mr. raftus has more than 28 years of experience in the securities industry with a strong track record of execution, making him well suited to lead this division. Over the last three years, Canaccord has focused on repositioning its Canadian wealth management business to cater to the changing needs and preferences of Canadian investors. Pairing advisors who take a traditional brokerage approach with advisors who focus on holistic wealth management services is one example of numerous initiatives the Company has implemented to ensure figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 43 MANAGEMENT’s DIsCUssION AND ANALYsIs it meets the needs of a more conservative, aging client base with comprehensive financial planning needs. In addition, Canaccord Genuity Wealth Management has significantly enhanced its training programs over the last several years to ensure Advisory Teams, investment professionals and fund managers have the broad-based expertise required to provide holistic wealth management advice. outlook Management’s priorities for Canaccord Genuity Wealth Management will be focused on strengthening the performance of its Canadian business, growing assets under administration and management, and growing fee-based revenues. With 60.6% of its revenue derived from recurring, fee-based activities, the revenue streams generated through Canaccord’s UK and European wealth management business should help to improve the stability of the division’s overall performance. Canaccord expects that opportunities to grow the asset and client base of its UK wealth management business will emerge over the next several years, as increasing regulatory requirements in the UK wealth management industry impose uneconomical demands on smaller industry participants. An overall consolidation of the UK wealth management industry is expected, with fewer and larger wealth management firms ultimately competing to provide services in this market. In Canada, Canaccord’s focus will remain on enhancing margins, managing costs, and growing the business through targeted recruitment and training. While the recruiting environment remains challenging, we expect to have some recruiting success in select local markets. The Company also intends to invest further in training programs for new and existing Investment Advisors to continue developing the skills of our Advisory Teams. These training activities are already gaining traction, and are expected to support the growth of fee-based services offered through the Canadian business. During fiscal 2015, Canaccord will launch Global Portfolio solutions (GPs), a proprietary asset management product that combines research and portfolio management with forward-looking risk management solutions. Canaccord’s successful product, based on a similar model in the UK, has been recognized as a best-in-class investing discipline and is therefore expected to be well received by wealth management clients across our geographies. In Australia, the Company still has a relatively small wealth management operation; however, expansion is expected to occur through targeted recruiting, and through the build-out of wealth management services and products in this market. FinanCial peRFoRmanCe – noRth ameRiCa(1)(2) (C$ thousands, except AUM and AUA (in C$ millions), number of employees, Advisory Teams and % amounts) revenue Expenses Incentive compensation salaries and benefits Other overhead expenses restructuring costs Total expenses Intersegment allocations(3) Loss before income taxes(3) AUM – Canada (discretionary)(4) AUA – Canada(5) Number of Advisory Teams – Canada Number of employees excluding significant items(6) Total expenses Intersegment allocations(3) Loss before income taxes(3) for the years ended March 31 2014 2013 2014/2013 change $ 110,990 $ 139,855 $ (28,865) (20.6)% 56,521 13,260 42,653 — 112,434 16,672 74,323 13,845 42,768 13,567 144,503 35,495 (17,802) (585) (115) (24.0)% (4.2)% (0.3)% (13,567) (100.0)% (32,069) (18,823) $ (18,116) $ (40,143) $ 22,027 1,204 10,160 160 420 835 10,429 178 461 369 (269) (18) (41) $ 112,434 $ 130,936 $ (18,502) 16,672 (18,116) 35,495 (26,576) (18,823) 8,460 (22.2)% (53.0)% 54.9% 44.2% (2.6)% (10.1)% (8.9)% (14.1)% (53.0)% 31.8% Data is in accordance with Ifrs except for figures excluding significant items, AUA, AUM, number of Advisory Teams and number of employees. see Non-Ifrs Measures on page 21. Includes Canaccord Genuity Wealth Management operations in Canada and the Us. Loss before income taxes includes intersegment allocations. see the Intersegment Allocated Costs section on page 47. (1) (2) (3) (4) AUM represents assets managed on a discretionary basis under our programs generally described as or known as the Complete Canaccord Investment Counselling Program and the Complete Canaccord Private Investment Management Program. AUA is the market value of client assets administered by Canaccord, for which Canaccord earns commissions or fees. refer to the selected financial Information Excluding significant Items table on page 30. (5) (6) 44 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs revenue from Canaccord Genuity Wealth Management North America was $111.0 million, a decrease of $28.9 million from fiscal 2013 as a result of the difficult market conditions that have prevailed during fiscal 2014. AUA in Canada dropped by 2.6% to $10.2 billion at March 31, 2014, primarily due to reduced trading activity in Canada. AUM in Canada increased by 44.2% compared to fiscal 2013 due to the Company’s increased focus on the transition from traditional commission-based accounts to fee-based and managed accounts. There were 160 Advisory Teams in Canada, down by 18 from a year ago. The fee-based revenue in our North American operations was 6.0 percentage points higher than in the prior year and accounted for 32.2% of the wealth management revenue earned in Canada during the year ended March 31, 2014. Expenses for the current fiscal year were $112.4 million, a decrease of $32.1 million or 22.2% from fiscal 2013. Incentive compensation expense decreased by $17.8 million as a result of lower incentive-based revenue. Total compensation expense as a percentage of revenue has remained relatively unchanged from the prior year at 62.9% for the year ended March 31, 2014. Overhead expenses such as general and administrative expense, amortization expense and development costs have all decreased in fiscal 2014 compared to the prior year. General and administrative expense decreased by $3.8 million over the prior year, partially due to lower promotion and travel expense. Amortization expense decreased by $2.4 million as a result of the acceleration of amortization expense of leasehold improvements related to the branch closures in fiscal 2013. A reduction in hiring incentives led to a drop in development costs of $1.5 million compared to the prior year. Offsetting these decreases in expenses was an increase in trading costs of $8.5 million from the prior year. The increase in trading costs was a result of a change in the basis for allocating certain trading, clearing and settlement charges among the Canadian business units. This increase was more than offset by a decrease in intersegment allocations of $18.8 million, for a combined net decrease of $10.3 million in trading and allocated costs. Loss before income taxes for fiscal 2014 was $18.1 million compared to a loss before income taxes of $40.1 million for fiscal 2013. Excluding significant items(1), loss before income taxes for fiscal 2014 was $18.1 million compared to $26.6 million for the prior year. Despite the lower revenue, the Company’s efforts to continuously monitor costs and implement cost reduction initiatives resulted in a lower loss before income taxes for the year compared to fiscal 2013. figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) FinanCial peRFoRmanCe – uk and euRope(1)(2) (C$ thousands, except AUM (in C$ millions), number of employees, investment professionals and fund managers, and % amounts) revenue Expenses Incentive compensation salaries and benefits Other overhead expenses restructuring costs Acquisition-related costs Total expenses Intersegment allocations(3) Income before income taxes(3) AUM – UK and Europe(4) Number of investment professionals and fund managers – UK and Europe Number of employees excluding significant items(5) Total expenses Intersegment allocations(3) Income before income taxes(3) for the years ended March 31 2014 2013 2014/2013 change $ 113,046 $ 91,757 $ 21,289 23.2% 40,139 14,656 39,477 — — 94,272 8,047 34,780 9,735 33,092 1,918 1,331 80,856 6,736 $ 10,727 $ 4,165 $ 20,156 15,936 118 294 122 294 5,359 4,921 6,385 (1,918) (1,331) 13,416 1,311 6,562 4,220 (4) — $ 86,431 $ 71,752 $ 14,679 8,047 18,568 6,736 13,269 1,311 5,299 15.4% 50.5% 19.3% (100.0)% (100.0)% 16.6% 19.5% 157.6% 26.5% (3.3)% — 20.5% 19.5% 39.9% Data is in accordance with Ifrs except for figures excluding significant items, AUM, number of investment professionals and fund managers, and number of employees. see Non-Ifrs Measures on page 21. results of the wealth management business of Eden financial Ltd. since October 1, 2012 are also included. Income before income taxes includes intersegment allocations. see the Intersegment Allocated Costs section on page 47. AUM in the UK and Europe is the market value of client assets managed and administered by Canaccord, for which Canaccord earns commissions or fees. This measure includes both discretionary and non-discretionary accounts. refer to the selected financial Information Excluding significant Items table on page 30. (1) (2) (3) (4) (5) CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 45 MANAGEMENT’s DIsCUssION AND ANALYsIs revenue generated by our UK and Europe operations is largely produced through fee-based accounts and portfolio management activities, and, as such, is less sensitive to changes in market conditions. revenue for fiscal 2014 was $113.0 million, an increase of 23.2% compared to fiscal 2013. AUM in the UK and Europe as of March 31, 2014 was $20.2 billion. The fee-based revenue in our UK and European operations accounted for 60.6% of total revenue in this geography, a slight decrease of 0.5 percentage points compared to fiscal 2013. As discussed above, this business has a higher proportion of fee-based revenue and managed accounts compared to our Canadian wealth management business. Incentive compensation expense was $40.1 million, up from $34.8 million in fiscal 2013. Total compensation (incentive compensation plus salaries and benefits) as a percentage of revenue showed no change from 48.5% in fiscal 2013. The increase in salaries and benefits expense of $4.9 million was due to certain redundancy costs incurred in the operation during the current fiscal year as well as a reclassification of certain costs to salaries and benefits expense. Development costs were $4.9 million in fiscal 2014, an increase of $1.8 million, resulting from the amortization cost related to the CsH Inducement Plan and other incentive plans. Amortization expense increased by $1.9 million as a result of the amortization of intangible assets acquired through the acquisition of the wealth management business of Eden financial Ltd. Income before income taxes was $10.7 million compared to $4.2 million in the prior year as a result of higher revenue generated in fiscal 2014, as well as a reduction in acquisition-related and restructuring costs. Excluding significant items(1), income before income taxes was $18.6 million, an increase of 39.9% from the prior year. CoRpoRate and otheR segment overview The Corporate and Other segment includes Pinnacle Correspondent services (Canaccord’s correspondent brokerage services division), interest, foreign exchange revenue, and expenses not specifically allocable to Canaccord Genuity or Canaccord Genuity Wealth Management. Pinnacle provides trade execution, clearing, settlement, custody, and other middle- and back-office services to other introducing brokerage firms, Portfolio Managers and other financial intermediaries. The Pinnacle business unit was developed as an extension and application of Canaccord’s substantial investment in its information technology and operating infrastructure. Also included in this segment are Canaccord’s administrative, operational and support services departments, which are responsible for front- and back-office information technology systems, compliance and risk management, operations, legal, finance, and other administrative functions. Canaccord has approximately 316 employees in the Corporate and Other segment. The majority of Canaccord’s corporate support functions are based in Vancouver and Toronto, Canada. Our operations group is responsible for all activity in connection with processing securities transactions, including the clearing and settlement of securities transactions, account administration and custody of client securities. The finance department is responsible for internal financial accounting and controls, and external financial and regulatory reporting, while the compliance department is responsible for client credit and account monitoring in relation to certain legal and financial regulatory requirements. Canaccord’s risk management and compliance activities include procedures to identify, control, measure and monitor Canaccord’s risk exposure at all times. During fiscal 2014, the back-office team at Canaccord focused on further IT and systems integration between geographies to ensure efficient information sharing; identifying cost saving opportunities within the Company’s operating platform; brand and communication strategies; and supporting operational changes in the Company’s wealth management division. staffing levels were also evaluated and adjusted in some support departments during the year, to better align support levels with changing demands from the business. figures excluding significant items are non-Ifrs measures. see Non-Ifrs Measures on page 21. (1) 46 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs FinanCial peRFoRmanCe(1) for the years ended March 31 (C$ thousands, except number of employees and % amounts) 2014 2013 2014/2013 change revenue Expenses Incentive compensation salaries and benefits Other overhead expenses restructuring costs Total expenses Intersegment allocations(2) (Loss) income before income taxes(2) Number of employees excluding significant items(3) Total expenses Intersegment allocations(2) (Loss) income before income taxes(2) $ 15,418 $ 24,477 $ (9,059) (37.0)% 9,933 28,430 12,725 — 51,088 (33,256) 5,031 29,701 26,006 900 61,638 (45,797) 4,902 (1,271) (13,281) (900) (10,550) 12,541 $ (2,414) $ 8,636 $ (11,050) 316 332 (16) $ 51,088 $ 60,738 $ (9,650) (33,256) (2,414) (45,797) 9,536 12,541 (11,950) 97.4% (4.3)% (51.1)% (100.0)% (17.1)% 27.4% (128.0)% (4.8)% (15.9)% 27.4% (125.3)% Data is in accordance with Ifrs except for figures excluding significant items and number of employees. see Non-Ifrs Measures on page 21. Loss before income taxes includes intersegment allocations. see the Intersegment Allocated Costs section below. refer to the selected financial Information Excluding significant Items table on page 30. (1) (2) (3) revenue for fiscal 2014 was $15.4 million, a decrease of $9.1 million or 37.0% from fiscal 2013. The change was mainly due to a $3.7 million decrease in revenue earned from our correspondent brokerage services activity, a $2.3 million decrease in foreign exchange gains, and a $2.1 million decrease in interest income. The reduction in foreign exchange gains related to the fluctuations in the Canadian dollar, while interest revenue decreased due to lower interest rates and lower balances held in interest-earning accounts. fiscal 2014 expenses were $51.1 million, a decrease of $10.6 million or 17.1%. The $4.9 million increase in incentive compensation expense resulted from the higher profitability of the consolidated group of companies. salaries and benefits expense decreased by $1.3 million, mainly due to reorganization expense incurred in fiscal 2013 related to headcount reduction in this segment. The majority of the increase in other overhead expenses relate to trading costs and general and administrative expense. General and administrative expense increased by $2.2 million or 24.5% due to recovery of client expense recorded in fiscal 2013. During the year ended March 31, 2014, the Company changed the basis for recording certain trading, clearing and settlement charges to Canaccord Genuity and Canaccord Genuity Wealth Management business units in Canada, resulting in a $14.7 million decrease in trading costs. Loss before income taxes was $2.4 million for fiscal 2014 compared to income before income taxes of $8.6 million for the prior year, mostly due to lower revenue earned during the current fiscal year. inteRsegment alloCated Costs Included in the Corporate and Other segment are certain support services, research and other expenses that have been incurred to support the activities within the Canaccord Genuity and Canaccord Genuity Wealth Management segments in Canada. Prior to fiscal 2014, certain trading, clearing and settlement charges were included as an intersegment allocated cost. Beginning in fiscal 2014, these costs were classified as a trading cost in the applicable business units and as a trading cost recovery in Corporate and Other. In addition, certain overhead costs are charged by Canaccord Genuity UK and Europe to Canaccord Genuity Wealth Management UK and Europe and included in intersegment allocated costs for these business units. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 47 MANAGEMENT’s DIsCUssION AND ANALYsIs Financial Condition Below are selected balance sheet items for the past five years:(1) (C$ thousands) assets Balance sheet summary as at March 31 2014 iFRs 2013 Ifrs 2012 Ifrs 2011 Ifrs 2010 CGAAP Cash and cash equivalents $ 364,296 $ 491,012 $ 814,238 $ 954,068 $ 731,852 securities owned Accounts receivable Income taxes recoverable Deferred tax assets Investments Equipment and leasehold improvements Goodwill and other intangible assets 1,143,201 924,337 1,171,988 947,185 362,755 2,785,898 2,513,958 3,081,640 2,828,812 1,972,924 3,983 9,735 9,977 50,975 646,557 — 12,552 3,695 42,979 614,969 8,301 3,959 9,493 51,084 622,020 — 1,503 5,934 40,818 319,180 — 13,190 5,000 38,127 — Total assets $ 5,014,622 $ 4,603,502 $ 5,762,723 $ 5,097,500 $ 3,123,848 liabilities and shareholders’ equity Bank indebtedness short term credit facility securities sold short $ — — $ 66,138 $ 75,141 $ 13,580 $ 29,435 913,913 689,020 — 150,000 914,649 — — 722,613 364,137 Accounts payable and accrued liabilities 2,877,933 2,726,735 3,550,600 3,551,124 2,308,146 Provisions Income taxes payable Contingent consideration Deferred tax liabilities subordinated debt shareholders’ equity Non-controlling interests 10,334 10,822 — 3,028 15,000 20,055 4,428 14,218 2,576 15,000 1,168,680 1,049,163 14,912 16,169 39,666 — — 8,088 15,000 992,125 17,454 6,151 23,977 — 8,163 15,000 756,892 — — 5,385 — — 15,000 401,745 — Total liabilities and shareholders’ equity $ 5,014,622 $ 4,603,502 $ 5,762,723 $ 5,097,500 $ 3,123,848 The Company adopted Ifrs beginning April 1, 2011. figures for periods prior to March 31, 2011 are in accordance with CGAAP. (1) assets Cash and cash equivalents were $364.3 million on March 31, 2014 compared to $491.0 million on March 31, 2013. refer to the Liquidity and Capital resources section for more details. securities owned were $1.1 billion compared to $0.9 billion on March 31, 2013, mainly attributable to an increase in both corporate and government debt, and equities and convertible debentures. Accounts receivable were $2.8 billion on March 31, 2014 compared to $2.5 billion on March 31, 2013, as a result of higher receivable balances from brokers and investment dealers and clients. Goodwill was $514.9 million and intangible assets were $131.7 million, representing the goodwill and intangible assets acquired through the acquisitions of Genuity, The Balloch Group (TBG), a 50% interest in Canaccord Genuity (Australia) Limited, CsHP, certain assets and liabilities of Kenosis Capital Partners, and the wealth management business of Eden financial Ltd. Other assets in aggregate were $74.7 million at March 31, 2014 compared to $59.2 million at March 31, 2013. The increase was mainly due to increases in income taxes recoverable, investments and equipment and leasehold improvements, offset by a decrease in deferred tax assets. Equipment and leasehold improvements increased mainly as a result of the addition of leasehold improvements in our UK and Europe and Canadian operations. The increase was also due to the impact of foreign exchange translation of equipment and leasehold improvements held by our foreign subsidiaries. The $5.7 million investment made during fiscal 2014 in Canadian first financial Holdings Limited (Canadian first), a private company which has been established as a Canadian retail financial services organization, led to the increase in investments compared to fiscal 2013. Deferred tax assets decreased mainly due to the reversal of deductible temporary differences as a result of the utilization of tax loss carryforwards in the UK and Europe. 48 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs liaBilities and shaReholdeRs’ eQuity Bank overdrafts and call loan facilities utilized by Canaccord may vary significantly on a day-to-day basis and depend on securities trading activity. On March 31, 2014, Canaccord had available credit facilities with banks in Canada and the UK and Europe in the aggregate amount of $720.8 million [March 31, 2013 – $705.5 million]. These credit facilities, consisting of call loans, letters of credit and daylight overdraft facilities, are collateralized by unpaid client securities and/or securities owned by the Company. On March 31, 2014, there was no bank indebtedness balance, compared to $66.1 million on March 31, 2013. Accounts payable and accrued liabilities were $2.9 billion, an increase from $2.7 billion on March 31, 2013, mainly due to an increase in payables to brokers and investment dealers. Provisions decreased by $9.8 million, from $20.1 million to $10.3 million, as restructuring and legal provisions utilized exceeded additional provisions accrued during the year. securities sold short were $913.9 million, an increase of $224.9 million compared to $689.0 million at March 31, 2013, due mostly to an increase in holdings of short positions in both corporate and government debt, and equities and convertible debentures. Other liabilities, including subordinated debt, contingent consideration, deferred tax liabilities, and income taxes payable, were $28.9 million at March 31, 2014 and $36.2 million at March 31, 2013. This decrease was mainly due to the payment of contingent consideration related to the acquisition of Eden financial Ltd. and the reversal of the contingent consideration for the acquisition of certain assets and liabilities of Kenosis Capital Partners as performance targets were not met. The decrease was partially offset by a $6.4 million increase in income taxes payable from March 31, 2013. Non-controlling interests were $14.9 million at March 31, 2014 compared to $16.2 million at March 31, 2013, which represents 50% of the net assets of our operations in Australia. off-Balance sheet arrangements A subsidiary of the Company has entered into secured irrevocable standby letters of credit from a financial institution totalling $0.9 million (Us$0.9 million) [March 31, 2013 – $3.3 million (Us$3.2 million)] as rent guarantees for its leased premises in New York. The following table summarizes Canaccord’s long term contractual obligations on March 31, 2014. Contractual obligations payments due by period (C$ thousands) Total fiscal 2015 fiscal 2016– fiscal 2017 fiscal 2018– fiscal 2019 Thereafter Premises and equipment operating leases $ 199,951 $ 33,896 $ 58,420 $ 41,670 $ 65,965 liquidity and Capital Resources Canaccord has a capital structure comprised of preferred shares, common shares, contributed surplus, retained earnings and accumulated other comprehensive losses, which is further complemented by subordinated debt. On March 31, 2014, cash and cash equivalents were $364.3 million, a decrease of $126.7 million from $491.0 million as of March 31, 2013. During the fiscal year ended March 31, 2014, financing activities used cash in the amount of $131.1 million, which was primarily due to the decrease in bank indebtedness of $66.1 million, $32.8 million used for cash dividends paid on common and preferred shares, $21.1 million used for redemption of share capital, and $11.0 million used for the acquisition of common shares for the long-term incentive plan. Investing activities used cash in the amount of $38.0 million, primarily related to the purchase of equipment and leasehold improvements, the payment of contingent consideration related to Eden financial Ltd., the purchase of intangible assets, and the investment in Canadian first. Operating activities provided cash in the amount of $17.0 million, which was due to net income recognized during the year and changes in working capital. An increase in cash of $25.4 million was attributable to the effect of foreign exchange on cash balances. In total, there was a decrease in cash of $126.7 million compared to March 31, 2013. Canaccord’s business requires capital for operating and regulatory purposes. The majority of current assets reflected on Canaccord’s balance sheet are highly liquid. The majority of the positions held as securities owned are readily marketable and all are recorded at their fair value. The fair value of these securities fluctuates daily as factors such as changes in market conditions, economic conditions and investor outlook affect market prices. Client receivables are secured by readily marketable securities and are reviewed daily for impairment in value and collectibility. receivables and payables from brokers and dealers represent the CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 49 MANAGEMENT’s DIsCUssION AND ANALYsIs following: current open transactions that generally settle within the normal three-day settlement cycle; collateralized securities borrowed and/or loaned in transactions that can be closed within a few days on demand; and balances on behalf of introducing brokers representing net balances in connection with their client accounts. preferred shares seRies a pReFeRRed shaRes In fiscal 2012, the Company issued 4,540,000 Cumulative 5-Year rate reset first Preferred shares, series A (series A Preferred shares) at a purchase price of $25.00 per share for gross proceeds of $113.5 million. The aggregate net amount recognized after deducting issue costs, net of deferred taxes of $1.0 million, was $110.8 million. Quarterly cumulative cash dividends, if declared, will be paid at an annual rate of 5.5% for the initial five-year period ending on september 30, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 3.21%. Holders of series A Preferred shares have the right, at their option, to convert any or all of their shares into an equal number of Cumulative floating rate first Preferred shares, series B (series B Preferred shares), subject to certain conditions, on september 30, 2016 and on september 30 every five years thereafter. Holders of the series B Preferred shares will be entitled to receive floating rate, cumulative, preferential dividends payable quarterly, if declared, at a rate equal to the three-month Government of Canada Treasury Bill yield plus 3.21%. The Company has the option to redeem the series A Preferred shares on september 30, 2016 and on september 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. The series B Preferred shares are redeemable at the Company’s option on september 30, 2021 and on september 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. seRies C pReFeRRed shaRes In fiscal 2013, the Company issued 4,000,000 Cumulative 5-Year rate reset first Preferred shares, series C (series C Preferred shares) at a purchase price of $25.00 per share for gross proceeds of $100 million. The aggregate net amount recognized after deducting issue costs, net of deferred taxes of $1.0 million, was $97.5 million. Quarterly cumulative cash dividends, if declared, will be paid at an annual rate of 5.75% for the initial five-year period ending on september 30, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 4.03%. Holders of series C Preferred shares have the right, at their option, to convert any or all of their shares into an equal number of Cumulative floating rate first Preferred shares, series D (series D Preferred shares), subject to certain conditions, on June 30, 2017 and on June 30 every five years thereafter. Holders of the series D Preferred shares will be entitled to receive floating rate, cumulative, preferential dividends payable quarterly, if declared, at a rate equal to the three-month Government of Canada Treasury Bill yield plus 4.03%. The Company has the option to redeem the series C Preferred shares on June 30, 2017 and on June 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. The series D Preferred shares are redeemable at the Company’s option on June 30, 2022 and on June 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. outstanding preferred share data issuanCe oF pReFeRRed shaRe Capital Preferred shares issued and outstanding as of March 31, 2012 Preferred share issuance shares held in treasury Preferred shares issued and outstanding as of March 31, 2013 shares held in treasury total preferred shares issued and outstanding as of march 31, 2014 50 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT series A series C 4,540,000 — — — 4,000,000 (106,794) 4,540,000 3,893,206 — — 4,540,000 3,893,206 outstanding Common share data Issued shares outstanding excluding unvested shares(1) Issued shares outstanding(2) Issued shares outstanding – diluted(3) Average shares outstanding – basic Average shares outstanding – diluted(4) MANAGEMENT’s DIsCUssION AND ANALYsIs Outstanding common shares as of March 31 2014 2013 93,115,359 93,061,796 101,471,456 102,896,172 107,937,492 109,879,724 94,124,672 92,217,726 101,992,679 n/a (1) (2) (3) (4) Excludes 3,576,051 outstanding unvested shares related to share purchase loans for recruitment, 4,734,446 unvested shares purchased by the employee benefit trust for the LTIP and 45,600 shares held in treasury. Includes 3,576,051 unvested shares related to share purchase loans for recruitment, 4,734,446 unvested shares purchased by the employee benefit trust for the LTIP and 45,600 shares held in treasury. Includes 6,466,036 of share issuance commitments. This is the diluted share number used to calculate diluted EPs. for the year ended March 31, 2013, all instruments involving potential common shares were excluded from the calculation of diluted earnings per share as they were anti-dilutive. In August 2012, the Company filed a notice for a normal course issuer bid (NCIB) to provide for the ability to purchase, at the Company’s discretion, up to 3,000,000 of its common shares through the facilities of the TsX from August 13, 2012 to August 12, 2013. The purpose of the purchase of common shares under the NCIB is to enable the Company to acquire shares for cancellation. The shares that may be repurchased represent 2.93% of the Company’s common shares outstanding at the time of the notice. There were 924,040 shares purchased through the NCIB between August 13, 2012 and August 12, 2013 and cancelled. On August 6, 2013, the Company filed a notice to renew the NCIB to provide the Company with the choice to purchase up to a maximum of 5,136,948 of its common shares during the period from August 13, 2013 to August 12, 2014 through the facilities of the TsX and on alternative trading systems in accordance with the requirements of the TsX. The maximum number of shares that may be purchased through the NCIB represents 5.0% of the Company’s outstanding common shares at the time of the notice. There were 2,370,104 shares purchased through the NCIB between August 13, 2013 and March 31, 2014, of which 45,600 shares were held in treasury until subsequently cancelled on April 30, 2014. The Company has entered into a predefined plan with a designated broker to allow for the repurchase of its common shares under this NCIB. The Company’s broker may repurchase the common shares under the plan on any trading day during the NCIB, including at any time during the Company’s internal trading blackout periods. The plan has been reviewed by the TsX and will terminate on the earlier of the termination of the plan by the Company in accordance with its terms and the expiry of the NCIB. Purchases under the current NCIB commenced on August 13, 2013, and will continue for one year (to August 12, 2014) at the discretion of the Company. The maximum consideration will be the market price of the securities at the time of acquisition. In order to comply with the trading rules of the TsX and the conditions for trading under the EU Buy-back and Stabilisation Regulation, the daily purchases are limited to 26,456 common shares of the Company (which is the lesser of (a) 25% of the average daily trading volume of common shares of the Company on the TsX in the six calendar months from february 2013 to July 2013 and (b) 25% of the average daily trading volume of common shares of the Company on the TsX in the month of July 2013). To fulfill its regulatory reporting requirements in Canada and in the UK, Canaccord will issue a press release no later than the end of the seventh daily market session following the date of execution of the purchases. As of June 3, 2014, the Company has 100,982,528 common shares issued and outstanding. issuanCe and CanCellation oF Common shaRe Capital total common shares issued and outstanding as of march 31, 2013 shares issued in connection with the LTIP shares issued in connection with retention plan shares issued in connection with replacement plans shares cancelled total common shares issued and outstanding as of march 31, 2014 Fiscal 2014 102,896,172 1,629,285 160,656 526,483 (3,741,140) 101,471,456 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 51 MANAGEMENT’s DIsCUssION AND ANALYsIs share-Based payment plans long-teRm inCentive plan Under the LTIP, eligible participants are awarded restricted share units (rsUs), which generally vest over three years. for employees in Canada, an employee benefit trust (the Trust) has been established, and either (a) the Company will fund the Trust with cash, which will be used by the trustee to purchase on the open market common shares of the Company that will be held in trust by the trustee until the rsUs vest or (b) the Company will issue common shares from treasury to participants following vesting of the rsUs. Historically, for employees in the United states and the United Kingdom, at the time of each restricted share unit award, the Company has allotted common shares and these shares have been issued from treasury to plan participants following vesting of restricted share units. Effective from June 2014, key employee benefit trusts have also been established in the United states and the United Kingdom and the Company or Canaccord Genuity Inc. or Canaccord Genuity Limited, as the case may be, will fund the trusts with cash which is used by a trustee to purchase common shares on the open market that will be held in trusts by their trustees until restricted share units vest, or the Company will issue common shares from treasury to plan participants following vesting of restricted share units. FoRgivaBle Common shaRe puRChase loans The Company provides forgivable common share purchase loans to employees in order to purchase common shares. These loans are forgiven over a vesting period. No interest is charged related to the share purchase loans. The common share purchase loans include the employee stock incentive plan, the bonus compensation plan, and the appreciation program. ReplaCement plans As a result of the acquisition of CsHP, the Company introduced the replacement Annual Bonus Equity Deferral (ABED) plan, which replaced the ABED plans that existed at CsHP as of the acquisition date. Eligible employees who participated in the CsHP ABED plan were granted awards under the replacement ABED plan. In addition, the Company introduced the replacement Long-term Incentive Plan (LTIP), which replaced the existing LTIPs at CsHP as of the acquisition date for eligible employees. Csh induCement plan In connection with the acquisition of CsHP, the Company agreed to establish a retention plan for key CsHP staff. In september 2012, the Company finalized the terms of this plan and communicated the plan arrangements to the relevant employees. On each vesting date, the rsUs entitle the awardee to receive cash or common shares of the Company. If at the vesting date the share price is less than $8.50 per share, then the Company, at its election, will either (a) pay cash to the employee equal to $8.50 multiplied by the number of rsUs vesting on such date, or (b) pay cash to the employee equal to the difference between $8.50 and the vesting date share price, multiplied by the number of rsUs vesting on that date plus that number of shares equal to the number of rsUs vesting on such date. If the share price is greater than $8.50, then the Company will settle the rsUs in common shares. shaRe options The Company grants share options to purchase common shares of the Company to independent directors and senior management. The independent directors and senior management have been granted options to purchase common shares of the Company. As at March 31, 2014, there were 2,034,632 options outstanding. The stock options vest over a four- to five-year period and expire seven years after the grant date. The weighted average exercise price of the share options is $9.23 per common share. deFeRRed shaRe units Beginning April 1, 2011, the Company adopted a deferred share unit (DsU) plan for its independent directors. The independent directors can elect to have fees payable to them paid in the form of DsUs or in cash. Directors must elect annually as to how they wish their directors’ fees to be paid and can specify the allocation of their directors’ fees between DsUs and cash. When a director leaves the Board of Directors, outstanding DsUs are paid out in cash, with the amount equal to the number of DsUs granted multiplied by the closing share price as of the end of the fiscal quarter immediately following such terminations. Under the plan, the directors are not entitled to receive any common shares in the Company, and under no circumstances will DsUs confer on any participant any of the rights or privileges of a holder of common shares. 52 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs otheR Retention and inCentive plans During the course of the fiscal year, there were other retention and incentive plans, including the employee stock purchase plan, with individual employees, for which the amount incurred was not significant in aggregate. international Financial Centre Canaccord is a member of the AdvantageBC International Business Centre society (formerly known as the International financial Centre British Columbia Society) and the Montréal International Financial Centre, both of which provide certain tax and financial benefits pursuant to the International Business Activity Act of British Columbia and the Act Respecting International Financial Centres of Québec. Accordingly, Canaccord’s overall income tax rate is less than the rate that would otherwise be applicable. Foreign exchange Canaccord manages its foreign exchange risk by periodically hedging pending settlements in foreign currencies. realized and unrealized gains and losses related to these transactions are recognized in income during the period. On March 31, 2014, forward contracts outstanding to sell Us dollars had a notional amount of Us$13.8 million, a decrease of Us$1.0 million from a year ago. forward contracts outstanding to buy Us dollars had a notional amount of Us$5.5 million, an increase of Us$1.7 million compared to a year ago. Canaccord’s operations in the Us, the UK and Europe, Australia, Hong Kong and China are conducted in the local currency; however, any foreign exchange risk in respect of these transactions is generally limited as pending settlements on both sides of the transaction are typically in the local currency. The Company’s Canaccord Genuity Wealth Management segment in the UK and Europe deals foreign exchange forward contracts on behalf of its clients, and establishes matching contracts with the counterparties. The Company has no net exposure assuming no counterparty default. Related party transactions The Company’s related parties include the following persons and/or entities: (a) entities that are controlled or significantly influenced by the Company, and (b) key management personnel, who are comprised of the directors of the Company, as well as executives involved in strategic decision-making for the Company. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 53 MANAGEMENT’s DIsCUssION AND ANALYsIs The Company’s principal trading subsidiaries and principal intermediate holding companies are listed in the following table: % equity interest Country of incorporation March 31, 2014 March 31, 2013 Canaccord Genuity Corp. Canaccord Genuity sAs Canaccord Genuity Wealth (International) Limited Canada france Guernsey Canaccord Genuity financial Planning Limited (formerly Canaccord Genuity 360 Limited) United Kingdom Canaccord Genuity Investment Management Limited Canaccord Genuity Wealth Limited Canaccord Genuity financial Advisors Limited Canaccord Genuity Wealth Group Limited Canaccord Genuity Limited Canaccord Genuity Inc. Canaccord Genuity Wealth Management (UsA) Inc. Canaccord Estate Planning services Ltd. Canaccord Asset Management Inc. Canaccord Adams financial Group Inc. Collins stewart Inc. Canaccord Adams (Delaware) Inc. Canaccord Adams financial Group ULC Canaccord Genuity securities LLC stockwave Equities Ltd. CLD financial Opportunities Limited Canaccord Genuity singapore Pte Ltd. Canaccord Genuity (Hong Kong) Limited Canaccord financial Group (Australia) Pty Ltd. Canaccord Genuity (Australia) Limited United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United states United states Canada Canada United states United states United states Canada United states Canada Canada singapore China (Hong Kong sAr) Australia Australia 加通贝祥（北京）投资顾问有限公司 (the English name “Canaccord Genuity Asia Limited” is used but it has no legal effect in the People’s republic of China; the English name formerly used was Beijing Parkview Balloch Investment Advisory Co., Limited) (to be renamed Canaccord Genuity Asia (Beijing) Limited) The Balloch Group Limited Canaccord Genuity Asia (Hong Kong) Limited China British Virgin Islands China (Hong Kong sAr) Canaccord Genuity (Barbados) Ltd. (formerly Canaccord International Ltd.) Barbados 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% n/a n/a n/a 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 50% 100% 100% 100% 100% security trades executed for employees, officers and directors of Canaccord are transacted in accordance with terms and conditions applicable to all clients. Commission income on such transactions in the aggregate is not material in relation to the overall operations of Canaccord. The Company offers various share-based payment plans to its key management personnel, including common share purchase loans, a long-term incentive plan and share options. Directors have also been granted share options and have the right to acquire DsUs. Disclosed in the table below are the amounts recognized as expenses related to individuals who are key management personnel as at March 31, 2014 and March 31, 2013. short term employee benefits share-based payments total compensation paid to key management personnel 54 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT march 31, 2014 March 31, 2013 $ 16,790 $ 2,001 5,922 1,823 $ 18,791 $ 7,745 MANAGEMENT’s DIsCUssION AND ANALYsIs Accounts payable and accrued liabilities include the following balances with key management personnel: Accounts payable and accrued liabilities Critical accounting policies and estimates march 31, 2014 March 31, 2013 $ 4,769 $ 1,206 The following is a summary of Canaccord’s critical accounting estimates. Canaccord’s accounting policies are in accordance with Ifrs and are described in Note 5 to the Audited Consolidated financial statements for the year ended March 31, 2014. The Company’s consolidated financial statements for the years ended March 31, 2013 and 2012 were also prepared in accordance with Ifrs. The preparation of the March 31, 2014 Audited Consolidated financial statements in conformity with Ifrs requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Therefore, actual results may differ from those estimates and assumptions. The significant estimates include share-based payments, income taxes, tax losses available for carryforward, impairment of goodwill, indefinite life intangible assets and other long-lived assets, allowance for credit losses, fair value of financial instruments, and provisions. significant accounting policies used and policies requiring management’s judgment and estimates are disclosed in Notes 2 and 5 of the Audited Consolidated financial statements for the year ended March 31, 2014. Consolidation Although the Company does not own more than 50% of the voting shares of Canaccord Genuity (Australia) Limited (formerly Canaccord BGf), the Company completed an evaluation of its contractual arrangement with the other shareholders and the power it has over the financial and operating policies of Canaccord Genuity (Australia) Limited and determined it should consolidate under Ifrs 10, “Consolidated Financial Statements” (Ifrs 10). Therefore, the financial position, financial performance, and cash flows of Canaccord Genuity (Australia) Limited have been consolidated. The Company has also recognized a 50% non-controlling interest, which represents the portion of Canaccord Genuity (Australia) Limited’s net identifiable assets not owned by the Company. At the date of acquisition, the non-controlling interest was determined using the proportionate method. Net income (loss) and each component of other comprehensive income (loss) are attributed to the non-controlling interest and to the owners of the parent. The Company has established an employee benefit trust, a special purpose entity (sPE), to fulfill obligations to employees arising from the Company’s share-based payment plans. The employee benefit trust has been consolidated in accordance with Ifrs 10 since its activities are conducted on behalf of the Company, and the Company retains the majority of the benefits and risks of the employee benefit trust. intangiBle assets Identifiable intangible assets acquired separately are measured on initial recognition at cost. The cost of identifiable intangible assets acquired in a business combination is equal to their fair value as at the date of acquisition. following initial recognition, identifiable intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of identifiable intangible assets are assessed to be either finite or indefinite. Identifiable intangible assets with finite lives are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the identifiable intangible asset may be impaired. The amortization period and the amortization method for an identifiable intangible asset are reviewed at least annually, at each financial year end. Identifiable intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually. Technology development expenditures on an individual project are recognized as an intangible asset when the Company can demonstrate that the technical feasibility of the asset for use has been established. The asset is carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. impaiRment oF non-FinanCial assets The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value-in- use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount, and recognized in the income statement. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 55 MANAGEMENT’s DIsCUssION AND ANALYsIs In assessing fair value less costs to sell, the estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The Company bases its impairment calculation on annual budget calculations, which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These budget calculations generally cover a period of five years. for longer periods, a long term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses are recognized in the consolidated statements of operations in expense categories consistent with the function of the impaired asset. for assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, or exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. such reversal is recognized in the income statement unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. The following assets have specific characteristics for impairment testing: goodwill Goodwill is tested for impairment at least annually as at March 31 and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. intangible assets Intangible assets with indefinite useful lives are tested for impairment annually as at March 31 at the CGU level and when circumstances indicate that the carrying value may be impaired. Revenue ReCognition revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The Company assesses its revenue arrangements in order to determine if it is acting as principal or agent. Commissions and fees revenue consists of revenue generated through commission-based brokerage services, recognized on a trade date basis, and the sale of fee-based products and services, recognized on an accrual basis. realized and unrealized gains and losses on securities purchased for client-related transactions are reported as net facilitation losses and recorded as a reduction of commission revenues. Investment banking revenue consists of underwriting fees and commissions earned on corporate finance activities. revenue from underwritings and other corporate finance activities is recorded when the underlying transaction is substantially completed under the engagement terms and the related revenue is reasonably determinable. Advisory fees consist of management and advisory fees that are recognized on an accrual basis. Also included in advisory fees is revenue from mergers and acquisitions activities, which is recognized when the underlying transaction is substantially completed under the engagement terms and the related revenue is reasonably determinable. Principal trading revenue consists of income earned in connection with principal trading operations and is recognized on a trade date basis. Interest revenue consists of interest earned on client margin accounts, interest earned on the Company’s cash and cash equivalents balances, interest earned on cash delivered in support of securities borrowing activity, and dividends earned on securities owned. Interest revenue is recognized on an effective interest rate basis. Dividend income is recognized when the right to receive payment is established. Other revenue includes foreign exchange gains or losses, revenue earned from our correspondent brokerage services and administrative fees revenues. 56 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs inCome taxes Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of operations. deferred tax Deferred taxes are accounted for using the liability method. This method requires that deferred taxes reflect the expected deferred tax effect of temporary differences at the reporting date between the carrying amounts of assets and liabilities for financial statement purposes and their tax bases. Deferred tax liabilities are recognized for all taxable temporary differences, except for taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and carryforward of unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carryforward of unused tax credits and unused tax losses can be utilized. The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is charged or credited in the statements of operations except where it relates to items that may be credited directly to equity, in which case the deferred tax is recognized directly against equity. sales tax revenues, expenses and assets are recognized net of the amount of sales tax, except where the amount of sales tax incurred is not recoverable from the tax authority. In these circumstances, sales tax is recognized as part of the cost of acquisition of the asset or as part of an item of the expense. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of accounts receivable or accounts payable in the consolidated statements of financial position. shaRe-Based payments Employees (including senior executives and directors) of the Company receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). Independent directors also receive DsUs as part of their remuneration, which can only be settled in cash (cash-settled transactions). The dilutive effect of outstanding options and share-based payments is reflected as additional share dilution in the computation of diluted earnings per common share. equity-settled transactions for equity-settled transactions, the Company measures the fair value of share-based awards as of the grant date and recognizes the cost as an expense over the applicable vesting period with a corresponding increase in contributed surplus. The cost is recognized on a graded basis. The Company estimates the number of equity instruments that will ultimately vest when calculating the expense attributable to equity-settled transactions. No expense is recognized for awards that do not ultimately vest. When share-based awards vest, contributed surplus is reduced by the applicable amount and share capital is increased by the same amount. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 57 MANAGEMENT’s DIsCUssION AND ANALYsIs Cash-settled transactions Cash-settled transactions are measured initially at fair value at the grant date. The fair values of DsUs are expensed upon grant, as there are no vesting conditions. The liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognized through the statements of operations. tRanslation oF FoReign CuRRenCy tRansaCtions and FoReign suBsidiaRies The Company’s consolidated financial statements are presented in Canadian dollars, which is also the Company’s functional currency. Each subsidiary of the Company determines its own functional currency, and items included in the financial statements of each subsidiary are measured using that functional currency. transactions and balances Transactions in foreign currencies are initially recorded by the Company and its subsidiaries at their respective functional currencies using exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated by the Company and its subsidiaries into their respective functional currencies at the exchange rate in effect at the reporting date. All differences upon translation are recognized in the consolidated statements of operations. Non-monetary assets and liabilities denominated in foreign currencies are translated by the Company and its subsidiaries into their respective functional currencies at historical rates. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates in effect at the date when the fair value is determined. translation of foreign subsidiaries Assets and liabilities of foreign subsidiaries with a functional currency other than the Canadian dollar are translated into Canadian dollars at rates prevailing at the reporting date, and income and expenses are translated at average exchange rates prevailing during the period. Unrealized gains or losses arising as a result of the translation of the foreign subsidiaries are recorded in accumulated other comprehensive income (loss). On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in the consolidated statements of operations. The Company also has monetary assets and liabilities that are receivable or payable from a foreign operation. If settlement of the receivable or payable is neither planned nor likely to occur in the foreseeable future, the differences upon translation are recognized in accumulated other comprehensive income (loss) as these receivables and payables form part of the net investment in the foreign operation. pRovisions Provisions are recognized when the Company has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the statements of operations net of any reimbursement. If the effect of the time value of money is significant, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Future Changes in accounting policies and estimates The Company monitors the potential changes proposed by the International Accounting standards Board on an ongoing basis and analyzes the effect that changes in the standards may have on the Company’s operations. Please see Note 4 of the Audited Consolidated financial statements for the year ended March 31, 2014 for further information. disclosure Controls and procedures and internal Control over Financial Reporting disClosuRe ContRols and pRoCeduRes As of March 31, 2014, an evaluation was carried out, under the supervision of and with the participation of management, including the President & CEO and the Executive Vice President & CfO, of the effectiveness of our disclosure controls and procedures as defined under National Instrument 52-109. Based on that evaluation, the President & CEO and the Executive Vice President & CfO concluded that the design and operation of these disclosure controls and procedures were effective as of and during the fiscal year ended March 31, 2014. 58 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs inteRnal ContRol oveR FinanCial RepoRting Management, including the President & CEO and the Executive Vice President & CfO, has designed internal control over financial reporting as defined under National Instrument 52-109 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Ifrs. Based on that evaluation, the President & CEO and the Executive Vice President & CfO concluded that the Company’s internal control over financial reporting was designed and operating effectively as of and during the year ended March 31, 2014 and that there were no material weaknesses in our internal control over financial reporting. Changes in inteRnal ContRol oveR FinanCial RepoRting There were no changes in internal control over financial reporting that occurred during the year ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, Canaccord’s internal control over financial reporting. Risk management oveRview Uncertainty and risk are inherent in any financial markets activity. As an active participant in the Canadian and international capital markets, Canaccord is exposed to risks that could result in financial losses. Canaccord has identified its principal risks as: market risk, credit risk, operational risk and other risks. Accordingly, risk management and control of the balance between risk and return are critical elements in maintaining Canaccord’s financial stability and profitability. Therefore, an effective risk management framework is integral to the success of Canaccord. Risk management stRuCtuRe and goveRnanCe Canaccord’s disciplined risk management process encompasses a number of functional areas and requires frequent communication, judgment and knowledge of the business, products and markets. The Company’s senior management is actively involved in the risk management process and has developed policies and reports that require specific administrative procedures and actions to assess and control risks. These policies and procedures are subject to ongoing review and modification as activities, markets and circumstances change. As part of Canaccord’s risk philosophy, the first line of responsibility for managing risk lies with branch managers, department heads and trading desk managers (within prescribed limits). The monitoring and control of Canaccord’s risk exposure is conducted through a variety of separate, but complementary, financial, credit, operational, compliance and legal reporting systems. Canaccord’s governance structure includes the following elements: Board of Directors Audit Committee Corporate Governance and Compensation Committee Canaccord Genuity Group Inc. Risk Management Committee Canaccord Genuity Global Executive Committee Canaccord Genuity Wealth Management Executive Committee Infrastructure Executive Committee The Board of Directors (the Board) has oversight of the company-wide risk management framework. These responsibilities are delegated to the Audit and risk Management Committees. The Audit Committee’s mandate was updated in fiscal 2013 to better reflect the committee’s oversight of the Company’s risk management function. see Canaccord’s 2014 Annual Information form (AIf) for more details. The Audit Committee assists the Board in fulfilling its oversight responsibility by monitoring the effectiveness of internal controls and the control environment. It also receives and reviews various quarterly and annual updates, and reports on key risk metrics as well as the overall risk management program. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 59 MANAGEMENT’s DIsCUssION AND ANALYsIs The risk Management Committee assists the Board in fulfilling its responsibilities for monitoring risk exposures against the defined risk appetite and for general oversight of the risk management process. The risk Management Committee is led by the CfO, and committee members include the CEO and senior management representation from the key revenue-producing businesses and functional areas of Canaccord. The Committee identifies, measures and monitors the principal risks facing the business through review and approval of Canaccord’s risk appetite, policies, procedures, and limits/thresholds. The segregation of duties and management oversight are important aspects of Canaccord’s risk management process. Canaccord has a number of functions that are independent of the revenue-producing businesses that perform risk management activities, including the monitoring, evaluating and analyzing of risk. These functions include Enterprise risk Management, Compliance, Operations, Internal Controls and financial Analysis, Treasury, finance and Legal. maRket Risk Market risk is the risk that a change in market prices and/or any of the underlying market factors will result in losses. Each business area is responsible for ensuring that its market risk exposures are prudent. In addition, Canaccord has established procedures to ensure that risks are measured, closely monitored, controlled and visible to senior levels of management. Canaccord is exposed to equity price risk, liquidity risk and volatility risk as a result of its principal trading activities in equity securities. Canaccord is also exposed to specific interest rate risk, credit spread risk and liquidity risk in respect of its principal trading in fixed income securities. In addition to active supervision and review of trading activities by senior management, Canaccord mitigates its risk exposure through a variety of limits to control concentration, capital allocation and usage, as well as through trading policies and guidelines. Canaccord manages and monitors its risks in this area using both qualitative and quantitative measures, on a company-wide basis, and also by trading desk and by individual trader. Canaccord operates a firm- wide scenario analysis and Value-at-risk (Var) risk measurement system for its equity and fixed income inventories. Management also regularly reviews and monitors inventory levels and positions, trading results, aging and concentration levels. Consequently, Canaccord can ensure that it is adequately diversified with respect to market risk factors and that trading activity is within the risk tolerance levels established by senior management. for a detailed description of Canaccord’s Var methodology, see the Market risk section in Canaccord’s fiscal 2014 AIf. CRedit Risk Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The primary source for credit risk to Canaccord is in connection with trading activity by clients in the Canaccord Genuity Wealth Management business segment and private client margin accounts. In order to minimize financial exposure in this area, Canaccord applies certain credit standards and conducts financial reviews with respect to clients and new accounts. Canaccord provides financing to clients by way of margin lending. In a margin-based transaction, Canaccord extends credit for a portion of the market value of a securities transaction in a client’s account, up to certain limits. Margin loans are collateralized by securities in the client’s account. In connection with this lending activity, Canaccord faces a risk of financial loss in the event that a client fails to meet a margin call if market prices for securities held as collateral decline and if Canaccord is unable to recover sufficient value from the collateral held. for margin lending purposes, Canaccord has established limits that are generally more restrictive than those required by applicable regulatory policies. Canaccord also faces a risk of financial loss with respect to trading activity by clients if such trading results in overdue or unpaid amounts in under-secured cash accounts. Canaccord has developed a number of controls within its automated trade order management system to ensure that trading by individual account and advisor is done in accordance with customized limits and risk parameters. Canaccord is engaged in various trading and brokerage activities whose counterparties primarily include broker dealers, banks, clearing agents, exchanges, financial intermediaries and other financial institutions. These activities include agency trading, securities borrowing and lending, and entering into repurchase agreements and reverse repurchase agreements. In the event that counterparties do not fulfill their obligations, Canaccord may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty and/or the issuer of the instrument. Canaccord manages this risk by imposing and monitoring individual and aggregate position limits within each business segment, for each counterparty, conducting regular credit reviews of financial counterparties, reviewing security and loan concentrations, holding and marking to market collateral on certain transactions, and conducting business through clearing organizations that guarantee performance. Canaccord records a provision for bad debts in general and administrative expense. Any actual losses arising from or associated with client trading activity as described above are charged to this provision. Historically, this provision has been sufficient to cover actual losses. 60 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT MANAGEMENT’s DIsCUssION AND ANALYsIs opeRational Risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, fraud, people and systems, or from external events such as the occurrence of disasters or security threats. Operational risk exists in all of Canaccord’s activities, including processes, systems and controls used to manage other risks. failure to manage operational risk can result in financial loss, reputational damage, regulatory fines and failure to manage market or credit risks. Canaccord operates in different markets and relies on its employees and systems to process a high number of transactions. In order to mitigate this risk, Canaccord has developed a system of internal controls and checks and balances at appropriate levels, which includes overnight trade reconciliation, control procedures related to clearing and settlement, transaction and daily value limits within all trading applications, cash controls, physical security, independent review procedures, documentation standards, billing and collection procedures, and authorization and processing controls for transactions and accounts. In addition, Canaccord has implemented an operational risk program that helps Canaccord measure, manage, report and monitor operational risk issues (see rCsA below). Canaccord also has disaster recovery procedures in place, business continuity plans and built-in redundancies in the event of a systems or technological failure. In addition, Canaccord utilizes third party service agreements and security audits where appropriate. Risk and Control self-assessment (RCsa) The purpose of rCsAs is to: • Identify and assess key risks inherent to the business and categorize them based on severity and frequency of occurrence • Rate the effectiveness of the control environment associated with the key risks • Mitigate the risks through the identification of action plans to improve the control environment where appropriate • Provide management with a consistent approach to articulate and communicate the risk profiles of their areas of responsibility • Meet regulatory requirements and industry standards Canaccord has established a process to determine what the strategic objectives of each group/unit/department are and identify, assess and quantify operational risks that hinder the Company’s ability to achieve those objectives. The rCsA results are specifically used to calculate the operational risk regulatory capital requirements for Canaccord in the UK and operational risk exposure in all geographies. The rCsAs are periodically updated and results are reported to the risk Management and Audit Committees. otheR Risks Other risks encompass those risks that can have an adverse material effect on the business but do not belong to market, credit or operational risk categories. Regulatory and legal risk regulatory risk results from non-compliance with regulatory requirements, which could lead to fines and/or sanctions. Canaccord has established procedures to ensure compliance with all applicable statutory and regulatory requirements in each jurisdiction. These procedures address issues such as regulatory capital requirements, disclosure requirements, internal controls over financial reporting, sales and trading practices, use of and safekeeping of client funds, credit granting, collection activity, anti- money laundering, insider trading, conflicts of interest and recordkeeping. Legal risk results from potential criminal, civil or regulatory litigation against Canaccord that could materially affect Canaccord’s business, operations or financial condition. Canaccord has in-house legal counsel, as well as access to external legal counsel, to assist the Company in addressing legal matters related to operations and to defend Canaccord’s interests in various legal actions. Losses or costs associated with routine regulatory and legal matters are included in general and administrative expense in Canaccord’s Audited Consolidated financial statements. Reputational risk reputational risk is the risk that an activity undertaken by an organization or its representatives will impair its image in the community or lower public confidence in it, resulting in a loss of business, legal action or increased regulatory oversight. Possible sources of reputational risk could come from operational failures, non-compliance with laws and regulations, or leading an unsuccessful financing. reputational risk can also be reflected within customer satisfaction and external ratings, such as equity analyst reports. In addition to its various risk management policies, controls and procedures, Canaccord has a formal Code of Business Conduct and Ethics and an integrated program of marketing, branding, communications and investor relations to help manage and support Canaccord’s reputation. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 61 MANAGEMENT’s DIsCUssION AND ANALYsIs Risk FaCtoRs for a detailed list of the risk factors that are relevant to Canaccord’s business and the industry in which it operates, see the risk factors section in Canaccord’s fiscal 2014 AIf. risks include, but are not necessarily limited to, those listed in the AIf. Investors should carefully consider the information about risks, together with the other information in this document, before making investment decisions. It should be noted that this list is not exhaustive, but contains risks that Canaccord considers to be of particular relevance. Other risk factors may apply. ContRol Risk As of March 31, 2014, senior officers and directors of Canaccord collectively owned approximately 19.8% of the issued and outstanding common shares of Canaccord Genuity Group Inc. If a sufficient number of these shareholders act or vote together, they will have the power to exercise significant influence over all matters requiring shareholder approval, including the election of the Company’s directors, amendments to its articles, amalgamations and plans of arrangement under Canadian law and mergers or sales of substantially all of its assets. This could prevent Canaccord from entering into transactions that could be beneficial to the Company or its other shareholders. Also, third parties could be discouraged from making a tender offer or takeover bid to acquire any or all of the outstanding common shares of the Company. In addition, as at March 31, 2014, the single largest shareholder that management was aware of was franklin Templeton Investments Corp. by one or more of its mutual funds or other managed accounts. The most recent filing that confirms its total holdings was filed on December 15, 2011, which indicated the company owned 5,464,873 shares of Canaccord Genuity Group Inc. Canaccord has not been made aware of any shareholding changes since this filing. The company’s ownership outlined in this filing represents 5.4% of common shares issued and outstanding as at March 31, 2014. Any significant change in these shareholdings through sale or other disposition, or significant acquisitions by others of the common shares in the public market or by way of private transactions, could result in a change of control and changes in business focus or practices that could affect the profitability of Canaccord’s business. Restrictions on ownership and transfer of common shares restrictions on ownership and transfer of common shares in the articles of Canaccord to prevent unauthorized change in control without regulatory approval could, in certain cases, affect the marketability and liquidity of the common shares. dividend policy Although dividends are expected to be declared and paid quarterly, the Board of Directors, in its sole discretion, will determine the amount and timing of any dividends. All dividend payments will depend on general business conditions, Canaccord’s financial condition, results of operations, capital requirements and such other factors as the Board determines to be relevant. dividend declaration On June 3, 2014, the Board of Directors approved a quarterly dividend of $0.05 per common share payable on July 2, 2014 with a record date of June 20, 2014. The Board of Directors also approved a cash dividend of $0.34375 per series A Preferred share payable on June 30, 2014 with a record date of June 13, 2014; as well as a cash dividend of $0.359375 per series C Preferred share payable on June 30, 2014 with a record date of June 13, 2014. additional information Additional information relating to Canaccord, including Canaccord’s Annual Information form, can be found on sEDAr’s website at www.sedar.com. 62 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT independent auditors’ Report To the shareholders of Canaccord genuity group inc. (formerly Canaccord Financial inc.) We have audited the accompanying consolidated financial statements of Canaccord Genuity Group Inc. (formerly Canaccord financial Inc.), which comprise the consolidated statements of financial position as at March 31, 2014 and 2013, and the consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the years ended March 31, 2014 and 2013, and a summary of significant accounting policies and other explanatory information. management’s Responsibility for the Consolidated Financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International financial reporting standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Canaccord Genuity Group Inc. (formerly Canaccord financial Inc.) as at March 31, 2014 and 2013, and its financial performance and its cash flows for the years then ended in accordance with International financial reporting standards. Chartered accountants Vancouver, Canada June 3, 2014 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 63 Consolidated statements of Financial position As at (in thousands of Canadian dollars) notes march 31, 2014 March 31, 2013 assets Current Cash and cash equivalents securities owned Accounts receivable Income taxes receivable total current assets Deferred tax assets Investments Equipment and leasehold improvements Intangible assets Goodwill liaBilities and eQuity Current Bank indebtedness securities sold short $ 364,296 $ 491,012 1,143,201 924,337 2,785,898 2,513,958 3,983 — 4,297,378 3,929,307 9,735 9,977 50,975 131,650 514,907 12,552 3,695 42,979 130,283 484,686 $ 5,014,622 $ 4,603,502 $ — $ 66,138 913,913 689,020 6 9 14 10 11 13 13 7 6 Accounts payable and accrued liabilities 9, 20 2,877,933 2,726,735 Provisions Income taxes payable Contingent consideration subordinated debt total current liabilities Deferred tax liabilities equity Preferred shares Common shares Contributed surplus retained earnings Accumulated other comprehensive income (loss) total shareholders’ equity Non-controlling interests total equity see accompanying notes On behalf of the Board: 24 7 15 14 16 17 10,334 10,822 — 15,000 20,055 4,428 14,218 15,000 3,828,002 3,535,594 3,028 2,576 3,831,030 3,538,170 205,641 653,189 74,037 144,799 91,014 205,641 638,456 85,981 126,203 (7,118) 1,168,680 1,049,163 14,912 16,169 1,183,592 1,065,332 $ 5,014,622 $ 4,603,502 paul d. Reynolds Director teRRenCe a. lyons Director 64 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT Consolidated statements of operations for the years ended (in thousands of Canadian dollars, except per share amounts) notes Revenue Commissions and fees Investment banking Advisory fees Principal trading Interest Other expenses Incentive compensation salaries and benefits Trading costs Premises and equipment Communication and technology Interest General and administrative Amortization Development costs restructuring costs Acquisition-related costs Income (loss) before income taxes Income tax expense (recovery) Current Deferred net income (loss) for the year net income (loss) attributable to: CGGI shareholders Non-controlling interests weighted average number of common shares outstanding (thousands) Basic Diluted net income (loss) per common share Basic Diluted dividend per series a preferred share dividend per series C preferred share dividend per common share see accompanying notes 24 14 17 17 17 17 18 18 18 march 31, 2014 March 31, 2013 $ 361,647 $ 353,125 221,410 139,142 91,313 24,549 17,183 145,772 179,690 66,406 29,199 22,930 855,244 797,122 413,289 406,724 91,135 47,872 38,461 46,065 16,359 83,834 26,786 21,369 5,486 — 88,522 43,892 41,124 49,115 15,302 89,504 33,779 19,526 31,617 1,719 790,656 820,824 64,588 (23,702) 8,270 4,261 12,531 8,202 (13,129) (4,927) $ 52,057 $ (18,775) $ $ 51,413 644 $ $ (16,819) (1,956) 94,125 101,993 $ $ $ $ $ 0.42 0.39 1.375 1.4375 0.20 $ $ $ $ $ 92,218 n/a (0.31) (0.31) 1.375 1.4375 0.20 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 65 Consolidated statements of Comprehensive income (loss) for the years ended (in thousands of Canadian dollars) Net income (loss) for the year Other comprehensive income (loss) (OCI) to be reclassified to net income (loss) in future periods Net change in valuation of available for sale investments (net of tax: 2014 – $47; 2013 – $32) Transfer of net realized gain on disposal of available for sale asset (net of tax: $234) march 31, 2014 March 31, 2013 $ 52,057 $ (18,775) (149) — 449 (700) Net change in unrealized gains (losses) on translation of foreign operations, net of tax 97,791 (15,033) Comprehensive income (loss) for the year Comprehensive income (loss) attributable to: CGGI shareholders Non-controlling interests see accompanying notes $ 149,699 $ (34,059) $ $ 149,545 154 $ $ (32,421) (1,638) 66 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT Consolidated statements of Changes in equity As at and for the years ended (in thousands of Canadian dollars) Preferred shares, opening shares issued, net of share issuance costs shares cancelled preferred shares, closing Common shares, opening shares issued in connection with share-based payments shares issued in connection with Corazon Capital Group Limited (Corazon) Acquisition of common shares for long-term incentive plan (LTIP) release of vested common shares from employee benefit trust shares cancelled Net unvested share purchase loans Common shares, closing Contributed surplus, opening replacement stock plan awards related to the acquisition of Collins stewart Hawkpoint plc (CsHP) share-based payments Cancellation of common shares shares issued in connection with Corazon Unvested share purchase loans Contributed surplus, closing retained earnings, opening Net income (loss) attributable to CGGI shareholders Common shares dividends Preferred shares dividends Retained earnings, closing Accumulated other comprehensive (loss) income, opening Other comprehensive income (loss) attributable to CGGI shareholders accumulated other comprehensive income (loss), closing total shareholders’ equity Non-controlling interests, opening foreign exchange on non-controlling interests Comprehensive income (loss) attributable to non-controlling interests Dividends paid to non-controlling interests non-controlling interests, closing total equity see accompanying notes notes march 31, 2014 March 31, 2013 $ 205,641 $ 110,818 — — 205,641 638,456 21,375 — (11,046) 18,059 (26,393) 12,738 97,450 (2,627) 205,641 623,739 11,926 1,503 (14,872) 17,834 (814) (860) 653,189 638,456 85,981 (4,612) 559 3,891 — (11,782) 68,336 6,399 11,445 (146) (1,503) 1,450 74,037 85,981 126,203 51,413 (21,055) (11,762) 180,748 (16,819) (26,006) (11,720) 144,799 126,203 (7,118) 98,132 91,014 8,484 (15,602) (7,118) 1,168,680 1,049,163 16,169 (751) 154 (660) 17,454 353 (1,638) — 14,912 16,169 $ 1,183,592 $ 1,065,332 18 18 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 67 Consolidated statements of Cash Flows for the years ended (in thousands of Canadian dollars) opeRating aCtivities Net income (loss) for the year Items not affecting cash Amortization Deferred income tax expense (recovery) share-based compensation expense Impairment of property, plant and equipment Changes in non-cash working capital (Increase) decrease in securities owned (Increase) decrease in accounts receivable Increase in income taxes payable, net Increase (decrease) in securities sold short Increase (decrease) in accounts payable, accrued liabilities and provisions notes march 31, 2014 March 31, 2013 $ 52,057 $ (18,775) 19 26,786 4,261 52,363 — (193,629) (221,777) 2,268 213,725 80,951 33,779 (13,129) 60,359 2,627 245,873 590,090 2,963 (224,590) (855,728) Cash provided (used) by operating activities 17,005 (176,531) FinanCing aCtivities Decrease in bank indebtedness redemption of share capital Acquisition of common shares for long-term incentive plan Cash dividends paid on common shares Cash dividends paid on preferred shares repayment of short term credit facility Issuance of preferred shares, net of share issuance costs Decrease in net vesting of share purchase loans Cash used by financing activities investing aCtivities Purchase of equipment and leasehold improvements Purchase of intangible assets Investment in Canaccord Genuity (Hong Kong) Limited Investment in Canadian first financial Holdings Limited (Canadian first) Contingent consideration paid on the acquisition of Eden financial Ltd. (Eden financial) Acquisition of Eden financial, net of cash acquired Acquisition of Kenosis Capital Partners Cash used in investing activities effect of foreign exchange on cash balances decrease in cash position Cash position, beginning of year Cash position, end of year supplemental cash flow information Interest received Interest paid Income taxes paid see accompanying notes (66,138) (21,117) (11,046) (21,055) (11,762) — — — (9,003) — (14,872) (26,004) (11,720) (150,000) 94,823 (13,583) (131,118) (130,359) (15,475) (6,972) (7,002) (699) (5,730) (9,129) — — — — — — (4,953) (1,182) (38,035) (13,107) 25,432 (3,229) (126,716) 491,012 (323,226) 814,238 $ 364,296 $ 491,012 $ $ $ 22,788 14,877 8,359 $ $ $ 32,689 14,425 10,320 68 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT notes to Consolidated Financial statements As at March 31, 2014, March 31, 2013 and for the years ended March 31, 2014 and 2013 (in thousands of Canadian dollars, except per share amounts) note 01 Corporate information Through its principal subsidiaries, Canaccord Genuity Group Inc. (the Company) is a leading independent, full-service investment dealer in Canada with capital markets operations in Canada, the United Kingdom (UK) and Europe, the United states of America (Us), Australia, China, singapore and Barbados. The Company also has wealth management operations in Canada, the UK and Europe, and Australia. The Company has operations in each of the two principal segments of the securities industry: capital markets and wealth management. Together, these operations offer a wide range of complementary investment products, brokerage services and investment banking services to the Company’s private, institutional and corporate clients. The Company changed its name to Canaccord Genuity Group Inc. from Canaccord financial Inc. on October 1, 2013. Canaccord Genuity Group Inc. was incorporated on february 14, 1997 by the filing of a memorandum and articles with the registrar of Companies for British Columbia under the Company Act (British Columbia) and continues in existence under the Business Corporations Act (British Columbia). The Company’s head office is located at suite 2200 – 609 Granville street, Vancouver, British Columbia, V7Y 1H2. The Company’s registered office is located at suite 1000 – 840 Howe street, Vancouver, British Columbia, V6Z 2M1. The Company’s common shares are publicly traded under the symbol Cf on the Toronto stock Exchange (TsX) and the symbol Cf. on the London stock Exchange. The Company’s series A Preferred shares are listed on the TsX under the symbol Cf.Pr.A. The Company’s series C Preferred shares are listed on the TsX under the symbol Cf.Pr.C. The Company’s business experiences considerable variations in revenue and income from quarter to quarter and year to year due to factors beyond the Company’s control. The Company’s business is affected by the overall condition of the worldwide equity and debt markets. note 02 Basis of preparation statement oF ComplianCe These consolidated financial statements have been prepared in accordance with International financial reporting standards (Ifrs) as issued by the International Accounting standards Board (IAsB). The consolidated financial statements have been prepared on a historical cost basis except for financial instruments, which have been measured at fair value as set out in the relevant accounting policies. The consolidated financial statements are presented in Canadian dollars and all values are in thousands of dollars, except when otherwise indicated. These audited consolidated financial statements were authorized for issuance by the Company’s Board of Directors on June 3, 2014. pRinCiples oF Consolidation These consolidated financial statements include the financial statements of the Company, its subsidiaries and controlled special purpose entities (sPEs). The financial results of a subsidiary or controlled sPEs should be consolidated if the Company acquires control. Control is achieved when an entity is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The results of subsidiaries acquired or disposed of during the year are included in the statements of operations from the effective date of the acquisition or up to the effective date of the disposal, as appropriate. All intercompany transactions and balances have been eliminated. In cases where an accounting policy of a subsidiary differs from the Company’s accounting policies, the Company has made the appropriate adjustments to ensure conformity for purposes of the preparation of these consolidated financial statements. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 69 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs use oF judgments, estimates and assumptions The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, accompanying note disclosures, and the disclosure of contingent assets and liabilities at the reporting date. Therefore, actual results may differ from those estimates and assumptions. The significant estimates include share-based payments, income taxes, the valuation of deferred tax assets, impairment of goodwill, intangible assets and other long-lived assets, allowance for credit losses, fair value of financial instruments, and provisions. Consolidation Although the Company does not own more than 50% of the voting shares of Canaccord Genuity (Australia) Limited (formerly Canaccord BGf), the Company completed an evaluation of its contractual arrangement with the other shareholders and the power it has over the financial and operating policies of Canaccord Genuity (Australia) Limited and determined it should consolidate under Ifrs 10, “Consolidated Financial Statements” (Ifrs 10). Therefore, the financial position, financial performance, and cash flows of Canaccord Genuity (Australia) Limited have been consolidated. The Company has also recognized a 50% non-controlling interest, which represents the portion of Canaccord Genuity (Australia) Limited’s net identifiable assets not owned by the Company. At the date of acquisition, the non-controlling interest was determined using the proportionate method. Net income (loss) and each component of other comprehensive income (loss) are attributed to the non-controlling interest and to the owners of the parent. The Company has an employee benefit trust, an sPE [Notes 19 and 20], to fulfill obligations to employees arising from the Company’s share-based payment plans. The employee benefit trust has been consolidated in accordance with Ifrs 10 since its activities are conducted on behalf of the Company, and the Company retains the majority of the benefits and risks of the employee benefit trust. share-based payments The Company measures the cost of equity-settled and cash-settled transactions with employees and directors based on the fair value of the awards granted. The fair value is determined based on the observable share prices or by using an appropriate valuation model. The use of option pricing models to determine the fair value requires the input of highly subjective assumptions including the expected price volatility, expected forfeitures, expected life of the award and dividend yield. Changes in the subjective assumptions can materially affect the fair value estimates. The assumptions and models used for estimating the fair value of share-based payments, if and as applicable, are disclosed in Note 19. income taxes Accruals for income tax liabilities require management to make estimates and judgments with respect to the ultimate outcome of tax filings and assessments. Actual results could vary from these estimates. The Company operates within different tax jurisdictions and is subject to individual assessments by these jurisdictions. Tax filings can involve complex issues, which may require an extended period of time to resolve in the event of a dispute or re-assessment by tax authorities. Deferred taxes are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. significant management judgment is required to determine the amount of deferred tax assets that can be recognized based upon the likely timing and the level of future taxable profit. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws and the amount and timing of future taxable income. The Company establishes tax provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as the Company’s experience of previous tax audits. impairment of goodwill and indefinite life intangible assets Goodwill and indefinite life intangible assets are tested for impairment at least annually, or whenever an event or change in circumstance may indicate potential impairment, to ensure that the recoverable amount of the cash-generating unit to which goodwill and indefinite life intangible assets are attributed is greater than or equal to their carrying values. In determining the recoverable amount, which is the higher of fair value less costs to sell (fVLCs) and value-in-use, management uses valuation models that consider such factors as projected earnings, price-to-earnings multiples, relief of royalties related to brand names, and discount rates. Management must apply judgment in the selection of the approach to determining the recoverable amount and in making any necessary assumptions. These judgments may affect the recoverable amount and any resulting impairment write-down. The key assumptions used to determine recoverable amounts for the different cash-generating units are disclosed in Note 13. 70 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs impairment of other long-lived assets The Company assesses its amortizable long-lived assets at each reporting date to determine whether there is an indication that an asset may be impaired. If any indication exists, the Company estimates the asset’s recoverable amount using management’s best estimates and available information. allowance for credit losses The Company records allowances for credit losses associated with clients’ receivables, loans, advances and other receivables. The Company establishes an allowance for credit losses based on management’s estimate of probable unrecoverable amounts. Judgment is required as to the timing of establishing an allowance for credit losses and the amount of the required specific allowance, taking into consideration counterparty creditworthiness, current economic trends and past experience. Clients’ receivable balances are generally collateralized by securities; therefore, any provision is generally measured after considering the market value of the collateral, if any. valuation of financial instruments The Company measures its financial instruments at fair value at initial recognition. fair value is determined on the basis of market prices from independent sources, if available. If there is no available market price, then the fair value is determined by using valuation models. The inputs to these models, such as expected volatility and liquidity discounts, are derived from observable market data where possible, but where observable data is not available, judgment is required to select or determine inputs to a fair value model. There is inherent uncertainty and imprecision in estimating the factors that can affect fair value, and in estimating fair values generally, when observable data is not available. Changes in assumptions and inputs used in valuing financial instruments could affect the reported fair values. provisions The Company records provisions related to pending or outstanding legal matters and regulatory investigations. Provisions in connection with legal matters are determined on the basis of management’s judgment in consultation with legal counsel, considering such factors as the amount of the claim, the possibility of wrongdoing by an employee of the Company and precedents. Contingent litigation loss provisions are recorded by the Company when it is probable that the Company will incur a loss as a result of a past event and the amount of the loss can be reliably estimated. The Company also records provisions related to restructuring costs when the recognition criteria for provisions are fulfilled. note 03 adoption of new and Revised standards The Company adopted certain standards and amendments, discussed below, effective as of April 1, 2013. pResentation oF FinanCial statements Amendments to IAs 1, “Presentation of Financial Statements” (IAs 1), introduce a grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time are to be presented separately from items that will never be reclassified. There were no presentation changes to items within OCI and net income or loss as a result of the adoption of these amendments to IAs 1. All amounts currently recorded in OCI will be reclassified to profit or loss in subsequent periods. Consolidation standaRds The IAsB issued the following standards in May 2011. These standards are effective for the Company as of April 1, 2013, and have been applied retrospectively. iFRs 10 – “Consolidated Financial Statements” (iFRs 10) Ifrs 10 establishes a single control model that applies to all entities including special purpose entities. Ifrs 10 replaces the parts of previously existing International Accounting standards (IAs) 27, “Consolidated and Separate Financial Statements”, that dealt with consolidated financial statements and sIC-12, “Consolidation – Special Purpose Entities”. Ifrs 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. This replaced the previous approach, which emphasized legal control or exposure to risks and rewards, depending on the nature of the entity. The adoption of Ifrs 10 had no impact on the entities that are consolidated by the Company. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 71 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs iFRs 12 – “Disclosure of Interests in Other Entities” (iFRs 12) Ifrs 12 includes the disclosure requirements for subsidiaries, joint arrangement and associates and introduces new requirements for unconsolidated structured entities. The requirements in Ifrs 12 are more comprehensive than the previously existing disclosure requirements for subsidiaries. The Company has subsidiaries with non-controlling interests; however, there are no unconsolidated structured entities. Additional disclosures required by this standard are presented in Note 8. otheR standaRds iFRs 13 – “Fair Value Measurement” (iFRs 13) Ifrs 13 is a comprehensive standard that defines fair value and sets out a single Ifrs framework for measuring fair value. Ifrs 13 establishes a single source of guidance under Ifrs for all fair value measurements. Ifrs 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under Ifrs when fair value is required or permitted. Ifrs 13 fair value defines fair value as an exit price. The prospective application of Ifrs 13 has not materially impacted the fair value measurements carried out by the Company. Ifrs 13 also requires specific disclosures related to assets and liabilities measured at fair value. Additional disclosures, where required, are provided in the individual notes relating to the assets and liabilities measured at fair value. The fair value hierarchy is provided in Note 7. ias 19 (Revised) – “Employee Benefits” (ias 19R) Amendments to IAs 19r contain a number of changes to the accounting for employment benefit plans including recognition and disclosure of defined benefit pension plans and clarification on the recognition of post-employment and termination benefits. The amendments did not have a significant impact on the Company’s consolidated financial statements. Recoverable amount disclosures for non-Financial assets – amendments to ias 36 – “Impairment of Assets” (ias 36) Amendments to IAs 36 restrict the requirement to disclose the recoverable amount of an asset or cash-generating unit (CGU) to periods in which an impairment loss has been recognized or reversed. The amendments to IAs 36 also expand and clarify the disclosure requirements applicable when an asset’s or CGU’s recoverable amount has been determined on the basis of fair value less costs of disposal. The amendments are effective from January 1, 2014; the Company has early adopted this standard retrospectively. note 04 Future Changes in accounting policies The Company monitors the potential changes in standards proposed by the IAsB and analyzes the effect that changes in the standards may have on the Company’s operations. Potential changes are as follows: FinanCial instRuments Ifrs 9, “Financial Instruments” (Ifrs 9), was issued in November 2009 and amended in October 2010 and November 2013, and is intended to replace IAs 39, “Financial Instruments: Recognition and Measurement”. The project has been divided into three phases: classification and measurement, impairment of financial assets, and hedge accounting. Ifrs 9 requires financial assets to be measured at fair value or amortized cost on the basis of their contractual cash flow characteristics and the Company’s business model for managing the assets. The classification and measurement for financial liabilities remain generally unchanged; however, revisions have been made in the accounting for changes in fair value of a financial liability attributable to changes in the credit risk of that liability. Gains or losses caused by changes in an entity’s own credit risk on such liabilities are no longer recognized in profit or loss but instead are reflected in OCI. The mandatory effective date for Ifrs 9 is January 1, 2018 with early adoption permitted. The Company is still in the process of assessing the impact of these changes. ias 32 – “Offsetting Financial Assets and Financial Liabilities” (ias 32) In December 2011, the IAsB issued amendments to IAs 32, clarifying the requirements for offsetting financial instruments and addressing inconsistencies in current practice when applying the offsetting criteria in IAs 32, “Financial Instruments: Presentation”. The amendments are effective for annual periods beginning on or after January 1, 2014 with early adoption permitted, and are required to be applied retrospectively. The Company has not yet determined the impact of the amendments on the Company’s financial statements. 72 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs otheR international Financial Reporting interpretations Committee (iFRiC) 21 – “Levies” In May 2013, the IAsB published a new IfrIC Interpretation 21, “Levies”, which provides guidance on when to recognize a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAs 37, “Provisions, Contingent Liabilities and Contingent Assets”, and for those where the timing and amount of the levy is certain. This interpretation is effective for annual periods beginning on or after January 1, 2014. The Company has not yet determined the impact of this interpretation on the Company’s financial statements. iFRs 15 – “Revenue from Contracts with Customers” (iFRs 15) In May 2014, the IAsB issued Ifrs 15, “Revenue from Contracts with Customers”. Ifrs 15 specifies how and when to recognize revenue as well as requiring entities to provide users of financial statements with more informative, relevant disclosures. The standard supersedes IAs 18, “Revenue”, IAs 11, “Construction Contracts”, and a number of revenue-related interpretations. Application of the standard is mandatory for all Ifrs reporters and it applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. Ifrs 15 must be applied in an entity’s first annual Ifrs financial statements for periods beginning on or after January 1, 2017. Application of the standard is mandatory and early adoption is permitted. The Company has not yet determined the impact of the amendments on the Company’s financial statements. note 05 summary of significant accounting policies Business ComBinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. for each business combination, the Company elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the fair value of the acquiree’s identifiable net assets. Acquisition costs are expensed as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under Ifrs 3, “Business Combinations”, are recognized at their fair value at the acquisition date except for non-current assets (or disposal groups) that are classified as held for sale in accordance with Ifrs 5, “Non-current Assets Held for Sale and Discontinued Operations”, which are recognized and measured at fVLCs. Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date at the best estimate of such amount. subsequent changes in the fair value of the contingent consideration that are deemed to be a liability are recognized in the statements of operations. Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the consideration transferred over the fair value of the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the difference is recognized in the statements of operations. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. for the purpose of impairment testing, goodwill acquired in each of the business combinations is, from the acquisition date, allocated to each of the Company’s cash-generating units that are expected to benefit from the corresponding combinations, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. tRanslation oF FoReign CuRRenCy tRansaCtions and FoReign suBsidiaRies The Company’s consolidated financial statements are presented in Canadian dollars, which is also the Company’s functional currency. Each subsidiary of the Company determines its own functional currency, and items included in the financial statements of each subsidiary are measured using that functional currency. transactions and balances Transactions in foreign currencies are initially recorded by the Company and its subsidiaries at their respective functional currencies using exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated by the Company and its subsidiaries into their respective functional currencies at the exchange rate in effect at the reporting date. All differences upon translation are recognized in the consolidated statements of operations. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 73 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs Non-monetary assets and liabilities denominated in foreign currencies are translated by the Company and its subsidiaries into their respective functional currencies at historical rates. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates in effect at the date when the fair value is determined. translation of foreign subsidiaries Assets and liabilities of foreign subsidiaries with a functional currency other than the Canadian dollar are translated into Canadian dollars at rates prevailing at the reporting date, and income and expenses are translated at average exchange rates prevailing during the period. Unrealized gains or losses arising as a result of the translation of the foreign subsidiaries are recorded in accumulated other comprehensive income (loss). On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in the consolidated statements of operations. The Company also has monetary assets and liabilities that are receivable or payable from a foreign operation. If settlement of the receivable or payable is neither planned nor likely to occur in the foreseeable future, the differences upon translation are recognized in accumulated other comprehensive income (loss) as these receivables and payables form part of the net investment in the foreign operation. intangiBle assets Identifiable intangible assets acquired separately are measured on initial recognition at cost. The cost of identifiable intangible assets acquired in a business combination is equal to their fair value as at the date of acquisition. following initial recognition, identifiable intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The amortization of intangible assets is recognized in the consolidated statements of operations as part of amortization expense. The useful lives of identifiable intangible assets are assessed to be either finite or indefinite. Identifiable intangible assets with finite lives are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the identifiable intangible asset may be impaired. The amortization period and the amortization method for an identifiable intangible asset are reviewed at least annually, at each financial year end. Identifiable intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually. Identifiable intangible assets purchased through the acquisitions of Genuity Capital Markets (Genuity), the 50% interest in Canaccord Genuity (Australia) Limited (Canaccord Genuity Australia), Collins stewart Hawkpoint plc (CsHP), and Eden financial are brand names, customer relationships, non-competition agreements, trading licences and technology, which have finite lives and are amortized on a straight-line basis over their estimated useful lives. The estimated amortization periods of these amortizable intangible assets are as follows: Brand names Customer relationships Non-competition agreements Trading licences Technology indefinite 11 years 5 years n/a n/a Canaccord Genuity Australia Genuity CsHP n/a n/a 5 years 8 to 24 years 4.5 years indefinite n/a n/a n/a 3 years Eden financial n/a 8 years n/a n/a n/a Trading licences acquired through the acquisition of the 50% interest in Canaccord Genuity Australia are considered to have an indefinite life as they are expected to provide benefit to the Company over a continuous period. Branding acquired through the acquisition of Genuity is considered to have an indefinite life, as it will provide benefit to the Company over a continuous period. technology development costs Technology development expenditures on an individual project are recognized as an intangible asset when the Company can demonstrate that the technical feasibility of the asset for use has been established. The asset is carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. The asset is amortized over the period of expected future benefit. 74 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs impaiRment oF non-FinanCial assets The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of the fVLCs and the value-in-use of a particular asset or CGU. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount, and recognized in the consolidated statements of operations. In assessing fVLCs, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The Company bases its impairment calculation on annual budget calculations, which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These budget calculations generally cover a period of five years. A long term growth rate is then calculated and applied to project future cash flows after the fifth year. Impairment losses are recognized in the consolidated statements of operations. for assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, or exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. such reversal is recognized in the consolidated statements of operations. The following assets have specific characteristics for impairment testing: goodwill Goodwill is tested for impairment annually as at March 31 and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. intangible assets Intangible assets with indefinite useful lives are tested for impairment annually as at March 31 at the CGU level and when circumstances indicate that the carrying value may be impaired. Cash and Cash eQuivalents Cash and cash equivalents consist of cash on deposit, commercial paper and bankers’ acceptances with a term to maturity of less than three months from the date of purchase. FinanCial instRuments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. [i] Financial assets Initial recognition and measurement financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held to maturity investments or available for sale financial assets, as applicable. financial assets are recognized when the entity becomes a party to the contractual provisions of the instrument. for financial assets, trade date accounting is applied, the trade date being the date at which the Company commits itself to either the purchase or sale of the asset. All financial assets are initially measured at fair value. Transaction costs related to financial instruments classified as fair value through profit or loss are recognized in the consolidated statements of operations when incurred. Transaction costs for all financial instruments other than those classified as fair value through profit or loss are included in the costs of the assets. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 75 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs Classification and subsequent measurement Financial assets classified as fair value through profit or loss financial assets classified as fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as fair value through profit or loss. financial assets purchased for trading activities are classified as held for trading and are measured at fair value, with unrealized gains (losses) recognized in the consolidated statements of operations. In addition, provided that the fair value can be reliably determined, IAs 39 permits an entity to designate any financial instrument as fair value through profit or loss on initial recognition or adoption of this standard even if that instrument would not otherwise meet the definition of fair value through profit or loss as specified in IAs 39. The Company did not designate any financial assets upon initial recognition as fair value through profit or loss. The Company’s financial assets classified as held for trading include cash and cash equivalents, and securities owned, including derivative financial instruments. The Company periodically evaluates the classification of its financial assets as held for trading based on whether the intent to sell the financial assets in the near term is still appropriate. If the Company is unable to trade these financial assets due to inactive markets or if management’s intent to sell them in the foreseeable future significantly changes, the Company may elect to reclassify these financial assets in rare circumstances. Financial assets classified as available for sale Available for sale assets are measured at fair value, with subsequent changes in fair value recorded in other comprehensive income, net of tax, until the assets are sold or impaired, at which time the difference is recognized in net income for the year. Investments in equity instruments classified as available for sale that do not have a quoted market price in an active market are measured at fair value unless fair value is not reliably measurable. The Company’s investments in Euroclear and Canadian first financial Holdings Limited are classified as available for sale and measured at their estimated fair value. Financial assets classified as loans and receivables and held to maturity financial assets classified as loans and receivables and held to maturity are measured at amortized cost using the effective interest rate method (EIr), less impairment. Amortized cost is calculated by taking into account discount or premium on acquisition and fees or costs that are an integral part of the EIr. The EIr amortization is included in the consolidated statements of operations. The Company classifies accounts receivable as loans and receivables. The Company did not have any held to maturity investments during the years ended March 31, 2014 and 2013. Impairment of financial assets The Company assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that have occurred since the initial recognition of the asset and those events have had an impact on the estimated future cash flows of the asset that can be reliably estimated. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is recognized in the consolidated statements of operations and is measured as the difference between the carrying value and the fair value. Derecognition A financial asset is derecognized primarily when the rights to receive cash flows from the asset have expired, or the Company has transferred its right to receive cash flows from the asset. [ii] Financial liabilities Initial recognition and measurement financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, or loans and borrowings. All financial liabilities are recognized initially at fair value less, in the case of other financial liabilities, directly attributable transaction costs. Classification and subsequent measurement Financial liabilities classified as fair value through profit and loss financial liabilities classified as fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as fair value through profit or loss. financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on liabilities held for trading are recognized in the statements of operations. The Company has not designated any financial liabilities as fair value through profit or loss that would not otherwise meet the definition of fair value through profit or loss upon initial recognition. Bank indebtedness, contingent consideration and securities sold short, including derivative financial instruments, are classified as held for trading and recognized at fair value. 76 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs Financial liabilities classified as loans and borrowings After initial recognition, financial liabilities classified as loans and borrowings are subsequently measured at amortized cost using the EIr method. Gains and losses are recognized in the statements of operations through the EIr method of amortization. Loans and borrowings include accounts payable and accrued liabilities, and subordinated debt. The carrying value of loans and borrowings approximates their fair value. [iii] offsetting of financial instruments financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. [iv] derivative financial instruments Derivative financial instruments are financial contracts, the value of which is derived from the value of the underlying assets, interest rates, indices or currency exchange rates. The Company uses derivative financial instruments to manage foreign exchange risk on pending security settlements in foreign currencies. The fair value of these contracts is nominal due to their short term to maturity. realized and unrealized gains and losses related to these contracts are recognized in the consolidated statements of operations during the reporting period. The Company trades in futures contracts, which are agreements to buy or sell standardized amounts of a financial instrument at a predetermined future date and price, in accordance with terms specified by a regulated futures exchange, and subject to daily cash margining. The Company trades in futures in an attempt to mitigate interest rate risk, yield curve risk and liquidity risk. The Company also trades in forward contracts, which are non-standardized contracts to buy or sell a financial instrument at a specified price on a future date. The Company trades in forward contracts in an attempt to mitigate foreign exchange risk on pending security settlements in foreign currencies. FaiR value measuRement The Company measures financial instruments at fair value at each reporting period. fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or, in the absence of a principal market, in the most advantageous market for the asset or liability. When available, quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs are used to determine fair value. for financial instruments not traded in an active market, the fair value is determined using appropriate and reliable valuation techniques. such techniques may include recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models. Valuation techniques may require the use of estimates or management assumptions if observable market data is not available. When the fair value cannot be reliably measured using a valuation technique, then the financial instrument is measured at cost. The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuations techniques. A level is assigned to each fair value measured based on the lowest level input significant to the fair value measurement in its entirety [see Note 7]. for assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. seCuRities owned and sold shoRt securities owned and sold short are recorded at fair value based on quoted market prices in an active market or a valuation model if no market prices are available. Unrealized gains and losses are reflected in income. Certain securities owned have been pledged as collateral for securities borrowing transactions. securities owned and sold short are classified as held-for-trading financial instruments. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 77 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs seCuRities lending and BoRRowing The Company employs securities lending and borrowing activities primarily to facilitate the securities settlement process. These arrangements are typically short term in nature, with interest being received when cash is delivered and interest being paid when cash is received. securities borrowed and securities loaned are carried at the amounts of cash collateral delivered and received in connection with the transactions. securities borrowed transactions require the Company to deposit cash, letters of credit or other collateral with the lender. for securities loaned, the Company receives collateral in the form of cash or other collateral in an amount generally in excess of the market value of the securities loaned. The Company monitors the fair value of the securities loaned and borrowed against the cash collateral on a daily basis and, when appropriate, the Company may require counterparties to deposit additional collateral or it may return collateral pledged to ensure such transactions are adequately collateralized. securities purchased under agreements to resell and securities sold under agreements to repurchase represent collateralized financing transactions. The Company receives securities purchased under agreements to resell, makes delivery of securities sold under agreements to repurchase, monitors the market value of these securities on a daily basis and delivers or obtains additional collateral as appropriate. The Company manages its credit exposure by establishing and monitoring aggregate limits by customer for these transactions. Interest earned on cash collateral is based on a floating rate. Revenue ReCognition revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The Company assesses its revenue arrangements in order to determine if it is acting as principal or agent. Commission and fees revenue consists of revenue generated through commission-based brokerage services, recognized on a trade date basis, and the sale of fee-based products and services, recognized on an accrual basis. realized and unrealized gains and losses on securities purchased for client-related transactions are reported as net facilitation losses and recorded as a reduction of commission revenues. facilitation losses for the year ended March 31, 2014 were $14.8 million [March 31, 2013 – $15.4 million]. Investment banking revenue consists of underwriting fees and commissions earned on corporate finance activities. revenue from underwritings and other corporate finance activities is recorded when the underlying transaction is completed under the engagement terms and the related revenue is reasonably determinable. Advisory fees consist of management and advisory fees that are recognized on an accrual basis. Also included in advisory fees is revenue from mergers and acquisitions activities, which is recognized when the underlying transaction is completed under the engagement terms and the related revenue is reasonably determinable. Principal trading revenue consists of revenue earned in connection with principal trading operations and is recognized on a trade date basis. Interest revenue consists of interest earned on client margin accounts, interest earned on the Company’s cash and cash equivalents balances, interest earned on cash delivered in support of securities borrowing activity, and dividends earned on securities owned. Interest revenue is recognized on an effective interest rate basis. Dividend income is recognized when the right to receive payment is established. Other revenue includes foreign exchange gains or losses, revenue earned from our correspondent brokerage services and administrative fees revenues. eQuipment and leasehold impRovements Computer equipment, furniture and equipment, and leasehold improvements are recorded at cost less accumulated amortization. Amortization is being recorded as follows: Computer equipment furniture and equipment Leasehold improvements 33% declining balance basis 10% to 20% declining balance basis straight-line over the shorter of useful life and respective term of the leases An item of property, plant and equipment, and any specific part initially recognized, is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of operations when the asset is derecognized. 78 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs The assets’ residual values, useful lives and method of amortization are reviewed at each financial year end, and are adjusted prospectively where appropriate. inCome taxes Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of operations. deferred tax Deferred taxes are accounted for using the liability method. This method requires that deferred taxes reflect the expected deferred tax effect of temporary differences at the reporting date between the carrying amounts of assets and liabilities for financial statement purposes and their tax bases. Deferred tax liabilities are recognized for all taxable temporary differences, except for taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and carryforward of unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses, can be utilized. The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. No deferred tax liability has been recognized for taxable temporary differences associated with investments in subsidiaries from undistributed profits and foreign exchange translation differences as the Company is able to control the timing of the reversal of these temporary differences. The Company has no plans or intention to perform any actions that will cause the temporary differences to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is charged or credited in the statements of operations except where it relates to items that may be credited directly to equity, in which case the deferred tax is recognized directly against equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity. sales tax revenues, expenses and assets are recognized net of the amount of sales tax, except where the amount of sales tax incurred is not recoverable from the tax authority. In these circumstances, sales tax is recognized as part of the cost of acquisition of the asset or as part of an item of the expense. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of accounts receivable or accounts payable in the consolidated statements of financial position. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 79 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs tReasuRy shaRes The Company’s own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. This includes shares held in our long-term incentive plan and unvested share purchase loans and preferred shares. No gain or loss is recognized in the statements of operations in the purchase, sale, issue or cancellation of the Company’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized in contributed surplus. Voting rights related to treasury shares are nullified for the Company and no dividends are allocated to them. eaRnings peR Common shaRe Basic earnings per common share is computed by dividing the net income attributable to common shareholders for the period by the weighted average number of common shares outstanding. Diluted earnings per common share reflects the dilutive effect in connection with the long-term incentive plan (LTIP) and other share-based payment plans based on the treasury stock method. The treasury stock method determines the number of incremental common shares by assuming that the number of shares the Company has granted to employees has been issued. shaRe-Based payments Employees (including senior executives and directors) of the Company receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). Independent directors also receive deferred share units (DsUs) as part of their remuneration, which can only be settled in cash (cash-settled transactions). The dilutive effect, if any, of outstanding options and share-based payments is reflected as additional share dilution in the computation of diluted earnings per common share. equity-settled transactions for equity-settled transactions, the Company measures the fair value of share-based awards as of the grant date and recognizes the cost as an expense over the applicable vesting period with a corresponding increase in contributed surplus. The cost is recognized on a graded basis. The Company estimates the number of equity instruments that will ultimately vest when calculating the expense attributable to equity-settled transactions. No expense is recognized for awards that do not ultimately vest. When share-based awards vest, contributed surplus is reduced by the applicable amount and share capital is increased by the same amount. Cash-settled transactions The cost of cash-settled transactions is measured initially at fair value at the grant date. The fair values of DsUs are expensed upon grant, as there are no vesting conditions [Note 19]. The liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognized through the statements of operations. pRovisions Provisions are recognized when the Company has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the statements of operations net of any reimbursement. If the effect of the time value of money is significant, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. 80 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs legal provisions Legal provisions are recognized when it is probable that the Company will be liable for the future obligation as a result of a past event related to legal settlements or litigations. Restructuring provisions restructuring provisions are only recognized when the recognition criteria for provisions are fulfilled. In order for the recognition criteria to be met, the Company needs to have in place a detailed formal plan about the business or part of the business concerned, the location and number of employees affected, a detailed estimate of associated costs and an appropriate timeline. In addition, either the personnel affected must have a valid expectation that the restructuring is being carried out or the implementation must have been initiated. The restructuring provision recognized includes staff restructuring costs, reorganization expenses, onerous lease provisions and impairment of equipment and leasehold improvements. leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date, whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. The Company has assessed its lease arrangements and concluded that the Company only has leases that have the characteristics of an operating lease. An operating lease is a lease that does not transfer substantially all of the risks and benefits and ownership of an asset to the lessee. Operating lease payments are recognized as an expense in the statements of operations on a straight-line basis over the lease term. Client money The Company’s UK and Europe operations hold money on behalf of its clients in accordance with the client money rules of the financial Conduct Authority in the United Kingdom. such money and the corresponding liabilities to clients are not included in the consolidated statements of financial position as the Company is not beneficially entitled thereto. The amounts held on behalf of clients at the reporting date are included in Note 23. segment RepoRting The Company’s segment reporting is based on the following operating segments: Canaccord Genuity, Canaccord Genuity Wealth Management and Corporate and Other. The Company’s business operations are grouped into the following geographic regions: Canada, the UK and Europe, Other foreign Locations, and the Us. note 06 securities owned and securities sold short Corporate and government debt Equities and convertible debentures march 31, 2014 March 31, 2013 securities owned securities sold short securities owned securities sold short $ 924,149 $ 823,148 $ 753,256 $ 617,841 219,052 90,765 171,081 71,179 $ 1,143,201 $ 913,913 $ 924,337 $ 689,020 As at March 31, 2014, corporate and government debt maturities range from 2014 to 2097 [March 31, 2013 – 2013 to 2097] and bear interest ranging from 0.00% to 15.00% [March 31, 2013 – 0.00% to 15.00%]. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 81 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs note 07 Financial instruments CategoRies oF FinanCial instRuments The categories of financial instruments, other than cash and cash equivalents and bank indebtedness, held by the Company at March 31, 2014 are as follows: Held for trading Available for sale Loans and receivables Loans and borrowings Total Financial assets securities owned $ 1,143,201 $ Accounts receivable from brokers and investment dealers Accounts receivable from clients rrsP cash balances held in trust Other accounts receivable Investments total financial assets Financial liabilities securities sold short Accounts payable to brokers and investment dealers Accounts payable to clients Other accounts payable and accrued liabilities subordinated debt total financial liabilities — — — — — — — — — — 9,977 $ — $ 2,006,183 418,799 259,614 101,302 — $ 1,143,201 $ 9,977 $ 2,785,898 $ — — — — — — — $ 1,143,201 2,006,183 418,799 259,614 101,302 9,977 $ 3,939,076 $ 913,913 $ — — — — $ 913,913 $ — — — — — — $ $ — — — — — — $ — $ 913,913 1,659,617 1,659,617 965,229 253,087 15,000 965,229 253,087 15,000 $ 2,892,933 $ 3,806,846 The Company has not designated any financial instruments as fair value through profit or loss upon initial recognition. FaiR value hieRaRChy All financial instruments for which fair value is recognized or disclosed are categorized within a fair value hierarchy, described as follows, and based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 – Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities Level 2 – Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable) Level 3 – Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable) 82 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs for financial instruments that are recognized at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. As at March 31, 2014, the Company held the following classes of financial instruments measured at fair value: securities owned Corporate debt Government debt Corporate and government debt Equities Convertible debentures Private investments equities and convertible debentures securities sold short Corporate debt Government debt Corporate and government debt Equities march 31, 2014 estimated fair value march 31, 2014 level 2 level 1 $ 41,181 $ — $ 41,181 $ 882,968 924,149 201,666 5,501 11,885 219,052 1,143,201 (31,017) (792,131) (823,148) (90,765) 357,917 357,917 175,228 — — 175,228 533,145 — (366,894) (366,894) (83,166) 525,051 566,232 26,125 2,801 — 28,926 595,158 (31,017) (425,237) (456,254) (7,599) (913,913) (450,060) (463,853) level 3 — — — 313 2,700 11,885 14,898 14,898 — — — — — available for sale investments 9,977 — 4,247 5,730 March 31, 2013 March 31, 2013 Level 2 Level 1 Level 3 Estimated fair value securities owned Corporate debt Government debt Corporate and government debt Equities Convertible debentures Private investments $ 50,873 $ — $ 50,873 $ 702,383 258,188 444,195 753,256 258,188 495,068 151,685 135,758 14,759 5,304 14,092 5,304 — — — equities and convertible debentures 171,081 141,062 14,759 — — — 1,168 — 14,092 15,260 15,260 — — — — — 924,337 399,250 509,827 (27,895) — (27,895) (589,946) (218,756) (371,190) (617,841) (218,756) (399,085) (71,179) (70,484) (695) (689,020) (289,240) (399,780) 3,695 (14,218) — — — — 3,695 (14,218) CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 83 securities sold short Corporate debt Government debt Corporate and government debt Equities available for sale investments Contingent consideration NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs movement in net level 3 financial assets March 31, 2013 Purchases of Level 3 assets during the year Transfer to Level 1 assets Transfer to Level 2 assets Transfer from Level 2 to Level 3 assets Net unrealized loss during the year reversal of contingent consideration Payment of contingent consideration Other realized loss in settlement of contingent consideration Net disposals during the year march 31, 2014 $ 4,737 14,943 (8,339) (3,695) 2,700 (4,026) 6,000 8,218 251 (126) (35) $ 20,628 During the fiscal year ended March 31, 2014, there was $8.3 million of Level 3 assets that were transferred to Level 1 as a result of a private company stock that became publicly traded in the UK. In addition, the Company’s equity investment in Euroclear was transferred from Level 3 to Level 2 as the basis for determining the fair value has changed to a market-based approach. There was a transfer of $2.7 million of assets from Level 2 to Level 3 as the valuation methodology used to determine the fair value utilized an unobservable discount factor. There were no transfers between Level 1 and Level 2 fair value measurements. Of the total fair value net unrealized loss recognized during the year, $3.3 million was included as a facilitation loss, which reduced commissions and fees revenue, and the remaining balance was recognized through principal trading revenue. Fair value estimation Level 2 financial instruments i. Level 2 financial instruments include the Company’s investment in certain corporate and government debt, convertible debt, and over-the-counter equities. The fair values of corporate and government debt, and convertible debt classified as Level 2 are determined using the quoted market prices of identical assets or liabilities in markets that do not have transactions which take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The Company regularly reviews the transaction frequency and volume of trading in these instruments to determine the accuracy of pricing information. ii. Available for sale investments Available for sale investments include the Company’s equity investment in Euroclear, which has an estimated fair value of $4.2 million as at March 31, 2014 [March 31, 2013 – $3.7 million]. The current fair value is determined using a market-based approach based on recent share buyback transactions. Previously, the fair value for the Euroclear investment was determined using the carrying value of net assets as there was no other observable market data available. However, due to the recent share buyback transaction, the market-based approach was deemed more reliable. Available for sale investments also include the Company’s equity and debenture investment in Canadian first financial Holdings Limited (Canadian first), which has an estimated fair value of $5.7 million as at March 31, 2014 [Note 10]. The fair value for Canadian first is determined by the Company using a market-based approach with information that the Company has determined to be reliable, and represents the best estimate of fair value readily available. In the absence of any market indicators, the historical cost basis was used. Private investments held for trading iii. The fair value for private investments classified as held for trading is determined by the Company using a market-based approach with information that the Company has determined to be reliable, and represents the best estimate of fair value readily available. Prices for private investments are determined based on the last trade price or offer price, or, if these prices are considered stale, the Company obtains information based on certain inquiries, recent trades or pending new issues. The fair value of the private investments as at March 31, 2014 was $11.9 million [March 31, 2013 – $14.1 million]. The fair value measurements determined as described above may not be indicative of net realizable value or reflective of future values. furthermore, the Company believes its valuation methods are appropriate and consistent with those which would be utilized by a market participant. 84 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs Contingent considerations iv. The Company recognized contingent considerations as a result of its acquisitions of Eden financial Ltd. and certain assets and liabilities of Kenosis Capital Partners. As of March 31, 2014, the contingent consideration related to the acquisition of certain assets and liabilities of Kenosis Capital Partners was nil [March 31, 2013 – $6.0 million] as performance targets were not met and the accrual for the contingent consideration was reversed. During the year ended March 31, 2014, the Company paid $9.1 million in contingent consideration as a result of its acquisition of Eden financial Ltd., of which $8.9 million was previously accrued. Risk management Credit risk Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. Credit risk arises from cash and cash equivalents, net receivables from clients and brokers and investment dealers, and other accounts receivable. The maximum exposure of the Company to credit risk before taking into account any collateral held or other credit enhancements is the carrying amount of financial assets as disclosed in the consolidated financial statements as at March 31, 2014 and 2013. The primary source of credit risk to the Company is in connection with trading activity by private clients and private client margin accounts. To minimize its exposure, the Company applies certain credit standards, applies limits to transactions and requires settlement of securities transactions on a cash basis or delivery against payment. Margin transactions are collateralized by securities in the clients’ accounts in accordance with limits established by the applicable regulatory authorities and are subject to the Company’s credit review and daily monitoring procedures. Management monitors the collectibility of receivables and estimates an allowance for doubtful accounts. The accounts receivable outstanding are expected to be collectible within one year. The Company has recorded an allowance for doubtful accounts of $13.2 million as at March 31, 2014 [March 31, 2013 – $14.0 million] [Note 9]. The Company is also exposed to the risk that counterparties to transactions will not fulfill their obligations. Counterparties primarily include investment dealers, clearing agencies, banks and other financial institutions. The Company does not rely entirely on ratings assigned by credit rating agencies in evaluating counterparty risk. The Company mitigates credit risk by performing its own due diligence assessments on the counterparties, obtaining and analyzing information regarding the structure of the financial instruments, and keeping current with new innovations in the market. The Company also manages this risk by conducting regular credit reviews to assess creditworthiness, reviewing security and loan concentrations, holding and marking to market collateral on certain transactions and conducting business through clearing organizations with performance guarantees. As at March 31, 2014 and 2013, the Company’s most significant counterparty concentrations were with financial institutions and institutional clients. Management believes that they are in the normal course of business and does not anticipate loss for non-performance. liquidity risk Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they become due. The Company’s management is responsible for reviewing liquidity resources to ensure funds are readily available to meet its financial obligations as they become due, as well as ensuring adequate funds exist to support business strategies and operational growth. The Company’s business requires capital for operating and regulatory purposes. The current assets reflected on the statements of financial position are highly liquid. The majority of the positions held as securities owned are readily marketable and all are recorded at their fair value. Client receivables are generally collateralized by readily marketable securities and are reviewed daily for impairment in value and collectibility. receivables and payables from brokers and dealers represent the following: current open transactions that generally settle within the normal three-day settlement cycle; collateralized securities borrowed and/or loaned in transactions that can be closed within a few days on demand; and balances on behalf of introducing brokers representing net balances in connection with their client accounts. Additional information regarding the Company’s capital structure and capital management objectives is discussed in Note 22. The following table presents the contractual terms to maturity of the financial liabilities owed by the Company as at March 31, 2014: financial liability Accounts payable and accrued liabilities securities sold short subordinated debt subject to Investment Industry regulatory Organization of Canada’s approval. (1) Carrying amount Contractual term to maturity $ 2,877,933 913,913 15,000 Due within one year Due within one year Due on demand(1) The fair values for accounts payable and accrued liabilities approximate their carrying values and will be paid within 12 months. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 85 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs market risk Market risk is the risk that the fair value of financial instruments will fluctuate because of changes in market prices. The Company separates market risk into three categories: fair value risk, interest rate risk and foreign exchange risk. Fair value risk When participating in underwriting activities, the Company may incur losses if it is unable to resell the securities it is committed to purchase or if it is forced to liquidate its commitment at less than the agreed upon purchase price. The Company is also exposed to fair value risk as a result of its principal trading activities in equity securities, fixed income securities, and derivative financial instruments. securities at fair value are valued based on quoted market prices where available and, as such, changes in fair value affect earnings as they occur. fair value risk also arises from the possibility that changes in market prices will affect the value of the securities the Company holds as collateral for client margin accounts. The Company mitigates its fair value risk exposure through controls to limit concentration levels and capital usage within its inventory trading accounts, as well as through monitoring procedures of the margin accounts. The following table summarizes the effect on earnings as a result of a fair value change in financial instruments as at March 31, 2014. This analysis assumes all other variables remain constant. The methodology used to calculate the fair value sensitivity is consistent with the prior year. Carrying value financial instrument asset (liability) Equities and convertible march 31, 2014 March 31, 2013 effect of a 10% increase in fair value on net income effect of a 10% decrease in fair value on net income Carrying value Asset (Liability) Effect of a 10% increase in fair value on net income Effect of a 10% decrease in fair value on net income debentures owned $ 219,052 $ 8,593 $ (8,593) $ 171,081 $ 5,425 $ (5,425) Equities and convertible debentures sold short (90,765) (3,560) 3,560 (71,179) (2,257) 2,257 The following table summarizes the effect on OCI as a result of a fair value change in the financial instruments classified as available for sale. This analysis assumes all other variables remain constant and there is no permanent impairment. The methodology used to calculate the fair value sensitivity is consistent with the prior year. financial instrument Carrying value march 31, 2014 March 31, 2013 effect of a 10% increase in fair value on other comprehensive income effect of a 10% decrease in fair value on other comprehensive income Effect of a 10% increase in fair value on other comprehensive income Effect of a 10% decrease in fair value on other comprehensive income Carrying value Investments $ 9,977 $ 712 $ (712) $ 3,695 $ 195 $ (195) interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect the fair value or future cash flows of financial instruments held by the Company. The Company incurs interest rate risk on its cash and cash equivalent balances, bank indebtedness, short term credit facility, fixed income portion of securities owned and securities sold short, net clients’ balances, and net brokers’ and investment dealers’ balances, as well as its subordinated debt. The Company attempts to minimize and monitor its exposure to interest rate risk through quantitative analysis of its net positions of fixed income securities, clients’ balances, securities lending and borrowing activities, and short term borrowings. The Company also trades in futures in an attempt to mitigate interest rate risk. futures are included in marketable securities owned, net of marketable securities sold short, for the purpose of calculating interest rate sensitivity. All cash and cash equivalents mature within three months. Net clients’ receivable (payable) balances charge (incur) interest based on floating interest rates. subordinated debt bears interest at a rate of prime plus 4%, payable monthly. The short term credit facility bears interest based on a prime-linked rate payable monthly. 86 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs The following table provides the effect on net income (loss) for the years ended March 31, 2014 and 2013 if interest rates had increased or decreased by 100 basis points applied to balances as of March 31, 2014 and 2013. fluctuations in interest rates do not have an effect on OCI. This sensitivity analysis assumes all other variables are constant. The methodology used to calculate the interest rate sensitivity is consistent with the prior year. march 31, 2014 March 31, 2013 Carrying value asset (liability) net income effect of a 100 bps increase in interest rates net income effect of a 100 bps decrease in Carrying value interest rates(1) Asset (Liability) Net income effect of a 100 bps increase in interest rates Net income effect of a 100 bps decrease in interest rates(1) Cash and cash equivalents, net of bank indebtedness $ 364,296 $ 2,470 $ (2,470) $ 424,874 $ 2,430 $ (2,582) Marketable securities owned, net of marketable securities sold short Clients’ payable, net rrsP cash balances held in trust Brokers’ and investment dealers’ balance, net subordinated debt subject to a floor of zero. (1) Foreign exchange risk 229,288 (546,430) 259,614 346,566 (15,000) (872) (3,888) 1,852 (47) (107) 959 (2,082) (1,852) 235,317 (695,733) 327,173 2 107 299,985 (15,000) (2,154) (4,043) 1,886 (300) (87) 2,654 (1,205) (1,886) 15 87 foreign exchange risk arises from the possibility that changes in foreign currency exchange rates will result in losses. The Company’s primary foreign exchange risk results from its investment in its Us, Australia, and UK and Europe subsidiaries. These subsidiaries are translated using the foreign exchange rate at the reporting date. Any fluctuation in the Canadian dollar against the Us dollar, the pound sterling, or the Australian dollar will result in a change in the unrealized gains (losses) on translation of foreign operations recognized in accumulated other comprehensive income (loss). All of the subsidiaries may also hold financial instruments in currencies other than their functional currency; therefore, any fluctuations in foreign exchange rates will impact foreign exchange gains or losses. The following table summarizes the effects on net income (loss) and OCI as a result of a 10% change in the value of the foreign currencies where there is significant exposure. The analysis assumes all other variables remain constant. The methodology used to calculate the foreign exchange rate sensitivity is consistent with the prior year. As at March 31, 2014: Currency Us dollar Pound sterling Australian dollar As at March 31, 2013: Currency Us dollar Pound sterling Australian dollar effect of a 5% appreciation in foreign exchange rate on net income effect of a 5% depreciation in foreign exchange rate on net income effect of a 5% appreciation in foreign exchange rate on oCi effect of a 5% depreciation in foreign exchange rate on oCi $ (913) $ 913 $ 5,485 $ (5,485) (2,891) nil 2,891 nil 50,093 2,754 (50,093) (2,754) Effect of a 5% appreciation in foreign exchange rate on net income Effect of a 5% depreciation in foreign exchange rate on net income Effect of a 5% appreciation in foreign exchange rate on OCI Effect of a 5% depreciation in foreign exchange rate on OCI $ (1,023) $ 1,023 $ 5,526 $ (5,526) (2,238) nil 2,238 nil 31,756 4,361 (31,756) (4,361) CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 87 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs deRivative FinanCial instRuments Derivative financial instruments are financial contracts, the value of which is derived from the value of the underlying assets, interest rates, indices or currency exchange rates. All derivative financial instruments are expected to be settled within six months subsequent to fiscal year end. Foreign exchange forward contracts The Company uses derivative financial instruments to manage foreign exchange risk on pending security settlements in foreign currencies. The fair value of these contracts is nominal due to their short term to maturity. realized and unrealized gains and losses related to these contracts are recognized in the consolidated statements of operations during the reporting period. forward contracts outstanding at March 31, 2014: To sell Us dollars To buy Us dollars forward contracts outstanding at March 31, 2013: notional amounts (millions of usd) average price (Cad/usd) maturity Fair value $ 13.8 $ 5.5 1.11 1.10 april 3, 2014 $ april 1, 2014 11 13 To sell Us dollars To buy Us dollars Notional amounts (millions of UsD) Average price (CAD/UsD) Maturity fair value $ 14.8 $ 3.8 1.02 1.02 April 1, 2013 $ April 1, 2013 (4) 6 The Company’s Canadian operations also have a net buy position for pounds sterling (GBP) of £2.5 million with an average price of 1.84 (CAD/GBP) and a maturity date of April 30, 2014. These contracts were entered into in an attempt to mitigate foreign exchange risk on cash balances held in foreign currencies. The fair value of these contracts is nominal due to their short term to maturity. The Company’s Canaccord Genuity Wealth Management segment in the UK and Europe trades foreign exchange forward contracts on behalf of its clients, and establishes matching contracts with the counterparties. The Company has no significant net exposure, assuming no counterparty default. The principal currencies of the forward contracts are: the UK pound sterling, the Us dollar, or the euro. The weighted average term to maturity is 115 days as at March 31, 2014 [March 31, 2013 – 75 days]. The table below shows the fair value of the forward contract assets and liabilities, and the notional value of these forward contracts as at March 31, 2014. The fair value of the forward contract assets and liabilities is included in the accounts receivable and payable balances. march 31, 2014 March 31, 2013 assets liabilities notional amount Assets Liabilities Notional amount foreign exchange forward contracts $ 1,359 $ (1,365) $ 327,386 $ 4,483 $ (4,483) $ 352,205 seCuRities lending and BoRRowing The Company employs securities lending and borrowing primarily to facilitate the securities settlement process. These arrangements are typically short term in nature, with interest being received when cash is delivered and interest being paid when cash is received. These transactions are fully collateralized and are subject to daily margin calls for any deficiency between the market value of the security given and the amount of collateral received. These transactions are collateralized by either cash or securities, including government treasury bills and government bonds, and are reflected within accounts receivable and accounts payable. Interest earned on cash collateral is based on a floating rate. At March 31, 2014, the floating rates ranged from 0.00% to 0.66% [March 31, 2013 – 0.00% to 0.63%]. march 31, 2014 March 31, 2013 88 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT Cash securities loaned or delivered as collateral Borrowed or received as collateral loaned or delivered as collateral Borrowed or received as collateral $ 158,430 $ 41,290 $ 41,253 $ 190,689 168,371 36,710 36,047 199,956 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs Bank indeBtedness The Company enters into call loans or overdraft positions primarily to facilitate the securities settlement process for both client and Company securities transactions. The bank indebtedness is collateralized by unpaid client securities and/or securities owned by the Company. As at March 31, 2014, the Company had nil bank indebtedness balance outstanding [March 31, 2013 – $66.1 million]. otheR CRedit FaCilities subsidiaries of the Company also have other credit facilities with banks in Canada and the UK for an aggregate amount of $720.8 million. These credit facilities, consisting of call loans, letters of credit and daylight overdraft facilities, are collateralized by unpaid client securities and/or securities owned by the Company. As of March 31, 2014, there were no balances outstanding under these other credit facilities. A subsidiary of the Company has also entered into secured irrevocable standby letters of credit from a financial institution totalling $0.9 million (Us$0.9 million) as rent guarantees for its leased premises in New York. As of March 31, 2014 and 2013, there were no outstanding balances under these standby letters of credit. note 08 interest in other entities The Company has a 50% interest in Canaccord financial Group (Australia) Pty Ltd. and Canaccord Genuity (Australia) Limited. Together, these entities operate as Canaccord Genuity Australia and the operation’s principal place of business is in Australia. As discussed in Note 22, Canaccord Genuity (Australia) Limited is regulated by the Australian securities and Investments Commission. During fiscal 2014, Canaccord Genuity Australia reported total net income (loss) of $1.3 million [2013 – $(3.9) million]. As at March 31, 2014, accumulated non-controlling interest was $14.9 million [March 31, 2013 – $16.2 million]. summarized financial information including goodwill on acquisition and consolidation adjustments but before inter-company eliminations is presented below. summarized statement of profit or loss for the years ended March 31, 2014 and 2013: for the years ended revenue Expenses Net income (loss) before taxes Income tax expense (recovery) net income (loss) Attributable to: CGGI shareholders Non-controlling interests total comprehensive income (loss) Attributable to: CGGI shareholders Non-controlling interests Dividends paid to non-controlling interests Canaccord Genuity Australia march 31, 2014 March 31, 2013 $ 28,138 $ 26,160 1,978 690 1,288 644 644 308 154 154 660 15,719 21,012 (5,293) (1,382) (3,911) (1,955) (1,956) (3,276) (1,638) (1,638) — CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 89 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs summarized statement of financial position as at March 31, 2014 and 2013: for the years ended Current assets Non-current assets Current liabilities Non-current liabilities summarized cash flow information for the year ended March 31, 2014 and 2013: for the years ended Cash provided (used) by operating activities Cash used by financing activities Cash used by investing activities foreign exchange impact on cash balance net increase (decrease) in cash and cash equivalents note 09 accounts Receivable and accounts payable and accrued liabilities aCCounts ReCeivaBle Brokers and investment dealers Clients rrsP cash balances held in trust Other aCCounts payaBle and aCCRued liaBilities Brokers and investment dealers Clients Other Canaccord Genuity Australia march 31, 2014 March 31, 2013 $ 31,897 $ 32,008 (10,067) (155) 25,982 34,500 (3,834) (2,081) Canaccord Genuity Australia march 31, 2014 March 31, 2013 $ 7,427 $ (2,800) (1,217) (1,550) (125) (110) (250) 375 $ 4,535 $ (2,785) march 31, 2014 March 31, 2013 $ 2,006,183 $ 1,773,043 418,799 259,614 101,302 320,564 327,173 93,178 $ 2,785,898 $ 2,513,958 march 31, 2014 March 31, 2013 $ 1,659,617 $ 1,473,058 965,229 1,016,297 253,087 237,380 $ 2,877,933 $ 2,726,735 Amounts due from and to brokers and investment dealers include balances from resale and repurchase agreements, securities loaned and borrowed, as well as brokers’ and dealers’ counterparty balances. Client security purchases are entered into on either a cash or a margin basis. In the case of a margin account, the Company extends a loan to a client for the purchase of securities, using securities purchased and/or other securities in the client’s account as collateral. Amounts loaned to any client are limited by the margin regulations of the Investment Industry regulatory Organization of Canada (IIrOC) and other regulatory authorities and are subject to the Company’s credit review and daily monitoring procedures. Amounts due from and to clients are due by the settlement date of the trade transaction. Margin loans are due on demand and are collateralized by the assets in the clients’ accounts. Interest on margin loans and on amounts due to clients is based on a floating rate [March 31, 2014 – 6.00% to 6.25% and 0.00% to 0.05%, respectively; March 31, 2013 – 6.00% to 6.25% and 0.00% to 0.05%, respectively]. 90 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs As at March 31, 2014, the allowance for doubtful accounts was $13.2 million [March 31, 2013 – $14.0 million]. see below for the movements in the allowance for doubtful accounts: At March 31, 2013 Charge for the year recoveries Write-offs foreign exchange at march 31, 2014 note 10 investments Available for sale Total $ 13,986 6,208 (6,022) (1,860) 844 $ 13,156 march 31, 2014 March 31, 2013 $ 9,977 $ 3,695 The Company holds an investment in Euroclear, one of the principal clearing houses for securities traded in the Euromarket. During the year ended March 31, 2014, the Company invested $5.0 million in common shares and $0.7 million in debenture and warrant certificates of Canadian first financial Holdings Limited, a private company that has been established as a Canadian retail financial services organization. These investments are carried at fair value, as described in Note 7. note 11 equipment and leasehold improvements march 31, 2014 Computer equipment furniture and equipment Leasehold improvements March 31, 2013 Computer equipment furniture and equipment Leasehold improvements Cost Balance, March 31, 2012 Additions Transfers Disposals foreign exchange Balance, March 31, 2013 Additions Disposals foreign exchange Balance, march 31, 2014 Cost accumulated amortization net book value $ 10,628 $ 3,941 $ 21,494 78,833 14,913 41,126 6,687 6,581 37,707 $ 110,955 $ 59,980 $ 50,975 $ 10,231 $ 3,821 $ 21,073 75,685 15,478 44,711 6,410 5,595 30,974 $ 106,989 $ 64,010 $ 42,979 Computer equipment furniture and equipment Leasehold improvements Total $ 9,840 $ 28,506 $ 68,322 $ 106,668 2,487 1,531 (2,937) (690) 995 (5,818) (2,220) (390) 3,490 4,287 (96) (318) 6,972 — (5,253) (1,398) $ 10,231 $ 21,073 $ 75,685 $ 106,989 2,550 (6,109) 3,956 2,688 (2,771) 504 10,237 (12,706) 5,617 15,475 (21,586) 10,077 $ 10,628 $ 21,494 $ 78,833 $ 110,955 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 91 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs accumulated amortization Balance, March 31, 2012 Additions Impairment Transfers Disposals foreign exchange Balance, March 31, 2013 Additions Disposals foreign exchange Computer equipment furniture and equipment Leasehold improvements Total $ 3,855 $ 16,813 $ 34,916 $ 55,584 2,592 — 1,100 (2,921) (805) 2,592 411 (2,946) (1,054) (338) 8,000 — 1,846 — (51) $ 3,821 $ 15,478 $ 44,711 $ 3,425 (6,037) 2,732 1,674 (2,604) 365 7,104 (11,773) 1,084 13,184 411 — (3,975) (1,194) 64,010 12,203 (20,414) 4,181 Balance, march 31, 2014 $ 3,941 $ 14,913 $ 41,126 $ 59,980 note 12 Business Combinations aCQuisition FoR the yeaR ended maRCh 31, 2014 On July 25, 2013, the Company acquired the remaining 50% ownership of Canaccord Genuity (Hong Kong) Limited (CGHKL) for cash consideration of $0.7 million to now own 100% of CGHKL. The fair value of the net assets acquired approximates the cash consideration. The Company previously already held a 50% beneficial interest in CGHKL through its ownership of Canaccord financial Group (Australia) Pty Ltd. CGHKL is licensed with the securities and futures Commission in Hong Kong. aCQuisitions FoR the yeaR ended maRCh 31, 2013 i. eden Financial ltd. On October 1, 2012, the Company acquired 100% of the wealth management business of Eden financial Ltd., an owner- managed private client investment management business, for purchase consideration of $20.3 million (£12.8 million), of which $12.2 million (£7.7 million) was paid on closing and an estimated $8.1 million (£5.1 million) was payable after 12 months, contingent on achieving certain performance targets related to revenue. The fair value of Eden financial Ltd.’s net tangible assets on acquisition date was $8.0 million. Identifiable intangible assets of $2.9 million were recognized relating to customer relationships [Note 13]. The goodwill of $9.4 million represents the value of expected synergies arising from the acquisition. During the year ended March 31, 2014, the Company paid $9.1 million in contingent consideration, of which $8.9 million was previously accrued. ii. kenosis Capital partners On september 14, 2012, the Company signed an agreement with Kenosis Capital Partners (Kenosis Capital), a merchant bank and advisory group, to acquire certain assets and liabilities for cash consideration of $1.2 million and additional contingent cash consideration based upon the achievement of certain performance criteria. The $6.0 million contingent consideration accrual was reversed during the year ended March 31, 2014 as performance targets were not achieved. The Company recorded goodwill of $7.2 million related to this acquisition. During the year ended March 31, 2014, $6.3 million of the goodwill was impaired [Note 13]. 92 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs note 13 goodwill and other intangible assets Identifiable intangible assets Brand Non- names relationships Technology development competition Customer software under Trading licences Total Goodwill gross amount Balance, March 31, 2012 Addition – Kenosis Capital Addition – Eden financial foreign exchange $ 472,510 $ 46,618 $ 85,251 $ 5,975 $ — $ 14,437 $ 197 $ 152,478 7,182 9,416 (4,422) — — 9 — 2,899 (1,634) — — (204) — — — — — 172 — — 5 — 2,899 (1,652) Balance, March 31, 2013 484,686 46,627 86,516 5,771 — 14,609 202 153,725 Additions foreign exchange — — — — 7,002 36,471 168 10,096 1,128 — — (251) — 7,002 (7) 11,134 Balance, march 31, 2014 521,157 46,795 96,612 6,899 7,002 14,358 195 171,861 accumulated amortization and impairment Balance, March 31, 2012 Amortization foreign exchange Balance, March 31, 2013 Amortization Impairment foreign exchange — — — — — (6,250) (205) (5,039) — (1,471) (8,340) (1,978) (21) 123 55 (1,697) (13,256) (1,923) — — (9,023) (2,469) — — — (168) (1,568) (555) Balance, march 31, 2014 (6,250) (1,865) (23,847) (4,947) — — — — — — — — (3,427) (3,083) (56) (6,566) (3,091) — 105 (9,552) — — — — — — — — (8,671) (14,872) 101 (23,442) (14,583) — (2,186) (40,211) net book value March 31, 2013 march 31, 2014 484,686 44,930 73,260 514,907 44,930 72,765 3,848 1,952 — 7,002 8,043 4,806 202 130,283 195 131,650 The impairment charge of $6.3 million relates to the goodwill acquired in connection with the acquisition of certain assets and liabilities of Kenosis Capital Partners [Note 12]. This goodwill was allocated to the Other foreign Locations cash-generating unit (CGU). In accordance with IAs 36, “Impairment of Assets” (IAs 36), the recoverable amount of the Other foreign Locations CGU’s net assets is determined using the fVLCs calculations, which are based on cash flow assumptions approved by senior management. This valuation is categorized as Level 3 in the fair value hierarchy. The impairment charge has been applied against the reversal of the contingent consideration as discussed in Note 7. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 93 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs impaiRment testing oF goodwill and identiFiaBle intangiBle assets with indeFinite lives The carrying amounts of goodwill and indefinite life intangible assets acquired through business combinations have been allocated to the CGUs as follows: Intangible assets with indefinite lives Goodwill Total march 31, 2014 March 31, 2013 march 31, 2014 March 31, 2013 march 31, 2014 March 31, 2013 Canaccord genuity Canada UK and Europe Us Other foreign Locations (China) Other foreign Locations (Australia) Other foreign Locations (singapore) Canaccord genuity wealth management UK and Europe (Channel Islands) UK and Europe (Eden financial) $ 44,930 $ 44,930 $ 242,074 $ 242,074 $ 287,004 $ 287,004 — — — 195 — — — — — — 202 — — — 95,789 7,942 4,764 22,537 31,539 80,136 7,313 10,365 23,309 29,208 95,789 7,942 4,764 22,732 31,539 80,136 7,313 10,365 23,511 29,208 99,322 10,940 83,138 9,143 99,322 10,940 83,138 9,143 $ 45,125 $ 45,132 $ 514,907 $ 484,686 $ 560,032 $ 529,818 Goodwill and intangible assets with indefinite lives are tested for impairment annually at March 31, and when circumstances indicate the carrying value may potentially be impaired. If any indication of impairment exists, the Company estimates the recoverable amount of the CGU to which goodwill and indefinite life intangible assets are allocated. Where the carrying amount of a CGU exceeds its recoverable amount, an impairment loss is recognized. Any impairment loss first reduces the carrying amount of any goodwill allocated to the CGU and then if any impairment loss remains, the other assets of the unit are reduced on a pro rata basis. Impairment losses relating to goodwill cannot be reversed in future periods. The Company considers the relationship between its market capitalization and the book value of its equity, among other factors, when reviewing for indicators of impairment. Consequently, interim goodwill impairment testing was carried out for all applicable CGUs at June 30, september 30 and December 31, 2013. In accordance with IAs 36, the recoverable amounts of the CGUs’ net assets have been determined using fVLCs calculations, which are based on cash flow assumptions approved by senior management. There is a material degree of uncertainty with respect to the estimates of the recoverable amounts of the CGUs’ net assets given that these estimates involve making key assumptions about the future. In making such assumptions, management has used its best estimate of future economic and market conditions within the context of the Company’s capital markets and wealth management activities. These valuations are categorized as Level 3 in the fair value hierarchy. The fVLCs calculations are based on assumptions, as described above, made in connection with future cash flows, relief of royalties with respect to the brand name indefinite life intangible asset, terminal growth rates and discount rates. In order to estimate the fVLCs for each CGU, cash flows are forecast over a five-year period, a terminal growth rate is applied and then such cash flows are discounted to their present value. The discount rate is based on the specific circumstances of each CGU and is derived from the estimated weighted average cost of capital of the Company. The discount rate utilized for each CGU for the purposes of these calculations was 12.5% in respect of Canada and the UK and Europe [March 31, 2013 – 12.5%], 14.0% in respect of Australia, singapore and the Us [March 31, 2013 – 14.0%], and 20.0% in respect of China [March 31, 2013 – 20.0%]. Cash flow estimates for each CGU are based on management assumptions as described above and utilize compound annual revenue growth rates commencing with the forecast for the next fiscal year ranging from 9.0% to 15.0% [March 31, 2013 – 9.0% to 16.0%] as well as estimates in respect of operating margins. The compound annual revenue growth rates utilized were: (a) Canaccord Genuity (i) Canada – 10.0%, (ii) UK and Europe – 10.0%, (iii) Us – 10.0%, (iv) Other foreign Locations – 12.7% to 15.0%; and (b) Canaccord Genuity Wealth Management, UK and Europe – 9.0%. Management estimates in respect of increases in revenue from fiscal 2014 to the next fiscal year, used as the commencement date for the forecasts referred to above, are in the range of (0.1)% to 23.0% for each CGU except for Other foreign Locations. CGUs in Other foreign Locations are in earlier stages of development and, as such, with fiscal 2014 revenue at relatively low base levels, revenue estimates for the next fiscal year for those CGUs range from 1.1 times to 5.0 times revenue recorded in fiscal 2014. The terminal growth rate used for CGUs located in Canada and the UK and Europe was 3.0% [March 31, 2013, Canada – 3.0%] and for CGUs located in all other locations was 5.0% [March 31, 2013 – 5.0%]. 94 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs At March 31, 2014, there is $44.9 million of intangible assets with indefinite lives allocated to the Canaccord Genuity Canada CGU, which relates to the Genuity brand name. for the March 31, 2014 annual goodwill impairment testing, an estimate of the annual royalty income is included in the five-year discounted cash flows of the Canaccord Genuity Canada CGU using the relief of royalty method, with the corresponding expense allocated to each of the other CGUs in the Canaccord Genuity segment over the same forecast period. The royalty rate has been determined as 2% for all CGUs. sensitivity testing was conducted as part of the March 31, 2014 annual impairment test of goodwill and indefinite life intangible assets. The sensitivity testing includes assessing the impact that reasonably possible declines in growth rates and increases in the discount rate would have on the recoverable amounts of the CGUs, with other assumptions being held constant. The Company’s impairment testing has determined that the recoverable amounts for certain of the Other foreign Locations CGUs (singapore and China) exceed their carrying amounts by $9.2 million and $2.0 million, respectively, and consequently, a reasonably possible decline in the revenue growth rates or increase in the discount rates may result in an impairment charge in respect of the goodwill and indefinite life intangible assets allocated to either of these CGUs. An increase of 2.2 percentage points in the discount rate for singapore (from 14.0% to 16.2%), an increase of 4.3 percentage points in the discount rate for China (from 20.0% to 24.3%), a reduction in the compound annual revenue growth rate of 5.7 percentage points for singapore (from 12.7% to 7.0%), a reduction in the compound annual revenue growth rate of 9.0 percentage points for China (from 15.0% to 6.0%), or a decrease in the revenue estimates for fiscal 2015 used as the starting point for the forecast period would result in the recoverable amount being equal to the carrying value. note 14 income taxes The major components of income tax expense are: Consolidated statements of operations Current income tax expense Current income tax expense Adjustments in respect of prior years Deferred income tax expense (recovery) Origination and reversal of temporary differences Impact of change in tax rates Benefit arising from a previously unrecognized tax loss march 31, 2014 March 31, 2013 $ 6,518 $ 1,752 8,270 4,632 (309) (62) 4,261 9,668 (1,466) 8,202 (12,313) (484) (332) (13,129) Income tax expense (recovery) reported in the statements of operations $ 12,531 $ (4,927) The Company’s income tax expense differs from the amount that would be computed by applying the combined federal and provincial income tax rates as a result of the following: Income (loss) before income taxes Income taxes at the estimated statutory rate of 26.0% (2013: 25.0%) Difference in tax rates in foreign jurisdictions Non-deductible items affecting the determination of taxable income Change in accounting and tax base estimate Change in deferred tax asset – reversal period of temporary difference Tax losses and other temporary differences not recognized (utilization of tax losses previously not recognized) march 31, 2014 March 31, 2013 $ 64,588 $ (23,702) 16,793 1,679 2,957 2,328 (2,882) (8,344) (5,926) (4,705) 1,853 (1,737) (129) 5,717 Income tax expense (recovery) reported in the statements of operations $ 12,531 $ (4,927) CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 95 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs The following were the deferred tax liabilities and assets recognized by the Company and movements thereon during the year: Consolidated statements of financial position Consolidated statements of operations march 31, 2014 March 31, 2013 march 31, 2014 March 31, 2013 Unrealized gain on securities owned $ (1,936) $ (1,676) $ 73 $ Legal provisions Unpaid remunerations Unamortized capital cost of equipment and leasehold improvements over their net book value Unamortized common share purchase loans Loss carryforwards Common and preferred shares issuance costs Long-term incentive plan Other intangible assets Investment in limited partnership Other 1,675 1,936 2,170 3,792 4,531 1,253 15,431 (24,086) — 1,941 2,047 11 1,929 6,010 10,456 1,697 13,510 (25,726) — 1,718 372 (1,615) (68) 2,217 7,024 444 (1,244) (2,720) — (222) 526 (463) 872 (807) (2,648) (886) 557 (4,022) (4,817) (675) (766) $ 6,707 $ 9,976 $ 4,261 $ (13,129) Deferred tax assets and liabilities as reflected in the consolidated statements of financial position are as follows: Deferred tax assets Deferred tax liabilities The movement for the year in the net deferred tax position was as follows: Opening balance as of April 1 march 31, 2014 March 31, 2013 $ $ 9,735 $ 12,552 (3,028) (2,576) 6,707 $ 9,976 march 31, 2014 March 31, 2013 $ 9,976 $ (4,130) Tax (expense) recovery during the period recognized in the consolidated statements of operations (4,261) 13,129 Deferred taxes acquired in business combinations foreign exchange on deferred tax position Amounts recognized through other comprehensive income (loss) Tax recovery during the period recognized in equity Other — 621 47 — 324 324 (417) — 1,215 (145) $ 6,707 $ 9,976 Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and if the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity. Tax loss carryforwards of $14.6 million [2013 – $35.8 million] in the UK and Europe and $nil million [2013 – $3.3 million] in Other foreign Locations (Australia) have been recognized as a deferred tax asset. The losses in both jurisdictions can be carried forward indefinitely. Tax loss carryforwards of $3.1 million [2013 – $2.7 million] in Canada have been recognized as a deferred tax asset and can be carried forward for 20 years. At the balance sheet date, the Company has tax loss carryforwards of approximately $29.1 million [2013 – $42.8 million] for which a deferred tax asset has not been recognized. These losses relate to subsidiaries outside of Canada that have a history of losses and may also be subject to legislative limitations on use and may not be used to offset taxable income elsewhere in the consolidated group of companies. The subsidiaries have no taxable temporary differences or any tax planning opportunities 96 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs available that could partly support the recognition of these losses as deferred tax assets, as the likelihood of future economic benefit is not sufficiently assured. These losses begin expiring in 2029. Other temporary differences not recognized as deferred tax assets in relation to subsidiaries outside of Canada amount to $17.3 million at March 31, 2014 [2013 – $19.6 million]. since the subsidiaries outside of Canada have a history of losses and the deductible temporary differences may not be used to offset taxable income elsewhere in the consolidated group of companies, no asset has been recognized as the likelihood of future economic benefit is not sufficiently assured. note 15 subordinated debt Loan payable, interest payable monthly at prime + 4% per annum, due on demand $ 15,000 $ 15,000 The loan payable is subject to a subordination agreement and may only be repaid with the prior approval of IIrOC. As at March 31, 2014 and 2013, the interest rates for the subordinated debt were 7.0% and 7.0%, respectively. The carrying value of subordinated debt approximates its fair value due to the short term nature of this liability. march 31, 2014 March 31, 2013 note 16 preferred shares march 31, 2014 March 31, 2013 amount number of shares Amount Number of shares series A Preferred shares issued and outstanding $ 110,818 4,540,000 $ 110,818 4,540,000 series C Preferred shares issued and outstanding series C Preferred shares held in treasury 97,450 (2,627) 4,000,000 (106,794) 97,450 4,000,000 (2,627) (106,794) 94,823 3,893,206 94,823 3,893,206 $ 205,641 8,433,206 $ 205,641 8,433,206 [i] seRies a pReFeRRed shaRes The Company issued 4,540,000 Cumulative 5-Year rate reset first Preferred shares, series A (series A Preferred shares) at a purchase price of $25.00 per share for gross proceeds of $113.5 million. The aggregate net amount recognized after deducting issue costs, net of deferred taxes of $1.0 million, was $110.8 million. Quarterly cumulative cash dividends, if declared, will be paid at an annual rate of 5.5% for the initial five-year period ending on september 30, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 3.21%. Holders of series A Preferred shares have the right, at their option, to convert any or all of their shares into an equal number of Cumulative floating rate first Preferred shares, series B (series B Preferred shares), subject to certain conditions, on september 30, 2016 and on september 30 every five years thereafter. Holders of the series B Preferred shares will be entitled to receive floating rate, cumulative, preferential dividends payable quarterly, if declared, at a rate equal to the three-month Government of Canada Treasury Bill yield plus 3.21%. The Company has the option to redeem the series A Preferred shares on september 30, 2016 and on september 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. The series B Preferred shares are redeemable at the Company’s option on september 30, 2021 and on september 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 97 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs [ii] seRies C pReFeRRed shaRes The Company issued 4,000,000 Cumulative 5-Year rate reset first Preferred shares, series C (series C Preferred shares) at a purchase price of $25.00 per share for gross proceeds of $100.0 million. The aggregate net amount recognized after deducting issue costs, net of deferred taxes of $1.0 million, was $97.5 million. Quarterly cumulative cash dividends, if declared, will be paid at an annual rate of 5.75% for the initial five-year period ending on september 30, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 4.03%. Holders of series C Preferred shares have the right, at their option, to convert any or all of their shares into an equal number of Cumulative floating rate first Preferred shares, series D (series D Preferred shares), subject to certain conditions, on June 30, 2017 and on June 30 every five years thereafter. Holders of the series D Preferred shares will be entitled to receive floating rate, cumulative, preferential dividends payable quarterly, if declared, at a rate equal to the three-month Government of Canada Treasury Bill yield plus 4.03%. The Company has the option to redeem the series C Preferred shares on June 30, 2017 and on June 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. The series D Preferred shares are redeemable at the Company’s option on June 30, 2022 and on June 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. note 17 Common shares march 31, 2014 March 31, 2013 amount number of shares Amount Number of shares Issued and fully paid Unvested share purchase loans $ 713,140 101,471,456 $ 717,908 102,896,172 (21,275) (3,576,051) (34,012) (4,872,547) shares repurchased through NCIB for cancellation (250) (45,600) — — Held for the LTIP (38,426) (4,734,446) (45,440) (4,961,829) $ 653,189 93,115,359 $ 638,456 93,061,796 [i] authoRized Unlimited common shares without par value [ii] issued and Fully paid Balance, March 31, 2012 shares issued in connection with the LTIP shares issued in connection with the Corazon Capital Group Limited share Plan shares issued in connection with retention plan shares issued in connection with replacement plans shares cancelled Balance, March 31, 2013 shares issued in connection with the LTIP [note 19] shares issued in connection with retention plan [note 19] shares issued in connection with replacement plans [note 19] shares cancelled Balance, march 31, 2014 Number of shares Amount 101,688,721 $ 705,293 844,766 170,562 109,979 198,872 (116,728) 8,996 1,503 1,402 1,528 (814) 102,896,172 $ 717,908 1,629,285 160,656 526,483 14,511 2,048 4,816 (3,741,140) (26,143) 101,471,456 $ 713,140 In August 2012, the Company filed a notice for a normal course issuer bid (NCIB) to provide for the ability to purchase, at the Company’s discretion, up to 3,000,000 of its common shares through the facilities of the TsX from August 13, 2012 to August 12, 2013. The purpose of the purchase of common shares under the NCIB is to enable the Company to acquire shares for cancellation. The shares that may be repurchased represent 2.93% of the Company’s common shares outstanding at the time of the notice. There were 924,040 shares purchased through the NCIB between August 13, 2012 and August 12, 2013 and cancelled. 98 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs On August 6, 2013, the Company filed a notice to renew the NCIB to provide the Company with the choice to purchase up to a maximum of 5,136,948 of its common shares during the period from August 13, 2013 to August 12, 2014 through the facilities of the TsX and on alternative trading systems, in accordance with the requirements of the TsX. The maximum number of shares that may be purchased through the NCIB represent 5.0% of the Company’s outstanding common shares at the time of the notice. There were 2,370,104 shares purchased through the NCIB between August 13, 2013 and March 31, 2014, of which 45,600 shares were held in treasury until subsequently cancelled on April 30, 2014. [iii] FoRgivaBle Common shaRe puRChase loans The Company provides forgivable common share purchase loans to employees in order to purchase common shares. The unvested balance of forgivable common share purchase loans is presented as a deduction from share capital. The forgivable common share purchase loans are amortized over the vesting period. The difference between the unvested and unamortized values is included in contributed surplus. [iv] eaRnings (loss) peR Common shaRe for the years ended Basic earnings (loss) per common share Net earnings (loss) attributable to CGGI shareholders Preferred shares dividends Net earnings (loss) attributable to common shareholders Weighted average number of common shares (number) Basic earnings (loss) per share diluted earnings (loss) per common share Net earnings (loss) attributable to common shareholders Weighted average number of common shares (number) Dilutive effect in connection with LTIP (number) Dilutive effect in connection with other share-based payment plans (number) Adjusted weighted average number of common shares (number) march 31, 2014 March 31, 2013 $ 51,413 $ (16,819) (11,762) 39,651 (11,720) (28,539) 94,124,672 92,217,726 $ 0.42 $ (0.31) 39,651 (28,539) 94,124,672 5,260,323 2,607,684 101,992,679 n/a n/a n/a n/a Diluted earnings (loss) per common share $ 0.39 $ (0.31) for the year ended March 31, 2014, the instruments that could potentially dilute earnings per share, but are currently anti-dilutive, are not significant. for the year ended March 31, 2013, all instruments involving potential common shares were excluded from the calculation of diluted earnings per share as they were anti-dilutive. There have been no other transactions involving common shares or potential common shares between the reporting date and the date of authorization of these financial statements which would have a significant impact on earnings per share. note 18 dividends Common shaRes dividends The Company declared the following common shares dividends during the year ended March 31, 2014: record date May 31, 2013 August 30, 2013 November 22, 2013 february 21, 2014 Payment date June 10, 2013 september 10, 2013 December 10, 2013 March 10, 2014 Cash dividend per common share Total common dividend amount $ $ $ $ 0.05 0.05 0.05 0.05 $ $ $ $ 5,177 5,132 5,130 4,988 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 99 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs On June 3, 2014, the Board of Directors approved a cash dividend of $0.05 per common share payable on July 2, 2014 to common shareholders of record as at June 20, 2014 [Note 26]. pReFeRRed shaRes dividends record date June 21, 2013 september 13, 2013 December 20, 2013 March 14, 2014 Payment date July 2, 2013 september 30, 2013 December 31, 2013 March 31, 2014 Cash dividend per series A Preferred share Cash dividend per series C Preferred share Total preferred dividend amount $ $ $ $ 0.34375 0.34375 0.34375 0.34375 $ 0.359375 $ 0.359375 $ 0.359375 $ 0.359375 $ $ $ $ 2,998 2,998 2,998 2,998 On June 3, 2014, the Board also approved a cash dividend of $0.34375 per series A Preferred share payable on June 30, 2014 to series A Preferred shareholders of record as at June 13, 2014 [Note 26]. On June 3, 2014, the Board also approved a cash dividend of $0.359375 per series C Preferred share payable on June 30, 2014 to series C Preferred shareholders of record as at June 13, 2014 [Note 26]. note 19 share-Based payment plans [i] long-teRm inCentive plan Under the LTIP, eligible participants are awarded restricted share units (rsUs), which generally vest over three years. for employees in Canada, an employee benefit trust (the Trust) has been established and either (a) the Company will fund the Trust with cash, which will be used by the trustee to purchase on the open market common shares of the Company that will be held in trust by the trustee until the rsUs vest or (b) the Company will issue common shares from treasury to participants following vesting of the rsUs. for employees in the Us and the UK, the Company will allot common shares at the time of each rsU award, and these shares will be issued from treasury at the time they vest for each participant. There were 5,870,844 rsUs [year ended March 31, 2013 – 5,396,103 rsUs] granted in lieu of cash compensation to employees during the year ended March 31, 2014. The Trust purchased 1,797,069 common shares [year ended March 31, 2013 – 2,408,168 common shares] for the year ended March 31, 2014. The fair value of the rsUs at the measurement date is based on the volume weighted average price at the grant date and is amortized on a graded basis over the vesting period of three years. The weighted average fair value of rsUs granted during the year ended March 31, 2014 was $6.18 [year ended March 31, 2013 – $6.20]. Awards outstanding, March 31, 2013 Grants Vested forfeited awards outstanding, march 31, 2014 Common shares held by the Trust, March 31, 2013 Acquired released on vesting Common shares held by the trust, march 31, 2014 Number 9,128,169 5,870,844 (3,666,660) (749,110) 10,583,243 Number 4,961,829 1,797,069 (2,024,452) 4,734,446 [ii] FoRgivaBle Common shaRe puRChase loans The Company provides loans to certain employees for the purpose of partially funding the purchase of shares of the Company and increasing share ownership by the employees. These loans are equity-settled transactions that are generally forgiven over a three- to five-year period from the initial advance of the loan or at the end of that three- to five-year period [Note 17 [iii]]. Certain forgivable common share purchase loans vest based on performance conditions. 100 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs [iii] ReplaCement plans As a result of the acquisition of CsHP, the following share-based payment plans were introduced to replace the share-based payment plans that existed at CsHP at the acquisition date: Canaccord genuity group inc. Collins stewart hawkpoint Replacement annual Bonus equity deferral (aBed) plan On March 21, 2012, the Company introduced the replacement ABED Plan, which replaced the ABED plans that existed at CsHP as of the acquisition date. Eligible employees who participated in the CsHP ABED plans were granted awards under the replacement ABED Plan. The shares granted vest between one and three years from the acquisition date of CsHP. In accordance with Ifrs 3, “Business Combinations” (Ifrs 3), a portion of the awards granted was included as part of the purchase consideration for the acquisition of CsHP and a portion is being deferred and amortized to incentive compensation expense over the vesting period. Awards outstanding, March 31, 2013 Vested forfeited awards outstanding, march 31, 2014 Number 466,645 (349,200) (18,214) 99,231 Canaccord genuity group inc. Collins stewart hawkpoint Replacement long-term incentive plan award On March 21, 2012, the Company introduced the replacement LTIP, which replaced the existing LTIPs at CsHP on the acquisition date. Eligible employees who participated in the CsHP LTIPs were granted awards under the replacement LTIP. The shares granted vest annually on a graded basis over a three-year period. In accordance with Ifrs 3, a portion of awards granted was included as part of the purchase consideration for the acquisition of CsHP and a portion is being deferred and amortized to incentive compensation expense over the vesting period. Awards outstanding, March 31, 2013 Vested forfeited awards outstanding, march 31, 2014 Corazon Capital group limited share plan Number 711,700 (177,283) (37,421) 496,996 In connection with the acquisition of CsHP, the Company assumed the outstanding obligation under the Corazon Capital Group Limited share Plan (the Corazon share Plan). The Corazon share Plan was entered into by CsHP in relation to its acquisition of Corazon Capital Group Limited, an independent, Guernsey-based investment management firm. The obligation was paid by the issuance of 170,562 Canaccord common shares, which vested in March 2013, and cash consideration of $2.2 million (£1.4 million). In accordance with Ifrs 3, a portion of the awards granted was included as part of the purchase consideration for the acquisition of CsHP and a portion is being deferred and amortized to incentive compensation expense over the vesting period. As the awards vested in March 2013, the entire award not accounted for as purchase consideration has been expensed. The cash consideration was included as part of the determination of the fair value of CsHP’s net assets when calculating the purchase price allocation. [iv] Csh induCement plan In connection with the acquisition of CsHP, the Company agreed to establish a retention plan for key CsHP staff. In september 2012, the Company finalized the terms of this plan and communicated the plan arrangements to the relevant employees. During the year ended March 31, 2013, the Company awarded 2,418,861 rsUs, which vest over a five-year period. In accordance with the plan, one-third of the total rsUs (806,302 rsUs) will vest on the third anniversary under the terms of the existing LTIP. The remaining two-thirds of the total rsUs (1,612,559 rsUs) will vest under the terms of the new CsH Inducement Plan, with one-half of the 1,612,559 rsUs vesting on the fourth anniversary and the remaining half on the fifth anniversary. During the year ended March 31, 2014, 106,535 rsUs were forfeited [March 31, 2013 – 24,686]. The total number of shares outstanding under the CsH Inducement Plan at March 31, 2014 was 2,175,737 [March 31, 2013 – 2,323,859], of which 725,257 [March 31, 2013 – 774,633] are included in the existing LTIP disclosed above. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 101 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs On each vesting date, the rsUs entitle the awardee to receive cash or common shares of the Company. If at the vesting date the share price is less than $8.50 per share, then the Company, at its election, will either (a) pay cash to the employee equal to $8.50 multiplied by the number of rsUs vesting on such date, or (b) pay cash to the employee equal to the difference between $8.50 and the vesting date share price, multiplied by the number of rsUs vesting on that date plus that number of shares equal to the number of rsUs vesting on such date. If the share price is greater than $8.50, then the Company will settle the rsUs in common shares. The awards under this plan require either full or partial cash settlement if the share price at vesting is less than $8.50 per share. To the extent that it is considered probable that cash settlement will be required, a portion of these awards is treated as cash settled, and recorded on the statements of financial position as a liability. The carrying amount of the liability at March 31, 2014 was $0.3 million [March 31, 2013 – $0.7 million]. The fair value of the rsUs at the grant date was $8.50, for a total plan value of $20.2 million, which is being amortized on a graded basis. [v] shaRe options The Company grants share options to purchase common shares of the Company to directors and senior management. share options to independent directors vest over a four-year period and expire seven years after the grant date or 30 days after the participant ceases to be a director. share options to senior management vest over a five-year period and expire on the earliest of: (a) seven years from the grant date; (b) three years after death or any other event of termination of employment; (c) after any unvested optioned shares held by the optionee are cancelled for any reason (other than early retirement but including resignation without entering into a formal exit agreement and termination for cause); and (d) in the case of early retirement, after a determination that the optionee has competed with the Company or violated any non-competition, non-solicitation or non-disclosure obligations. The exercise price is based on the fair market value of the common shares at grant date. The following is a summary of the Company’s share options as at March 31, 2014 and changes during the period then ended: Balance, March 31, 2013 Granted Expired forfeited Balance, march 31, 2014 Number of options Weighted average exercise price 2,384,910 $ — (115,642) (309,636) 1,959,632 $ 9.84 — 23.13 9.47 9.23 The following table summarizes the share options outstanding as at March 31, 2014: range of exercise price $7.21–$9.48 Options outstanding Options exercisable Number of common shares Weighted average remaining contractual life Weighted average exercise price Number of options exercisable Weighted average exercise price 1,959,632 2.39 $ 9.23 1,959,632 $ 9.23 Option pricing models require the input of highly subjective assumptions including the expected price volatility. Volatility is based on the historical trend of the share prices of the Company. Changes in the subjective assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s share options. 102 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs [vi] deFeRRed shaRe units Beginning April 1, 2011, the Company adopted a DsU plan for its independent directors. Independent directors must elect annually as to how they wish their directors’ fees to be paid and can specify the allocation of their directors’ fees between DsUs and cash. When a director leaves the Board of Directors, outstanding DsUs are paid out in cash, with the amount equal to the number of DsUs granted multiplied by the closing share price as of the end of the fiscal quarter immediately following such terminations. Under the plan, the directors are not entitled to receive any common shares in the Company, and under no circumstances will DsUs confer on any participant any of the rights or privileges of a holder of common shares. During the year ended March 31, 2014, the Company granted 54,332 DsUs [2013 – 50,839 DsUs]. The carrying amount of the liability relating to DsUs at March 31, 2014 was $1.1 million [2013 – $0.5 million]. [vii] shaRe-Based Compensation expense for the years ended Long-term incentive plan forgivable common share purchase loans replacement plans CsH Inducement Plan share options Deferred share units Other Accelerated share-based payment expense included as restructuring expense march 31, 2014 March 31, 2013 $ 28,806 $ 10,249 3,483 5,719 750 187 1,712 1,457 31,820 14,286 6,978 2,893 1,345 (4) 1,107 1,934 Total share-based compensation expense $ 52,363 $ 60,359 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 103 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs note 20 Related party transactions [i] Consolidated suBsidiaRies The financial statements include the financial statements of the Company and the Company’s principal trading subsidiaries and principal intermediate holding companies listed in the following table: % equity interest Country of incorporation March 31, 2014 March 31, 2013 Canaccord Genuity Corp. Canaccord Genuity sAs Canaccord Genuity Wealth (International) Limited Canada france Guernsey Canaccord Genuity financial Planning Limited (formerly Canaccord Genuity 360 Limited) United Kingdom Canaccord Genuity Investment Management Limited Canaccord Genuity Wealth Limited Canaccord Genuity financial Advisors Limited Canaccord Genuity Wealth Group Limited Canaccord Genuity Limited Canaccord Genuity Inc. Canaccord Genuity Wealth Management (UsA) Inc. Canaccord Estate Planning services Ltd. Canaccord Asset Management Inc. Canaccord Adams financial Group Inc. Collins stewart Inc. Canaccord Adams (Delaware) Inc. Canaccord Adams financial Group ULC Canaccord Genuity securities LLC stockwave Equities Ltd. CLD financial Opportunities Limited Canaccord Genuity singapore Pte Ltd. Canaccord Genuity (Hong Kong) Limited Canaccord financial Group (Australia) Pty Ltd. Canaccord Genuity (Australia) Limited United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United states United states Canada Canada United states United states United states Canada United states Canada Canada singapore China (Hong Kong sAr) Australia Australia 加通贝祥（北京）投资顾问有限公司 (the English name “Canaccord Genuity Asia Limited” is used but it has no legal effect in the People’s republic of China; the English name formerly used was Beijing Parkview Balloch Investment Advisory Co., Limited) (to be renamed Canaccord Genuity Asia (Beijing) Limited) The Balloch Group Limited Canaccord Genuity Asia (Hong Kong) Limited China British Virgin Islands China (Hong Kong sAr) Canaccord Genuity (Barbados) Ltd. (formerly Canaccord International Ltd.) Barbados 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% n/a n/a n/a 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 50% 100% 100% 100% 100% [ii] Compensation oF key management peRsonnel oF the Company Disclosed in the table below are the amounts recognized as expenses related to individuals who are key management personnel as at March 31, 2014 and 2013: short term employee benefits share-based payments total compensation paid to key management personnel 104 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT march 31, 2014 March 31, 2013 $ 16,790 $ 2,001 5,922 1,823 $ 18,791 $ 7,745 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs [iii] otheR tRansaCtions with key management peRsonnel Accounts payable and accrued liabilities include the following balances with key management personnel: Accounts payable and accrued liabilities march 31, 2014 March 31, 2013 $ 4,769 $ 1,206 [iv] teRms and Conditions oF tRansaCtions with Related paRties security trades executed by the Company for officers and directors are transacted in accordance with the terms and conditions applicable to all clients. Commission income on such transactions in the aggregate is not material in relation to the overall operations of the Company. note 21 segmented information The Company operates in two industry segments as follows: Canaccord Genuity – includes investment banking, research and trading activities on behalf of corporate, institutional and government clients as well as principal trading activities in Canada, the UK and Europe, and the Us. Operations located in Other foreign Locations under Canaccord Genuity (Barbados) Ltd. (formerly Canaccord International Ltd.), Canaccord Genuity Asia and the 50% interest in Canaccord Genuity Australia are also included in Canaccord Genuity. Canaccord Genuity Wealth Management – provides brokerage services and investment advice to retail or institutional clients in Canada, the Us, and the UK and Europe. Corporate and Other includes correspondent brokerage services, interest and foreign exchange revenue and expenses not specifically allocable to Canaccord Genuity or Canaccord Genuity Wealth Management. The Company’s industry segments are managed separately because each business offers different services and requires different personnel and marketing strategies. The Company evaluates the performance of each business based on operating results, without regard to non-controlling interests. The Company does not allocate total assets, liabilities or equipment and leasehold improvements to the segments. Amortization of tangible assets is allocated to the segments based on the square footage occupied. Amortization of identifiable intangible assets is allocated to the Canaccord Genuity segment, as it relates to the acquisitions of Genuity and the 50% interest in Canaccord Genuity Australia. Amortization of the identifiable intangible assets acquired through the purchase of CsHP is allocated to Canaccord Genuity and Canaccord Genuity Wealth Management segments in the UK and Europe (Channel Islands). Amortization of identifiable intangible assets acquired through the acquisition of Eden financial Ltd. is allocated to Canaccord Genuity Wealth Management segments in the UK and Europe (Eden financial Ltd.). Income taxes are managed on a Company basis and are not allocated to operating segments. All revenue and operating profit is derived from external customers. The Company also does not allocate cash flows by reportable segments. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 105 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs for the years ended march 31, 2014 March 31, 2013 Canaccord genuity wealth genuity management Canaccord Corporate and other total Canaccord Genuity Wealth Genuity Management Canaccord Corporate and Other Total revenues, excluding interest revenue $ 606,150 $ 214,143 $ 10,402 $ 830,695 $ 531,051 $ 219,510 $ 17,362 $ 767,923 Interest revenue Expenses, excluding undernoted Amortization Development costs Interest expense Acquisition-related costs restructuring costs Income (loss) before income taxes and 9,640 9,893 5,016 24,549 9,982 12,102 7,115 29,199 488,670 185,978 46,008 720,656 475,988 187,919 54,974 718,881 14,858 9,682 14,166 — 5,486 10,146 10,080 502 — — 1,782 1,607 1,691 — — 26,786 21,369 21,074 7,945 16,359 13,200 — 388 10,735 9,593 296 1,331 5,486 15,232 15,485 1,970 1,988 33,779 19,526 1,806 15,302 — 900 1,719 31,617 intersegment allocations 82,928 17,330 (35,670) 64,588 7,206 6,253 (37,161) (23,702) Less: Intersegment allocations Income (loss) before 8,537 24,719 (33,256) — 3,566 42,231 (45,797) — income taxes $ 74,391 $ (7,389) $ (2,414) $ 64,588 $ 3,640 $ (35,978) $ 8,636 $ (23,702) for geographic reporting purposes, the Company’s business operations are grouped into Canada, the UK and Europe, the United states, and Other foreign Locations. The following table presents the revenue of the Company by geographic location: for the years ended Canada United Kingdom and Europe United states Other foreign Locations march 31, 2014 March 31, 2013 $ 273,276 $ 366,439 325,353 218,131 38,484 249,811 155,585 25,287 $ 855,244 $ 797,122 The following table presents selected figures pertaining to the financial position of each geographic location: Canada UK and Europe United states Other foreign Locations Total as at march 31, 2014 Equipment and leasehold improvements $ 20,435 $ 18,240 $ 9,500 $ 2,800 $ 50,975 Goodwill Intangible assets Non-current assets as at march 31, 2013 Equipment and leasehold improvements Goodwill Intangible assets Non-current assets 242,074 62,763 325,272 21,172 242,074 66,483 329,729 206,051 60,165 284,456 9,757 172,417 51,473 233,647 7,942 78 17,520 9,751 7,313 47 17,111 58,840 8,644 70,284 2,299 62,882 12,280 77,461 514,907 131,650 697,532 42,979 484,686 130,283 657,948 106 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs note 22 Capital management The Company’s business requires capital for operating and regulatory purposes, including funding current and future operations. The Company’s capital structure is underpinned by shareholders’ equity, which is comprised of preferred shares, common shares, contributed surplus, retained earnings and accumulated other comprehensive income (loss), and is further complemented by the subordinated debt. The following table summarizes our capital as at March 31, 2014 and 2013: Type of capital Preferred shares Common shares Contributed surplus retained earnings Accumulated other comprehensive income (loss) shareholders’ equity subordinated debt march 31, 2014 March 31, 2013 $ 205,641 $ 205,641 653,189 74,037 144,799 91,014 638,456 85,981 126,203 (7,118) 1,168,680 1,049,163 15,000 15,000 $ 1,183,680 $ 1,064,163 The Company’s capital management framework is designed to maintain the level of capital that will: • Meet the Company’s regulated subsidiaries’ target ratios as set out by the respective regulators • Fund current and future operations • Ensure that the Company is able to meet its financial obligations as they become due • Support the creation of shareholder value The following subsidiaries are subject to regulatory capital requirements in the respective jurisdictions by the listed regulators: • Canaccord Genuity Corp. is subject to regulation in Canada primarily by IIROC • Canaccord Genuity Limited, Canaccord Genuity Wealth Limited, and Canaccord Genuity Financial Planning Limited are regulated in the UK by the financial Conduct Authority • Canaccord Genuity Wealth (International) Limited is licensed and regulated by the Guernsey Financial Services Commission, the Isle of Man financial supervision Commission and the Jersey financial services Commission • Canaccord Genuity Singapore Pte Ltd. is subject to regulation by the Monetary Authority of Singapore • Canaccord Genuity (Australia) Limited is regulated by the Australian Securities and Investments Commission • Canaccord Genuity (Hong Kong) Limited is regulated in Hong Kong by the Securities and Futures Commission • Canaccord Genuity Inc. is registered as a broker dealer in the US and is subject to regulation primarily by the Financial Industry regulatory Authority, Inc. • Canaccord Genuity Wealth Management (USA) Inc. is registered as a broker dealer in the US and is subject to regulation primarily by the financial Industry regulatory Authority, Inc. • Canaccord Asset Management Inc. is subject to regulation in Canada by the Ontario Securities Commission Margin requirements in respect of outstanding trades, underwriting deal requirements and/or working capital requirements cause regulatory capital requirements to fluctuate on a daily basis. Compliance with these requirements may require the Company to keep sufficient cash and other liquid assets on hand to maintain regulatory capital requirements rather than using these liquid assets in connection with its business or paying them out in the form of cash disbursements. some of the subsidiaries are also subject to regulations relating to withdrawal of capital, including payment of dividends to the Company. There were no significant changes in the Company’s capital management policy during the current year. The Company’s subsidiaries were in compliance with all of the minimum regulatory capital requirements during the year ended March 31, 2014. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 107 NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs note 23 Client money At March 31, 2014, the UK and Europe operations held client money in segregated accounts of $1,707.5 million (£926.7 million) [2013 – $1,606.2 million; £1,042.0 million]. This is comprised of $10.1 million (£5.5 million) [2013 – $2.3 million; £1.5 million] of balances held on behalf of clients to settle outstanding trades and $1,697.4 million (£921.2 million) [2013 – $1,603.9 million; £1,040.5 million] of segregated deposits, held on behalf of clients, which are not reflected on the consolidated statements of financial position. Movement in settlement balances is reflected in operating cash flows. note 24 provisions and Contingencies pRovisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, when it is probable that an outflow of resources will be required to settle the obligation and when a reliable estimate of the amount can be made. At each reporting date, the Company assesses the adequacy of its pre-existing provisions and adjusts the amounts as necessary. The following is a summary of the changes during the years ended March 31, 2014 and 2013: Legal provisions restructuring provisions Total provisions Balance, March 31, 2012 $ 12,943 $ 26,723 $ Additions Utilized recoveries Balance, March 31, 2013 Additions Utilized recoveries Balance, march 31, 2014 5,356 (5,515) (2,605) 31,617 (48,464) — 39,666 36,973 (53,979) (2,605) $ 10,179 $ 9,876 $ 20,055 3,314 (5,891) (190) 5,486 (12,440) — 8,800 (18,331) (190) $ 7,412 $ 2,922 $ 10,334 During the year ended March 31, 2014, the Company incurred $5.5 million in restructuring costs in connection with the reorganization of the sales and trading operations in Canada and the UK and Europe as well as certain office closure costs. The restructuring provisions at March 31, 2014 relate primarily to termination benefits, onerous leases and related asset impairments incurred as part of the Company’s reorganization. It is expected that the restructuring provisions at March 31, 2014 will be mostly utilized during the year ended March 31, 2015. Commitments, litigation proceedings and contingent liabilities In the normal course of business as an investment dealer, the Company is involved in litigation, and as of March 31, 2014, it was a defendant in various legal actions. The Company has established provisions for matters where payments are probable and can be reasonably estimated. While the outcome of these actions is subject to future resolution, management’s evaluation and analysis of these actions indicate that, individually and in the aggregate, the probable ultimate resolution of these actions will not have a material effect on the financial position of the Company. The amounts claimed in respect of two actions are material and, accordingly, these actions are described below. In 2002, two actions were commenced in the Superior Court of Québec against Canaccord Genuity Corp. and other defendants including another investment dealer. Both are class action proceedings in which the plaintiffs make allegations of certain wrongful trading and disclosure practices by the Company and another defendant and that the Company was negligent in respect of a private placement in 2000. These actions are set for trial starting in september 2014. Canaccord intends to vigorously defend itself against these claims. The outcome of these actions cannot be predicted with certainty. An adverse outcome in respect of these actions could have a material adverse effect on the Company’s financial position. The Company is also subject to asserted and unasserted claims arising in the normal course of business which, as of March 31, 2014, have not resulted in the commencement of legal actions. The Company cannot determine the effect of all asserted and unasserted claims on its financial position; however, to the extent possible, where losses arising from asserted and unasserted claims are considered probable and where such losses can be reasonably estimated, the Company has recorded a provision. 108 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT NOTEs TO CONsOLIDATED fINANCIAL sTATEMENTs Certain claims have been asserted against the Company in respect of the sale of certain conventional wealth management products in the UK which could be material if the Company’s assumptions used to evaluate the matter as neither probable nor estimable change in future periods. In that event, the Company may be required to record a provision for an adverse outcome which could have a material adverse effect on the Company’s financial position. note 25 Commitments subsidiaries of the Company are committed to approximate minimum lease payments for premises and equipment over the next five years and thereafter as follows: 2015 2016 2017 2018 2019 Thereafter $ 33,896 31,595 26,825 23,363 18,307 65,965 $ 199,951 some leases include extension options and provide for stepped rents, which mainly relate to lease of office space. Certain subsidiaries of the Company have agreed to sublease agreements, and the approximate minimum lease receipts for premises and equipment over the next five years and thereafter are as follows: 2015 2016 2017 2018 2019 Thereafter note 26 subsequent event dividends $ 3,461 2,646 1,107 1,107 829 4,254 $ 13,404 On June 3, 2014, the Board of Directors approved the following cash dividends: $0.05 per common share payable on July 2, 2014 to common shareholders with a record date of June 20, 2014; $0.34375 per series A Preferred share payable on June 30, 2014 with a record date of June 13, 2014; and $0.359375 per series C Preferred share payable on June 30, 2014 with a record date of June 13, 2014. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 109 supplemental information Advisory note: This supplemental information is not audited and should be read in conjunction with the audited financial statements contained herein. The Company adopted Ifrs beginning April 1, 2011. figures for the period ended March 31, 2010 are in accordance with CGAAP. Financial highlights(1) (C$ thousands, except for AUM, AUA, common and preferred share information, financial measures and percentages) Financial results revenue Expenses Income taxes Net income (loss) Net income (loss) attributable to CGGI shareholders Net income (loss) attributable to common shareholders Business segment Income (loss) before income taxes Canaccord Genuity(2) Canaccord Genuity Wealth Management Corporate and Other geographic segment Income (loss) before income taxes Canada(3) UK and Europe(4) Us(5) Other foreign Locations(6) Client assets information ($ millions) AUM – Canada (discretionary) AUA – Canada AUM – UK and Europe AUM – Australia Total Common share information Per common share ($) Basic earnings (loss) Diluted earnings (loss) Book value per diluted common share(7) Common share price ($) High Low Close Common shares outstanding (thousands) Issued shares excluding unvested shares Issued and outstanding Diluted shares Average basic Average diluted Market capitalization (thousands) preferred share information (thousands) shares issued and outstanding Financial measures Dividends per common share Common dividend yield (closing common share price) Common dividend payout ratio Total shareholder return(8) rOE(9) Price to earnings multiple(10) Price to book ratio(11) $ $ $ $ $ $ $ 2014 iFRs 855,244 790,656 12,531 52,057 51,413 $ for the years ended and as at March 31 2013 Ifrs 797,122 820,824 (4,927) (18,775) (16,819) $ 2012 Ifrs 604,864 620,983 5,227 (21,346) (20,307) $ 2011 Ifrs 803,631 661,159 42,729 99,743 99,743 $ 2010 CGAAP 577,537 525,896 13,144 38,497 38,497 39,651 (28,539) (25,122) 99,743 38,497 $ 74,391 (7,389) (2,414) $ 3,640 (35,978) 8,636 (13,534) (912) (1,673) $ $ $ $ $ 136,659 12,132 (6,319) 111,905 14,129 16,755 (317) 546 16,985 — — 16,985 1.37 1.22 8.79 16.41 7.95 14.00 $ $ $ $ 39,439 (41,202) (7,533) (6,823) 677 14,828 13,087 — 27,915 (0.33) (0.33) 8.26 15.31 6.94 8.30 94,026 101,689 106,883 76,715 n/a 887,131 75,404 82,810 85,655 72,990 81,717 1,199,170 4,206 (9,709) (8,881) (9,318) 835 10,429 15,936 451 26,816 (0.31) (0.31) 7.68 8.30 4.03 6.82 93,062 102,896 109,880 92,218 n/a 749,380 8,540 4,540 $ 0.20 2.9% (71.8)% (15.4)% (3.3)% (22.0) 0.9 $ 0.40 4.8% (139.9)% (37.9)% (3.1)% (24.4) 1.0 — 0.275 2.0% 22.8% 28.6% 14.2% 11.8 1.6 $ $ $ $ $ $ 61,389 (7,999) (1,749) 30,036 9,533 8,631 3,441 445 12,922 — — 12,922 0.79 0.69 6.96 11.87 5.30 11.10 48,868 55,571 57,767 48,698 55,662 640,259 — 0.15 0.3% 22.4% 108.3% 9.8% 16.1 1.6 $ $ $ $ $ (8,572) 47,431 27,320 (1,591) 1,204 10,160 20,156 555 30,871 0.42 0.39 9.05 8.45 5.05 8.20 93,115 101,471 107,937 94,125 101,993 885,087 8,540 0.20 2.4% 51.6% 23.2% 4.4% 21.0 0.9 (1) (2) (3) (4) Certain non-Ifrs measures are utilized by the Company as measures of financial performance. Non-Ifrs measures do not have any standardized meaning prescribed by Ifrs and are therefore unlikely to be comparable to similar measures presented by other companies. Non-Ifrs measures included are: return on average common equity (rOE), book value per diluted common share, common dividend yield, common dividend payout ratio, total shareholder return, price to earnings multiple (P/E), price to book ratio (P/B), assets under management (AUM) and assets under administration (AUA). Includes the capital markets division in Canada, the UK and Europe, the Us, Australia, China, Barbados and singapore. Canaccord’s Canada geographic segment includes operations for Canaccord Genuity, Canaccord Genuity Wealth Management and Corporate and Other business segments. Canaccord’s UK and Europe geographic segment engages in capital markets and wealth management activities. results of former CsHP entities located in the UK and Europe since March 22, 2012 and the wealth management operations of Eden financial Ltd. since October 1, 2012 are also included. (5) Canaccord’s Us geographic segment includes Us capital markets and wealth management operations. results of former CsHP entities located in the Us are included since March 22, 2012. (6) revenue derived from capital markets activity outside of Canada, the Us and the UK and Europe is reported as Other foreign Locations, which includes operations in Australia, China, Barbados and singapore. results of Australian operations are included since November 1, 2011, and singaporean operations are included since March 22, 2012. Book value per diluted common share, a non-Ifrs measure, is calculated as total shareholders’ equity divided by the number of diluted common shares outstanding and, commencing in fiscal 2014, adjusted for shares purchased under the normal course issuer bid and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. Total shareholder return is calculated as the change in share price plus dividends paid to common shares and special distributions paid in the current period as a percentage of the prior period’s closing common share price, assuming reinvestment of all dividends. rOE is calculated by dividing the annual net income attributable to common shareholders over the average common shareholders’ equity. (7) (8) (9) (10) The price to earnings multiple is calculated based on the end of period share price and 12-month trailing diluted EPs. (11) The price to book ratio is calculated based on the end of period common share price and book value per diluted common share. 110 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT sUPPLEMENTAL INfOrMATION Condensed Consolidated statements of operations and Retained earnings(1) (C$ thousands, except per share amounts and percentages) Revenue Commissions and fees Investment banking Advisory fees Principal trading Interest Other expenses Incentive compensation(2) salaries and benefits Trading costs Premises and equipment Communication and technology Interest General and administrative Amortization Development costs restructuring costs Acquisition-related costs Income (loss) before income taxes Income taxes net income (loss) for the year Non-controlling interests Net income (loss) attributable to CGGI shareholders retained earnings, beginning of year Opening Ifrs adjustments Common shares dividends Preferred shares dividends $ $ for the years ended March 31 2014 iFRs 361,647 221,410 139,142 91,313 24,549 17,183 855,244 413,289 91,135 47,872 38,461 46,065 16,359 83,834 26,786 21,369 5,486 — 790,656 64,588 12,531 52,057 644 51,413 126,203 — (21,055) (11,762) $ $ 2013 Ifrs 353,125 145,772 179,690 66,406 29,199 22,930 797,122 406,724 88,522 43,892 41,124 49,115 15,302 89,504 33,779 19,526 31,617 1,719 820,824 (23,702) (4,927) (18,775) (1,956) (16,819) 180,748 — (26,006) (11,720) $ $ $ $ 2012 Ifrs 252,877 175,225 107,370 10,647 31,799 26,946 604,864 304,908 63,924 30,313 27,546 28,343 9,816 69,523 14,108 21,193 35,253 16,056 620,983 (16,119) 5,227 (21,346) (1,039) (20,307) 238,647 — (32,778) (4,814) 2011 Ifrs 294,650 327,499 84,914 43,644 24,040 28,884 803,631 389,046 64,420 31,507 27,158 25,466 7,811 67,882 12,742 22,387 — 12,740 661,159 142,472 42,729 99,743 — 99,743 194,007 (35,869) (19,234) — $ $ 2010 CGAAP 235,606 215,237 39,200 45,982 12,965 28,547 577,537 299,084 59,415 28,884 24,402 21,868 2,581 52,153 7,609 24,900 — 5,000 525,896 51,641 13,144 38,497 — 38,497 160,868 — (5,358) — Retained earnings, end of year $ 144,799 $ 126,203 $ 180,748 $ 238,647 $ 194,007 Incentive compensation expenses as a % of revenue Total compensation expenses as a % of revenue(3) Non-compensation expenses as a % of revenue Total expenses as a % of revenue Pre-tax profit margin Effective tax rate Net profit margin Basic earnings (loss) per share Diluted earnings (loss) per share Book value per diluted common share(4) supplemental segmented revenue information Canaccord Genuity Canaccord Genuity Wealth Management Corporate and Other 48.3% 59.0% 33.6% 92.4% 7.6% 19.4% 6.1% 0.42 0.39 9.05 615,790 224,036 15,418 51.0% 62.1% 40.8% 103.0% (3.0)% 20.8% (2.4)% (0.31) (0.31) 7.68 541,033 231,612 24,477 $ $ $ $ 50.4% 61.0% 41.7% 102.7% (2.7)% (32.4)% (3.5)% (0.33) (0.33) 8.26 373,477 201,290 30,097 $ $ $ $ 48.4% 56.4% 25.8% 82.3% 17.7% 30.0% 12.4% 1.37 1.22 8.79 538,644 233,049 31,938 51.8% 62.1% 29.0% 91.1% 8.9% 25.5% 6.7% 0.79 0.69 6.96 363,558 187,046 26,933 $ $ $ $ $ $ $ $ $ $ $ $ $ 855,244 $ 797,122 $ 604,864 $ 803,631 $ 577,537 (1) (2) (3) (4) Certain non-Ifrs measures are utilized by the Company as measures of financial performance. Non-Ifrs measures do not have any standardized meaning prescribed by Ifrs and are therefore unlikely to be comparable to similar measures presented by other companies. Non-Ifrs measures included are: incentive compensation expenses as a % of revenue, total compensation expenses as a % of revenue, non-compensation expenses as a % of revenue, total expenses as a % of revenue, and book value per diluted common share. Incentive compensation expenses include the National Insurance Tax applicable to the UK. Total compensation expenses include incentive compensation and salaries and benefits, but exclude hiring incentives, which are included in development costs. Beginning in fiscal 2011, development group salaries and benefits have been included as compensation expense, whereas they were classified as development costs prior to fiscal 2011. Book value per diluted common share, a non-Ifrs measure, is calculated as total shareholders’ equity divided by the number of diluted common shares outstanding and, commencing in fiscal 2014, adjusted for shares purchased under the normal course issuer bid and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 111 sUPPLEMENTAL INfOrMATION Condensed Consolidated statements of Financial position 2013 As at March 31 (C$ thousands) 2014 assets Cash and cash equivalents securities owned, at market Accounts receivable Income taxes recoverable Deferred tax assets Investments Equipment and leasehold improvements Goodwill and other intangibles liabilities and shareholders’ equity Bank indebtedness short term credit facility securities sold short, at market Accounts payable and accrued liabilities Income taxes payable Contingent consideration Deferred tax liabilities subordinated debt Non-controlling interests shareholders’ equity iFRs Ifrs $ 364,296 1,143,201 2,785,898 3,983 9,735 9,977 50,975 646,557 $ 5,014,622 $ 491,012 924,337 2,513,958 — 12,552 3,695 42,979 614,969 $ 4,603,502 $ — — 913,913 2,888,267 10,822 — 3,028 15,000 14,912 1,168,680 $ 5,014,622 $ 66,138 — 689,020 2,746,790 4,428 14,218 2,576 15,000 16,169 1,049,163 $ 4,603,502 2012 Ifrs 2011 Ifrs 2010 CGAAP $ 814,238 1,171,988 3,081,640 8,301 3,959 9,493 51,084 622,020 $ 5,762,723 $ 75,141 150,000 914,649 3,590,266 — — 8,088 15,000 17,454 992,125 $ 5,762,723 $ 954,068 947,185 2,828,812 — 1,503 5,934 40,818 319,180 $ 5,097,500 $ 13,580 — 722,613 3,557,275 23,977 — 8,163 15,000 — 756,892 $ 5,097,500 $ 731,852 362,755 1,972,924 — 13,190 5,000 38,127 — $ 3,123,848 $ 29,435 — 364,137 2,308,146 5,385 — — 15,000 — 401,745 $ 3,123,848 miscellaneous operational statistics(1) As at March 31 number of employees in Canada Number in Canaccord Genuity Number in Canaccord Genuity Wealth Management Number in Corporate and Other Total Canada number of employees in the uk and europe Number in Canaccord Genuity Number in Canaccord Genuity Wealth Management number of employees in the us Number in Canaccord Genuity number of employees in other Foreign locations Number in Canaccord Genuity Number in Canaccord Genuity Wealth Management number of employees company-wide Number of Advisory Teams in Canada(2) Number of licensed professionals in Canada Number of investment professionals and fund managers in the UK and Europe(3) Number of Advisors – Australia AUM – Canada (discretionary) (C$ millions) AUA – Canada (C$ millions) AUM – UK and Europe (C$ millions) AUM – Australia (C$ millions) Total (C$ millions) number of companies with Canaccord genuity limited as broker London stock Exchange (LsE) Alternative Investment Market (AIM) Total broker number of companies with Canaccord genuity limited as nomad(4) LsE AIM Total Nomad $ $ $ $ $ 2014 2013 2012 2011 215 420 316 951 372 294 286 89 12 2,004 160 436 118 9 1,204 10,160 20,156 555 30,871 52 43 95 — 33 33 $ $ $ $ $ 222 461 332 1,015 400 294 253 84 14 2,060 178 494 122 12 835 10,429 15,936 451 26,816 55 56 111 — 45 45 $ $ $ $ $ 247 684 378 1,309 461 276 302 80 — 2,428 280 604 106 — 677 14,828 13,087 — 27,915 52 77 129 — 62 62 $ $ $ $ $ 268 684 373 1,325 143 — 175 41 — 1,684 271 645 — — 546 16,985 — — 16,985 26 39 65 1 30 31 $ $ $ $ $ 2010 203 680 364 1,247 138 — 163 1 — 1,549 303 718 — — 445 12,922 — — 12,922 23 43 66 1 35 36 (1) These miscellaneous operational statistics are non-Ifrs measures. (2) Advisory Teams in Canada are normally comprised of one or more Investment Advisors (IAs) and their assistants and associates, who together manage a shared set of client accounts. Advisory Teams that are led by, or only include, an IA who has been licensed for less than three years are not included in our Advisory Team count, as it typically takes a new IA approximately three years to build an average-sized book. Investment professionals include all staff with direct sales responsibilities, which includes brokers and assistants with direct client contacts. fund managers include all staff who manage client assets. A company listed on AIM is required to retain a Nominated Adviser (commonly referred to as a Nomad) during the company’s life on the market. Among other duties, Nomads are responsible for warranting that a company is appropriate for joining AIM. A Nomad is similar to a financial Advisor on the LsE, but is specific to AIM. (3) (4) 112 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT sUPPLEMENTAL INfOrMATION Quarterly Financial highlights(1) (C$ thousands, except for AUM, AUA, common and preferred share information, financial measures and percentages) Q4 Fiscal 2014 Q3 Q2 Q1 Q4 Q3 Q2 Q1 fiscal 2013 Financial results revenue Expenses Income taxes (recovery) Net income (loss) Net income (loss) attributable to CGGI shareholders Net income (loss) attributable to common shareholders Business segment Income (loss) before income taxes Canaccord Genuity(2) Canaccord Genuity Wealth Management Corporate and Other geographic segment (Loss) income before income taxes Canada(3) UK and Europe(4) Us(5) Other foreign Locations(6) Client assets ($ millions) AUM – Canada (discretionary) AUA – Canada AUM – UK and Europe AUM – Australia Total Common share information Per common share ($) Basic earnings (loss) Diluted earnings (loss) Book value per diluted common share(7) Common share price ($) High Low Close Common shares outstanding (thousands) Issued shares excluding unvested shares Issued and outstanding Diluted shares Average basic Average diluted Market capitalization (thousands) Preferred shares outstanding (thousands) shares issued and outstanding Financial measures Dividends per common share Common dividend yield (closing share price) Common dividend payout ratio Total shareholder return(8) Annualized rOE(9) Price to earnings multiple(10) Price to book ratio(11) $ 253,748 $ 230,959 $ 183,306 $ 187,231 $ 217,971 $ 230,003 $ 186,599 $ 162,549 187,048 221,737 6,091 (3,877) (20,622) 25,920 206,539 184,262 178,118 211,984 216,882 2,857 10,264 (3,470) (14,841) 6,086 18,334 1,230 7,883 (876) (80) 204,910 (437) 6,424 25,734 17,321 (383) 8,741 6,830 10,880 (14,562) (19,967) 22,774 14,400 (3,304) 5,781 3,943 7,882 (17,560) (22,804) $ 34,617 $ 27,908 $ (26) $ 11,892 $ 11,967 $ 19,578 $ (6,477) $ (21,428) 963 (3,569) (3,101) (387) (3,338) 2,408 (1,913) (866) (3,785) (2,195) (5,283) (1,174) (20,518) 8,684 (6,392) 3,321 $ (456) $ 37 $ 17,863 14,905 (301) 17,625 2,887 3,872 (6,399) $ 3,024 3,147 (728) (1,746) $ 8,919 6,374 (4,435) 4,207 $ 17,968 $ (15,245) $ 354 4,245 (2,819) (1,267) (998) (2,585) 928 (2,661) (1,333) (3,043) (9,729) (9,148) (2,581) $ 1,204 $ 10,160 20,156 555 30,871 1,070 $ 9,536 18,984 463 28,983 935 $ 880 $ 835 $ 791 $ 784 $ 9,427 17,655 411 27,493 9,325 16,125 360 25,810 10,429 15,936 451 26,816 11,403 15,228 408 27,039 13,344 13,122 354 26,820 709 13,137 12,583 305 26,025 $ $ 0.24 $ 0.22 9.05 8.45 $ 6.54 8.20 0.15 $ 0.14 8.43 7.00 $ 5.84 6.95 (0.03) $ (0.03) 8.00 7.06 $ 5.37 6.63 0.06 $ 0.06 7.87 6.94 $ 5.05 5.71 0.04 $ 0.04 7.68 7.93 $ 6.44 6.82 0.09 $ 0.08 7.62 (0.19) $ (0.19) 7.61 (0.24) (0.24) 7.90 6.77 $ 4.70 6.70 6.45 $ 4.03 5.68 8.30 4.91 5.50 93,115 101,471 107,945 92,930 102,218 885,151 92,912 101,819 108,409 93,369 102,667 753,446 93,951 102,520 109,604 94,486 n/a 726,672 94,936 103,570 109,667 94,524 102,770 626,201 93,062 102,896 109,882 92,663 103,045 749,399 92,522 102,513 110,969 92,268 102,454 743,492 93,991 102,381 108,789 93,716 n/a 617,922 93,566 102,031 107,854 94,145 n/a 593,196 8,540 8,540 8,540 8,540 8,540 8,540 8,540 8,540 $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05 2.4% 22.3% 18.7% 9.8% 21.0 0.9 2.9% 35.4% 5.6% 6.4% 33.1 0.8 3.0% (155.1)% 17.0% (1.5)% 44.2 0.8 3.5% 89.6% (15.5)% 2.7% (571.0) 0.7 2.9% 130.5% 2.5% 1.9% (22.0) 0.9 3.0% 65.0% 18.8% 3.7% (8.7) 0.9 3.5% (29.2)% 4.2% (8.3)% (6.8) 0.7 3.6% (22.4)% (33.1)% (10.6)% (7.4) 0.7 (1) (2) (3) (4) (5) (6) (7) (8) (9) Certain non-Ifrs measures are utilized by the Company as measures of financial performance. Non-Ifrs measures do not have any standardized meaning prescribed by Ifrs and are therefore unlikely to be comparable to similar measures presented by other companies. Non-Ifrs measures included are: return on average common equity (rOE), book value per diluted common share, common dividend yield, common dividend payout ratio, total shareholder return, price to earnings multiple (P/E), price to book ratio (P/B), assets under management (AUM) and assets under administration (AUA). Includes the global capital markets division in Canada, the UK and Europe, the Us, Australia, China, Barbados and singapore. Canaccord’s Canada geographic segment includes operations for Canaccord Genuity, Canaccord Genuity Wealth Management and Corporate and Other business segments. Canaccord’s UK and Europe geographic segment engages in capital markets and wealth management activities. results of former CsHP entities located in the UK and Europe since March 22, 2012 and the wealth management operations of Eden financial Ltd. since October 1, 2012 are also included. Canaccord’s Us geographic segment includes Us capital markets and wealth management operations. results of former CsHP entities located in the Us are included since March 22, 2012. revenue derived from capital markets activity outside of Canada, the Us and the UK and Europe is reported as Other foreign Locations, which includes operations in Australia, China, Barbados and singapore. results of Australian operations are included since November 1, 2011, and singaporean operations are included since March 22, 2012. Book value per diluted common share, a non-Ifrs measure, is calculated as total shareholders’ equity divided by the number of diluted common shares outstanding and, commencing in fiscal 2014, adjusted for shares purchased under the normal course issuer bid and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. Total shareholder return is calculated as the change in share price plus dividends paid to common shares and special distributions paid in the current period as a percentage of the prior period’s closing common share price, assuming reinvestment of all dividends. rOE is presented on an annualized basis. Quarterly annualized rOE is calculated by dividing the annualized net income attributable to common shareholders for the three-month period over the average common shareholders’ equity. (10) The price to earnings multiple is calculated based on the end of period share price and 12-month trailing diluted EPs. (11) The price to book ratio is calculated based on the end of period common share price and book value per diluted common share. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 113 sUPPLEMENTAL INfOrMATION Condensed Consolidated statements of operations(1) (C$ thousands, except per share amounts and percentages) Q4 Fiscal 2014 Q3 Q2 Q1 Q4 Q3 Q2 Q1 fiscal 2013 Revenue Commissions and fees Investment banking Advisory fees Principal trading Interest Other expenses Incentive compensation(2) salaries and benefits Trading costs Premises and equipment Communication and technology Interest General and administrative Amortization Development costs restructuring costs Acquisition-related costs Income (loss) before income taxes Income taxes (recovery) net income (loss) for the period $ 102,199 $ 87,581 $ 81,832 $ 90,035 $ 87,438 $ 89,415 $ 87,525 $ 88,747 28,661 25,626 7,847 8,392 3,276 162,549 78,453 33,585 31,027 5,908 2,576 253,748 70,841 39,758 21,863 5,704 5,212 230,959 31,833 35,905 19,540 6,805 3,113 187,231 40,283 29,894 18,883 6,132 6,282 183,306 37,961 28,571 17,109 6,758 8,675 186,599 40,609 69,348 18,670 7,291 4,670 230,003 38,541 56,145 22,780 6,758 6,309 217,971 124,576 25,169 14,199 9,211 11,790 3,778 20,494 7,455 5,065 — — 221,737 32,011 6,091 114,877 21,350 11,370 10,092 12,345 3,875 22,077 6,750 3,803 — — 206,539 24,420 6,086 87,511 21,506 10,336 9,823 11,406 4,063 20,440 6,020 7,671 5,486 — 184,262 (956) (876) $ 25,920 $ 18,334 $ (80) $ 86,325 23,110 11,967 9,335 10,524 4,643 20,823 6,561 4,830 — — 178,118 9,113 1,230 7,883 $ 113,297 22,825 10,697 9,924 11,390 3,479 20,722 9,490 3,715 6,445 — 211,984 5,987 (437) 84,776 23,198 12,587 10,854 14,305 4,551 24,016 8,136 4,625 — — 187,048 (24,499) (3,877) 6,424 $ 10,264 $ (14,841) $ (20,622) 94,514 21,417 10,189 10,842 11,280 3,291 20,957 7,755 4,515 18,862 1,288 204,910 (18,311) (3,470) 114,137 21,082 10,419 9,504 12,140 3,981 23,809 8,398 6,671 6,310 431 216,882 13,121 2,857 Non-controlling interests net income (loss) attributable to Cggi shareholders Incentive compensation expenses as a % of revenue Total compensation expenses as a % of revenue(3) Non-compensation expenses as a % of revenue Total expenses as a % of revenue Pre-tax profit margin Effective tax rate Net profit margin $ Basic earnings (loss) per share Diluted earnings (loss) per share $ Book value per diluted common share(4) $ 186 1,013 303 (858) (406) (616) (279) (655) 25,734 17,321 (383) 8,741 6,830 10,880 (14,562) (19,967) 49.1% 49.7% 47.7% 46.1% 52.0% 49.6% 50.7% 52.2% 59.0% 59.0% 59.5% 58.4% 62.4% 58.8% 62.2% 66.5% 28.5% 87.4% 12.6% 19.0% 10.2% 0.24 $ 0.22 $ 9.05 $ 30.4% 89.4% 10.6% 24.9% 7.9% 0.15 $ 0.14 $ 8.43 $ 41.1% 100.5% (0.5)% 91.6% — (0.03) $ (0.03) $ 8.00 $ 36.7% 95.1% 4.9% 13.5% 4.2% 0.06 $ 0.06 $ 7.87 $ 34.9% 97.3% 2.7% (7.3)% 2.9% 0.04 $ 0.04 $ 7.68 $ 35.5% 94.3% 5.7% 21.8% 4.5% 0.09 $ 0.08 $ 7.62 $ 47.7% 109.8% (9.8)% 19.0% (8.0)% (0.19) $ (0.19) $ 7.61 $ 48.6% 115.1% (15.1)% 15.8% (12.7)% (0.24) (0.24) 7.90 supplemental segmented revenue information Canaccord Genuity Canaccord Genuity Wealth Management Corporate and Other $ 186,659 $ 171,234 $ 126,691 $ 131,206 $ 153,997 $ 165,625 $ 120,110 $ 101,301 65,236 1,853 56,354 4,894 $ 253,748 $ 230,959 $ 183,306 $ 187,231 $ 217,971 $ 230,003 $ 186,599 $ 162,549 58,929 5,045 56,486 10,003 59,843 4,535 53,820 2,205 50,243 6,372 54,737 4,988 (1) (2) (3) (4) Certain non-Ifrs measures are utilized by the Company as measures of financial performance. Non-Ifrs measures do not have any standardized meaning prescribed by Ifrs and are therefore unlikely to be comparable to similar measures presented by other companies. Non-Ifrs measures included are: incentive compensation expenses as a % of revenue, total compensation expenses as a % of revenue, non-compensation expenses as a % of revenue, total expenses as a % of revenue, and book value per diluted common share. Incentive compensation expenses include the National Insurance Tax applicable to the UK. Total compensation expenses include incentive compensation and salaries and benefits, but exclude hiring incentives, which are included in development costs. Book value per diluted common share, a non-Ifrs measure, is calculated as total shareholders’ equity divided by the number of diluted common shares outstanding and, commencing in fiscal 2014, adjusted for shares purchased under the normal course issuer bid and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. 114 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT Condensed Consolidated statements of Financial position sUPPLEMENTAL INfOrMATION (C$ thousands) assets Cash and cash equivalents securities owned, at market Accounts receivable Income taxes recoverable Deferred tax assets Investments Equipment and leasehold improvements Goodwill and other intangibles liabilities and shareholders’ equity Bank indebtedness securities sold short, at market Accounts payable and accrued liabilities Income taxes payable Contingent consideration Deferred tax liabilities subordinated debt Non-controlling interests shareholders’ equity Q4 Fiscal 2014 Q3 Q2 Q1 Q4 Q3 Q2 Q1 fiscal 2013 $ 364,296 $ 357,713 $ 360,172 $ 380,869 $ 491,012 $ 555,960 $ 575,367 $ 644,027 1,143,201 1,143,898 924,337 1,453,470 1,087,334 1,214,424 2,785,898 1,912,423 2,268,642 2,843,247 2,513,958 2,280,064 2,750,879 2,548,117 15,866 6,735 9,488 3,405 10,877 9,267 15,120 6,077 3,247 — 12,552 3,695 929,247 1,426,328 3,983 9,735 9,977 1,755 9,322 9,491 3,276 9,938 4,113 — 8,550 3,276 50,975 646,557 49,678 617,503 $ 5,014,622 $ 4,122,920 $ 4,245,682 $ 5,327,433 $ 4,603,502 $ 4,977,201 $ 5,102,481 $ 5,105,838 42,293 617,369 41,306 622,766 50,390 637,928 42,979 614,969 46,613 629,268 48,013 616,444 $ — $ 85,080 $ 83,430 $ 84,185 $ 66,138 $ 913,913 816,037 718,815 1,215,685 689,020 1,193,043 — $ 29,475 $ 84,536 847,665 1,036,535 10,822 — 3,028 15,000 14,912 2,888,267 2,064,779 2,317,668 2,915,765 2,746,790 2,681,775 3,150,580 2,887,434 — — 7,482 15,000 16,882 1,168,680 1,119,396 1,082,613 1,068,625 1,049,163 1,051,183 1,033,842 1,057,969 $ 5,014,622 $ 4,122,920 $ 4,245,682 $ 5,327,433 $ 4,603,502 $ 4,977,201 $ 5,102,481 $ 5,105,838 — 5,988 4,530 15,000 12,110 — 14,218 1,711 15,000 12,244 — 14,288 1,493 15,000 12,375 4,428 14,218 2,576 15,000 16,169 2,494 14,218 3,575 15,000 15,913 — 6,000 3,872 15,000 16,047 miscellaneous operational statistics(1) number of employees in Canada Number in Canaccord Genuity Number in Canaccord Genuity Wealth Management Number in Corporate and Other Total Canada number of employees in the uk and europe Number in Canaccord Genuity Number in Canaccord Genuity Wealth Management number of employees in the us Number in Canaccord Genuity number of employees in other Foreign locations Number in Canaccord Genuity Number in Canaccord Genuity Wealth Management number of employees company-wide Number of Advisory Teams in Canada(2) Number of licensed professionals in Canada Number of investment professionals and fund managers in the UK and Europe(3) Number of Advisors – Australia AUM – Canada (discretionary) (C$ millions) AUA – Canada (C$ millions) AUM – UK and Europe (C$ millions) AUM – Australia (C$ millions) Total (C$ millions) number of companies with Canaccord genuity limited as broker London stock Exchange (LsE) Alternative Investment Market (AIM) Total broker number of companies with Canaccord genuity limited as nomad(4) LsE AIM Total Nomad Fiscal 2014 fiscal 2013 Q4 Q3 Q2 Q1 Q4 Q3 Q2 215 420 316 951 372 294 286 214 425 319 958 361 294 279 215 430 320 965 385 287 275 221 448 323 992 388 289 264 222 224 225 461 332 1,015 493 332 1,049 617 343 1,185 400 294 253 424 298 259 420 262 252 Q1 239 662 376 1,277 427 267 304 89 90 90 88 84 85 81 82 12 2,004 160 436 118 9 12 1,994 163 441 119 9 10 2,012 163 446 115 8 10 2,031 173 472 119 7 14 2,060 178 494 122 12 14 2,129 184 483 119 11 15 2,215 231 553 96 11 11 2,368 269 604 98 10 1,070 $ 9,536 $ 709 1,204 $ $ $ 10,160 $ 9,325 $ 10,429 $ 11,403 $ 13,344 $ 13,137 $ 20,156 $ 18,984 $ 17,655 $ 16,125 $ 15,936 $ 15,228 $ 13,122 $ 12,583 $ 305 360 $ $ 30,871 $ 28,983 $ 27,493 $ 25,810 $ 26,816 $ 27,039 $ 26,820 $ 26,025 935 $ 9,427 $ 784 $ 835 $ 791 $ 451 $ 354 $ 408 $ 880 $ 555 $ 411 $ 463 $ 52 43 95 — 33 33 53 46 99 — 36 36 55 50 105 — 40 40 57 51 108 — 43 43 55 56 111 — 45 45 61 62 123 — 50 50 71 65 136 — 52 52 75 68 143 — 53 53 (1) (2) These miscellaneous operational statistics are non-Ifrs measures. Advisory Teams are normally comprised of one or more Investment Advisors (IAs) and their assistants and associates, who together manage a shared set of client accounts. Advisory Teams that are led by, or only include, an IA who has been licensed for less than three years are not included in our Advisory Team count, as it typically takes a new IA approximately three years to build an average- sized book. (3) Investment professionals include all staff with direct sales responsibilities, which includes brokers and assistants with direct client contacts. fund managers include all staff who manage client assets. A company listed on AIM is required to retain a Nominated Adviser (commonly referred to as a Nomad) during the company’s life on the market. Among other duties, Nomads are responsible for (4) warranting that a company is appropriate for joining AIM. A Nomad is similar to a financial Advisor on the LsE, but is specific to AIM. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 115 glossary acquisition-related expense items Acquisition-related expense items include costs incurred to acquire Genuity Capital Markets, The Balloch Group Limited, 50% interest in BGf Capital Pty Ltd., Collins stewart Hawkpoint plc, certain assets and liabilities of Kenosis Capital Partners, and the wealth management business of Eden financial Ltd., as well as the amortization of intangible assets related to these acquisitions. Acquisition-related expense items also include costs incurred for prospective acquisitions not pursued. figures that exclude acquisition-related items are considered non-Ifrs measures. commissions or fees. This measure includes both discretionary and non-discretionary accounts. This measure is non-Ifrs. Book value per diluted common share A measure of common equity per share calculated by subtracting liabilities from assets and dividing by the number of diluted shares outstanding and, commencing in fiscal 2014, adjusted for shares purchased under the normal course issuer bid and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. This measure is non-Ifrs. advantageBC international Business Centre society Membership provides certain tax and financial benefits, reducing the overall corporate tax rate, pursuant to British Columbia legislation. advisory fees revenue related to the fees Canaccord charges for corporate advisory, mergers and acquisitions or corporate restructuring services is recorded as advisory fees. advisory teams (ia teams) Advisory Teams are normally comprised of one or more IAs and their assistants and associates, who together manage a shared set of client accounts. Advisory Teams that are led by, or only include, an IA who has been licensed for less than three years are not included in our Advisory Team count, as it typically takes a new IA approximately three years to build an average-sized book. As Independent Wealth Management branches are led by one advisor (with a team), each IWM branch is counted as a single Advisory Team. alternative investment market (aim) The junior arm of the London stock Exchange (LsE), AIM provides a global market for smaller, growing companies. assets under administration (aua) Canada AUA is the market value of client assets administered by Canaccord, for which Canaccord earns commissions or fees. This measure includes funds held in client accounts, as well as the aggregate market value of long and short security positions. Management uses this measure to assess operational performance of the Canaccord Genuity Wealth Management business segment. This measure is non-Ifrs. assets under management (aum) Canada AUM consists of assets that are beneficially owned by clients and discretionarily managed by Canaccord as part of the Complete Canaccord Investment Counselling Program and the Complete Canaccord Private Investment Management Program. services provided include the selection of investments and the provision of investment advice. AUM is also administered by Canaccord and is therefore included in AUA. This measure is non-Ifrs. assets under management (aum) uk and europe AUM is the market value of client assets managed and administered by Canaccord, for which Canaccord earns 116 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT Canaccord BgF Canaccord BGf was the brand used for Canaccord Genuity’s operations in Australia and Hong Kong. These operations have been rebranded to reflect our global capital markets and wealth management branding. Canaccord genuity Canaccord’s capital markets division was rebranded from Canaccord Adams to Canaccord Genuity in May 2010, following the acquisition of Genuity Capital Markets. Canaccord Genuity refers to the Company’s global capital markets division. Canaccord genuity asia Canaccord Genuity Asia was the brand used for Canaccord Genuity’s operations in the Asia-Pacific region. These operations have been rebranded to reflect our global capital markets branding. Canaccord genuity hawkpoint Canaccord Genuity Hawkpoint was the brand used to represent part of Canaccord Genuity’s global corporate advisory operations based in the UK and Europe. This division has been rebranded to reflect our global capital markets branding. Canaccord genuity wealth management (Cgwm) Canaccord’s wealth management businesses were rebranded Canaccord Genuity Wealth Management on May 1, 2013 to reflect Canaccord’s global wealth management presence. CGWM has operations in Canada, the UK, Europe, and Australia. Collins stewart hawkpoint plc (Cshp) Canaccord acquired Collins stewart Hawkpoint plc (CsHP) on March 21, 2012. CsHP was a leading independent financial advisory group with operations in the UK, the Us, Europe and singapore. subsequent to the acquisition, CsHP was rebranded Canaccord Genuity. Collins stewart wealth management (Cswm) Collins stewart Wealth Management was the private client division of the former CsHP, servicing over 10,000 clients from offices in the UK, the Channel Islands, the Isle of Man and switzerland. CsWM was rebranded Canaccord Genuity Wealth Management on May 1, 2013. GLOssArY Common equity Also referred to as common shares, which are, as the name implies, the most usual and commonly held form of stock in a corporation. Dividends paid to the stockholders must be paid to preferred shares before being paid to common stock shareholders. Correspondent brokerage services The provision of secure administrative, trade execution and research services to other brokerage firms through the Company’s existing technology and operations infrastructure (Pinnacle Correspondent services). Csh inducement plan A retention plan for key CsHP staff in connection with the acquisition of CsHP. dilution The change in earnings and book value per share resulting from the exercise of all warrants and options and conversion of convertible securities. dividend yield A financial ratio that shows how much a company pays out in dividends each year relative to its share price. It is calculated as total annual dividends per share divided by the company share price. earnings (loss) per share (eps), diluted Net income (loss) divided by the weighted average number of shares outstanding adjusted for the dilutive effects of stock options and other share-based compensation. genuity Capital markets Canaccord acquired Genuity Capital Markets and certain of its affiliates (also referred to as “Genuity”) on April 23, 2010. Genuity was an independent Canadian investment bank with strong mergers and acquisitions and advisory practices. subsequent to the acquisition, Canaccord renamed its capital markets division Canaccord Genuity. incentive-based revenue A percentage of incentive-based revenue earned is directly paid out as incentive compensation expense. At Canaccord, this includes commission, investment banking, advisory fees, and principal trading revenue. independent wealth management (iwm) An independent operating platform of Canaccord Genuity Wealth Management, under which Investment Advisors operate as independent agents of the Company. Each IWM branch is classified as one Advisory Team, which is comprised of one or more Investment Advisors and their assistants and associates, who together manage a shared set of client accounts. institutional sales and trading A capital markets business segment providing market information and research, advice and trade execution to institutional clients. international equity group (ieg) The International Equity Group is a premium, low cost, order routing destination for both Us listed securities and foreign listed ordinary shares for local market execution in the Us operations. efficiency ratio A financial ratio to measure efficiency calculated by dividing total expense over total revenue. international trading Executing trades in Canadian securities on behalf of Us brokerage firms. employee stock purchase plan (espp) Voluntary plan that provides eligible employees with the ability to purchase shares in the Company through payroll deductions, with an additional contribution by the Company. escrowed securities Common shares in the Company that are subject to specific terms of release. Fair value adjustment An estimate of the fair value of an asset (or liability) for which a market price cannot be determined, usually because there is no established market for the asset. Fixed income trading Trading in new issues, government and corporate bonds, treasury bills, commercial paper, strip bonds, high-yield debt and convertible debentures. investment banking Assisting public and private businesses and governments to obtain financing in the capital markets through the issuance of debt, equity and derivative securities on either an underwritten or an agency basis. investment professionals and fund managers Investment professionals include all staff with direct sales responsibilities, which include brokers and assistants with direct contacts. fund managers include all staff who manage client assets. liquidity The total of cash and cash equivalents available to the Company as capital for operating and regulatory purposes. london stock exchange (lse) One of the world’s largest stock exchanges, the LsE has been in existence for more than 300 years and has over 3,000 listed companies. The exchange has four main sectors: the Main Market; the AIM Market; the Professional securities Market; and the specialist fund Market. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 117 GLOssArY long-term incentive plan (ltip) A reward system designed to align employee and external shareholder interests. Under Canaccord’s LTIP, a portion of an eligible employee’s annual compensation is held back to purchase restricted share units (rsUs) of the Company. The rsUs are topped up by the firm and vest over three years. montréal international Financial Centre Membership provides certain tax and financial benefits, reducing the overall corporate tax rate, pursuant to Québec legislation. national insurance (ni) tax Payroll tax applicable to UK employees based on a percentage of incentive compensation payout. nominated adviser (nomad) A company approved by the LsE to act as an adviser for companies who wish to be admitted to AIM. A Nomad warrants to the LsE that the company is appropriate for admission and assists the listed company on an ongoing basis with disclosure and other market-related matters. non-cash charges Charges booked by a company that do not impact its cash balance or working capital. non-iFRs measures Non-Ifrs measures do not have any standardized meaning prescribed by International financial reporting standards (Ifrs) and are therefore unlikely to be comparable to similar measures presented by other companies. see page 21 of this annual report. Replacement plans share-based payment plans introduced to replace the share- based payment plans that existed at CsHP at the date of acquisition. Return on average common equity (Roe) Net income expressed as a percentage of average common equity. This measure is non-Ifrs. Risk financial institutions face a number of risks that may expose them to losses, including market, credit, operational, regulatory and legal risk. separately managed accounts (smas) Investment portfolios available to clients that are managed by a senior portfolio manager. In sMAs, clients own the individual securities within the portfolio, rather than a portion of a pooled fund. significant items Charges not considered to be recurring or indicative of operating earnings. for Canaccord this includes acquisition- related expense items, impairment of goodwill and intangibles, restructuring costs, ABCP fair value adjustments and accrual for the Company’s client relief program. figures excluding significant items are considered to be non-Ifrs measures. syndicate participation A group of investment banking firms coordinating the marketing, distribution, pricing and stabilization of equity financing transactions. offshore operations for Canaccord’s purposes, offshore operations refer to wealth management offices in the Channel Islands and the Isle of Man. These offices were rebranded Canaccord Genuity Wealth Management on May 1, 2013. the Balloch group (tBg) The Balloch Group was a leading boutique investment bank in China that Canaccord acquired in January 2011. Canaccord’s operations in China were subsequently rebranded Canaccord Genuity. preferred shares A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred shares generally do not have voting rights; however, preferred shareholders receive a dividend that must be paid out before dividends are paid to common stockholders. principal trading Trading in equity securities in principal and inventory accounts. revenue is generated through inventory trading gains and losses. Registered trading Trading in equity securities in principal and inventory accounts by registered traders who operate by taking positions, trading and making markets in equity securities including securities of companies with small to medium-sized market capitalizations. revenue is generated through inventory trading gains and losses. trading services Quotation services, trade reconciliation, execution management, order book management and trade reporting. underwriter – investment banking Purchases securities or other instruments from a corporate issuer for resale to investors. value-at-Risk (vaR) Var is a generally accepted risk measurement concept that is defined as the predicted minimum loss in market value of a portfolio at a specific confidence level (e.g., 95%) over a certain period of time (e.g., daily). wrap accounts A type of brokerage account in which a single or flat fee covers all administrative, research, advisory and management expenses. 118 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT Corporate governance The Board of Directors (Board) assumes responsibility for the stewardship of the Company, acting as a whole and through its committees, and has approved a formal Board Governance Manual (Mandate) including terms of reference for the Board and setting forth the Board’s stewardship responsibilities and other specific duties and responsibilities. The Board’s responsibilities are also governed by: • The Business Corporations Act (British Columbia) • The Company’s articles • The charters of its committees • Other corporate policies and applicable laws Communication with independent members of the Board Terrence Lyons has been appointed by the Board of Directors of Canaccord Genuity Group Inc. as its Lead Director. One of his responsibilities is to receive and determine appropriate action on any communications from interested parties that are addressed to the independent directors of the Board. such communications can be sent to Mr. Lyons in writing by mail to 2039 West 35th Avenue, Vancouver, BC, Canada, V6M 1J1. strategic planning process The Board’s Mandate provides that the Board is responsible for ensuring that the Company has an effective strategic planning process. As such, the Board reviews, approves, monitors and provides guidance on the Company’s strategic plan. identification and management of Risks The Board’s Mandate includes: • Assisting management to identify the principal business risks of the Company • Taking reasonable steps to ensure the implementation of appropriate systems to manage and monitor those risks • Reviewing plans for evaluating and testing the Company’s internal financial controls • Overseeing the external auditors, including the approval of the external auditors’ terms of reference succession planning and evaluation The Board’s Mandate includes keeping in place adequate and effective succession plans for the Chief Executive Officer (CEO) and senior management. • The Corporate Governance and Compensation Committee (CGCC) receives periodic updates on the Company’s succession plan at the senior officer level and monitors the succession planning process • The succession plan is reviewed, at least annually, by the CGCC • On the recommendation of the President & CEO, the Board appoints the senior officers of the Company CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 119 COrPOrATE GOVErNANCE Communications and public disclosure The Company’s Disclosure Controls Policy (DCP) addresses the accurate and timely communication of all important information relating to the Company and its interaction with shareholders, investment analysts, other stakeholders and the public generally. • The DCP is reviewed annually by the Board • The DCP, public securities regulatory filings, press releases and investor presentations are posted on the Company’s website • The Board reviews all quarterly and annual consolidated financial statements and related management discussion and analysis, the Company’s earnings releases, management information circulars, annual information forms (AIfs) and financing documents internal Controls The Board requires management to maintain effective internal controls and information systems. The Board, with the assistance of the Audit Committee, oversees the integrity of the Company’s internal control and information systems. • The Audit Committee meets no less than four times a year with the Company’s Chief Financial Officer (CFO) and senior finance staff to review internal controls over financial reporting and related information systems • External auditors provide recommendations to the Audit Committee on an annual basis in relation to the Company’s internal controls and information systems As of March 31, 2014, an evaluation was carried out, under the supervision of and with the participation of management, including the President & CEO and the Executive Vice President & CfO, of the effectiveness of our disclosure controls and procedures as defined under Multilateral Instrument 52-109. Based on that evaluation, the President & CEO and the Executive Vice President & CfO concluded that the design and operation of these disclosure controls and procedures were effective as of March 31, 2014. governance The Board is currently composed of nine directors, six of whom are independent of management as determined under applicable securities legislation. In order to facilitate the exercise of independent judgment by the Board of Directors, the Board has appointed a lead director and holds regular meetings without management directors present. • The CGCC is responsible for periodically reviewing the composition of the Board and its committees • A formal annual assessment process has been established to include feedback by all the directors to the full Board, including the completion of a confidential survey • New directors are provided with substantial reference material on the Company’s strategic focus, financial and operating history, corporate governance practices and corporate vision 120 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT COrPOrATE GOVErNANCE summary of Charters and Committees The Board has delegated certain of its responsibilities to two committees, each of which has specific roles and responsibilities as defined by the Board. Both of these Board committees are made up of independent directors. audit Committee The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities by monitoring the Company’s financial reporting practices and financial disclosure. It comprises three unrelated directors. All members of the Audit Committee are financially literate; that is, they are able to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements. The current members of the Audit Committee are Messrs. Lyons (Chair), Eeuwes and Carello. The Audit Committee has adopted a charter which specifically defines the roles and responsibilities of the Audit Committee. The Audit Committee Charter can be found in the Company’s AIf filed on sEDAr. The Audit Committee has direct communication channels with the external auditors and CfO and senior finance staff and discusses and reviews issues with each of them on a regular basis. The Audit Committee’s mandate was updated in fiscal 2013 to better reflect the Audit Committee’s oversight of the Company’s risk management function. The Audit Committee is responsible for ensuring management has designed and implemented an effective system of internal control. The external auditors are hired by and report directly to the Audit Committee. After consultation with management, the Audit Committee is responsible for setting the external auditors’ compensation. The external auditors attend each meeting of the Audit Committee, and a portion of each meeting is held without the presence of management. The Audit Committee annually reviews and approves the external auditors’ audit plan and must approve any audit and non-audit work performed by the external auditors. The CfO and senior finance staff attend each meeting of the Audit Committee other than the portion of the meeting which is held without management present to allow more open discussion. The Audit Committee annually reviews and approves the internal audit plan. CoRpoRate goveRnanCe and Compensation Committee The Corporate Governance and Compensation Committee is responsible for developing the Company’s approach to governance issues, reviewing the Company’s overall governance principles and recommending changes to those principles from time to time. It comprises three unrelated directors: Messrs. Harris (Chair), Eeuwes and Lyons. The committee has full access to staff and resources. At all regular committee meetings during the year, a portion of each meeting is held without management present to allow more open discussion. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 121 Board of directors Charles n. Bralver (2010) Charles N. Bralver is a financial services executive with over 30 years of capital markets experience. for more than 23 years – from 1984 to 2007 – Mr. Bralver was a founder and Vice Chairman of management consultancy Oliver, Wyman & Co. where he specialized in strategy, risk and operational work for leading investment banks, asset managers, exchanges and other market utilities. He continues to serve as a member of the senior advisory board of Oliver Wyman. Mr. Bralver served as senior Associate Dean for International Business and finance at the fletcher school of Law and Diplomacy from 2007 to 2010, from 2007 to 2009 as a strategic advisor to Warburg Pincus LLC and from 2011 to 2012 as a Managing Director of Massif Partners LLC. Mr. Bralver serves as a director of the Company, as a director and member of the risk committee of Newstar financial, Inc. and on the Board of Visitors of the fletcher school. Mr. Bralver started his career at Booz Allen Hamilton. He is a Us citizen and a graduate of the fletcher school of Law and Diplomacy and Dartmouth College. massimo Carello (2008) Audit Committee Mr. Carello is a corporate director and a private investor in public companies. Mr. Carello was the Chairman and Chief Executive Officer of Diners Club UK Ltd. from 2001 to 2004 and was the Chairman and Chief Executive Officer of fiat UK Ltd. from 1990 to 2001. Mr. Carello served as a member of the Confederation of British Industry (CBI) President’s Committee from 1998 to 2003 and was a member of the CBI European Committee. He was Vice President of the Italian Chamber of Commerce in the UK from 1998 to 2005. In addition to Canaccord Genuity Group Inc., Mr. Carello is a director and a member of the Audit Committees of the following public companies: Canadian Overseas Petroleum Limited and Orsu Metals Corporation. Until December 2010, he was also a director and a member of the Audit Committee of Uranium One Inc. william j. eeuwes (2002) Audit Committee Corporate Governance and Compensation Committee Mr. Eeuwes is senior Vice President & Global Head, Private Equity, Manulife financial. He has executive responsibility for regional Power Inc., NAL resource Limited (oil and gas) and two private equity teams; Manulife Capital in Canada and Hancock Capital Management in the Us. Before joining Manulife in 1999, Mr. Eeuwes was a career banker with 25 years of experience in underwriting and the management of a broad range of financing including LBOs, corporate lending and project finance. Mr. Eeuwes is a graduate of the richard Ivey school of Business at the University of Western Ontario. In addition to Canaccord Genuity Group Inc., Mr. Eeuwes is a director of several private companies in Canada, and is a member of the Institute of Corporate Directors. michael d. harris, iCd.d (2004) Corporate Governance and Compensation Committee Michael Harris, ICD.D, is a senior business advisor with the law firm of fasken Martineau DuMoulin LLP in Toronto, and the President of his own consulting firm, steane Consulting Ltd., and, in this capacity, acts as a consultant to various Canadian companies. Before joining fasken Martineau in september 2013, he was a senior business advisor with the law firm of Cassels Brock & Blackwell in Toronto from March 2010 and before that a senior business advisor with the law firm of Goodmans LLP in Toronto. Mr. Harris was born in Toronto in 1945 and was raised in Callander and North Bay, Ontario. Before his election to the Ontario Legislature in 1981, Mike Harris was a schoolteacher, a school board trustee and chair and an entrepreneur in the Nipissing area. On June 8, 1995, Mr. Harris became the 22nd Premier of Ontario following a landslide election victory. In 1999, he was re-elected – making him the first Ontario Premier in over 30 years to form a second consecutive majority government. In addition to sitting on several boards of Canadian corporations, he also serves as a director of the Tim Horton Children’s foundation, the Luminato festival and the Manning Centre for Building Democracy. He is the Honorary Chair of the North Bay District Hospital Capital Campaign and the Nipissing University and Canadore College Capital Campaign. Mr. Harris is also a senior fellow of the fraser Institute. He has received his ICD.D certification from the Institute of Corporate Directors. In addition to Canaccord Genuity Group Inc., Mr. Harris is a director of the following public companies: Chartwell retirement residences (Chair), firstservice Corporation, routel Inc. (Chair), and Element financial Corporation. 122 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT david kassie (2010) David Kassie became Group Chairman and a director of Canaccord Genuity Group Inc. on the closing of the acquisition of Genuity Capital Markets, a Canadian investment bank, on April 23, 2010, and became Chairman on April 1, 2012. He was the Principal, Chairman and Chief Executive Officer of Genuity Capital Markets from 2004 until May 9, 2010, when the integration of the businesses of Genuity Capital Markets and Canaccord financial Ltd. was completed under the name Canaccord Genuity. Before 2004, he was Chairman and Chief Executive Officer of CIBC World Markets and the Vice Chairman of CIBC. Mr. Kassie has extensive experience as an advisor, underwriter and principal. He sits on a number of corporate boards. Mr. Kassie is actively involved in community and charitable organizations and is on the boards of the richard Ivey school of Business, the Toronto International film festival Group and was formerly on the Board of the Hospital for sick Children. Mr. Kassie holds a B.Comm. (Honours) in Economics from McGill University (1977), and an MBA from the University of Western Ontario (1979). In addition to Canaccord Genuity Group Inc., Mr. Kassie is a director of the following public company: reitmans (Canada) Limited. terrence a. lyons, iCd.d (2004) Audit Committee Corporate Governance and Compensation Committee Terry Lyons is past Chairman of Northgate Minerals Corporation, which was acquired by Aurico Gold Inc. in late 2011, creating a new mid-cap gold company with a value of over $3 billion. Mr. Lyons is a Civil Engineer (UBC) with an MBA from the University of Western Ontario. He sits on the Advisory Board of the richard Ivey school of Business and is active in sports and charitable activities, is a past Governor of the Olympic foundation of Canada, past Chairman of the Mining Association of BC and in 2007 was awarded the INCO Medal by the Canadian Institute of Mining and Metallurgy for distinguished service to the mining industry. He has received his ICD.D certification from the Institute of Corporate Directors. Mr. Lyons is a director of the following public and private companies: Martinrea International Inc., sprott resource Corp., Polaris Minerals Corporation and VeroLube Inc., and he currently serves as the Lead Director and Chairman of the Audit Committee of Canaccord Genuity Group Inc. BOArD Of DIrECTOrs paul d. Reynolds (2005) Paul reynolds was named President of Canaccord Genuity Group Inc. in August 2006 and Chief Executive Officer of the Company in August 2007, and leads the firm from Canaccord Genuity’s Toronto office. Between 1999 and 2007, he managed the Group’s London, England, office as President and Chief Operating Officer of European operations and was named Global Head of Canaccord Genuity’s capital markets division in April 2005. Mr. reynolds has over 30 years of experience in the securities industry beginning as an equities trader. In 1985, he joined Canaccord Genuity, working as an Investment Advisor before moving into a senior role in institutional sales. In the late 1990s, Mr. reynolds assumed a leadership role in investment banking where he specialized in financing emerging and developing companies in the resource, technology and biotechnology sectors. Mr. reynolds also serves on the boards of the International Crisis Group and the Hospital for sick Children in Toronto. dipesh shah (2012) Dipesh shah is a director on the boards of Thames Water and the Kemble Water Group of companies, Equus Petroleum plc (where he is senior Independent Director and Chairman of the Nominations Committee), JKX Oil & Gas plc (where he is senior Independent Director and Chairman of the remuneration Committee), The Crown Estate, and the 2020 European fund for Energy, Climate Change and Infrastructure (the “EU Marguerite fund”, where he is Chairman of the Investment Committee). He is also a Trustee of the British Youth Opera and a Governor of Merchant Taylors’ school. Mr. shah was formerly the Chief Executive of the UK Atomic Energy Authority and of various large businesses in the BP Group, where he was a member of the Group Leadership for more than a decade. Mr. shah was Chairman, inter alia, of Viridian Group plc, HgCapital renewable Power Partners LLP and the European Photovoltaic Industry Association. In addition, he has been a Director of several major organizations, including Babcock International Group Plc and Lloyd’s of London. He was also a member of the UK Government’s renewable Energy Advisory Committee from 1994 to 2002. Earlier, Mr. shah was the Chief Economist for BP Oil UK. Born in India, and brought up in Uganda, Mr. shah is a graduate of the University of London, the University of Warwick, and the Harvard Business school management program. He was appointed an Officer of the Order of the British Empire (OBE) in the 2007 New Year Honours List and is a Life fellow of the royal society of Arts. In addition to Canaccord Genuity Group Inc., Mr. shah is a director of the following public companies: Equus Petroleum plc and JKX Oil & Gas plc. CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 123 locations Capital markets CanaCCoRd genuity Canada united states uk and europe London 88 Wood street London, UK EC2V 7Qr Telephone: 44.20.7523.8000 Dublin first floor, south Dock House Hanover Quay Dublin 2 Ireland Telephone: 353.1.635.0210 Frankfurt OpernTurm Bockenheimer Landstrasse 2-4 60306 frankfurt am Main Germany Telephone: 49.69.67.776.5000 Paris Washington Plaza 29 rue de Berri 75008 Paris france Telephone: 33.1.56.69.66.66 Toronto Brookfield Place 161 Bay street, suite 3000 P.O. Box 516 Toronto, ON Canada M5J 2s1 Telephone: 416.869.7368 Toll free (Canada): 1.800.382.9280 Toll free (Us): 1.800.896.1058 Vancouver Pacific Centre 609 Granville street, suite 2200 P.O. Box 10337 Vancouver, BC Canada V7Y 1H2 Telephone: 604.643.7300 Toll free (Canada): 1.800.663.1899 Toll free (Us): 1.800.663.8061 Calgary TransCanada Tower 450 – 1st street sW, suite 2200 Calgary, AB Canada T2P 5P8 Telephone: 403.508.3800 Toll free: 1.800.818.4119 Montréal 1250 René-Lévesque Boulevard West suite 2930 Montréal, QC Canada H3B 4W8 Telephone: 514.844.5443 Toll free: 1.800.361.4805 Barbados The Business Centre Upton st. Michael, Barbados BB 11103 Telephone: 246.434.2035 New York 350 Madison Avenue New York, NY UsA 10017 Telephone: 212.389.8000 Toll free: 1.800.538.7003 Boston 99 High street, suite 1200 Boston, MA UsA 02110 Telephone: 617.371.3900 Toll free: 1.800.225.6104 San Francisco 101 Montgomery street, suite 2000 san francisco, CA UsA 94104 Telephone: 415.229.7171 Toll free: 1.800.225.6104 Houston Wells fargo Plaza 1000 Louisiana street, 71st floor Houston, TX UsA 77002 Telephone: 713.331.9901 Chicago 1880 Oak Avenue, suite 135 Evanston, IL UsA 60201 Telephone: 847.864.1137 Minneapolis 45 7th street south, suite 2640 Minneapolis, MN UsA 55402 Telephone: 612.332.2208 124 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT LOCATIONs Hong Kong 5th floor, 8 Queen’s road Central Central Hong Kong Telephone: 852.3919.2505 fax: 852.3919.2599 Melbourne Level 4, 60 Collins street Melbourne, VIC, 3000, Australia Telephone: 61.3.8688.9100 Sydney Level 26, 9 Castlereagh street sydney, NsW, 2000, Australia Telephone: 61.2.9263.2700 Waterloo 80 King street south, suite 101 Waterloo, ON Canada N2J 1P5 Telephone: 519.886.1060 Toll free: 1.800.495.8071 Alberta Calgary TransCanada Tower, suite 2200 450 – 1st street sW Calgary, AB Canada T2P 5P8 Telephone: 403.508.3800 Toll free: 1.800.818.4119 Edmonton Manulife Place 10180 – 101st street, suite 2700 Edmonton, AB Canada T5J 3s4 Telephone: 780.408.1500 Toll free: 1.877.313.3035 Québec Montréal 1250 René-Lévesque Boulevard West suite 2930 Montréal, QC Canada H3B 4W8 Telephone: 514.844.5443 Toll free: 1.800.361.4805 Nova Scotia Halifax Purdy’s Wharf Tower II suite 2004 1969 Upper Water street Halifax, Ns Canada B3J 3r7 Telephone: 902.442.3162 Toll free: 1.866.371.2262 asia-pacific Beijing suite C700, 50 Liangmaqiao rd. Beijing 100125 China Telephone: 8610.8451.5559 fax: 8610.8454.0489 Singapore 77 robinson road #21-02 singapore 068896 Telephone: 65.6854.6150 wealth management CanaCCoRd genuity wealth management Canada British Columbia Vancouver Pacific Centre 609 Granville street, suite 2200 P.O. Box 10337 Vancouver, BC Canada V7Y 1H2 Telephone: 604.643.7300 Toll free (Canada): 1.800.663.1899 Toll free (Us): 1.800.663.8061 Kelowna 1708 Dolphin Avenue, suite 602 Kelowna, BC Canada V1Y 9s4 Telephone: 250.712.1100 Toll free: 1.888.389.3331 Ontario Toronto Brookfield Place, suite 2900 P.O. Box 516 161 Bay street Toronto, ON Canada M5J 2s1 Telephone: 416.869.7368 Toll free (Canada): 1.800.382.9280 Toll free (Us): 1.800.896.1058 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 125 otheR loCations pinnacle Correspondent services Vancouver Pacific Centre 609 Granville street, suite 2200 P.O. Box 10337 Vancouver, BC Canada V7Y 1H2 Telephone: 604.643.7300 Toronto Brookfield Place 161 Bay street, suite 3000 P.O. Box 516 Toronto, ON Canada M5J 2s1 Telephone: 416.869.7368 Calgary 1409 – 2nd street sW Calgary, AB Canada T2r 0W7 Telephone: 403.263.7999 Toll free: 1.877.263.7999 Québec Gatineau 12, rue sainte Marie Gatineau, QC Canada J8Y 2A3 Telephone: 819.772.4737 Toll free: 1.877.496.1685 UK and Europe London 41 Lothbury London, UK EC2r 7AE Telephone: 44.20.7665.4500 Jersey 37 The Esplanade st Helier Jersey JE4 0XQ Telephone: 44.1534.708090 Guernsey 2 Grange Place The Grange st Peter Port Guernsey GY1 4AX Telephone: 44.1481.712889 Guernsey Landes du Marche Chambers P.O. Box 328 Vale Guernsey GY1 3TY Telephone: 44.1481.251515 Isle of Man Anglo International House Bank Hill Douglas Isle of Man IM1 4LN Telephone: 44.1624.690100 LOCATIONs Canaccord genuity wealth management (usa), inc. Pacific Centre, suite 2200 P.O. Box 10337 609 Granville street Vancouver, BC Canada V7Y 1H2 Telephone: 604.684.5992 independent wealth management Branches Ontario Burlington 5500 North service road, suite 805 Burlington, ON Canada L7L 6W6 Telephone: 905.335.5223 Toll free: 1.855.392.5626 Ottawa 2 Gurdwara road, suite 510 Ottawa, ON Canada K2E 1A2 Telephone: 613.274.2662 Toll free: 1.877.721.1189 Kitchener 4281 King street East, Unit E Kitchener, ON Canada N2P 2E9 Telephone: 519.219.6611 Toll free: 1.866.232.1894 British Columbia Prince George 1840 Third Avenue, suite 101 Prince George, BC Canada V2M 1G4 Telephone: 250.614.0888 Toll free: 1.866.614.0888 Trail 1277 Cedar Avenue Trail, BC Canada V1r 4B9 Telephone: 250.368.3838 Toll free: 1.855.368.3838 Alberta Calgary 322 – 11th Avenue sW, suite 207 Calgary, AB Canada T2r 0C5 Telephone: 403.531.2444 Toll free: 1.866.531.2444 126 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT shareholder information Corporate headquarters Corporate website stReet addRess Canaccord Genuity Group Inc. 609 Granville street, suite 2200 Vancouver, BC, Canada mailing addRess Pacific Centre 609 Granville street, suite 2200 P.O. Box 10337 Vancouver, BC V7Y 1H2, Canada stock exchange listing TsX: Cf LsE: Cf. www.canaccordgenuity.com general shareholder inquiries and information investoR Relations 161 Bay street, suite 3000 Toronto, ON, Canada Telephone: 416.869.7293 fax: 416.947.8343 Email: investor.relations@ canaccordgenuitygroup.com media Relations and inquiries from institutional investors and analysts scott davidson Executive Vice President, Global Head of Corporate Development and strategy Telephone: 416.869.3875 Email: scott.davidson@canaccord.com This Canaccord Genuity Group Inc. 2014 Annual report is available on our website at www.canaccordgenuitygroup. com. for a printed copy, please contact the Investor relations department. Common share trading information (Fiscal 2014) stock exchange Toronto TsX London LsE Diluted shares outstanding at Year-end price Ticker March 31, 2014 March 31, 2014 Cf Cf. 107,937,492 $ 107,937,492 £ 8.20 $ 4.45 £ High 8.45 4.58 $ £ Low 5.05 3.30 Total volume of shares traded 50,479,820 1,724,364 Fiscal 2014 preferred dividend dates and amounts Quarter end date June 30, 2013 september 30, 2013 December 31, 2013 March 31, 2014 Preferred dividend record date Preferred dividend payment date september 13, 2013 september 30, 2013 December 20, 2013 December 31, 2013 March 14, 2014 March 31, 2014 June 13, 2014 June 30, 2014 series A preferred dividend 0.34375 0.34375 0.34375 0.34375 1.375 $ $ $ $ $ series C preferred dividend 0.359375 0.359375 0.359375 0.359375 1.4375 $ $ $ $ $ Fiscal 2014 Common dividend dates and amounts Quarter end date June 30, 2013 september 30, 2013 December 31, 2013 March 31, 2014 Common dividend record date Common dividend payment date August 30, 2013 september 10, 2013 November 22, 2013 December 10, 2013 february 21, 2014 March 10, 2014 June 20, 2014 July 2, 2014 Total preferred dividend 0.703125 0.703125 0.703125 0.703125 2.8125 Common dividend 0.05 0.05 0.05 0.05 0.20 $ $ $ $ $ $ $ $ $ $ CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT 127 sHArEHOLDEr INfOrMATION Fiscal 2015 expected dividend(1) and earnings Release dates Q1/15 Q2/15 Q3/15 Q4/15 Expected earnings release date Preferred dividend record date Preferred dividend payment date Common dividend record date Common dividend payment date August 5, 2014 september 19, 2014 september 30, 2014 August 29, 2014 september 10, 2014 November 5, 2014 December 19, 2014 December 31, 2014 November 21, 2014 December 10, 2014 february 4, 2015 March 20, 2015 March 31, 2015 february 27, 2015 March 10, 2015 June 1, 2015 June 19, 2015 June 30, 2015 June 19, 2015 July 2, 2015 (1) Dividends are subject to Board of Directors approval. All dividend payments will depend on general business conditions and the Company’s financial conditions, results of operations, capital requirements and such other factors as the Board determines to be relevant. annual general meeting Financial information The Annual General Meeting of shareholders will be held on Wednesday, August 6, 2014 at 10:00 am (Eastern Time) at the TMX Broadcast Centre The Exchange Tower 130 King street West Toronto, ON, Canada A live Internet webcast will also be available for shareholders to view. Please visit the webcast events page at www.canaccordgenuitygroup.com for more information and a direct link. To view Canaccord’s regulatory filings on sEDAr, please visit www.sedar.com. for present and archived financial information, please visit www.canaccordgenuitygroup.com auditor Ernst & Young LLP Chartered Accountants Vancouver, BC Fees paid to shareholders’ auditors for fees paid to shareholders’ auditors, see the fiscal 2014 Annual Information form. Qualified Foreign Corporation CGGI is a “qualified foreign corporation” for Us tax purposes under the Jobs & Growth Tax Reconciliation Act of 2003. editorial and design services The Works Design Communications Ltd. eligible dividend designation: Income Tax Act (Canada) In Canada, the Federal Income Tax Act, and most provincial income tax legislation, provides lower levels of taxation for Canadian individuals who receive eligible dividends. All of the common share dividends paid by Canaccord Genuity Group Inc. (or its predecessor Canaccord Capital Inc.) since 2006 are eligible, as are common share dividends paid hereafter unless otherwise indicated. shareholder administration for information about stock transfers, address changes, dividends, lost stock certificates, tax forms and estate transfers, contact: ComputeRshaRe investoR seRviCes inC. 100 University Avenue, 9th floor Toronto, ON M5J 2Y1 Telephone toll free (North America): 1.800.564.6253 International: 514.982.7555 fax: 1.866.249.7775 Toll free fax (North America): or International fax: 416.263.9524 Email: service@computershare.com Website: www.computershare.com Offers enrolment for self-service account management for registered shareholders through the Investor Centre. 128 CANACCOrD GENUITY GrOUP INC. 2014 ANNUAL rEPOrT Shareholder Information CORPORATE HEADQUARTERS SHAREHOLDER ADMINISTRATION ANNUAL GENERAL MEETING For information about stock transfers, address changes, dividends, lost stock certificates, tax forms and estate transfers, contact: COMPUTERSHARE INVESTOR SERVICES INC. 100 University Avenue, 9th Floor Toronto, ON M5J 2Y1 Telephone toll free (North America): 1.800.564.6253 International: 514.982.7555 Fax: 1.866.249.7775 Toll free fax (North America): or International fax: 416.263.9524 Email: service@computershare.com Website: www.computershare.com Offers enrolment for self-service account management for registered shareholders through the Investor Centre. ELIGIBLE DIVIDEND DESIGNATION: INCOME TAX ACT (CANADA) In Canada, the Federal Income Tax Act, and most provincial income tax legislation, provides lower levels of taxation for Canadian individuals who receive eligible dividends. All of the common share dividends paid by Canaccord Genuity Group Inc. (or its predecessor Canaccord Financial Inc.) since 2006 are eligible, as are common share dividends paid hereafter unless otherwise indicated. STREET ADDRESS Canaccord Genuity Group Inc. 609 Granville Street, Suite 2200 Vancouver, BC, Canada MAILING ADDRESS Pacific Centre 609 Granville Street, Suite 2200 P.O. Box 10337 Vancouver, BC V7Y 1H2, Canada WEBSITE www.canaccordgenuity.com GENERAL SHAREHOLDER INQUIRIES AND INFORMATION INVESTOR RELATIONS 161 Bay Street, Suite 3000 Toronto, ON, Canada Telephone: 416.869.7293 Fax: 416.947.8343 Email: investor.relations@ canaccordgenuitygroup.com MEDIA RELATIONS AND INQUIRIES FROM INSTITUTIONAL INVESTORS AND ANALYSTS Scott Davidson Executive Vice President, Global Head of Corporate Development and Strategy Telephone: 416.869.3875 Email: scott.davidson@canaccord.com This Canaccord Genuity 2014 Annual Report is available on our website at www.canaccordgenuitygroup.com. For a printed copy, please contact the Investor Relations department. STOCK EXCHANGE LISTING TSX: CF LSE: CF. The Annual General Meeting of shareholders will be held on Wednesday, August 6, 2014 at 10:00 a.m. (Eastern time) at the TMX Broadcast Centre The Exchange Tower 130 King Street West Toronto, ON, Canada A live Internet webcast will also be available for shareholders to view. Please visit the webcast events page at www.canaccordgenuitygroup.com for more information and a direct link. To view Canaccord’s regulatory filings on SEDAR, please visit www.sedar.com. FINANCIAL INFORMATION For present and archived financial information, please visit www.canaccordgenuitygroup.com AUDITOR Ernst & Young LLP Chartered Accountants Vancouver, BC FEES PAID TO SHAREHOLDERS’ AUDITORS For fees paid to shareholders’ auditors, see the fiscal 2014 Annual Information Form. QUALIFIED FOREIGN CORPORATION CGGI is a “qualified foreign corporation” for US tax purposes under the Jobs & Growth Tax Reconciliation Act of 2003. EDITORIAL AND DESIGN SERVICES The Works Design Communications Ltd. Canaccord Genuity Group Inc. is the publicly traded parent company to Canaccord’s group of companies. Canaccord Genuity Group Inc. is listed on the TSX (as CF) and LSE (as CF.). Canaccord Genuity provides global investment banking, M&A, advisory, research, and sales and trading services to Canaccord’s institutional and corporate clients. Canaccord Genuity has offices in Canada, the US, the UK, France, Germany, Ireland, Hong Kong, mainland China, Singapore, Australia and Barbados. Canaccord Genuity Wealth Management is a global provider of wealth management solutions to private investors in Canada, the UK, Europe and Australia. Pinnacle provides correspondent services (administrative and clearing solutions) to Canada’s wealth management industry by leveraging Canaccord’s investment in leading-edge back-office infrastructure and technology. More information about Canaccord Genuity Group Inc., including the Company’s 2014 online Annual Report, can be found at canaccordgenuitygroup.com. CANADA Toronto Vancouver Burlington Calgary Edmonton Gatineau Halifax Kelowna Kitchener Montréal Ottawa Prince George Trail Waterloo USA New York Boston Chicago Houston Minneapolis San Francisco UK & EUROPE London Dublin Frankfurt Guernsey Isle of Man Jersey Paris ASIA Beijing Hong Kong Singapore AUSTRALIA Melbourne Sydney 2 CANACCORD GENUITY GROUP INC. 2014 ANNUAL REPORT 

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