Canaccord Genuity Group
Annual Report 2015

Plain-text annual report

To us there are no foreign markets.™ 2015 ANNUAL REPORT To us there are no foreign markets.TM SEE OUR VALUES > Our Values Seven key values drive Canaccord Genuity employees and management in delivering results for 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. We put our clients first. We develop deep trust with our clients through detailed consultation, appropriate investment ideas and value-added services. 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. We strive for client intimacy. The more detailed our understanding of our clients’ needs and objectives, the better positioned we are to meet them. 1454A good reputation is our most-valued currency. Integrity and respect for client confidentiality are the basis of all our relationships. We are dedicated to creating exemplary shareholder value. We are committed to aligning the interests of our people with fellow Canaccord Genuity shareholders through share ownership. We believe that employee ownership motivates the ideas and efforts that lead to value creation. Ideas are the engine of our business. Our ability to generate original, quality ideas – for our clients and for ourselves – positions us ahead of the global competition. 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. 23776631 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 10 countries worldwide, including wealth management offices located in Canada, Australia, the UK, Guernsey, Jersey and the Isle of Man. Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, France, Ireland, Hong Kong, China, Singapore, Australia and Barbados. To us there are no foreign markets.™ Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX and the symbol CF. on the London Stock Exchange. Member of the S&P/TSX Composite Index. Contents Global Performance Highlights Letter to Shareholders Financial Highlights Canaccord Genuity Canaccord Genuity Wealth Management Thank You, Paul 2 4 6 8 16 20 Shareholder Information Inside Back Cover More information about Canaccord Genuity Group Inc., including the Company’s 2015 online Annual Report, can be found at canaccordgenuitygroup.com. 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. US CN UK AU IE AU IE CA US CN 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 2 GLOBAL PERFORMANCE HIGHLIGHTS Fiscal 2015 was a year during which our clients were able to successfully leverage the strengths of our global platform and take advantage of our differentiated service offering. Through a period of continuous adjustment, we were able to grow our revenues by staying focused, performance-driven and accountable to our clients and to our business. $880.8 million in annual revenue 1,197,649 Shares purchased for cancellation under NCIB programme $0.25 per share Fiscal 2015 dividend distribution In November, the Board of Directors approved a special dividend payment of $0.05, which increased our annual dividend distribution to $0.25. Additionally, we remained active on our normal course issuer bid (NCIB) buy-back programme throughout the fiscal year, reflecting our confidence in delivering on our business plan, while continuing to maintain financial flexibility. NEW YORK CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORTGlobal Performance Highlights 3 Canaccord Genuity Group Inc. is the publicly traded parent company of a global group of financial services businesses that provide comprehensive investment banking and wealth management services to corporate, institutional and private clients from its global operations in North America, the UK & Europe and the Asia- Pacific region. The two primary operating divisions of the Company are Canaccord Genuity, our global capital markets division, and Canaccord Genuity Wealth Management, our global wealth management operation. Fiscal 2015 Revenue by Division Canaccord Genuity 70% Canaccord Genuity Wealth Management 28% 2% Corporate and Other Revenue for Fiscal 2015 (C$ millions) $803.6 $797.1 $880.8 $855.2 $604.9 Net Income for Fiscal 2015 (C$ millions, excluding significant items) $114.1 $68.8 $39.3 $25.2 $25.6 11 12 13 14 15 11 12 13 14 15 Diluted Earnings per Share (C$, excluding significant items, fiscal years) Geographic Distribution of Revenue (Percent of total fiscal year revenue) $1.40 $0.54 $0.25 $0.14 $0.25 11 12 13 14 15 11 12 13 14 15 UK US Other Canada US2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 4 4 Running Head Lorem ipsum FELLOW SHAREHOLDERS, Despite a very strong start to the year, the heightened volatility that began late in our second quarter continued to impact global capital markets through the balance of the year. Fiscal 2015 was a year where we saw our top line revenue grow to $880.8 million, while our net income, excluding significant items, declined by 43%. Activity levels in mid-market equities were impacted by the Scottish referendum, a sharp market correction, followed by a dramatic drop in energy prices and a static business environment in the UK, which was driven by the recent national elections. While broad market fundamentals decelerated the momentum we have built in recent years, we have maintained a clear focus on managing our costs against our revenue expectations in the current market environment. During the year, we streamlined the leadership and operating structure of our capital markets businesses in the UK & Europe, and in North America, with a focus on improving our cross-border capabilities and strengthening our long term profitability. In November, our Board of Directors approved a special dividend payment of $0.05, which brought our total dividend distribution to $0.25 for the year. Additionally, we remained active in our normal course issuer bid buy-back programme throughout the year, reflecting our confidence in delivering on our business plan, while continuing to maintain financial flexibility. Delivering stronger outcomes for clients across a diverse range of sectors In all regions, we are delivering a consistent client experience, with a uniquely global perspective that has made Canaccord Genuity the partner of choice for clients focused on growth. Despite a challenging global operating environment, we were able to modestly increase our global investment banking and advisory revenues over the course of the fiscal year. Our Canadian capital markets led the performance of this division, with a year-over-year revenue increase of 38%. Our strong market position and track record of delivering value for clients in the region were evident as we led a number of transformational mandates for our clients and solidified our position as the leading independent investment bank for the online gaming industry. While we maintained our market position in the US, expenses related to the strategic build-out of our fixed income capital markets business impacted our profitability for this region. In our Asia- Pacific operations, capital markets revenues improved 29% over the fiscal year, driven primarily by the continued growth of our Australian capital markets business. While it was a difficult period for capital raising activities in the UK & Europe, we are pleased to see markets responding positively to the recent election outcome in the United Kingdom. As market fundamentals improve, we look forward to restoring our profitability and further establishing our position as a leading independent investment bank for the mid- market in the region. Improving recurring revenues across our global wealth management operations We continue to focus on improving the level of recurring revenues from our wealth management operations, to help offset the inherent earnings volatility of our capital markets business. During the year, we meaningfully improved our advisor and product mix in all regions – initiatives we expect will further contribute to increasing assets under management and delivering stable, consistent revenue growth for this business. At the end of the fiscal year, Canaccord Genuity Wealth Management managed and administered $33.3 billion in client assets, approximately 65% of which was through our operations in the UK & Europe. We are actively pursuing opportunities to increase the size and scale of our UK wealth management business. The successful implementation of Avaloq during the fiscal year gives us confidence in our ability to rapidly integrate new operations and focus on near term earnings accretion, with the goal of doubling our assets under management in this business over the coming years. In our Canadian wealth management operations, we have made great strides in reducing losses and bringing this business closer to profitability. The successful launch of our proprietary asset management product, Canaccord Genuity Global Portfolio Solutions (GPS), has been well received by existing and new clients. The strategic refocusing of this business has driven a 30% increase in discretionary and fee-based assets under management for the fiscal year. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORTLetter to Shareholders 5 In closing, I would like to thank our shareholders, clients and employees for your loyalty, trust and support through a period of continuous adjustment. Although we expect some volatility to continue throughout fiscal 2016, I am optimistic about the outlook for worldwide equity markets, and for our global businesses. We have a strong and diverse pipeline, and an operating structure that has been carefully adjusted to deliver the strongest benefit for our clients – and our shareholders – in an evolving market environment. During fiscal 2015, our resilience was tested in many ways. Looking ahead, I am confident that our business has an agile mix of global capabilities to continue to advance our core strengths and deliver sustainable, long term profitability. David Kassie Chairman & Chief Executive Officer June 2015 This is our time to leverage the combined strengths of our businesses and maximize value for our clients, and for our shareholders. Committed to strong leadership – past, present and future In April, we endured the tragic loss of our Chief Executive, partner and friend, Paul Reynolds. As the architect of our firm’s global transformation, Paul dedicated the final years of his career to the careful selection and integration of deeply established regional businesses, to build a powerful global platform. My goal for all of us at Canaccord Genuity is that we continue to uphold the culture and values that Paul was so instrumental in defining. This is our time to leverage the strengths of our combined businesses and maximize value for our clients, and for our shareholders. In a business that continues to evolve, we have made it a priority to identify talent and groom a strong pipeline of capable professionals, who are prepared to step into critical leadership roles when needed. Our Board of Directors is committed to appointing a Chief Executive Officer who possesses the necessary capabilities to advance the best interests of our business and our shareholders over the long term. We expect to announce a successor during the first half of fiscal 2016, and I am personally committed to supporting this transition, as we position the candidate – and our business – for long term success. Our Values at Work The successful integration of our global businesses has fostered a strong culture of professionals who expertly coordinate the extensive experience and capabilities available across our global platform. In an increasingly dynamic market environment, we are united by our values. Throughout the following pages, we highlight just a few of the ways these values drive our unwavering commitment to delivering results for our clients and our shareholders. 123467542015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.6 FINANCIAL HIGHLIGHTS Selected financial information(1)(2) (C$ thousands, except per share and % amounts, and number of employees) 2015 2014 2015/2014 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) Impairment of goodwill(5) $ 374,058 238,517 151,336 75,217 22,212 19,423 $ 361,647 221,410 139,142 91,313 24,549 17,183 880,763 855,244 455,480 85,770 305,822 24,813 14,535 413,289 91,135 280,746 5,486 — Total expenses 886,420 790,656 (Loss) income before income taxes Net (loss) income Net (loss) income attributable to CGGI shareholders Non-controlling interests (Loss) earnings per common share (EPS) – basic (Loss) earnings per common share (EPS) – diluted Return on common equity (ROE) Dividends per common share Book value per diluted common share(6) Excluding significant items(7) 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 (5,657) (11,318) (13,184) 1,866 (0.27) (0.27) (2.9)% 0.25 8.71 $ $ $ $ $ $ $ $ 827,458 53,305 $ 39,330 $ 36,448 $ 0.27 $ 0.25 $ $ 4,369,905 3,242,088 10,275 1,117,542 1,928 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 $ $ 5,014,622 3,831,030 14,912 1,168,680 2,004 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 12,411 17,107 12,194 (16,096) (2,337) 2,240 25,519 42,191 (5,365) 25,076 19,327 14,535 95,764 (70,245) (63,375) (64,597) 1,222 (0.69) (0.66) (7.3) p.p. 0.05 (0.34) 56,871 (31,352) (29,516) (30,763) (0.32) (0.29) (644,717) (588,942) (4,637) (51,138) (76) 3.4% 7.7% 8.8% (17.6)% (9.5)% 13.0% 3.0% 10.2% (5.9)% 8.9% n.m. n.m. 12.1% (108.8)% (121.7)% (125.6)% 189.8% (164.3)% (169.2)% 25.0% (3.8)% 7.4% (37.0)% (42.9)% (45.8)% (54.2)% (53.7)% (12.9)% (15.4)% (31.1)% (4.4)% (3.8)% (1) 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 22 of our Management’s Discussion and Analysis (MD&A). (2) The operating results of the Australian operations have been fully consolidated and a 40% non-controlling interest has been recognized for fiscal 2015 [fiscal 2014 and fiscal 2013 – 50%]. Results of 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 in connection with certain executive changes in our Corporate and Other segment, the closure of the Geneva office in our UK & European wealth management operations, certain real estate and office closure costs, as well as reorganization of our Canadian, UK & Europe and US capital markets operations. Fiscal 2014 restructuring costs include expenses mainly in connection with restructuring of our sales and trading operations in Canada and the UK & Europe, and certain office closure costs. (5) Impairment of goodwill in connection with our Singapore- and China-based operations. (6) 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. (7) 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 31 of our MD&A. n.m.: not meaningful p.p.: percentage points CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT During the fiscal year, we undertook important initiatives to streamline our operations and bring sharper focus to our key areas of strength. We have carefully adjusted our operating structure to deliver the strongest benefit for our clients – and our shareholders – in an evolving market environment. These changes, in combination with our ongoing commitment to cost containment, will support improving margins and position us for future outperformance. We expect benefits from our restructuring initiatives to deliver $25 million in sustainable savings on an annual basis in a normalized market environment $477.2 Financial Highlights 7 Since the acquisition of Collins Stewart Hawkpoint in 2012, we have effectively coordinated the capabilities of our global teams. By leveraging our expanded operations and integrated service model, we have been able to increase productivity per employee, while protecting our ability to make disciplined investments in areas that support our competitive strengths. Canaccord Genuity Group Inc. Revenue per Employee (C$ thousands, fiscal years) $456.8 $426.8 $387.0 13 14 15 Canaccord Genuity Revenue per Employee (C$ thousands, fiscal years) $456.8 $426.8 $387 Employees by Geography (As at March 31, 2015) Employees by Division (As at March 31, 2015) Canada UK & Europe US Asia-Pacific 48% 33% 14% 5% Canaccord Genuity 46% Canaccord Genuity Wealth Management 37% Corporate and Other 17% $632.2 $680.5 $249.1 $556.0 11 12 13 13 14 15 14 15 $859.1 Canaccord Genuity Wealth Management Revenue per Employee $690.4 (C$ thousands, fiscal years) $564.2 $640.1 $273.4 $359.3 $305.7 $315.2 11 12 13 14 15 13 14 15 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. $340.7 $350.4 $308.6 $301.2 $209.7 11 12 13 14 15 8 CANACCORD GENUITY With operations in 10 countries worldwide and the ability to list companies on 10 exchanges, Canaccord Genuity is a leading independent global investment bank focused on mid-market growth companies. Our unique global perspective and cross-border capabilities are what differentiate us from our competitors. Our ability to leverage relationships and deep expertise across multiple regions allows us to provide a diverse range of growing companies with access to global capital markets, at all stages of the business cycle. $613 million in global revenue $39 billion 340 transactions raised for global growth companies during fiscal 2015 Canaccord Genuity participated in 340 transactions1 across the globe (1) Transactions valued above $1.5 million. TORONTO CACANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORTCanaccord Genuity 9 Canaccord Genuity provides investment banking, advisory, sales and trading, equity research and fixed income services to corporate and institutional clients across the globe. We have worked hard to improve our competitive position as a leading independent global investment bank with a focus on the mid-market. In recent years, we have made investments to enhance the depth and breadth of our offering, and improve our execution capabilities across our global platform. In all regions, clients of Canaccord Genuity enjoy a consistent service offering that is rooted in deep industry expertise and focused client attention. Additionally, our expansive global resources and entrepreneurial culture promote the sharing of ideas, best practices and value creation opportunities from around the world. We are dedicated to delivering measurable value for clients focused on growth at every stage of the business cycle. Looking ahead, we expect strong contributions from our capital markets operations in all regions. We will continue to pursue opportunities for organic growth, while taking a disciplined approach to investing in key areas of our business, with a focus on better serving our clients and creating long term value for our shareholders. We believe the diversification strategy within our long term business plan will continue to deliver strong results for this business. Canaccord Genuity Revenue 2011–2015 (C$ millions, fiscal years) Fiscal 2015 Revenue by Activity $615.8 $613.1 $538.6 $541.0 $373.5 11 12 13 14 15 Advisory Commissions Investment Banking Principal Trading Interest and Other 25% 26% 35% 12% 2% CA2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 10 Canaccord Genuity OUR INTEGRATED GLOBAL PLATFORM PROVIDES US WITH A COMPETITIVE ADVANTAGE OVER MANY OF THE DOMESTICALLY FOCUSED FIRMS WE COMPETE WITH. As an independent global investment bank, we are able to maintain a level of agility in our business that allows us to stay competitive and meet the evolving needs of our clients. Our priorities for our capital markets business centre on increasing profitability in our core areas of strength, while protecting our ability to deliver the value and standard of care our clients have come to expect. With a strong focus on cost containment, we will continue to make disciplined investments in specific sector verticals or service offerings to strengthen our position in areas where we believe we can capture additional market share. We are confident in our market position and in the opportunities ahead for this business. Our operating results for fiscal 2015 demonstrate the success of our efforts to diversify our business and our revenue streams. During the fiscal year, our global capital markets business generated revenue of $613 million. A welcome recovery in Canadian capital markets activity, in combination with improved financing levels across all regions, provided a strong start to our fiscal year. However, the heightened volatility that began late in our second quarter prevailed through much of the remainder of the 12-month period. A global growth slowdown and a phase of swift US dollar appreciation negatively impacted commodity prices during fiscal 2015. During the period, crude oil, copper and gold prices dropped by 53.0%, 8.8% and 7.9%, respectively. Continuing economic and political uncertainty in many of the regions where we operate contributed to a difficult operating environment, which led to a postponement of transaction and advisory activity in many of our key markets. While this market environment slowed our momentum in certain markets during fiscal 2015, our global teams worked hard to protect our market share and continued to improve our relevance to clients in key growth sectors of the economy. Our expansion efforts in recent years have firmly positioned our capital markets teams to achieve advisory and equity transaction leadership in the global mid-market. Following the successful integration of our global businesses, we made important changes within the leadership and operating structure of our capital markets business during the latter half of the fiscal year. We believe these changes will improve collaboration between our global teams and accelerate the delivery of innovative thinking and solutions to clients focused on growth. This refined structure allows us to bring a sharper management focus to our key priorities and maximize value for our clients – and our shareholders. In February, Dan Daviau was appointed CEO of North American Capital Markets, an appointment that reflects his extensive track record of serving and growing our client base in both our Canada and US operations. At the start of fiscal 2016, Canaccord Genuity will combine its Canadian and US operations into a unified North American business and streamline our reporting businesses into three: North America, UK & Europe and Asia-Pacific. USCANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORTCanaccord Genuity 11 UK & Europe Revenue (C$ millions, fiscal years) Canada Revenue (C$ millions, fiscal years) US Revenue (C$ millions, fiscal years) Asia-Pacific Revenue (C$ millions, fiscal years) $338.5 $212.3 $158.0 $155.9 $232.3 $204.3 $204.6 $148.5 $216.5 $203.0 $153.4 $106.2 $79.5 $92.7 $51.2 $49.6 $38.5 $25.3 $10.5 $1.2 11 12 13 14 15 11 12 13 14 15 11 12 13 14 15 11 12 13 14 15 Canaccord Genuity’s global team of sales and trading, equity research and investment banking professionals are dedicated to providing clients with actionable ideas and opportunities in the following key sectors of the economy: • Aerospace & • Media & Defense Telecommunications • Agriculture • Metals & Mining • Consumer & Retail • Private Equity • Energy • Financials • Gaming & Leisure • Healthcare & Life Sciences • Investment Companies • Real Estate & Hospitality • Support Services • Sustainability • Technology • Transportation & Industrial Products During fiscal 2015, our investment banking teams were active across a diverse range of sectors, reflecting the power of our integrated global platform. Investment Banking Transactions and Revenue by Sector During Fiscal 2015 Sector Technology (incl. Gaming & Leisure) Healthcare & Life Sciences Metals & Mining Sustainability Financials Real Estate & Hospitality Consumer & Retail Infrastructure Energy Investment Companies Structured Products Support Services Media & Telecommunications Agriculture Diversified Total Investment banking transactions 13.7% 9.6% 13.7% 2.7% 7.7% 11.8% 1.1% 3.3% 7.9% — 19.2% — 1.4% 0.3% 7.6% Investment banking revenue 30.3% 12.8% 9.7% 9.4% 7.5% 5.2% 4.8% 4.3% 4.0% 2.2% 0.6% 0.5% 0.2% — 8.5% 100.0% 100.0% AU2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 12 Canaccord Genuity Investment Banking Canaccord Genuity’s global team of investment banking professionals have deep industry knowledge and strong professional ties to the key sectors of the global economy in all regions where we operate. Our fully integrated global business combines industry leading independent expertise with a global distribution platform and direct access to institutional investors around the world. During fiscal 2015, Canaccord Genuity participated in 340 transactions to raise more than $39.2 billion for global growth companies. Of these, Canaccord Genuity led 85 transactions globally, to raise total proceeds of $4.6 billion. We are dedicated to adding measurable value at every stage of the business lifecycle. 1 Our revenue streams continue to stabilize, reflecting the value of investments we have made to diversify our global platform. During fiscal 2015, 43% of our total investment banking revenues was earned in the Technology and Healthcare & Life Sciences sectors. While we continue to have an exceptional global resource practice, resource-related transactions comprised 14% of the Company’s investment banking revenues during the year. IN OCTOBER, OUR EUROPEAN TEAM RECEIVED THE 2014 CORPORATE FINANCIER OF THE YEAR AWARD IN THE UNQUOTE BRITISH PRIVATE EQUITY AWARDS, WHICH CELEBRATE INNOVATION AND EXCELLENCE IN PRIVATE EQUITY AND VENTURE CAPITAL. CANACCORD GENUITY AUSTRALIA WAS VOTED THE TOP INDEPENDENT DEALER IN THE 2014 EAST COLES EQUITIES MARKETS AWARDS, AND WAS RATED BEST INDEPENDENT EQUITIES RESEARCH HOUSE AND BEST INDEPENDENT EQUITY CAPITAL MARKETS HOUSE. THE AWARDS ARE BASED ON VOTES FROM 80 OF AUSTRALIA’S LEADING INSTITUTIONS AND FUND MANAGERS. FISCAL 2015 SIGNIFICANT REGIONAL INVESTMENT BANKING TRANSACTIONS Two transactions totalling C$586.5 million for The Intertain Group Limited on the TSX COUNTRY CODE CA, US $289.8 million for Callidus Capital Corp. on the TSX CA, US C$299.3 million for Yamana Gold Inc. on the TSX US$316.8 million for 3D Systems, Inc. on the NYSE US$65.0 million for Avinger, Inc. on NASDAQ £294.0 million for Polypipe Group PLC on the LSE £154.4 million for OneSavings Bank PLC on the LSE AUD$132.0 million for Donaco International Limited on the ASX AUD$51.3 million for Affinity Education Group Limited on the ASX CA US US UK UK AUS AUS CANADA Canaccord Genuity continues to be the leading full-service independent investment bank in Canada. During fiscal 2015, this business had the strongest performance and contributed 39% of our total investment banking revenues. Throughout the year, our investment banking team led several prominent transactions and showed increasing diversity, largely due to our role as the leading independent investment bank for the online gaming sector. US While revenues in our US investment banking business declined by 9% from a record performance in 2014, this business contributed 26% to our total investment banking revenues for the fiscal year. In recent months, we added significant strength to our investment banking capabilities in the Aerospace & Defense, Consumer, Real Estate and Healthcare & Life Sciences practices, to complement our existing global platform. We will continue to invest strategically in our US capital markets division – a business which strongly supports our global capabilities and one we expect will provide us increasing opportunities to deliver solutions for our clients in key sectors of the global mid-market. OUR VALUES AT WORK 1 WE PUT OUR CLIENTS FIRST. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT Canaccord Genuity 13 Advisory Our global advisory teams share a relentless focus on developing and executing strategic transactions that define – and redefine – the global marketplace. Our talented professionals form a unified, multilingual advisory team, which operates from offices in Canada, the US, the UK, Ireland, France, China, Singapore and Australia. Clients of Canaccord Genuity receive strategic advice and idea generation from some of the most experienced professionals in the industry. We commit to our relationships for the long run and we believe in building lasting partnerships, ensuring a clear understanding of our clients’ strategies and a genuine interest in their business goals. 5 Despite a challenging operating environment during fiscal 2015, we were able to increase our global advisory revenues by 9% compared to the previous fiscal year, to $151.2 million. Our unparalleled service offering, along with our growing cross-border capabilities, has become a key differentiator for our global advisory business. FISCAL 2015 SIGNIFICANT REGIONAL M&A AND ADVISORY TRANSACTIONS Amaya Gaming Group on its US$4.9 billion purchase of Rational Group COUNTRY CODE CA, UK, US The Intertain Group Limited on its £425.8 million acquisition of Jackpotjoy CA, US Yamana Gold on the C$3.9 billion joint acquisition with Agnico Eagle of Osisko Mining Corporation DHX Media Limited on its acquisition of Family Channel, Disney XD, Disney Junior (English) and Disney Junior (French) Medical Action Industries Inc. on its acquisition by Owens & Minor World Energy Solutions, Inc. on its sale to EnerNOC, Inc. SOF Investments on the £212.0 million sale of Moneycorp to Bridgepoint TowerBrook Capital Partners on the acquisition of Independent Clinical Services from The Blackstone Group NH Ceramics on the acquisition of BlackGold Asia Resources Pte. Ltd. and BlackGold Energy Limited Resources Prima Group Limited (formerly Sky One Holdings Limited) on the acquisition of Energy Prima Pte. Limited CA CA US US UK UK SG SG Canaccord Genuity Advisory Revenue 2011–2015 (C$ millions, fiscal years) $179.2 $151.2 $138.9 $107.3 $84.5 11 12 13 14 15 Canaccord Genuity Advisory Revenue by Region During Fiscal 2015 Canada 42% US 13% UK & Europe 41% Asia-Pacific 4% UK & EUROPE During the first half of the fiscal year, revenues earned from investment banking activities in the UK & Europe increased by 93% compared to the same period in fiscal 2014, a record year for this business. While all regions were negatively impacted by macroeconomic conditions, the most notable impact took place in the UK & Europe. General anxiety surrounding the outcome of the UK elections and fears of deflation in the Eurozone significantly slowed activity in the region during the third and fourth fiscal quarters, which are typically the strongest periods for investment banking activity in this region. ASIA-PACIFIC With an expanded service offering and diversified sector coverage, our Asia- Pacific team was able to increase investment banking revenues for this business by 33%. The improvement was largely driven by our Australian business, and directly supports our goal of establishing leadership across the region. For the fiscal year, our Australian investment banking business was the top-ranked independent investment bank by number of equity offerings. With increasing client demand, we see opportunity for growth in the Asia-Pacific region, and we continue to explore opportunities to expand our sales, trading and research coverage into the Singapore market. OUR VALUES AT WORK 5 WE STRIVE FOR CLIENT INTIMACY. 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 14 Canaccord Genuity Advisory continued CANADA Our Canadian advisory business increased revenues by 116% during fiscal 2015. In addition to an improved market environment, the growth in our financing and advisory businesses is attributable to our long-standing relationships and to the track record of success we have historically achieved for our clients in the region. Our strong market position and differentiated global service level have made Canaccord Genuity the leading Canadian independent firm for M&A and advisory services. UK & EUROPE While a difficult operating environment softened advisory activity for our capital markets business in the UK & Europe during fiscal 2015, this business contributed 41% of our total advisory revenues for fiscal 2015. Subsequent to the end of our fiscal year, we were pleased to see markets responding positively to the recent federal election outcome and we expect that improving fundamentals for key sectors of the economy will reinvigorate advisory activity in this important geography. US Revenues generated by our US advisory teams improved by 16% during fiscal 2015. In addition to supporting our cross-border origination and execution capability, our restructuring team is gaining traction with the negotiation, development and implementation of recapitalization strategies in the US mid-market. As a leading global provider of independent restructuring services, our clients can trust that our strategic advice and access to capital is free of conflicts. ASIA-PACIFIC Advisory is a key element of our growth strategy for our Asia-Pacific operations. For the fiscal year, advisory revenues in this business increased by 50%. With deep local expertise and access to a large network of global professionals, our advisory teams in this region are becoming increasingly active. Our growing M&A capability enables us to deepen our relationships with existing clients and provide ongoing support and access to global opportunities for growing companies. Sales and Trading Canaccord Genuity’s global sales and trading teams are passionate about connecting the right idea with the right client at the right time. Our approach combines international intelligence, market savvy and sector expertise with the support of high quality, actionable, idea-driven research. with American Depositary Receipts (ADRs) and foreign equity trading capabilities. In Canada, Canaccord Genuity was the leading independent investment dealer on Bloomberg for block trading activity during fiscal 2015. And finally, our trading operations in the UK ranked sixth for small- and mid-cap execution in the 2014 Thomson Reuters Extel Awards. Our integrated global platform delivers powerful distribution and execution capabilities for mid- market growth companies. From our 14 trading desks in 10 countries, our skilled team of professionals facilitates timely and efficient execution on 10 global exchanges, managing the impact of each transaction. 7 With experienced professionals located around the world and deep institutional relationships, we take pride in having the broadest account coverage of any mid-market bank. Additionally, Canaccord Electronic Trading Solutions (CETS) meets our clients’ need for direct market access, and electronic and program trading on many of the alternative exchanges, including Chi-X, CX2, Alpha, Aequitas, Pure, CSE, Omega, Lynx and Triact. Our highly ranked International Equities Group has developed a strong presence in the US market OUR VALUES AT WORK 7 TO US THERE ARE NO FOREIGN MARKETS.™ We are committed to developing solid client relationships that allow institutional investors to gain meaningful access to established and emerging entrepreneurs. AUAUCANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORTCanaccord Genuity 15 Equity Research At Canaccord Genuity, we analyze close to 1,000 global companies across a broad range of market sectors, identifying value and defining risk for our clients. Our equity research analysts are able to leverage the broader resources of our global platform, to provide a uniquely global perspective, which we deliver to our clients in trusted daily, weekly and monthly publications. Canaccord Genuity’s global team of research professionals are inquisitive, experienced and committed to generating actionable investment ideas for our clients. During fiscal 2015, Dvai Ghose accepted the role of Global Head of Equity Research, a position that leverages his proven leadership capabilities and his outstanding track record of delivering world-class research as a top-ranked analyst in his sector. In his role, Dvai works closely with heads of equity research in each of our regions, to continue to improve global coordination of our research offering and broaden our reach to institutional investors around the world. As part of our commitment to providing timely, relevant ideas for clients in all markets, we regularly add to our coverage universe. We have also made strategic investments in the addition of regional capabilities in key sectors of the economy, to ensure the delivery of truly global coverage for our clients. In December, following a 10-month development process, our global equity research platform was successfully migrated to BlueMatrix®, an advanced, industry-leading application that facilitates the creation, distribution and management of our award-winning investment research. The flexible configuration of BlueMatrix® allows our equity research teams to collaborate globally, while seamlessly managing regional workflow and compliance requirements. It’s one of the many ways we are continually investing in the delivery of original, quality ideas for our clients. 3 Quest® is Canaccord Genuity’s proprietary stock screening and idea generation tool. For two decades, clients have trusted Quest® to provide superior data integrity and analytical tools, which help generate and compare investment ideas across sectors and markets, free of objective or bias. Additionally, Quest® provides the foundation for numerous Canaccord Genuity products and services. The platform provides global strategists, equity research analysts, and asset managers with the ability to combine proprietary equity analytical techniques with a wide range of more conventional financial analyses. Over time, global markets have evolved, and so have the needs of our clients. We listened carefully, and during fiscal 2015, we developed a platform that is stronger, broader and more flexible. The new Quest® covers an equity universe that comprises 95% of total global market capitalization, on a scalable platform that allows for the addition of new coverage and functionality, as market conditions change. 3 It’s all part of our relentless commitment to questioning convention. Welcome to conviction 2.0. OUR VALUES AT WORK 3 IDEAS ARE THE ENGINE OF OUR BUSINESS. SGUK2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 16 CANACCORD GENUITY WEALTH MANAGEMENT Canaccord Genuity Wealth Management provides comprehensive wealth management solutions and brokerage services to individual investors, private clients, charities and intermediaries. We are committed to providing clients with a broad array of investment solutions to help them reach their financial goals. Our experts search the globe for investment opportunities and deliver targeted investment strategies for clients across Canada, Australia, the UK, Guernsey, Jersey and the Isle of Man. $257 million in global revenue $33.3 billion in total assets under administration and management 21 global wealth management offices CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT LONDON UKCanaccord Genuity Wealth Management 17 Canaccord Genuity Wealth Management provides clients with the focused, personalized service they expect from a local investment manager, with the benefits and backing of a global financial institution. In addition to comprehensive investment, wealth and estate planning, our global teams provide clients with investing options from both third party and proprietary financial products, including 40 funds managed by Canaccord Genuity Wealth Management portfolio managers in Canada, the UK, Guernsey, Jersey and the Isle of Man. We have made significant investments to improve the middle- and back-office functions of our global wealth management operations. These improvements provide our advisors with complete flexibility to deliver world-class investment solutions and client service, while providing the necessary infrastructure to advance the scale and scope of our business. We have also meaningfully enhanced our training programs over the last several years, to ensure our Advisory Teams, investment professionals and fund managers possess the broad-based expertise required to deliver comprehensive wealth management solutions that meet the evolving needs of our growing client base. Looking ahead, we will strive to grow our assets under management and administration, and increase our proportion of fee-based revenues, to support steady, recurring revenue growth. As we achieve greater scale, we expect the steady earnings from our wealth management operations will help balance the inherent earnings volatility of our investment banking operations. Global Wealth Management Revenue (C$ millions, fiscal years) Global Assets under Administration and Management (C$ billions, fiscal years) $233.0 $235.1 $228.8 $201.3 $257.2 $33.3 $30.9 $27.9 $26.8 $17.0 11 12 13 14 15 11 12 13 14 15 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. UK 18 Canaccord Genuity Wealth Management WITH 716 DEDICATED WEALTH MANAGEMENT EMPLOYEES GLOBALLY, WE CONTINUE TO SERVE A GROWING NUMBER OF CLIENTS IN EACH OF THE GEOGRAPHIES THAT WE OPERATE IN. Canaccord Genuity Wealth Management earned $257.2 million in revenue during fiscal 2015, an improvement of 12% from the previous year. At the end of the fiscal year, Canaccord Genuity Wealth Management managed and administered $33.3 billion in client assets, an increase of 8% from the previous year. UK & Europe Our 114 investment professionals and fund managers located in offices in London, Guernsey, Jersey and the Isle of Man provide highly tailored wealth management, stockbroking and portfolio management services to individual investors, institutions and charities across the region. At the end of fiscal 2015, assets under management in this business reached $21.8 billion. During the fiscal year, we completed the implementation of a world- class operating system, Avaloq. This transformational project provides our wealth management operations in the UK, Guernsey, Jersey and the Isle of Man with complete flexibility to deliver innovative investment solutions and world-class client service, while providing the essential infrastructure to support our aggressive growth plans for this business. 6 In the UK & Europe, Canaccord Genuity Wealth Management earned $126 million in revenue, an improvement of 11% compared to fiscal 2014. Of this revenue, 67.1% was derived from fee-based and managed accounts. We continue to actively pursue opportunities to increase the scale of our wealth management business in the UK. The strength of our balance sheet and our prudent management of capital resources give us confidence in our near term ability to pursue growth. With the exceptional leadership and solid infrastructure we have in place, we expect to be able to double our assets under management in the UK over the coming years. Revenue (C$ millions, fiscal years) $125.6 $113.0 $91.8 13 14 15 Assets under Management (C$ billions, fiscal years) $21.8 $20.2 $15.9 13 14 15 Canaccord Genuity Wealth Management in the UK & Europe was recognized as an industry leader in the wealth management space across several verticals including: • Best Wealth Manager at the Shares Awards 2014 – voted by readers of Shares magazine • Best Advisory Service award at the 2015 City of London Wealth Management Awards • Isle of Man Investment Manager of the Year at the 2015 Citywealth International Financial Centre Awards • Specialist Wealth Manager award at the 2014 WealthBriefing European Awards OUR VALUES AT WORK 6 WE ARE DEDICATED TO CREATING EXEMPLARY SHAREHOLDER VALUE. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORTCanada Our Canadian Wealth Management business operates through 15 offices across Canada, including seven Independent Wealth Management (IWM) locations. At the end of fiscal 2015, these teams managed and administered assets totalling $10.7 billion for clients across Canada. Throughout fiscal 2015, we continued the strategic repositioning of our Canadian wealth management business, and implemented important changes to better align our service offering with the evolving needs of our Canadian clients. We have meaningfully improved our product mix, which enables our advisors to deliver a comprehensive suite of portfolio management, wealth, insurance and estate planning services for their clients. The changes we have implemented have strengthened our existing teams, and helped to attract new advisors with established books of business to our improved platform. These important initiatives, coupled with our disciplined focus on cost containment, led to a 61% reduction in year-over-year losses for this business. 4 In Canada, Canaccord Genuity Wealth Management earned $125.3 million in revenue during fiscal 2015, an improvement of 13% from the previous year. We continue to focus on improving levels of fee-based assets under management in this business. At the end of the fiscal year, fee- based assets under management increased to $1.6 billion, an improvement of 30% from the previous year. Revenue (C$ millions, fiscal years) $233.0 $199.3 $139.9 $125.3 $111.0 During the fiscal year, we launched our proprietary asset management platform, Canaccord Genuity Global Portfolio Solutions (GPS) in Canada. This unique range of portfolios leverages the expertise of Canaccord Genuity’s global thought leaders and combines research and portfolio management with forward-looking risk management solutions. GPS is based on a similar asset management product offered by our UK wealth management business, which has been recognized as a best-in-class investing discipline. Early response to the portfolio offering has been strong, and we expect growing client investment in our range of GPS Optimized Portfolios to meaningfully increase assets under management in this business over the coming years. We are proud of the progress we have made to bring our Canadian wealth management operations closer to profitability. As we continue to improve the quality and efficiency of this business, we expect it to become a greater contributor to the overall franchise as we strive for sustainable, long term profitability. Assets under Management – Discretionary, and Fee-based Revenue as a % of Total Revenue (Fiscal years) 35.1% 32.2% 26.2% 18.9% 13.0% 6 4 5 $ 7 7 6 $ 5 3 8 $ 4 0 2 1 $ , 1 6 5 , 1 $ Assets under management – discretionary (C$ millions) Fee-based revenue as a % of total revenue 11 12 13 14 15 11 12 13 14 15 OUR VALUES AT WORK 4 WE ARE AN ENTREPRENEURIAL, HARD-WORKING CULTURE. Canaccord Genuity Wealth Management 19 Asia-Pacific Canaccord Genuity Wealth Management has offices in Melbourne and Sydney and serves growing numbers of clients located in Australia and Southeast Asia. Our Australian wealth management operations were able to increase revenues by 32% compared to the previous fiscal year, due to improved brand recognition and an increase in Canaccord Genuity– led transaction activity in the region. During fiscal 2015, our team of nine advisors was able to grow assets under management in this business by 51% to $836 million. Looking ahead, we expect to grow this business through targeted recruiting, and the continued build-out of wealth management services and products in this market. Assets under Management (C$ millions, fiscal years) $836.0 $555.0 $451.0 13 14 15 AU2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 20 Paul David Reynolds 1963 – 2015 We are all part of the team that Paul built. Over three decades, he dedicated a brilliant career to transforming our business into the one we share today, and the one we will continue to shape in his vision. On behalf of everyone at Canaccord Genuity, Thank you, Paul. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 21 Financial Review 22 22 23 24 25 28 28 29 30 34 37 49 50 50 51 51 52 Management’s Discussion and Analysis Non-IFRS Measures Business Overview Market Data Key Developments During Fiscal 2015 Market Environment During Fiscal 2015 Fiscal 2016 Outlook Overview of Preceding Years – Fiscal 2014 vs. 2013 Financial Overview Quarterly Financial Information Business Segment Results Financial Condition Off-Balance Sheet Arrangements Liquidity and Capital Resources Preferred Shares Outstanding Share Data Share-Based Payment Plans 53 54 55 59 59 60 International Financial Centre Related Party Transactions Critical Accounting Policies and Estimates Financial Instruments 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 60 63 63 63 64 65 110 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 Genuity Group’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 2016 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 Annual Information Form (AIF) filed on www.sedar.com as well as the factors discussed in the sections entitled “Risk Management” in this MD&A and “Risk Factors” in the AIF, 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 2016 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. 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Management’s Discussion and Analysis 23 22 Management’s Discussion and Analysis Fiscal year 2015 ended March 31, 2015 – this document is dated June 2, 2015. 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, 2015 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 Genuity Group” 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, 2015 and 2014, beginning on page 64 of this report. The Company’s financial information is expressed in Canadian dollars unless otherwise specified. The Company’s consolidated financial statements for the years ended March 31, 2015 and 2014 are prepared in accordance with International Financial Reporting Standards (IFRS). Non-IFRS Measures Certain non-IFRS measures are utilized by Canaccord Genuity Group Inc. 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 Genuity Group’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 & Europe, or AUM – Australia is the market value of client assets managed and administered by Canaccord Genuity Wealth Management from which the Company 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. The Company’s method of calculating AUA – Canada, AUM – Canada, AUM – UK & 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 Genuity Wealth Management 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 31. Management believes that these non-IFRS measures will allow for a better evaluation of the operating performance of the Company’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 Genuity Group’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 Genuity Group’s business; thus, these effects should not be ignored in evaluating and analyzing the Company’s financial results. Therefore, management believes that the Company’s IFRS measures of financial performance and the respective non-IFRS measures should be considered together. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 22 Management’s Discussion and Analysis 23 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, 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. Canaccord Genuity Group has offices in 10 countries worldwide, including wealth management offices located in Canada, Australia, and the UK & Europe. Canaccord Genuity, the Company’s international capital markets division, has operations in Canada, the US, the UK, France, Ireland, Hong Kong, 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. Canaccord Genuity Series A Preferred Shares are listed on the TSX under the symbol CF.PR.A. Canaccord Genuity 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 GENUITY GROUP INC.’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 the Company’s institutional, corporate and private clients. The Company’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, Hong Kong, Singapore, Australia and Barbados. Canaccord Genuity Wealth Management Canaccord Genuity 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 its markets. The Company’s wealth management division now has Investment Advisors (IAs) and professionals in Canada, Australia, the UK, the Channel Islands and the Isle of Man. Corporate and Other Canaccord Genuity Group’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 the Company’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 of Canaccord Genuity Group Inc. 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 Canaccord Genuity Group Inc. The Company owns 50% of the issued shares of Canaccord Financial Group (Australia) Pty Ltd. and Canaccord Genuity (Australia) Limited, but for accounting purposes, as of March 31, 2015, the Company is considered to have a 60% interest because of the shares held in a trust controlled by Canaccord Financial Group (Australia) Pty Ltd. [March 31, 2014 – 50%]. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Management’s Discussion and Analysis 25 24 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 the Company’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. The Company 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 Q1/15 Q2/15 Q3/15 Q4/15 Fiscal 2015 Fiscal 2014 Fiscal 2015/ 2014 change TSX and TSX Venture (C$ billions) AIM (£ billions) NASDAQ (US$ billions) 17.0 1.9 28.0 15.0 0.8 12.7 10.8 1.4 18.2 17.3 0.9 25.5 60.1 5.0 84.4 48.7 5.1 72.3 23.4% (2.0)% 16.7% 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, the Company 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 Genuity Group’s long term international business development initiatives over the past several years have laid a solid foundation for revenue diversification. A conservative capital strategy allows the Company to remain competitive in today’s changing financial landscape. During fiscal 2015, the Company’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, 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. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 24 Management’s Discussion and Analysis Management’s Discussion and Analysis 25 Key Developments During Fiscal 2015 CORPORATE • In June 2014, the Company was added to the S&P/TSX Composite Index, the S&P/TSX Composite Dividend Index, and the S&P/TSX High Beta Index • On August 6, 2014, the Company held its 2014 Annual General Meeting of shareholders, where all nominated directors were re-elected or elected to the Board, including Ms. Kalpana Desai as an Independent Director • On August 8, 2014, the Company renewed its normal course issuer bid (NCIB)/buy-back programme, which provides the Company the ability to purchase, at its discretion, up to 5,100,049 of its common shares through the facilities of the TSX for cancellation. During fiscal 2015, the Company purchased 1,197,649 of its common shares under the terms of its NCIB • On November 5, 2014, the Board of Directors appointed Dennis Miller as an Independent Director • In January 2015, the Company appointed Jefferies International Ltd. as joint corporate broker • In February 2015, the Company announced a planned workforce reduction of 4% in its global capital markets business • On April 1, 2015, Paul Reynolds, President & CEO of Canaccord Genuity Group Inc., passed away following a medical emergency in late March 2015. The Board of Directors appointed David Kassie as CEO of the Company. Mr. Kassie now serves as Chairman & CEO of Canaccord Genuity Group Inc. CANACCORD GENUITY • Canaccord Genuity generated revenue of $613.1 million in fiscal 2015 • Net income before taxes excluding significant items(1) was $44.3 million, a decrease of $42.3 million compared to the prior year • Canaccord Genuity led 85 transactions globally, each over $1.5 million, to raise total proceeds of C$4.6 billion during fiscal 2015. Of this: • Canada led 38 transactions, which raised C$2.6 billion • The UK led 10 transactions, which raised C$696.9 million • The US led 11 transactions, which raised C$810.9 million • Asia and Australia operations led 26 transactions, which raised C$506.1 million • During fiscal 2015, Canaccord Genuity participated in a total of 340 transactions globally, each over $1.5 million, to raise gross proceeds of C$39.2 billion. Of this: • Canada participated in 208 transactions, which raised C$25.1 billion • The UK participated in 23 transactions, which raised C$3.7 billion • The US participated in 67 transactions, which raised C$9.5 billion • Asia and Australia operations participated in 42 transactions, which raised C$947.6 million • Significant investment banking transactions for Canaccord Genuity during fiscal 2015 include: • Two transactions totalling C$586.5 million for The Intertain Group Limited on the TSX • US$316.8 million for 3D Systems, Inc. on the NYSE • £294.0 million for Polypipe Group PLC on the LSE • C$289.8 million for Callidus Capital Corp. on the TSX • C$172.6 million for Bellatrix Exploration Ltd. on the TSX and NYSE • Two transactions totalling C$161.6 million for Kinaxis Inc. on the TSX • £154.4 million for OneSavings Bank PLC on the LSE • C$125.0 million for Canacol Energy Ltd. on the TSX • £120.8 million for Game Digital PLC on the LSE • C$115.0 million for Lumenpulse Inc. on the TSX Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 26 Management’s Discussion and Analysis Management’s Discussion and Analysis 27 • £100.0 million for Volution Group PLC on the LSE • £95.0 million for Ediston Property Investment Company PLC on the LSE • £92.0 million for Eurocell PLC on the LSE • £79.3 million for Patisserie Holdings PLC on AIM • US$65.0 million for Avinger, Inc. on the NASDAQ • £56.0 million for Intelligent Energy Plc on the LSE • C$45.0 million for NYX Gaming Group Limited on the TSX • £41.0 million for Matomy Media Limited on the LSE • £36.3 million for Mortgage Advice Bureau on AIM • £26.0 million for EKF Diagnostics on the LSE • In Canada, Canaccord Genuity raised $821.0 million for government bond issuances and $167.1 million for corporate bond issuances during fiscal 2015 • During fiscal 2015, significant M&A and advisory transactions included: • Amaya Gaming Group on its US$4.9 billion purchase of Rational Group • The Intertain Group Limited on its £425.8 million acquisition of Jackpotjoy • Yamana Gold on the C$3.9 billion joint acquisition with Agnico Eagle Mines Limited of Osisko Mining Corporation • SOF Investments on the £212.0 million sale of Moneycorp to Bridgepoint • B2Gold Corp. on its merger with Papillon Resources Limited • TowerBrook Capital Partners on the acquisition of Independent Clinical Services from The Blackstone Group • Medical Action Industries Inc. on its acquisition by Owens & Minor • Jaguar Mining Inc. on its US$315.0 million recapitalization • DHX Media Limited on its acquisition of the Family Channel, Disney XD, Disney Junior (English) and Disney Junior (French) • Ultimo on its disposal to B2 Holding ASA • Plan Group on its sale to Bouygues SA • Nordion Inc. on its US$826.0 million sale to Sterigenics International • AIB, RBS and Santander on their disposal of Morethan Hotels Group to Somerston Capital and Lone Star • Agnico Eagle Mines Limited on its acquisition of Cayden Resources Inc. • Essar Power Canada Holdings Inc. on its US$65.0 million debt financing • Bridgepoint on its acquisition of ASK Italian and Zizzi for £250.0 million • The Co-operative Bank on the £157.5 million sale of Illius Properties Limited to Salmon Real Estate Limited • TA Associates on the £120.0 million disposal of MandM Direct • Regard Holdings Limited on its £120.0 million disposal by MML Capital Partners to Montreux Healthcare Funds and Macquarie Lending • World Energy Solutions, Inc. on its sale to EnerNOC, Inc. • Minova Insurance Holdings on its fundraise from Capital Z Partners Management • Paperny Entertainment Inc. on its sale to Entertainment One Limited CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 26 Management’s Discussion and Analysis Management’s Discussion and Analysis 27 WEALTH MANAGEMENT (GLOBAL) • Globally, Canaccord Genuity Wealth Management generated $257.2 million in revenue during fiscal 2015 • Total assets under administration in Canada and assets under management in the UK & Europe and Australia were $33.3 billion at March 31, 2015(2) WEALTH MANAGEMENT (NORTH AMERICA) • Canaccord Genuity Wealth Management (North America) generated $125.3 million in revenue during fiscal 2015 • Net loss before income taxes was $7.1 million • Assets under administration were $10.7 billion as of March 31, 2015, up 5.6% from $10.2 billion at the end of fiscal 2014(2) • Assets under management were $1.6 billion as of March 31, 2015, up 29.7% from $1.2 billion at the end of fiscal 2014(2) • At March 31, 2015, Canaccord Genuity Wealth Management had 152 Advisory Teams in Canada(3), a decrease of eight Advisory Teams from March 31, 2014 WEALTH MANAGEMENT (UK & EUROPE) • Canaccord Genuity Wealth Management (UK & Europe) generated $125.6 million in revenue and, excluding significant items, recorded net income of $21.6 million before taxes in fiscal 2015(1) • Assets under management (discretionary and non-discretionary) were $21.8 billion (£11.6 billion), an increase of 8% from $20.2 billion (£10.0 billion) at the end of fiscal 2014(2) • At March 31, 2015, Canaccord Genuity Wealth Management had 114 investment professionals and fund managers in the UK & Europe, a decrease of four from March 31, 2014 (1) (2) (3) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. See Non-IFRS Measures on page 22. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 28 Management’s Discussion and Analysis Management’s Discussion and Analysis 29 Market Environment During Fiscal 2015 Fiscal 2015 started with a distinct strengthening in US economic growth. As the US unemployment rate fell steadily and headline inflation accelerated to 2%, the US Federal Reserve (Fed) gradually reduced its bond purchasing program (Quantitative Easing – QE) during the first half of the fiscal year. Elsewhere, the Eurozone experienced very low inflation and a fragile economic recovery, owing to banks’ reluctance to lend to households and businesses. To facilitate credit, the European Central Bank (ECB) cut policy rates and announced targeted long term refinancing operations (LTROs) with credit access conditions for banks tied to lending activities. Throughout fiscal 2015, the euro currency depreciated due to Europe’s monetary policy, which is somewhat relaxed relative to that of other world central banks. Growth in China moderated, with monetary authorities reluctant to stimulate growth and spur a possible housing bubble. In Japan, the economy surprisingly contracted, following the implementation of the Value Added Tax (VAT) increase. Overall, global growth concerns continued to escalate, despite accommodative financial conditions and the backstop from central banks in both developed markets (DMs) and emerging markets (EMs). The end of QE in the US triggered some turbulence in EMs, as it coincided with the beginning of a phase of US dollar appreciation. With most of EM corporate debt denominated in US dollar terms, funding risk emerged and EM currencies, along with the Canadian dollar, were kept under pressure. Nevertheless, powered by abundant liquidity conditions, US and Canadian equities continued to march higher. The S&P/TSX finally hit a new all-time high in September of 2014, surpassing the 15,000 resistance level that had prevailed since 2008. During the second half of fiscal 2015, crude oil prices collapsed on the back of strong production growth from US shale-oil producers and the Organization of the Petroleum Exporting Countries’ (OPEC) decision not to implement production cuts in order to avert a glut in global oil markets. The Bank of Canada (BoC) reacted with a surprise rate cut in fiscal Q4/15, to cushion the Canadian economy from an oil-driven downturn. This unexpected rate cut sent the Canadian dollar sharply lower. Despite a tame inflation backdrop and subdued growth, the Fed ended its QE program, citing marked improvement in labour market conditions. In its last policy meeting of calendar 2014, the Fed announced that its interest rate policy has become data dependent, with a focus on inflationary pressures and the state of the global economy. In Europe, the ECB launched an expanded asset purchase program (QE) in January 2015. In Japan, the Bank of Japan (BoJ) announced it would further expand its balance sheet in order to reach its stated goal of 2% inflation. Given the expectation of a relatively tighter monetary policy in the US versus the rest of the world, the US dollar began to appreciate very rapidly. In China, the People’s Bank of China (PBoC) also eased monetary conditions, starting with an unexpected rate cut in November. In fact, rapidly falling energy prices raised the possibility of deflation, which caused several world central banks to deliver bold rate cuts. With European and Asian economies as net beneficiaries to lower oil prices, the long-held bull market in North American equities came to a pause and global equities began a much-awaited cycle of outperformance. A global growth slowdown and a phase of swift US dollar appreciation (DXY up 22.8%) hurt commodity prices during fiscal 2015. Crude oil, copper and gold prices dropped 53.0%, 8.8% and 7.9%, respectively. Unsurprisingly, resource stocks underperformed the market by a wide margin. Meanwhile, high-dividend paying stocks benefited from lower bond yields. The S&P/TSX (4.0%) underperformed the S&P 500 by 10.4%. Finally, weak commodities pricing was particularly detrimental to the S&P/TSX small-cap index (-12.3%). Fiscal 2016 Outlook We expect world economic growth to reaccelerate going into the second half of calendar 2015. Similar to the Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF) in its biannual World Economic Outlook projects modest global growth reacceleration in 2015. In fact, the organization projects world GDP growth will rise from 3.4% in 2014 to 3.5% in 2015 and 3.8% in 2016. Expectedly for 2015, the outlook for DM growth is set to improve with acceleration in the US, Europe and Japan. However, growth in EMs is projected to decline, reflecting weaker prospects for China and oil-exporting countries. Notably, the global economy should benefit from the global decline in nominal and real long term bond yields, lower oil prices, which are more supply than demand driven, and finally, the rising US dollar, which has redistributed demand towards the weakest countries. When we combine these three factors and account for the lagged impact, we expect global economic activity to accelerate during the second half of calendar 2015. Using the IMF’s new country growth forecasts, we estimate that DMs now account for 30% of world GDP growth in 2015 compared to 70% for EMs. This is particularly important given that major EM economies such as China and India are net importers of crude oil and should benefit from lower energy prices. We expect a synchronized rebound in DM economies during the second half of calendar 2015. This should lift global bond yields and support commodity prices and underlying equities. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 28 Management’s Discussion and Analysis Management’s Discussion and Analysis 29 While we expect increased synchronization among world monetary policies in calendar 2015, we also expect this will lead to a recoupling between DM and EM economic regions later in the fiscal year. This is when we believe the US Federal Reserve will begin to gradually normalize interest rates. The uncertainty about the exact timing of the first rate hike by the Federal Reserve may keep the markets volatile throughout the fiscal year, especially if the US dollar resumes its upward trend. That said, we believe equity markets should continue to do well, propped by late or resource-cyclical equities, where valuations remain very inexpensive. With regard to capital markets activities, we expect the momentum built last year to persist through fiscal 2016. That is, Canaccord Genuity should enjoy strong contributions from across its geographical platforms. One encouraging development is the increased level of volatility exhibited across various asset classes. This volatility is expected to support secondary trading agency revenues. Equity issuance activity should broaden out and include resource equities where US dollar weakness/consolidation and better global growth prospects support commodity prices. With resource cyclicals expected to lead equity markets, M&A and advisory activities are set to pick up in these areas as companies strengthen their balance sheets before entering a phase of stronger world growth in calendar 2016. However, there is much uncertainty remaining about the timing and magnitude of the US Federal Reserve’s upcoming monetary tightening cycle. When we also consider above-average market valuation, conditions remain in place for volatile markets throughout the fiscal year ahead. Overview of Preceding Years – Fiscal 2014 vs. 2013 Total revenue for the year ended March 31, 2014 (fiscal 2014) was $855.2 million, an increase of $58.1 million or 7.3% compared to the year ended March 31, 2013. Canaccord Genuity Group earned record revenue in fiscal 2014, primarily due to strong performances from many of our foreign operations. Canaccord Genuity Group recorded net income of $52.1 million during fiscal 2014, compared to a loss of $18.9 million in fiscal 2013. Excluding significant items(1), net income for fiscal 2014 was $68.8 million, an increase of $43.2 million over fiscal 2013. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. For the years ended March 31 2015 2014 2013 2015/2014 change Management’s Discussion and Analysis 31 30 Management’s Discussion and Analysis Financial Overview SELECTED FINANCIAL INFORMATION(1)(2) (C$ 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) Impairment of goodwill(5) Acquisition-related costs $ 374,058 $ 361,647 $ 353,125 $ 12,411 238,517 151,336 75,217 22,212 19,423 221,410 139,142 91,313 24,549 17,183 145,772 179,690 66,406 29,199 22,930 17,107 12,194 (16,096) (2,337) 2,240 880,763 855,244 797,122 25,519 455,480 85,770 305,822 24,813 14,535 — 413,289 91,135 280,746 5,486 — — 406,724 88,522 292,242 31,617 — 1,719 42,191 (5,365) 25,076 19,327 14,535 — Total expenses 886,420 790,656 820,824 95,764 (Loss) income before income taxes Net (loss) income Net (loss) income attributable to CGGI shareholders Non-controlling interests (Loss) earnings per common share (EPS) – basic (Loss) earnings per common share (EPS) – diluted Return on common equity (ROE) Dividends per common share Book value per diluted common share(6) Excluding significant items(7) 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 (5,657) (11,318) (13,184) 1,866 (0.27) (0.27) (2.9)% 0.25 8.71 827,458 53,305 39,330 36,448 0.27 0.25 $ $ $ $ $ $ $ $ $ $ $ $ $ 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 (70,245) (63,375) (64,597) 1,222 (0.69) (0.66) (7.3) p.p. 0.05 (0.34) 56,871 (31,352) (29,516) (30,763) (0.32) (0.29) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 4,369,905 $ 5,014,622 $ 4,603,502 $ (644,717) 3,242,088 3,831,030 3,538,170 (588,942) 10,275 14,912 16,169 1,117,542 1,168,680 1,049,163 1,928 2,004 2,060 (4,637) (51,138) (76) (1) (2) (3) (4) (5) (6) (7) 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 22. The operating results of the Australian operations have been fully consolidated and a 40% non-controlling interest has been recognized for fiscal 2015 [fiscal 2014 and fiscal 2013 – 50%]. Results of 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 in connection with certain executive changes in our Corporate and Other segment, the closure of the Geneva office in our UK & European wealth management operations, certain real estate and office closure costs, as well as reorganization of our Canadian, UK & Europe and US capital markets operations. Fiscal 2014 and fiscal 2013 restructuring costs include expenses mainly in connection with restructuring of our sales and trading operations in Canada and the UK & Europe, and certain office closure costs. Impairment of goodwill in connection with our Singapore- and China-based operations. 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 3.4% 7.7% 8.8% (17.6)% (9.5)% 13.0% 3.0% 10.2% (5.9)% 8.9% n.m. n.m. — 12.1% (108.8)% (121.7)% (125.6)% 189.8% (164.3)% (169.2)% 25.0% (3.8)% 7.4% (37.0)% (42.9)% (45.8)% (54.2)% (53.7)% (12.9)% (15.4)% (31.1)% (4.4)% (3.8)% CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 30 Management’s Discussion and Analysis Management’s Discussion and Analysis 31 SELECTED FINANCIAL INFORMATION EXCLUDING SIGNIFICANT ITEMS(1) For the years ended March 31 (C$ thousands, except per share and % amounts) 2015 2014 2013 2015/2014 change Total revenue per IFRS Total expenses per IFRS $ 880,763 $ 855,244 $ 797,122 $ 886,420 790,656 820,824 Significant items recorded in Canaccord Genuity Amortization of intangible assets Impairment of goodwill 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 Development costs Total significant items Total expenses excluding significant items 6,823 14,535 20,997 — 7,591 783 — 3,033 5,200 6,742 — 5,486 — 7,841 — — — — 58,962 827,458 20,069 770,587 14,740 — 15,232 388 5,855 15,485 1,331 900 — 53,931 766,893 25,519 95,764 81 14,535 15,511 — (250) 783 — 3,033 5,200 38,893 56,871 Net income before taxes – adjusted $ 53,305 $ 84,657 $ 30,229 $ (31,352) Income taxes – adjusted Net income – adjusted EPS – basic, adjusted EPS – diluted, adjusted 13,975 39,330 0.27 0.25 $ $ $ 15,811 68,846 0.59 0.54 $ $ $ 4,585 25,644 0.16 0.14 $ $ $ (1,836) (29,516) (0.32) (0.29) $ $ $ 3.0% 12.1% 1.2% n.m. 282.7% — (3.2)% n.m. — n.m. n.m. 193.8% 7.4% (37.0)% (11.6)% (42.9)% (54.2)% (53.7)% Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) n.m.: not meaningful FOREIGN EXCHANGE Revenues and expenses from our foreign operations are initially recorded in their respective functional currencies and translated into Canadian dollars at exchange rates prevailing during the period. The pound sterling and the US dollar appreciated against the Canadian dollar by approximately 8.8% and 7.9%, respectively, in fiscal 2015 when compared to fiscal 2014. This appreciation contributed to certain increases in revenue and expense items in Canadian dollars when compared to the applicable prior periods and should be considered when reviewing the following discussion in respect of our consolidated results as well as the discussion in respect of Canaccord Genuity and Canaccord Genuity Wealth Management UK & Europe. GOODWILL During the year ended March 31, 2015, as a result of operating losses in China and reduced revenue forecasts arising from changes in economic and market conditions in Other Foreign Locations – China and Singapore, the Company determined that there had been impairment in the goodwill in respect of these business units. As a result, the Company recorded impairment charges in respect of the goodwill allocated to Other Foreign Locations – China and Singapore in the amounts of $4.5 million and $10.0 million, respectively. The impairment charge in respect of China was recorded in Q3/15 and the impairment charge in respect of Singapore was recorded in Q4/15. Goodwill remaining as of March 31, 2015 in respect of Other Foreign Locations – Singapore is $23.0 million. In determining whether to perform an impairment test, the Company considers factors such as its market capitalization, market conditions generally and overall economic conditions as well as market conditions in the key sectors in which the Company operates and the impact that such conditions are expected to have on the Company’s operations. Utilizing management’s preliminary estimates for revenue and operating performance, growth rates and other assumptions typically required in connection with discounted cash flow models, the Company determined that there was no impairment in the goodwill and indefinite-lived intangible assets associated with its other business units. Notwithstanding this determination as of March 31, 2015, the continuing uncertainty in the economic environment may cause this determination to change. If the business climate remains uncertain and the Company is unable to achieve its internal forecasts, the Company may determine that there has been impairment and the Company may be required to record a goodwill impairment charge in future periods. As further described in Note 13 of the consolidated financial statements, reasonably possible adverse changes in the key assumptions utilized for purposes of the impairment testing for Canaccord Genuity – Canada, UK & Europe, and US and for Other Foreign CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 32 Management’s Discussion and Analysis Management’s Discussion and Analysis 33 Locations – Australia and Singapore may result in the estimated recoverable amount of some or all of these business units declining below the carrying value with the result that impairment charges may be required. The extent of any such impairment charges could be some or all of the amounts recorded for goodwill and indefinite-lived intangible assets and would be determined after incorporating the effect of any changes in key assumptions including any consequential effects of such changes on estimated operating income and on other factors. 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 2015 was $880.8 million, an increase of 3.0% or $25.5 million from fiscal 2014. Our capital markets operations experienced a slight decrease of $2.7 million, or 0.4%, in revenue compared to the prior year. Our wealth management operations, both in Canada and in the UK & Europe, showed strong performances compared to fiscal 2014, with increases of $14.3 million and $12.5 million, respectively. Our Corporate and Other segment further contributed to the overall increase in revenues by $1.4 million. 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 $12.4 million or 3.4% from fiscal 2014 to $374.1 million in fiscal 2015. Our Canaccord Genuity Wealth Management segment contributed $20.4 million to the increase, offset by a decrease in commissions and fees revenue of $8.0 million in our Canaccord Genuity operating segment. Investment banking revenue was $238.5 million in fiscal 2015, up $17.1 million or 7.7% from fiscal 2014. The growth in investment banking revenue was most notable in our Canadian operations, with an increase of $25.7 million, largely due to the completion of the Amaya Gaming transaction during the current fiscal year. The Company’s operations in the Other Foreign Locations geographic region, which includes operations in Australia, Singapore, China, Hong Kong and Barbados, also contributed $7.7 million to the increase in investment banking revenue, primarily due to the continued growth of our Australian capital markets operations. Investment banking revenue was offset by decreases of $15.6 million and $5.7 million in our UK & Europe and US capital markets operations, respectively. Advisory fees of $151.3 million represented an increase of 8.8%, or $12.2 million, compared to the prior year. This was primarily due to higher activity in our capital markets operations in Canada, where advisory fees increased by $34.3 million compared to fiscal 2014. The Company’s operations in the US and in Other Foreign Locations also contributed to the increase in advisory fees compared to the prior year through increases of $2.8 million and $2.0 million, respectively. Advisory fees were offset by a decrease of $26.7 million in our UK & Europe operations, as a result of the substantial decrease in transaction volume compared to the prior year. Revenue derived from principal trading decreased by $16.1 million to $75.2 million for the year ended March 31, 2015, primarily due to the decline of $11.7 million in our UK & Europe capital markets operations and a $6.1 million decrease in our US capital markets operations. The decrease was slightly offset by a $1.4 million increase in principal trading revenue generated in our Canadian capital markets and wealth management operations. Interest revenue decreased by $2.3 million compared to fiscal 2014, mostly as a result of a reduction in interest revenue in our Other Foreign Locations operations. Other revenue of $19.4 million was $2.2 million or 13.0% higher than in the year ended March 31, 2014, partially due to higher 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) Impairment of goodwill(4) Total 2015 51.7% 9.8% 34.7% 2.8% 1.6% 100.6% 2014 48.3% 10.7% 32.8% 0.6% — 92.4% 2015/2014 change 3.4 p.p. (0.9) p.p. 1.9 p.p. 2.2 p.p. 1.6 p.p. 8.2 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 31. Consists of restructuring costs in connection with certain executive changes in our Corporate and Other segment, the closure of the Geneva office in our UK & European wealth management operations, certain real estate and office closure costs, as well as reorganization of our Canadian, UK & Europe and US capital markets operations. Fiscal 2014 restructuring costs incurred were mainly in connection with restructuring of our sales and trading operations in Canada and the UK & Europe, as well as certain office closure costs. Impairment of goodwill in connection with our Singapore- and China-based operations. (4) p.p.: percentage points Expenses for fiscal 2015 were $886.4 million, an increase of 12.1% or $95.8 million compared to last year. Excluding significant items(1), total expenses were $827.5 million, up $56.9 million or 7.4% from fiscal 2014. Total expenses excluding significant items(1) as a percentage of revenue increased by 3.8 percentage points compared to the year ended March 31, 2014. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 32 Management’s Discussion and Analysis Management’s Discussion and Analysis 33 Compensation expenses Incentive compensation expense was $455.5 million, an increase of $42.2 million or 10.2% from the prior year. Incentive compensation expense as a percentage of total revenue increased to 51.7% in fiscal 2015, or by 3.4 percentage points compared to fiscal 2014. This increase was primarily due to the substantial decrease in capital markets revenue in the UK & Europe and the impact of that decrease on incentive compensation pools in the UK & Europe. In addition, there was an increase in share- based incentive compensation expense as a percentage of revenue as a result of an increase in restricted stock awards under our long-term incentive plan to staff in the US in fiscal 2015 to support the growth in that region. Salaries and benefits expense was $85.8 million, a decrease of 5.9% from the prior year. The decrease in salaries and benefits expense compared to fiscal 2014 was partly due to the recording of certain compensation costs in the UK as incentive compensation expense rather than as salaries and benefits as recorded in prior years. The total compensation (incentive compensation plus salaries and benefits) expense as a percentage of total revenue was 61.5%, up 2.5 percentage points compared to 59.0% in fiscal 2014. Other overhead expenses (C$ 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 2015 2014 2015/2014 change $ 52,795 $ 47,872 40,281 51,758 13,424 94,688 28,428 24,448 38,461 46,065 16,359 83,834 26,786 21,369 $ 305,822 $ 280,746 10.3% 4.7% 12.4% (17.9)% 12.9% 6.1% 14.4% 8.9% (1) Includes $14.4 million and $14.6 million of amortization of intangible assets for the years ended March 31, 2015 and March 31, 2014, respectively. See the Selected Financial Information Excluding Significant Items table on page 31. Other overhead expenses were $305.8 million or 8.9% higher in fiscal 2015, which as a percentage of revenue represented an increase of 1.9 percentage points compared to fiscal 2014. The overall increase in other overhead expenses was driven by higher general and administrative expense, communication and technology expense, trading costs, development costs, amortization, and premises and equipment expense. These increases were partially offset by a decrease in interest expense. General and administrative expense, which includes reserves, promotion and travel expense, office expense, professional fees and donations, was up $10.9 million, mainly due to an increase in promotion and travel expense in our Canadian and US operations as a result of higher activity during the year ended March 31, 2015. An increase in legal and other professional fees in our UK & Europe and US operations further contributed to the increase in general and administrative expense. Amortization expense increased by $1.6 million and was partially related to amortization of leasehold improvements in the UK capital markets operations. Development costs increased by $3.1 million, mainly due to higher costs in our Corporate and Other operations, offset by lower hiring incentives in our wealth management operations. During Q4/15, an expense of $5.2 million was recorded in development costs as a result of the accelerated recognition of the unamortized cost of stock-based compensation awards which were held by our former CEO. His death on April 1, 2015 following a serious medical emergency near the end of the quarter required that we recognize the unamortized cost of these awards as of March 31, 2015. Higher trading costs in our International Equities Group in the US was the main reason for the $4.9 million increase in trading costs in fiscal 2015 compared to the year ended March 31, 2014. Communication and technology expense increased by $5.7 million, primarily as a result of increases recorded in the US and UK & Europe capital markets operations. Premises and equipment expense was $1.8 million higher compared to fiscal 2014 due to higher expenses in our US operations. Interest expense decreased by $2.9 million from the prior year, mainly due to lower expenses generated in our Canadian and Other Foreign Locations operations. During the year ended March 31, 2015, the Company also recognized restructuring costs of $24.8 million. The restructuring costs incurred in fiscal 2015 were in connection with certain executive changes in our Corporate and Other segment and the closure of the Geneva office in our UK & Europe wealth management operations in Q1/15. In addition, included in restructuring expense were costs associated with the reorganization of the Canadian, UK & Europe and US capital markets operations incurred during the quarter ended March 31, 2015. During Q3/15, as a result of operating losses in China and Hong Kong, we recorded an impairment charge in respect of the goodwill allocated to those operations in the amount of $4.5 million. In Q4/15, we revised our revenue forecasts for our operation CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 34 Management’s Discussion and Analysis Management’s Discussion and Analysis 35 in Singapore due to challenging economic and market conditions and as a result we recorded an impairment charge in respect of the goodwill allocated to that operation in the amount of $10.0 million. Accordingly, for the year ended March 31, 2015, an impairment charge in the amount of $14.5 million was recorded in respect of the goodwill allocated to Other Foreign Locations – China and Singapore. NET LOSS Net loss for fiscal 2015 was $11.3 million, down from net income of $52.1 million in fiscal 2014. Diluted loss per share was $0.27 in fiscal 2015 compared to diluted earnings per share (EPS) of $0.39 in the prior year. Excluding significant items(1), net income for fiscal 2015 was $39.3 million compared to net income of $68.8 million in fiscal 2014, and diluted EPS was $0.25 compared to diluted EPS of $0.54 in fiscal 2014. Pre-tax profit excluding significant items(1) as a percentage of revenue declined by 3.8 percentage points compared to the year ended March 31, 2014 as a result of increases in certain overhead expenses to support the continued growth in our business. Income tax expense was $5.7 million for fiscal 2015, reflecting an effective tax rate of (100.1)% compared to an effective tax rate of 19.4% in the prior year. The change in the effective tax rate was mainly due to non-deductible items as well as tax losses and other temporary differences not recognized in current and prior periods by certain subsidiaries outside of Canada. A further discussion of our taxes is provided in the Critical Accounting Policies and Estimates section of the MD&A on page 55. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) Quarterly Financial Information(1)(2) The following table provides selected quarterly financial information for the eight most recently completed financial quarters ended March 31, 2015. This information is unaudited, but reflects all adjustments of a recurring nature that are, in the opinion of management, necessary to present a fair statement of the results of operations for the periods. Quarter-to-quarter comparisons of financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. (C$ thousands, except per share amounts) Revenue Q4 Q3 Q2 Fiscal 2015 Q1 Q4 Q3 Fiscal 2014 Q1 Q2 Commissions and fees $ 100,869 $ 92,123 $ 86,240 $ 94,826 $ 102,199 $ 87,581 $ 81,832 $ 90,035 Investment banking Advisory fees Principal trading Interest Other Total revenue Total expenses Net (loss) income before taxes 57,255 40,283 22,621 4,961 6,476 27,601 22,618 14,612 5,045 4,472 66,289 55,741 17,708 5,902 4,391 87,372 32,694 20,276 6,304 4,084 78,453 70,841 40,283 31,833 33,585 31,027 5,908 2,576 39,758 29,894 35,905 21,863 18,883 19,540 5,704 5,212 6,132 6,282 6,805 3,113 232,465 166,471 236,271 245,556 253,748 230,959 183,306 187,231 260,835 191,991 211,326 222,268 221,737 206,539 184,262 178,118 (28,370) (25,520) 24,945 23,288 32,011 24,420 (956) 9,113 Net (loss) income $ (26,322) $ (21,479) $ 17,614 $ 18,869 $ 25,920 $ 18,334 $ (80) $ 7,883 (Loss) earnings per share – basic $ (0.33) $ (0.27) $ 0.16 $ 0.16 $ 0.24 $ 0.15 $ (0.03) $ 0.06 (Loss) earnings per share – diluted $ (0.33) $ (0.27) $ 0.14 $ 0.15 $ 0.22 $ 0.14 $ (0.03) $ 0.06 Excluding significant items(3) Net income (loss) $ 8,820 $ (14,253) $ 20,746 $ 24,017 $ 29,075 $ 21,227 $ 6,734 $ 11,810 Earnings (loss) per share – basic Earnings (loss) per share – diluted $ $ 0.05 $ (0.19) $ 0.19 $ 0.22 $ 0.28 $ 0.18 $ 0.03 $ 0.10 0.05 $ (0.19) $ 0.17 $ 0.20 $ 0.25 $ 0.17 $ 0.03 $ 0.09 Data is in accordance with IFRS except for figures excluding significant items. See Non-IFRS Measures on page 22. The operating results of our Australian operations have been fully consolidated and a 40% non-controlling interest has been recognized during fiscal 2015 [fiscal 2014 and fiscal 2013 – 50%]. 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) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 34 Management’s Discussion and Analysis Management’s Discussion and Analysis 35 QUARTERLY FINANCIAL INFORMATION EXCLUDING SIGNIFICANT ITEMS(1)(2) (C$ thousands, except per share amounts) Q4 Q3 Q2 Fiscal 2015 Q1 Q4 Q3 Fiscal 2014 Q1 Q2 Total revenue per IFRS $ 232,465 $ 166,471 $ 236,271 $ 245,556 $ 253,748 $ 230,959 $ 183,306 $ 187,231 Total expenses per IFRS 260,835 191,991 211,326 222,268 221,737 206,539 184,262 178,118 Significant items recorded in Canaccord Genuity Restructuring costs 20,997 — — — — — 5,486 — Amortization of intangible assets Impairment of goodwill 1,691 10,000 1,684 4,535 1,707 — 1,741 — 1,702 — 1,680 — 1,658 — 1,702 — Significant items recorded in Canaccord Genuity Wealth Management Restructuring costs Amortization of — — — 783 — — — — intangible assets 1,467 1,660 2,224 2,240 2,256 1,945 1,751 1,889 Significant items recorded in Corporate and Other Restructuring costs Development costs 1,433 5,200 — — — — Total significant items 40,788 7,879 3,931 Total expenses excluding 1,600 — 6,364 — — — — — — — — 3,958 3,625 8,895 3,591 significant items 220,047 184,112 207,395 215,904 217,779 202,914 175,367 174,527 Net income (loss) before taxes – adjusted 12,418 (17,641) 28,876 29,652 35,969 28,045 7,939 12,704 Income taxes (recovery) – adjusted Net income (loss) – adjusted EPS – basic – adjusted EPS – diluted – adjusted $ $ $ 3,598 (3,388) 8,130 5,635 6,894 6,818 1,205 894 8,820 $ (14,253) $ 20,746 $ 24,017 $ 29,075 $ 21,227 $ 6,734 $ 11,810 0.05 0.05 $ $ (0.19) $ (0.19) $ 0.19 0.17 $ $ 0.22 0.20 $ $ 0.28 $ 0.18 $ 0.03 $ 0.25 $ 0.17 $ 0.03 $ 0.10 0.09 (1) (2) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. The operating results of our Australian operations have been fully consolidated and a 40% non-controlling interest has been recognized during fiscal 2015 [fiscal 2014 and fiscal 2013 – 50%]. 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 Genuity Group’s revenue and income can experience considerable variations from quarter to quarter and year to year due to factors beyond the Company’s control. The business is affected by the overall condition of the worldwide market. Revenue from an underwriting transaction is recorded only when the transaction has closed. Consequently, the timing of revenue recognition can materially affect the Company’s quarterly results. The first six months of fiscal 2015 continued to demonstrate the positive trend and momentum which started towards the second half of fiscal 2014. As a result of the decline in market conditions in mid-fiscal 2015, our Q3/15 results suffered throughout the different geographic regions. However, during Q4/15, revenues increased by $66.0 million from Q3/15, of which $55.5 million was from the Canaccord Genuity division and $10.5 million was from the Canaccord Genuity Wealth Management division. As a result of the market downturn in mid-fiscal 2015, the Q4/15 revenue in our UK & Europe capital markets operations decreased by 38.9% from revenue earned in Q4/14. Our US operations also experienced a decline in revenue during fiscal 2015 compared to the prior fiscal year. In Canada, our capital markets division had a strong performance throughout the year, particularly in Q2/15, which marked the highest revenue earned in a quarter since Q4/13. The substantive increase in revenue was mostly due to the CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 36 Management’s Discussion and Analysis Management’s Discussion and Analysis 37 completion of two significant transactions during the first six months of fiscal 2015 and a significant transaction in Q4/15. Due to the strong performance of our Australian operations, our Other Foreign Locations operations generated strong revenues throughout the current fiscal year, including $16.0 million in revenue during Q4/15, a record quarter for this geographic region. Revenue from our Canaccord Genuity Wealth Management North America operations has trended higher in more recent quarters, reaching $33.1 million in Q4/15, the highest it has been over the past eight quarters. The pre-tax profit margin for this business unit also improved during this period, reflecting cost containment efforts. Assets under management increased by 29.7% compared to Q4/14, to $1.6 billion at the end of Q4/15, a solid indication of growth in our managed and fee-related accounts. The Canaccord Genuity Wealth Management UK & Europe operations continued to experience steady revenue growth, reflecting the synergies achieved through the acquisition of Eden Financial Ltd. in fiscal 2013. The fee-related revenue in this division has also been steadily increasing. It now stands at 64.6% for Q4/15, a 3.9 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 $21.8 billion as at March 31, 2015. Our UK-based wealth management division recognized higher revenue in each of the quarters in fiscal 2015 compared to the same periods in fiscal 2014. During Q4/15, it also recognized record revenues of $35.7 million, which was 7.4% higher than in Q4/14. Fourth quarter 2015 performance Revenue for the fourth quarter was $232.5 million, a decrease of $21.3 million or 8.4% compared to the same period in the previous year, mainly due to a decline in investment banking and principal trading revenue, which was offset partially by a growth in advisory fees and other revenue. The decrease in investment banking revenue was attributable to lower activity across most of our capital markets operations, offset partially by strong performances in our Other Foreign Locations operations. Principal trading decreased by $8.4 million from Q4/14, primarily due to the $4.4 million decrease in the US and the $3.8 million decrease in the UK & Europe. Advisory fees revenue for the quarter increased by $6.7 million from Q4/14, predominantly due to the $10.4 million increase in our Canadian operations, offset by a $5.1 million decrease in our UK & Europe operations. The increase in advisory fees recognized in Canada for the quarter was mostly due to the completion of the Intertain Group Limited transaction. Expenses were $260.8 million, up $39.1 million or 17.6% from Q4/14. Total expenses excluding significant items(1) were $220.0 million, an increase of $2.3 million or 1.0% from the same period last year. The increase in total expenses excluding significant items(1) was largely attributable to higher development costs and communication and technology expense compared to Q4/14. Development costs increased by $3.9 million, mainly due to an increase in our Corporate and Other segment, offset by lower hiring incentives in our Canadian and US operations. During Q4/15, an expense of $5.2 million was recorded in development costs as a result of the accelerated recognition of the unamortized cost of stock-based compensation awards which were held by our former CEO. His death on April 1, 2015 following a serious medical emergency near the end of the quarter required that we recognize the unamortized cost of these awards as of March 31, 2015. Communication and technology expense increased by $2.6 million from the same quarter in the prior year, mainly due to higher expenditures incurred in our US and UK & Europe operations during the fiscal year. During the fourth quarter of fiscal 2015, the Company recognized $22.4 million in restructuring costs related to the reorganization of the Canadian, US, and UK & Europe capital markets operations in light of weak market conditions in Q3/15. In connection with these restructuring activities, decisions affecting real estate and office locations were made, resulting in the recognition of certain real estate costs in Q4/15 by our US capital markets operations. The Company also recognized a $10.0 million impairment charge to goodwill related to our Singapore operations during the fourth quarter of fiscal 2015 due to revised revenue forecasts arising from changes in economic and market conditions. Net loss for the fourth quarter of fiscal 2015 was $26.3 million, compared to net income of $25.9 million in Q4/14. The decrease in net income was attributable to lower revenue generated in our capital markets foreign operations, as well as increases in certain overhead costs incurred to support continued growth in the business. Diluted loss per share in the current quarter was $0.33, compared to diluted earnings per share of $0.22 in Q4/14. Book value per diluted common share decreased by 3.8%, from $9.05 in Q4/14 to $8.71 in Q4/15. Excluding significant items(1), net income for Q4/15 was $8.8 million, compared to net income of $29.1 million in Q4/14, and diluted EPS was $0.05 in Q4/15, compared to diluted EPS of $0.25 in Q4/14. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 36 Management’s Discussion and Analysis Management’s Discussion and Analysis 37 Business Segment Results(1)(2) For the years ended March 31 Canaccord Genuity Wealth Genuity Management Canaccord Corporate and Other 2015 Total Canaccord Genuity Wealth Genuity Management Canaccord Corporate and Other 2014 Total $ 204,585 $ 123,972 $ 16,768 $ 345,325 $ 148,514 $ 109,344 $ 15,418 $ 273,276 (C$ thousands, except number of employees) Revenue Canada UK & Europe 155,942 125,551 US Other Foreign Locations Total revenue Expenses 202,972 1,367 49,606 — — — — 281,493 212,307 113,046 204,339 216,485 1,646 49,606 38,484 — — — — 325,353 218,131 38,484 613,105 250,890 16,768 880,763 615,790 224,036 15,418 855,244 599,263 223,110 64,047 886,420 532,862 206,706 51,088 790,656 Intersegment allocations 11,910 21,683 (33,593) — 8,537 24,719 (33,256) — Income (loss) before income taxes (recovery) $ 1,932 $ 6,097 $ (13,686) $ (5,657) $ 74,391 $ (7,389) $ (2,414) $ 64,588 Excluding significant items(3) Expenses 556,908 214,736 55,814 827,458 520,634 198,865 51,088 770,587 Intersegment allocations 11,910 21,683 (33,593) — 8,537 24,719 (33,256) — Income (loss) before income taxes (recovery) $ 44,287 $ 14,471 $ (5,453) $ 53,305 $ 86,619 $ 452 $ (2,414) $ 84,657 Number of employees 901 703 324 1,928 974 714 316 2,004 Data is in accordance with IFRS except for figures excluding significant items and number of employees. See Non-IFRS Measures on page 22. 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 40% non-controlling interest has been recognized and included in the Canaccord Genuity business segment in fiscal 2015 [fiscal 2014 – 50%]. 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 31. (1) (2) (3) Canaccord Genuity Group’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 & Europe, and the Asia-Pacific region. Canaccord Genuity has offices in 19 cities in 10 countries worldwide. Our operating results demonstrate the strength of our global business and the success of our efforts to diversify our revenue streams. For fiscal 2015, 67% of total Canaccord Genuity revenue was earned outside of Canada. Canaccord Genuity’s expansion efforts in recent years have firmly positioned the Company as a leading global independent investment bank focused on the mid-market. During fiscal 2015, the Company took steps to streamline its leadership structure and reduce the size of its global workforce by 4%, to rationalize operations in light of the prevailing market conditions. These changes were made in the interest of improving collaboration between global teams and accelerating the delivery of a consistent service model to our clients. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 38 Management’s Discussion and Analysis Management’s Discussion and Analysis 39 During fiscal 2015, Canaccord Genuity participated in 340 transactions for global clients, each valued over $1.5 million, to raise gross proceeds of $39.2 billion(1). Of these, Canaccord Genuity led 85 transactions globally, raising total proceeds of $4.6 billion. Sector diversification remains a core component of the Company’s strategy. Resource-related revenue accounted for 14% of Canaccord Genuity’s total investment banking revenue in fiscal 2015, versus 22% in fiscal 2014. Resource-related transactions comprised 22% of the total number of Canaccord Genuity’s investment banking transactions in fiscal 2015, down slightly by 1% from 23% in fiscal 2014. For fiscal 2015, 43% of the Company’s investment banking revenue was earned in the Technology and Healthcare & Life Sciences sectors. Outlook Canaccord Genuity continues to be 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 among our global offices. We believe Canaccord Genuity’s integrated 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 to diversify, and larger international competitors dedicate limited resources to servicing growth companies. We believe this competitive landscape provides a significant opportunity for Canaccord Genuity in the global mid-market, as this space is currently relatively underserviced by other global investment banks. Canaccord Genuity’s mid-market strategy and focus on key growth sectors differentiate 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, Aequitas, Pure, CSE (Canadian Stock Exchange), Omega, Lynx, Triact). The Company has also developed a strong presence in the US with its American Depositary 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. While we are optimistic about our prospects for the future, the Company has made the prudent decision to balance investments in growth with our ability to generate profit in the current market environment. The dynamic nature of our operating environment requires us to maintain a level of agility in our business mix that allows us to stay competitive and meet the evolving needs of our clients. For this reason, the Company will make disciplined investments in the addition of small teams in specific sector verticals or key service offerings to further strengthen our operations in areas where we believe we can capture additional market share. The management team believes the investments that the Company has made to improve Canaccord Genuity’s global presence and broaden its service offering have positioned the business very well for the future. Transactions over $1.5 million. (1) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 38 Management’s Discussion and Analysis Management’s Discussion and Analysis 39 FINANCIAL PERFORMANCE(1)(2) For the years ended March 31 2015 Canada UK & Europe Other Foreign Locations US Total Canada UK & Europe Other Foreign Locations US 2014 Total $ 204,585 $ 155,942 $ 202,972 $ 49,606 $ 613,105 $ 148,514 $ 212,307 $ 216,485 $ 38,484 $ 615,790 (C$ thousands, except number of employees) Revenue Expenses Incentive compensation 99,366 100,217 107,787 28,146 335,516 72,042 106,339 107,243 21,072 306,696 Salaries and benefits 5,226 7,037 9,986 3,404 25,653 4,819 16,671 9,933 3,366 34,789 Other overhead expenses 49,344 56,562 81,365 15,291 202,562 45,167 55,519 69,718 15,487 185,891 Restructuring costs 4,006 9,143 7,348 500 20,997 4,179 1,307 Impairment of goodwill — — — 14,535 14,535 — — — — — 5,486 — — Total expenses 157,942 172,959 206,486 61,876 599,263 126,207 179,836 186,894 39,925 532,862 Intersegment allocations(3) Income (loss) before income taxes (recovery)(3) Excluding significant items(4) 9,508 (602) 3,004 — 11,910 9,919 (4,233) 2,701 150 8,537 $ 37,135 $ (16,415) $ (6,518) $ (12,270) $ 1,932 $ 12,388 $ 36,704 $ 26,890 $ (1,591) $ 74,391 Total expenses 150,216 163,816 199,133 43,743 556,908 118,306 178,529 186,890 36,909 520,634 Intersegment allocations(3) Income (loss) before income taxes (recovery)(3) Number of employees 9,508 (602) 3,004 — 11,910 9,919 (4,233) 2,701 150 8,537 $ 44,861 $ (7,272) $ 835 $ 5,863 $ 44,287 $ 20,289 $ 38,011 $ 26,894 $ 1,425 $ 86,619 201 329 269 102 901 215 372 286 101 974 Data is in accordance with IFRS except for figures excluding significant items and number of employees. See Non-IFRS Measures on page 22. The operating results of Canaccord Genuity (Australia) Limited have been consolidated and a 40% non-controlling interest has been recognized and included in the Canaccord Genuity segment during fiscal 2015 [fiscal 2014 – 40%]. Income (loss) before income taxes includes intersegment allocations. See the Intersegment Allocated Costs section on page 48. Refer to the Selected Financial Information Excluding Significant Items table on page 31. (1) (2) (3) (4) REVENUE Revenue by geography as a percentage of Canaccord Genuity revenue Revenue generated in: Canada UK & Europe US Other Foreign Locations p.p.: percentage points For the years ended March 31 2015 2014 2015/2014 change 33.4% 25.4% 33.1% 8.1% 24.1% 34.5% 35.2% 6.2% 9.3 p.p. (9.1) p.p. (2.1) p.p. 1.9 p.p. 100.0% 100.0% CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 40 Management’s Discussion and Analysis Management’s Discussion and Analysis 41 Canaccord Genuity generated revenue of $613.1 million, a decline of 0.4% or $2.7 million compared to fiscal 2014 as a result of lower market activity. Revenue from our US operations decreased by $13.5 million and revenue from our UK & Europe operations decreased by $56.4 million compared to the year ended March 31, 2014. The decline in revenue experienced in the US and in the UK & Europe was offset by an increase of $56.1 million in our Canadian operations and of $11.1 million in our Other Foreign Locations operations. Investment banking activity During fiscal 2015, Canaccord Genuity participated in raising $39.2 billion in 340 equity offerings of $1.5 million and greater. The Company’s focus sector mix in fiscal 2015 showed increasing diversity, with 78% of total transactions occurring in sectors outside of Metals & Mining and Energy, which have traditionally been a significant component of the Company’s revenue. Canaccord Genuity’s transactions and revenue by focus sectors are detailed below. CANACCORD GENUITY – OVERALL Investment banking transactions and revenue by sector Sectors Technology Healthcare & Life Sciences Metals & Mining Sustainability Financials Real Estate & Hospitality Consumer & Retail Infrastructure Energy Investment Companies Structured Products Support Services Media & Telecommunications Agriculture Diversified Total For the year ended March 31, 2015 as a % of investment banking transactions 13.7% 9.6% 13.7% 2.7% 7.7% 11.8% 1.1% 3.3% 7.9% — 19.2% — 1.4% 0.3% 7.6% as a % of investment banking revenue 30.3% 12.8% 9.7% 9.4% 7.5% 5.2% 4.8% 4.3% 4.0% 2.2% 0.6% 0.5% 0.2% — 8.5% 100.0% 100.0% CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 40 Management’s Discussion and Analysis Management’s Discussion and Analysis 41 CANACCORD GENUITY – BY GEOGRAPHY Investment banking transactions by sector (as a % of investment banking transactions for each geographic region) For the year ended March 31, 2015 Sectors Structured Products Real Estate & Hospitality Metals & Mining Energy Technology Financials Media & Telecommunications Healthcare & Life Sciences Agriculture Infrastructure Sustainability Consumer & Retail Support Services Investment Companies Diversified Total Canada UK & Europe 32.4% 19.4% 12.5% 10.6% 6.0% 6.0% 1.4% 0.9% 0.5% — — — — — 10.3% 100.0% — — — — 19.0% 28.6% 9.5% 9.5% — 14.4% 9.5% 9.5% — — — US — — — 9.4% 34.4% — — 40.6% — — 12.5% 3.1% — — — Other Foreign Locations — 1.6% 35.9% — 17.2% 14.1% — 7.8% — 14.1% — — — — 9.3% 100.0% 100.0% 100.0% Investment banking revenue by sector (as a % of investment banking revenue for each geographic region) For the year ended March 31, 2015 Sectors Technology Metals & Mining Financials Energy Healthcare & Life Sciences Real Estate & Hospitality Structured Products Support Services Consumer & Retail Sustainability Media & Telecommunications Infrastructure Investment Companies Agriculture Diversified Total Canada UK & Europe 46.7% 14.1% 10.7% 6.0% 5.6% 5.2% 1.5% 1.2% 0.6% 0.5% 0.4% — 0.1% 0.1% 7.3% 19.3% 2.5% 14.4% — 7.9% 15.1% — — 8.4% — — 20.9% 10.8% — 0.7% US 25.7% — — 5.0% 29.6% — — — 6.2% 29.7% — — — — 3.8% 100.0% 100.0% 100.0% Other Foreign Locations 11.6% 25.4% 3.1% 2.9% 8.3% 0.5% — 0.3% 8.2% 9.4% — 0.5% — — 29.8% 100.0% CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Management’s Discussion and Analysis 43 42 Management’s Discussion and Analysis EXPENSES Expenses for fiscal 2015 were $599.3 million, an increase of 12.5% or $66.4 million year over year. The Canaccord Genuity segment recognized $42.4 million of significant items in fiscal 2015 including $21.0 million of restructuring costs, a goodwill impairment charge of $14.5 million and $6.9 million in amortization of intangible assets. Excluding significant items(1), total expenses for fiscal 2015 were $556.9 million, an increase of 7.0% or $36.3 million compared to fiscal 2014. Incentive compensation and salaries and benefits Incentive compensation expense for fiscal 2015 grew by $28.8 million or 9.4% compared to fiscal 2014. Incentive compensation expense as a percentage of revenue was 54.7%, an increase of 4.9 percentage points from fiscal 2014. Salaries and benefits expense for fiscal 2015 decreased by $9.1 million or 26.3% compared to fiscal 2014. Total compensation expense as a percentage of revenue was 3.5 percentage points higher at 58.9% for the year ended March 31, 2015. In Canada, total compensation as a percentage of revenue decreased slightly by 0.6 percentage points compared to fiscal 2014, to 51.1% in fiscal 2015. Our US operations experienced an increase of 3.8 percentage points in the total compensation ratio as a result of lower revenue as well as higher share-based incentive compensation expense that resulted from an increase in restricted stock awards to support the expansion in this region. Total compensation expense as a percentage of revenue in our Other Foreign Locations segment increased slightly by 0.1 percentage point to 63.6% in fiscal 2015. In our UK & Europe operations, total compensation expense as a percentage of revenue increased by 10.8 percentage points to 68.8% as a result of a significant decrease in revenue and the impact that decrease had on the UK-based incentive compensation pools. Canaccord Genuity incentive compensation expense as a percentage of revenue by geography Incentive compensation expense as a percentage of revenue Canada UK & Europe US Other Foreign Locations Canaccord Genuity (total) p.p.: percentage points For the years ended March 31 2015 2014 2015/2014 change 48.6% 64.3% 53.1% 56.7% 54.7% 48.5% 50.1% 49.5% 54.8% 49.8% 0.1 p.p. 14.2 p.p. 3.6 p.p. 1.9 p.p. 4.9 p.p. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 42 Management’s Discussion and Analysis Management’s Discussion and Analysis 43 TOTAL COMPENSATION AS A % OF CANACCORD GENUITY REVENUE – OVERALL TOTAL COMPENSATION AS A % OF CANACCORD GENUITY REVENUE – CANADA 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 3.0% 46.7% 4.7% 52.1% 6.5% 54.1% 5.7% 49.8% 4.2% 54.7% Salaries and benefits Incentive compensation 1.7% 43.1% 2.4% 47.0% 3.3% 49.5% 3.3% 48.5% 2.5% 48.6% Salaries and benefits Incentive compensation 49.7% 56.8% 60.6% 55.5% 58.9% Total 44.8% 49.4% 52.8% 51.8% 51.1% Total TOTAL COMPENSATION AS A % OF CANACCORD GENUITY REVENUE – UK & EUROPE TOTAL COMPENSATION AS A % OF CANACCORD GENUITY REVENUE – US 2011 2012 2013 2014 2015 1.8% 5.5% 49.9% 5.3% 10.7% 60.1% 2.8% 9.9% 56.3% 2.7% 7.8% 47.4% 3.9% 4.5% 60.4% National Insurance Tax Salaries and benefits Incentive compensation 2011 2012 2013 2014 2015 4.6% 54.0% 5.7% 58.3% 6.6% 53.7% 4.6% 49.5% 4.9% 53.1% Salaries and benefits Incentive compensation 57.2% 76.1% 69.0% 57.9% 68.8% Total 58.6% 64.0% 60.3% 54.1% 58.0% Total TOTAL COMPENSATION AS A % OF CANACCORD GENUITY REVENUE – OTHER FOREIGN LOCATIONS 2011 2012 2013 2014 2015 53.2% 8.9% 22.0% 51.7% 10.9% 61.9% 8.7% 54.8% 6.9% 56.7% Salaries and benefits Incentive compensation 62.1% 73.7% 72.8% 63.5% 63.6% Total Other overhead expenses Other overhead expenses excluding significant items(1) were $195.8 million for fiscal 2015, an increase of $16.7 million from the prior year. The largest fluctuations in other overhead expenses were a $6.9 million increase in general and administrative expense, a $5.5 million increase in communication and technology expense and a $5.8 million increase in trading costs, partially offset by a decrease in interest expense of $2.7 million. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 44 Management’s Discussion and Analysis Management’s Discussion and Analysis 45 General and administrative expense increased by $6.9 million or 13.7% to $57.4 million for the year ended March 31, 2015, mainly due to higher promotion and travel expense in the Canadian and US operations as a result of a higher headcount during the first nine months of the fiscal year and certain growth initiatives including the expansion of the fixed income business in the US in fiscal 2014. In addition, an increase in professional fees in our US operations also contributed to the overall increase in general and administrative expense. Communication and technology expense increased by $5.5 million, to $34.8 million for the year ended March 31, 2015, primarily to support business growth in our US and UK & Europe operations. Trading costs increased by $5.8 million or 13.4% to $49.0 million in fiscal 2015 due to higher agency trading volumes in Canada, as well as higher execution and settlement charges in connection with international trading activities in the US. Interest expense decreased by $2.7 million to $11.5 million compared to fiscal 2014, mainly related to our Canadian operations. An impairment charge of $4.5 million related to the goodwill in connection with our China-based operations and the acquisitions of The Balloch Group and certain assets of Kenosis Capital Partners was recorded during the year ended March 31, 2015. The Company also recorded a $10.0 million impairment charge in connection with Singapore-based operations due to reduced revenue forecasts arising from changes in economic conditions in that region. During Q4/15, the Company recorded restructuring charges of $21.0 million to reduce the size of its workforce within the global capital markets business and to rationalize operations in light of the current market conditions. The restructuring charges include termination benefits as well as property costs. INCOME BEFORE INCOME TAXES Income before income taxes in fiscal 2015 was $1.9 million compared to $74.4 million in fiscal 2014. Excluding significant items(1), income before income taxes was $44.3 million compared to $86.6 million in fiscal 2014. The decrease in net income was mainly due to the decline in revenue, a higher compensation ratio resulting from the impact of the lower revenue on the incentive compensation pools, as well as increases in certain overhead expenses incurred to support the business. CANACCORD GENUITY WEALTH MANAGEMENT Overview Canaccord Genuity Group’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 operations 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 Investment Advisors (IAs) from investment banking and venture capital transactions. The Company has wealth management operations in Canada, the UK & Europe, and Australia. In the UK & 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 67.1% of its fiscal 2015 revenue generated from fee-based activity, this geography has a significantly higher proportion of fee-based revenue than the Company’s Canadian and Australian wealth management businesses. 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 29 funds managed by Canaccord Genuity Wealth Management portfolio managers. During fiscal 2015, the Company completed the implementation of a world-class operating system, which provides the necessary infrastructure to support our growth plans for this business. At March 31, 2015, Canaccord Genuity Wealth Management had 16 offices located across Canada, including eight Independent Wealth Management (IWM) locations. During fiscal 2015, the Company continued the strategic refocusing of its Canadian wealth management division to fulfill the needs of a more conservative, aging client base by providing comprehensive financial planning services. The Company has significantly enhanced its training programs over the last several years to ensure Advisory Teams, investment professionals and fund managers possess the broad-based expertise required to deliver comprehensive wealth management advice. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 44 Management’s Discussion and Analysis Management’s Discussion and Analysis 45 During fiscal 2015, Canaccord Genuity Wealth Management in Canada launched Canaccord Genuity Global Portfolio Solutions (GPS), a proprietary asset management platform that combines research and portfolio management with forward-looking risk management solutions. GPS is based on a similar asset management product offered by our UK wealth management business, which has been recognized as a best-in-class investing discipline and has been well received by existing and new wealth management clients across our geographies. Outlook Management’s priorities for Canaccord Genuity Wealth Management will be focused on growing assets under administration and management, and increasing its proportion of fee-based revenues. By increasing recurring revenue streams, we expect to meaningfully reduce our reliance on transaction-based revenue over the coming years, making our business less sensitive to changes in market conditions. With 67.1% of its revenue derived from recurring, fee-based activities, the revenue streams generated through Canaccord Genuity Wealth Management’s UK & European wealth management business help to improve the stability of the division’s overall performance. The Company will continue to pursue strategic opportunities to increase the scale of its UK wealth management business. In Canada, the Company will focus on enhancing margins, managing costs, and growing the business through targeted recruitment and training. While the recruiting environment remains competitive, we expect the benefits of our enhanced global platform to help drive continued recruiting success in select 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 and to support the growth of fee-based services offered through the Canadian business. 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 Total expenses Intersegment allocations(3) Loss before income taxes (recovery)(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 (recovery)(3) For the years ended March 31 2015 2014 2015/2014 change $ 125,339 $ 110,990 $ 14,349 12.9% 62,813 12,188 39,957 114,958 17,483 56,521 13,260 42,653 112,434 16,672 6,292 (1,072) (2,696) 2,524 811 $ (7,102) $ (18,116) $ 11,014 1,561 10,729 152 400 1,204 10,160 160 420 $ 114,958 $ 112,434 $ 17,483 (7,102) 16,672 (18,116) 357 569 (8) (20) 2,524 811 11,014 11.1% (8.1)% (6.3)% 2.2% 4.9% 60.8% 29.7% 5.6% (5.0)% (4.8)% 2.2% 4.9% 60.8% 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 22. 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 48. (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 the Company, for which the Company earns commissions or fees. Refer to the Selected Financial Information Excluding Significant Items table on page 31. (5) (6) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 46 Management’s Discussion and Analysis Management’s Discussion and Analysis 47 Revenue from Canaccord Genuity Wealth Management North America was $125.3 million, an increase of $14.3 million from fiscal 2014. AUA in Canada increased by 5.6% to $10.7 billion at March 31, 2015 from $10.2 billion at March 31, 2014, reflecting higher market values over the year and growth in the business. AUM in Canada increased by 29.7% compared to fiscal 2014 due to the Company’s increased focus on the transition from traditional commission-based accounts to fee-based and managed accounts. There were 152 Advisory Teams in Canada, a decrease of eight from a year ago. The fee-based revenue in our North American operations was 2.9 percentage points higher than in the prior year and accounted for 35.1% of the wealth management revenue earned in Canada during the year ended March 31, 2015. Expenses for the current fiscal year were $115.0 million, an increase of $2.5 million or 2.2% from fiscal 2014. The continued focus on cost containment led to a decrease in total expenses as a percentage of revenue of 9.6 percentage points compared to last year. Incentive compensation expense increased by $6.3 million compared to fiscal 2014 as a result of higher incentive-based revenue. Total compensation expense as a percentage of revenue decreased by 3.0 percentage points compared to last year due to lower fixed compensation levels. The increase in incentive compensation expense due to higher revenue was partially offset by decreases in salaries and benefits and in non-compensation expenses. Trading costs decreased by $1.5 million compared to the prior year. Lower hiring incentives for the year ended March 31, 2015 also led to a $1.5 million decrease in development costs. As a result of the continued focus on cost reduction initiatives, communication and technology expense decreased by $0.6 million compared to last year. Loss before income taxes for fiscal 2015 was $7.1 million compared to a loss before income taxes of $18.1 million for fiscal 2014. The Company’s efforts to continuously monitor costs and implement cost reduction initiatives resulted in a lower loss before income taxes for the year ended March 31, 2015 compared to last year. FINANCIAL PERFORMANCE – UK & EUROPE(1) (C$ 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 Total expenses Intersegment allocations(2) Income before income taxes(2) AUM – UK & Europe(3) Number of investment professionals and fund managers – UK & Europe Number of employees Excluding significant items(4) Total expenses Intersegment allocations(2) Income before income taxes(2) For the years ended March 31 2015 2014 2015/2014 change $ 125,551 $ 113,046 $ 12,505 11.1% 45,407 18,573 43,389 783 108,152 4,200 40,139 14,656 39,477 — 94,272 8,047 $ 13,199 $ 10,727 $ 21,763 20,156 114 303 118 294 5,268 3,917 3,912 783 13,880 (3,847) 2,472 1,607 (4) 9 $ 99,778 $ 86,431 $ 13,347 4,200 21,573 8,047 18,568 (3,847) 3,005 13.1% 26.7% 9.9% n.m. 14.7% (47.8)% 23.0% 8.0% (3.4)% 3.1% 15.4% (47.8)% 16.2% (1) (2) (3) 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 22. Income before income taxes includes intersegment allocations. See the Intersegment Allocated Costs section on page 48. AUM in the UK & Europe is the market value of client assets managed and administered by the Company, for which the Company 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 31. (4) n.m.: not meaningful CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 46 Management’s Discussion and Analysis Management’s Discussion and Analysis 47 Revenue generated by our UK & 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 2015 was $125.6 million, an increase of 11.1% compared to fiscal 2014. AUM in the UK & Europe as of March 31, 2015 was $21.8 billion. The fee-based revenue in our UK & European operations accounted for 67.1% of total revenue in this geography, an increase of 6.5 percentage points compared to fiscal 2014. 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 $45.4 million, up from $40.1 million in fiscal 2014. Total compensation expense (incentive compensation plus salaries and benefits) as a percentage of revenue increased by 2.5 percentage points to 51.0% for the year ended March 31, 2015 as a result of the recording of certain costs as salaries and benefits that were previously recorded as allocated costs from Canaccord Genuity UK & Europe (capital markets). There was also a $1.9 million increase in premises and equipment expense, partially as a result of our wealth management operations relocating to a different office location in London, UK. General and administrative expense increased by $1.2 million, partially as a result of higher consulting fees incurred during the year ended March 31, 2015 to support the growth in activity. Income before income taxes was $13.2 million compared to $10.7 million in the prior year, mainly as a result of higher revenue generated in fiscal 2015. Excluding significant items(1), income before income taxes was $21.6 million, an increase of 16.2% from the prior year. CORPORATE AND OTHER SEGMENT Overview The Corporate and Other segment includes Pinnacle Correspondent Services (Canaccord Genuity Group Inc.’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 the Company’s substantial investment in its information technology and operating infrastructure. Also included in this segment are Canaccord Genuity Group Inc.’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. The Company has approximately 324 employees in the Corporate and Other segment. The majority of Canaccord Genuity Group Inc.’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 Genuity Group Inc.’s risk management and compliance activities include procedures to identify, control, measure and monitor the Company’s risk exposure at all times. Outlook Pinnacle Correspondent Services will be renamed Canaccord Genuity Correspondent Services during the first half of fiscal 2016. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Management’s Discussion and Analysis 49 48 Management’s Discussion and Analysis FINANCIAL PERFORMANCE(1) (C$ thousands, except number of employees and % amounts) 2015 2014 2015/2014 change For the years ended March 31 Revenue Expenses Incentive compensation Salaries and benefits Other overhead expenses Restructuring costs Total expenses Intersegment allocations(2) Loss before income taxes (recovery)(2) Number of employees Excluding significant items(3) Total expenses Intersegment allocations(2) Loss before income taxes (recovery)(2) $ 16,768 $ 15,418 $ 1,350 8.8% 11,744 29,356 19,914 3,033 64,047 (33,593) 9,933 28,430 12,725 — 51,088 (33,256) 1,811 926 7,189 3,033 12,959 (337) $ (13,686) $ (2,414) $ (11,272) 324 316 8 $ 55,814 $ 51,088 $ 4,726 (33,593) (5,453) (33,256) (2,414) (337) (3,039) 18.2% 3.3% 56.5% n.m. 25.4% (1.0)% n.m. 2.5% 9.3% (1.0)% 125.9% Data is in accordance with IFRS except for figures excluding significant items and number of employees. See Non-IFRS Measures on page 22. Loss before income taxes (recovery) includes intersegment allocations. See the Intersegment Allocated Costs section below. Refer to the Selected Financial Information Excluding Significant Items table on page 31. (1) (2) (3) n.m.: not meaningful Revenue for fiscal 2015 was $16.8 million, an increase of $1.4 million or 8.8% from fiscal 2014, primarily due to higher foreign exchange gains recognized during the current fiscal year. Total expenses were $64.0 million for the year ended March 31, 2015, an increase of $13.0 million or 25.4% over the prior year. The $1.8 million increase in incentive compensation expense resulted from higher share-based incentive compensation expense. Salaries and benefits expense increased by $0.9 million over the prior year. During Q4/15, an expense of $5.2 million was recorded as a result of the accelerated recognition of the unamortized cost of stock-based compensation awards which were held by our former CEO. Following his death on April 1, 2015, due to a serious medical emergency near the end of the quarter, we recognized the unamortized cost of these awards as of March 31, 2015 under development costs. General and administrative expense increased by $2.6 million or 23.2%, mainly due to an increase in promotion and travel expense. In addition, the Company also recorded restructuring costs of $3.0 million in connection with certain executive changes in Canada during Q1/15 as well as certain redundant real estate costs recognized during Q4/15. Premises and equipment expense decreased by $1.0 million, mainly due to the reduction in repairs, maintenance and installation expenses throughout the year. Loss before income taxes was $13.7 million for fiscal 2015 compared to a loss before income taxes of $2.4 million for the prior year. Excluding significant items(1), loss before income taxes was $5.4 million for the year ended March 31, 2015 compared to a loss before income taxes of $2.4 million last year. INTERSEGMENT ALLOCATED COSTS Included in the Corporate and Other segment are certain support services, research and other expenses that have been incurred to support the activities within the Canaccord Genuity and Canaccord Genuity Wealth Management segments in Canada. Certain trading, clearing and settlement charges are included as a trading cost in the applicable business units and as a trading cost recovery in Corporate and Other. In addition, certain overhead costs are charged by Canaccord Genuity UK & Europe to Canaccord Genuity Wealth Management UK & Europe and included in intersegment allocated costs for these business units. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 22. (1) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 48 Management’s Discussion and Analysis Management’s Discussion and Analysis 49 Financial Condition Below are selected balance sheet items for the past five years: (C$ thousands) Assets Balance sheet summary as at March 31 2015 IFRS 2014 IFRS 2013 IFRS 2012 IFRS 2011 IFRS Cash and cash equivalents $ 322,324 $ 364,296 $ 491,012 $ 814,238 $ 954,068 Securities owned Accounts receivable Income taxes recoverable Deferred tax assets Investments Equipment and leasehold improvements Goodwill and other intangible assets 848,128 1,143,201 924,337 1,171,988 947,185 2,491,488 2,785,898 2,513,958 3,081,640 2,828,812 5,295 10,148 8,693 43,373 640,456 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 Total assets $ 4,369,905 $ 5,014,622 $ 4,603,502 $ 5,762,723 $ 5,097,500 Liabilities and shareholders’ equity Bank indebtedness Short term credit facility Securities sold short $ 20,264 $ — — — $ 66,138 $ 75,141 $ 13,580 — 150,000 914,649 — 722,613 654,639 913,913 689,020 Accounts payable and accrued liabilities 2,527,636 2,877,933 2,726,735 3,550,600 3,551,124 Provisions Income taxes payable Contingent consideration Deferred tax liabilities Subordinated debt Shareholders’ equity Non-controlling interests 14,320 8,172 — 2,057 15,000 10,334 10,822 — 3,028 15,000 20,055 4,428 14,218 2,576 15,000 1,117,542 1,168,680 1,049,163 10,275 14,912 16,169 39,666 — — 8,088 15,000 992,125 17,454 6,151 23,977 — 8,163 15,000 756,892 — Total liabilities and shareholders’ equity $ 4,369,905 $ 5,014,622 $ 4,603,502 $ 5,762,723 $ 5,097,500 ASSETS Cash and cash equivalents were $322.3 million on March 31, 2015 compared to $364.3 million on March 31, 2014. Refer to the Liquidity and Capital Resources section for more details. Securities owned were $848.1 million compared to $1.1 billion on March 31, 2014, mainly attributable to a decrease in both corporate and government debt owned. Accounts receivable were $2.5 billion on March 31, 2015 compared to $2.8 billion on March 31, 2014, mainly due to a decrease in receivables from brokers and investment dealers. Goodwill was $505.6 million and intangible assets were $134.9 million at March 31, 2015, representing the goodwill and intangible assets acquired through the purchases of Genuity Capital Markets, Collins Stewart Hawkpoint plc (CSHP), a 50% interest in Canaccord Genuity (Australia) Limited, and the wealth management business of Eden Financial Ltd. The change in intangible assets from March 31, 2014 was primarily a result of the amortization of intangible assets, netted against an increase in capitalized costs relating to systems development, as well as the appreciation of the US dollar and pound sterling against the Canadian dollar. The changes in goodwill were due to the impairment charge of $4.5 million in connection with our China- based operations and the impairment charge of $10.0 million in connection with our Singapore-based operations, offset by the depreciation of the Canadian dollar as discussed above. Other assets, consisting of income taxes receivable, deferred tax assets, equipment and leasehold improvements, and investments, were $67.5 million at March 31, 2015 compared to $74.7 million at March 31, 2014. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 50 Management’s Discussion and Analysis Management’s Discussion and Analysis 51 LIABILITIES AND SHAREHOLDERS’ EQUITY Bank overdrafts and call loan facilities utilized by the Company may vary significantly on a day-to-day basis and depend on securities trading activity. On March 31, 2015, Canaccord Genuity Group had available credit facilities with banks in Canada and the UK & Europe in the aggregate amount of $770.0 million [March 31, 2014 – $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. On March 31, 2015, there was bank indebtedness of $20.3 million, compared to $nil on March 31, 2014. Accounts payable and accrued liabilities, including provisions, were $2.5 billion, a decrease from $2.9 billion on March 31, 2014, mainly due to a decrease in payables to brokers and investment dealers. Securities sold short were $654.6 million at March 31, 2015 compared to $913.9 million at March 31, 2014, due mostly to a decrease in short positions in corporate and government debt. Other liabilities, including subordinated debt, income taxes payable and deferred tax liabilities, were $25.2 million at March 31, 2015, a decrease from $28.9 million in the prior year. Non-controlling interests were $10.3 million at March 31, 2015 compared to $14.9 million at March 31, 2014. During the current fiscal year, the Company purchased a portion of the non-controlling interests, thereby reducing the non-controlling interests to 40% 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 $1.1 million (US$0.9 million) [March 31, 2014 – $0.9 million (US$0.9 million)] as rent guarantees for its leased premises in New York. The following table summarizes Canaccord Genuity Group’s long term contractual obligations on March 31, 2015. Contractual obligations payments due by period (C$ thousands) Total Fiscal 2016 Fiscal 2017– Fiscal 2018 Fiscal 2019– Fiscal 2020 Thereafter Premises and equipment operating leases $ 183,217 $ 34,621 $ 56,319 $ 38,326 $ 53,951 Liquidity and Capital Resources Canaccord Genuity Group 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, 2015, cash and cash equivalents were $322.3 million, a decrease of $42.0 million from $364.3 million as of March 31, 2014. During the fiscal year ended March 31, 2015, financing activities used cash in the amount of $85.8 million, which was primarily due to the $38.8 million used for cash dividends paid on common and preferred shares, $9.9 million used for redemption of share capital, and $58.2 million used for the acquisition of common shares for the long-term incentive plan (LTIP). Investing activities used cash in the amount of $29.6 million, primarily related to the purchase of equipment and leasehold improvements, the purchase of intangible assets, and the purchase of the non-controlling interest in Australia. Operating activities provided cash in the amount of $71.4 million, which was due to changes in working capital. A $2.0 million increase in cash was attributable to the effect of foreign exchange on cash balances. The Company’s business requires capital for operating and regulatory purposes. The majority of current assets reflected on the Company’s audited consolidated 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. Securities sold short are highly liquid securities. 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 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 50 Management’s Discussion and Analysis Management’s Discussion and Analysis 51 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 $100.0 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 June 30, 2017. 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 Share Data Preferred shares Series A – issued shares outstanding Series C – issued shares outstanding Common shares Issued shares excluding unvested shares(1) Issued shares outstanding(2) Issued shares outstanding – diluted(3) Average shares outstanding – basic Average shares outstanding – diluted(4) Outstanding shares as of March 31 2015 2014 4,540,000 4,000,000 4,540,000 4,000,000 91,794,667 93,115,359 102,607,705 101,471,456 104,704,483 107,937,492 91,693,485 94,124,672 n/a 101,992,679 (1) (2) (3) (4) Excludes 3,424,549 outstanding unvested shares related to share purchase loans for recruitment and 7,388,489 unvested shares purchased by the employee benefit trusts for the LTIP. Includes 3,424,549 unvested shares related to share purchase loans for recruitment and 7,388,489 unvested shares purchased by the employee benefit trusts for the LTIP. Includes 3,531,202 of share issuance commitments adjusted for estimated forfeitures. This is the diluted share number used to calculate diluted EPS. For years with net losses attributable to common shareholders, all instruments involving potential common shares were excluded from the calculation of diluted earnings per share as they were anti-dilutive. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 52 Management’s Discussion and Analysis Management’s Discussion and Analysis 53 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. There were 2,634,304 shares purchased through the NCIB between August 13, 2013 and August 12, 2014. They were all cancelled. On August 5, 2014, the Company filed a notice to renew the normal course issuer bid (NCIB) to provide the Company with the choice to purchase up to a maximum of 5,100,049 of its common shares during the period from August 13, 2014 to August 12, 2015 through the facilities of the TSX and on alternative trading systems in accordance with the requirements of the TSX. The purpose of the purchase of common shares under the NCIB is to enable the Company to acquire shares for cancellation. The maximum number of shares that may be purchased under the current NCIB represents 5.0% of the Company’s outstanding common shares at the time of the notice. There were 933,449 shares purchased through the NCIB between August 13, 2014 and March 31, 2015 and cancelled. 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, 2014, and will continue for one year (to August 12, 2015) 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 77,383 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 2014 to July 2014 and (b) 25% of the average daily trading volume of common shares of the Company on the TSX in the month of July 2014). To fulfill its regulatory reporting requirements in Canada and in the UK, the Company 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 May 31, 2015, the Company has 102,572,826 common shares issued and outstanding. ISSUANCE AND CANCELLATION OF COMMON SHARE CAPITAL Total common shares issued and outstanding as of March 31, 2014 Shares issued in connection with share-based payment plans Shares issued in connection with replacement plans Shares cancelled Total common shares issued and outstanding as of March 31, 2015 Share-Based Payment Plans LONG-TERM INCENTIVE PLAN Fiscal 2015 101,471,456 2,565,653 270,528 (1,699,932) 102,607,705 Under the long-term incentive plan (LTIP), eligible participants are awarded restricted share units (RSUs), which generally vest over three years. For employees in Canada, an employee benefit trust has been established. Prior to June 30, 2014, for employees in the United States and the United Kingdom, at the time of each RSU award, the Company allotted common shares and these shares were issued from treasury to plan participants following vesting of the RSUs. Effective from June 2014, employee benefit trusts have also been established in the United States and the United Kingdom. The Company or certain of its subsidiaries, as the case may be, fund the employee benefit trusts (the Trusts) with cash which is used by the trustees to purchase common shares on the open market that will be held in the Trusts until the RSUs vest. The Company also has the option to issue common shares from treasury to plan participants following vesting of the RSUs. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 52 Management’s Discussion and Analysis Management’s Discussion and Analysis 53 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, 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. 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 previously granted 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, 2015, there were 1,609,354 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 $9.25 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. 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 the aggregate. International Financial Centre Canaccord Genuity Group 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, the Company’s overall income tax rate is less than the rate that would otherwise be applicable. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Management’s Discussion and Analysis 55 54 Management’s Discussion and Analysis 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. The Company’s principal trading subsidiaries and principal intermediate holding companies are listed in the following table: Canaccord Genuity Corp. Canaccord Genuity SAS Canaccord Genuity Wealth (International) Limited Canaccord Genuity Financial Planning Limited Canaccord Genuity Wealth Limited Canaccord Genuity Wealth Group Limited Canaccord Genuity Limited Canaccord Genuity Inc. Canaccord Genuity Wealth Management (USA) Inc. Canaccord Wealth & 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* 加通贝祥（北京）投资顾问有限公司 (Canaccord Genuity Asia (Beijing) Limited) The Balloch Group Limited Canaccord Genuity Asia (Hong Kong) Limited Canaccord Genuity (Barbados) Ltd. % equity interest Country of incorporation March 31, 2015 March 31, 2014 Canada France Guernsey 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 China British Virgin Islands China (Hong Kong SAR) Barbados 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% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 100% 100% 100% 100% * The Company owns 50% of the issued shares of Canaccord Financial Group (Australia) Pty Ltd. and Canaccord Genuity (Australia) Limited, but for accounting purposes, as of March 31, 2015, the Company is considered to have a 60% interest because of the shares held in a trust controlled by Canaccord Financial Group (Australia) Pty Ltd. [March 31, 2014 – 50%]. Security trades executed for employees, officers and directors of Canaccord Genuity Group Inc. 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 Genuity Group. 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, 2015 and March 31, 2014. Short term employee benefits Share-based payments Total compensation paid to key management personnel March 31, 2015 March 31, 2014 $ 8,063 $ 16,790 9,412 2,001 $ 17,475 $ 18,791 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 54 Management’s Discussion and Analysis Management’s Discussion and Analysis 55 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, 2015 March 31, 2014 $ 1,041 $ 4,769 The following is a summary of Canaccord Genuity Group’s critical accounting estimates. The Company’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, 2015. The Company’s consolidated financial statements for the years ended March 31, 2014 and 2013 were also prepared in accordance with IFRS. The preparation of the March 31, 2015 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 judgments, estimates and assumptions include consolidation, revenue recognition, 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, capitalization of software costs, 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, 2015. CONSOLIDATION The Company owns 50% of the voting shares of Canaccord Genuity (Australia) Limited (CGAL) as at March 31, 2015. The Company also completed an evaluation of its contractual arrangement with the other shareholders and the power it has over the financial and operating policies of CGAL and determined it should consolidate under IFRS 10, “Consolidated Financial Statements” (IFRS 10), as at March 31, 2015 and 2014. Therefore, the financial position, financial performance and cash flows of CGAL have been consolidated. Although the Company owns 50% of the issued shares of CGAL, for accounting purposes, as of March 31, 2015, the Company is considered to have a 60% interest because of the shares held in a trust controlled by Canaccord Financial Group (Australia) Pty Ltd. and therefore has recognized a 40% non-controlling interest (March 31, 2014 – 50%), which represents the portion of CGAL’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 employee benefit trusts, which are considered special purpose entities (SPEs), to fulfill obligations to employees arising from the Company’s share-based payment plans. The employee benefit trusts have been consolidated in accordance with IFRS 10 since their activities are conducted on behalf of the Company, and the Company retains the majority of the benefits and risks of the employee benefit trusts. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 56 Management’s Discussion and Analysis Management’s Discussion and Analysis 57 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. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 56 Management’s Discussion and Analysis Management’s Discussion and Analysis 57 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. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Management’s Discussion and Analysis 59 58 Management’s Discussion and Analysis 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. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 58 Management’s Discussion and Analysis Management’s Discussion and Analysis 59 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. Financial Instruments A significant portion of the Company’s assets and liabilities are composed of financial instruments. The Company uses financial instruments for both trading and non-trading activities. Canaccord Genuity Group engages in trading activities which include the purchase and sale of securities in the course of facilitating client trades and taking principal trading positions with the objective of earning a profit. The use of financial instruments may either introduce or mitigate exposures to market, credit and/or liquidity risks. See Risk Management in this MD&A for details on how these risks are managed. For significant assumptions made in determining the valuation of financial and other instruments, refer to Critical Accounting Policies and Estimates in this MD&A. For additional information regarding the Company’s financial instruments, refer to Note 7 of the Audited Consolidated Financial Statements for the year ended March 31, 2015. DERIVATIVE FINANCIAL INSTRUMENTS 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. On March 31, 2015, forward contracts outstanding to sell US dollars had a notional amount of US$7.5 million, a decrease of US$6.3 million from a year ago. Forward contracts outstanding to buy US dollars had a notional amount of US$12.0 million, an increase of US$6.5 million compared to a year ago. Canaccord Genuity Group’s operations in the US, the UK & 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 Canadian operations also have a net buy position for pounds sterling (GBP) of £2.5 million, unchanged from the prior year. Forward contracts to buy euro (EUR) had a notional amount of €1.1 million. The Company’s Canaccord Genuity Wealth Management segment in the UK & 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. FUTURES The Company’s Canadian operations are involved in trading bond futures contracts, which are agreements to buy or sell a standardized amount of an underlying Government of Canada bond, at a predetermined future date and price, in accordance with terms specified by a regulated futures exchange, and are subject to daily cash margining. The Company’s Canadian operations trade in bond futures in an attempt to mitigate interest rate risk, yield curve risk and liquidity risk. At March 31, 2015, the notional amount of the bond futures contracts outstanding was long $1.6 million [March 31, 2014 – $nil]. The fair value of all of the above futures contracts is nominal due to their short term to maturity. Realized and unrealized gains and losses related to these contracts are recognized in net income (loss) during the reporting period. 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, 2015 for further information. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 60 Management’s Discussion and Analysis Management’s Discussion and Analysis 61 Disclosure Controls and Procedures and Internal Control over Financial Reporting DISCLOSURE CONTROLS AND PROCEDURES As of March 31, 2015, an evaluation was carried out, under the supervision of and with the participation of management, including the Chairman & 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 Chairman & 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, 2015. INTERNAL CONTROL OVER FINANCIAL REPORTING Management, including the Chairman & 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 Chairman & 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, 2015 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, 2015 that have materially affected, or are reasonably likely to materially affect, Canaccord Genuity Group’s internal control over financial reporting. Risk Management OVERVIEW Uncertainty and risk are inherent when conducting operations within financial markets. As an active participant in the Canadian and international capital markets, Canaccord Genuity Group is exposed to risks that could result in financial losses. The Company 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 the Company’s financial stability and profitability. Therefore, an effective risk management framework is integral to the success of Canaccord Genuity Group Inc. RISK MANAGEMENT STRUCTURE AND GOVERNANCE Canaccord Genuity Group’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, procedures and reports that enable the Company to assess and control its risks. These policies and procedures are subject to ongoing review and modification as activities, markets and circumstances change. As part of Canaccord Genuity Group’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 the Company’s risk exposure is conducted through a variety of separate, but complementary, financial, credit, operational, compliance and legal reporting systems. The Company’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 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 60 Management’s Discussion and Analysis Management’s Discussion and Analysis 61 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. See Canaccord Genuity Group’s current Annual Information Form (AIF) for details of the Audit Committee’s mandate as it relates to risk management. 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. 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 Genuity Group. The Committee identifies, measures and monitors the principal risks facing the business through review and approval of the Company’s risk appetite, policies, procedures, and limits/thresholds. The segregation of duties and management oversight are important aspects of the Company’s risk management framework. Canaccord Genuity Group 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 exposure is prudent. In addition, the Company has established procedures to ensure that risks are measured, closely monitored, controlled and visible to senior levels of management. Canaccord Genuity Group is exposed to equity price risk, liquidity risk and volatility risk as a result of its principal trading activities in equity securities. The Company 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 Genuity Group mitigates its risk exposure through a variety of limits to control concentration, capital allocation and usage, as well as through trading policies and guidelines. The Company 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 Genuity Group 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, position aging and concentration levels. Consequently, the Company 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 Genuity Group’s VaR methodology, see the Market Risk section in the Company’s current 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 Genuity Group 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, the Company applies certain credit standards and conducts financial reviews with respect to clients and new accounts. Canaccord Genuity Group provides financing to clients by way of margin lending. In a margin-based transaction, the Company 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 Genuity Group 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 the Company is unable to recover sufficient value from the collateral held. For margin lending purposes, Canaccord Genuity Group has established limits that are generally more restrictive than those required by applicable regulatory policies. Canaccord Genuity Group 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. The Company 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. The Company 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 Genuity Group may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty and/or the issuer of the instrument. The Company manages this risk by imposing and CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 62 Management’s Discussion and Analysis Management’s Discussion and Analysis 63 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 Genuity Group 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. 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 the Company’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 Genuity Group operates in different markets and relies on its employees and systems to process a high number of transactions. In order to mitigate this risk, the Company 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, the Company has implemented an operational risk program that helps Canaccord Genuity Group measure, manage, report and monitor operational risk issues (see RCSA below). Canaccord Genuity Group also has disaster recovery procedures, business continuity plans and built-in redundancies in place in the event of a systems or technological failure. In addition, the Company 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 Genuity Group 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 operations 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 impact 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 Genuity Group 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 Genuity Group that could materially affect the Company’s business, operations or financial condition. Canaccord Genuity Group 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 the Company’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 Genuity Group’s Audited Consolidated Financial Statements. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 62 Management’s Discussion and Analysis Management’s Discussion and Analysis 63 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 revenue, 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 Genuity Group 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 the Company’s reputation. RISK FACTORS For a detailed list of the risk factors that are relevant to Canaccord Genuity Group’s business and the industry in which it operates, see the Risk Factors section in the Company’s current 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 Genuity Group considers to be of particular relevance. Other risk factors may apply. CONTROL RISK As of March 31, 2015, senior officers and directors of the Company collectively owned approximately 18.0% of the issued and outstanding (23.0% fully diluted) 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 Genuity Group 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, 2015, the single largest shareholder that management was aware of was RBC Global Asset Management Inc. The most recent filing that confirms its total holdings was filed on March 9, 2015, which indicated the company owned 5,156,774 shares of Canaccord Genuity Group Inc. The company’s ownership outlined in this filing represents 5.03% of common shares issued and outstanding as at March 31, 2015. 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 Genuity Group’s business. Restrictions on ownership and transfer of common shares Restrictions on ownership and transfer of common shares in the articles of Canaccord Genuity Group 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 Genuity Group’s financial condition, results of operations, capital requirements and such other factors as the Board determines to be relevant. Dividend Declaration On June 2, 2015, the Board of Directors approved a quarterly dividend of $0.05 per common share payable on July 2, 2015 with a record date of June 19, 2015. The Board of Directors also approved a cash dividend of $0.34375 per Series A Preferred Share payable on June 30, 2015 with a record date of June 19, 2015; as well as a cash dividend of $0.359375 per Series C Preferred Share payable on June 30, 2015 with a record date of June 19, 2015. Additional Information Additional information relating to Canaccord Genuity Group Inc., including the Company’s Annual Information Form, can be found on SEDAR’s website at www.sedar.com. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.  65 64 Independent Auditors’ Report To the Shareholders of Canaccord Genuity Group Inc. We have audited the accompanying consolidated financial statements of Canaccord Genuity Group Inc., which comprise the consolidated statements of financial position as at March 31, 2015 and 2014, and the consolidated statements of operations, comprehensive income, changes in equity and cash flows for the years then ended, 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. as at March 31, 2015 and 2014, 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 2, 2015 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 64 65 Consolidated Statements of Financial Position As at (in thousands of Canadian dollars) Notes March 31, 2015 March 31, 2014 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 $ 322,324 $ 364,296 848,128 1,143,201 2,491,488 2,785,898 5,295 3,983 3,667,235 4,297,378 10,148 8,693 43,373 134,877 505,579 9,735 9,977 50,975 131,650 514,907 $ 4,369,905 $ 5,014,622 $ 20,264 $ — 654,639 913,913 6 9 14 10 11 13 13 7 6 Accounts payable and accrued liabilities 9, 20 2,527,636 2,877,933 Provisions Income taxes payable Subordinated debt Total current liabilities Deferred tax liabilities Equity Preferred shares Common shares Contributed surplus Retained earnings Accumulated other comprehensive income Total shareholders’ equity Non-controlling interests Total equity See accompanying notes On behalf of the Board: 24 15 14 16 17 14,320 8,172 15,000 10,334 10,822 15,000 3,240,031 3,828,002 2,057 3,028 3,242,088 3,831,030 205,641 620,858 85,597 92,815 112,631 205,641 653,189 74,037 144,799 91,014 1,117,542 1,168,680 10,275 14,912 1,127,817 1,183,592 $ 4,369,905 $ 5,014,622 DAVID KASSIE Director TERRENCE A. LYONS Director CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.  67 66 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 Impairment of goodwill (Loss) income before income taxes Income tax expense (recovery) Current Deferred Net (loss) income for the year Net (loss) income attributable to: CGGI shareholders Non-controlling interests 11, 13 24 13 14 March 31, 2015 March 31, 2014 $ 374,058 $ 361,647 238,517 151,336 75,217 22,212 19,423 221,410 139,142 91,313 24,549 17,183 880,763 855,244 455,480 413,289 85,770 52,795 40,281 51,758 13,424 94,688 28,428 24,448 24,813 14,535 91,135 47,872 38,461 46,065 16,359 83,834 26,786 21,369 5,486 — 886,420 790,656 (5,657) 64,588 7,261 (1,600) 5,661 8,270 4,261 12,531 $ (11,318) $ 52,057 $ $ (13,184) 1,866 $ $ 51,413 644 Weighted average number of common shares outstanding (thousands) Basic Diluted Net (loss) income per common share Basic Diluted Dividend per Series A Preferred Share Dividend per Series C Preferred Share Dividend per common share See accompanying notes 17 17 17 17 18 18 18 $ $ $ $ $ 91,693 n/a (0.27) (0.27) 1.375 1.4375 0.25 $ $ $ $ $ 94,125 101,993 0.42 0.39 1.375 1.4375 0.20 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 66 67 Consolidated Statements of Comprehensive (Loss) Income For the years ended (in thousands of Canadian dollars) Net (loss) income 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 Net change in unrealized gains on translation of foreign operations, net of tax Comprehensive income for the year Comprehensive income attributable to: CGGI shareholders Non-controlling interests See accompanying notes March 31, 2015 March 31, 2014 $ (11,318) $ 52,057 (314) 22,945 (149) 97,791 $ 11,313 $ 149,699 $ $ 8,433 2,880 $ $ 149,545 154 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.  69 68 Consolidated Statements of Changes in Equity As at and for the years ended (in thousands of Canadian dollars) Preferred shares, opening and closing Common shares, opening Shares issued in connection with share-based payments 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 Shares cancelled Purchase of non-controlling interests Unvested share purchase loans Contributed surplus, closing Retained earnings, opening Net (loss) income attributable to CGGI shareholders Common shares dividends Preferred shares dividends Retained earnings, closing Accumulated other comprehensive income (loss), opening Other comprehensive income attributable to CGGI shareholders Accumulated other comprehensive income, closing Total shareholders’ equity Non-controlling interests, opening Foreign exchange on non-controlling interests Comprehensive income attributable to non-controlling interests Dividends paid to non-controlling interests Purchase of non-controlling interests Non-controlling interests, closing Total equity See accompanying notes Notes March 31, 2015 March 31, 2014 16 $ 205,641 $ 205,641 653,189 21,321 (58,240) 20,867 (11,702) (4,577) 638,456 21,375 (11,046) 18,059 (26,393) 12,738 17 620,858 653,189 18 18 74,037 (2,420) 8,015 656 (3,092) 8,401 85,597 85,981 (4,612) 559 3,891 — (11,782) 74,037 144,799 126,203 (13,184) (26,806) (11,994) 92,815 91,014 21,617 112,631 51,413 (21,055) (11,762) 144,799 (7,118) 98,132 91,014 1,117,542 1,168,680 14,912 (1,171) 2,880 (1,723) (4,623) 10,275 16,169 (751) 154 (660) — 14,912 $ 1,127,817 $ 1,183,592 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 68 Consolidated Statements of Cash Flows For the years ended (in thousands of Canadian dollars) OPERATING ACTIVITIES Net (loss) income for the year Items not affecting cash Amortization Deferred income tax (recovery) expense Share-based compensation expense Impairment of goodwill Impairment of investment in Canadian First Financial Holdings Limited (Canadian First) Changes in non-cash working capital Decrease (increase) in securities owned Decrease (increase) in accounts receivable (Decrease) increase in income taxes payable, net (Decrease) increase in securities sold short (Decrease) increase in accounts payable, accrued liabilities and provisions Cash provided by operating activities FINANCING ACTIVITIES Increase (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 Cash paid related to CSH Inducement Plan Proceeds from exercise of stock options Cash used in financing activities INVESTING ACTIVITIES Purchase of equipment and leasehold improvements Purchase of intangible assets Purchase of non-controlling interests Investment in Canaccord Genuity (Hong Kong) Limited Investment in Canadian First Contingent consideration paid on the acquisition of Eden Financial Ltd. (Eden Financial) 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 69 Notes March 31, 2015 March 31, 2014 $ (11,318) $ 52,057 11, 13 19 13 10 28,428 (1,600) 61,305 14,535 1,000 305,250 341,381 (1,153) (266,619) (399,788) 71,421 20,264 (9,936) (58,240) (26,806) (11,994) (1,295) 2,222 26,786 4,261 52,363 — — (193,629) (221,777) 2,268 213,725 80,951 17,005 (66,138) (21,117) (11,046) (21,055) (11,762) — — (85,785) (131,118) (5,232) (16,636) (7,715) — — — (15,475) (7,002) — (699) (5,730) (9,129) (29,583) (38,035) 1,975 25,432 (41,972) 364,296 (126,716) 491,012 $ 322,324 $ 364,296 $ $ $ 22,187 12,836 16,020 $ $ $ 22,788 14,877 8,359 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 70 Notes to Consolidated Financial Statements 71 Notes to Consolidated Financial Statements As at March 31, 2015 and March 31, 2014 and for the years ended March 31, 2015 and 2014 (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) & Europe, the United States of America (US), Australia, China, Singapore and Barbados. The Company also has wealth management operations in Canada, the UK & 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 investments, securities owned and securities sold short, 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 2, 2015. 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 SPE should be consolidated if the Company acquires control. Control is achieved when an entity has power over the investee, 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 inter-company 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. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 70 Notes to Consolidated Financial Statements 71 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 revenues, expenses, assets and liabilities, accompanying note disclosures, and the disclosure of contingent liabilities at the reporting date. Therefore, actual results may differ from those estimates and assumptions. The significant judgments, estimates and assumptions include consolidation, revenue recognition, share-based payments, income taxes and valuation of deferred tax assets, impairment of goodwill, intangible assets and other long-lived assets, allowance for credit losses, fair value of financial instruments, capitalization of intangible assets related to software costs, and provisions. Consolidation The Company owns 50% of the voting shares of Canaccord Genuity (Australia) Limited (CGAL) as at March 31, 2015. The Company also completed an evaluation of its contractual arrangement with the other shareholders and the power it has over the financial and operating policies of CGAL and determined it should consolidate under IFRS 10, “Consolidated Financial Statements” (IFRS 10), as at March 31, 2015 and 2014. Therefore, the financial position, financial performance, and cash flows of CGAL have been consolidated. Although the Company owns 50% of the issued shares of CGAL as at March 31, 2015, for accounting purposes, the Company is considered to have a 60% interest because of the shares held in a trust controlled by Canaccord Financial Group (Australia) Pty Ltd. Accordingly, the Company has recognized a 40% non-controlling interest as at March 31, 2015 (March 31, 2014 – 50%), which represents the portion of CGAL’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 employee benefit trusts, which are considered SPEs [Note 19], to fulfill obligations to employees arising from the Company’s share-based payment plans. The employee benefit trusts have been consolidated in accordance with IFRS 10 since their activities are conducted on behalf of the Company, and the Company retains the majority of the benefits and risks of the employee benefit trusts. Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefit will flow to the Company and the revenue can be reliably measured. Judgment may be required to determine the amount of revenue that can be recognized and also the timing of the substantial completion of the underlying investment banking or advisory transactions. 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 and valuation of deferred 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 (CGU) to which goodwill and indefinite life intangible assets are attributed is greater than or equal to their carrying values. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 72 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 73 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. 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 recoverable amount of the asset or the CGU containing the asset 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. Fair value of financial instruments The Company measures its financial instruments at fair value. 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 as they apply to restructuring costs are fulfilled. NOTE 03 Adoption of New and Revised Standards The Company adopted certain standards and amendments, discussed below, which were effective as of April 1, 2014 and have been applied retrospectively. The nature and the impact of each new standard and amendment are described below: IAS 32 – “Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32” These amendments clarify the meaning of “currently has a legally enforceable right to set off” and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. These amendments have no impact on the Company, since none of the entities in the Company has any offsetting arrangements. International Financial Reporting Interpretations Committee (IFRIC) 21 – “Levies” IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. This interpretation has no impact on the Company as the Company has applied the recognition principles under IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”, consistent with the requirements of IFRIC 21 in prior years. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 72 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 73 Annual improvements – 2010–2012 cycle In the 2010–2012 annual improvements cycle, the IASB issued seven amendments to six standards, which included an amendment to IFRS 13, “Fair Value Measurement”. The amendment to IFRS 13 clarifies in the Basis for Conclusions that short term receivables and payables with no stated interest rates can be measured at invoice amounts when the effect of discounting is immaterial. This amendment to IFRS 13 has no significant impact on the Company. 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: IFRS 9 – “Financial Instruments” In July 2014, the IASB issued the final version of IFRS 9, “Financial Instruments”, which reflects all phases of the financial instruments project and replaces IAS 39, “Financial Instruments: Recognition and Measurement”, and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before February 1, 2015. The Company is still in the process of assessing the impact of the adoption of IFRS 9. IFRS 15 – “Revenue from Contracts with Customers” In May 2014, the IASB issued IFRS 15, “Revenue from Contracts with Customers”. IFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The standard supersedes all current revenue recognition requirements under IFRS. Application of the standard is mandatory for all entities 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 adoption of IFRS 15 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 74 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 75 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. 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. In addition, a software under development became available for use during fiscal 2015, and the Company began amortizing the asset over its estimated useful life. 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 Acquired in business combinations 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 Internally developed Software n/a n/a n/a n/a 10 years Eden Financial n/a 8 years n/a n/a n/a CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 74 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 75 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 also considered to have an indefinite life, as it will provide benefit to the Company over a continuous period. Internally developed software Expenditures towards the development of 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. Capitalized costs are expenditures directly attributable to the software development, such as employment, consulting or professional fees. 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. 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, which are subject to an insignificant risk of changes in value. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Notes to Consolidated Financial Statements 77 76 Notes to Consolidated Financial Statements [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. 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 discounts or premiums 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, 2015 and 2014. 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 a significant or prolonged impact on the estimated future cash flows of the asset that can be reliably estimated. The determination of what is significant or prolonged requires judgment. In making this judgment, the Company evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost. In the case of debt instruments classified as available for sale, the impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the statement of operations. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 76 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 77 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 or 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. 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; CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 78 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 79 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 valuation 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 [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. 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. SECURITIES PURCHASED UNDER REVERSE REPURCHASE AGREEMENTS AND OBLIGATIONS RELATED TO SECURITIES SOLD UNDER REPURCHASE AGREEMENTS The Company recognizes these transactions on the settlement date at amortized cost using the effective interest rate method. Securities sold and purchased under repurchase agreements remain on the consolidated statement of financial position. Reverse repurchase agreements and repurchase agreements are treated as collateralized lending and borrowing transactions. 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. Facilitation losses for the year ended March 31, 2015 were $13.8 million [March 31, 2014 – $14.8 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 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 78 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 79 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. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 80 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 81 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. 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 the long-term incentive plan (LTIP) 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 (LOSS) PER COMMON SHARE Basic earnings (loss) 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 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 (loss) 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 80 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 81 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. 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 matters and when they can be reasonably estimated. 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 & Europe operations hold money on behalf of their 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 & 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, 2015 March 31, 2014 Securities owned Securities sold short Securities owned Securities sold short $ 638,551 $ 555,792 $ 924,149 $ 823,148 209,577 98,847 219,052 90,765 $ 848,128 $ 654,639 $ 1,143,201 $ 913,913 As at March 31, 2015, corporate and government debt maturities range from 2015 to 2097 [March 31, 2014 – 2014 to 2097] and bear interest ranging from 0.00% to 15.00% [March 31, 2014 – 0.00% to 15.00%]. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 82 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 83 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, 2015 are as follows: Held for trading Available for sale Loans and receivables Loans and borrowings Total March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31, 2014 2014 2014 2014 2014 2015 2015 2015 2015 2015 Financial assets Securities owned $ 848,128 $ 1,143,201 $ — $ — $ — $ — $ — $ — $ 848,128 $ 1,143,201 Accounts receivable from brokers and investment dealers Accounts receivable from clients RRSP cash balances held in trust Other accounts receivable Investments — — — — — — — — — — — — — — — 1,503,666 2,006,183 — 601,486 418,799 — — 276,159 259,614 110,177 101,302 8,693 9,977 — — — — — — — — 1,503,666 2,006,183 — 601,486 418,799 — — — 276,159 259,614 110,177 101,302 8,693 9,977 Total financial assets $ 848,128 $ 1,143,201 $ 8,693 $ 9,977 $ 2,491,488 $ 2,785,898 $ — $ — $ 3,348,309 $ 3,939,076 Financial liabilities Securities sold short $ 654,639 $ 913,913 $ — $ — $ — $ — $ — $ — $ 654,639 $ 913,913 Accounts payable to brokers and investment dealers Accounts payable to clients Other accounts payable and accrued liabilities Subordinated debt — — — — — — — — — — — — — — — — — — — — — 1,172,198 1,659,617 1,172,198 1,659,617 — 1,130,893 965,229 1,130,893 965,229 — — 224,545 253,087 224,545 253,087 15,000 15,000 15,000 15,000 Total financial liabilities $ 654,639 $ 913,913 $ — $ — $ — $ — $ 2,542,636 $ 2,892,933 $ 3,197,275 $ 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) 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 82 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 83 As at March 31, 2015, 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 Equities and convertible debentures Securities sold short Corporate debt Government debt Corporate and government debt Equities March 31, 2015 Estimated fair value March 31, 2015 Level 2 Level 1 $ 18,369 $ — $ 18,369 $ 620,182 638,551 208,678 899 209,577 848,128 (18,032) (537,760) (555,792) (98,847) 128,049 128,049 186,950 — 186,950 314,999 — (137,924) (137,924) (95,715) 492,133 510,502 21,505 27 21,532 532,034 (18,032) (399,836) (417,868) (3,132) (654,639) (233,639) (421,000) Level 3 — — — 223 872 1,095 1,095 — — — — — Available for sale investments 8,693 — 3,963 4,730 March 31, 2014 March 31, 2014 Level 2 Level 1 Level 3 Estimated fair value Securities owned Corporate debt Government debt $ 41,181 $ — $ 41,181 $ 882,968 357,917 525,051 Corporate and government debt 924,149 357,917 566,232 Equities Convertible debentures Private investments Equities and convertible debentures Securities sold short Corporate debt Government debt Corporate and government debt Equities 201,666 175,228 5,501 11,885 — — 219,052 175,228 26,125 2,801 — 28,926 1,143,201 533,145 595,158 (31,017) — (31,017) (792,131) (366,894) (425,237) (823,148) (366,894) (456,254) (90,765) (83,166) (7,599) (913,913) (450,060) (463,853) — — — 313 2,700 11,885 14,898 14,898 — — — — — Available for sale investments 9,977 — 4,247 5,730 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 84 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 85 Movement in net Level 3 financial assets Balance, 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 Balance, March 31, 2014 Transfer to Level 1 assets Net unrealized loss during the year Other Balance, March 31, 2015 $ 4,737 14,943 (8,339) (3,695) 2,700 (4,026) 6,000 8,218 251 (126) (35) $ 20,628 (11,608) (2,865) (330) $ 5,825 During the fiscal year ended March 31, 2015, there was $11.6 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. There were no transfers between Level 1 and Level 2 fair value measurements. The fair value net unrealized loss related to convertible debentures of $1.9 million recognized during the year was recognized through investment banking revenue. The unrealized loss related to available for sale investments of $1.0 million was recognized through general and administrative expense. 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. Level 2 financial instruments also include the Company’s equity investment in Euroclear, which has an estimated fair value of $4.0 million as at March 31, 2015 [March 31, 2014 – $4.2 million]. The current fair value is determined using a market-based approach based on recent share buyback transactions. Level 3 financial instruments Available for sale investments ii. a. Available for sale investments include the Company’s equity and debenture investment in Canadian First Financial Holdings Limited (Canadian First), which has an estimated fair value of $4.7 million as at March 31, 2015 [March 31, 2014 – $5.7 million] [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. During the year ended March 31, 2015, the Company recorded an impairment charge of $1.0 million as a result of changes in market indicators. Held for trading b. The fair value for Level 3 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 held for trading 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 held for trading investments as at March 31, 2015 was $1.1 million [March 31, 2014 – $14.9 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 84 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 85 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, 2015 and 2014. 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 $12.0 million as at March 31, 2015 [March 31, 2014 – $13.2 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, 2015 and 2014, 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, 2015: Financial liability Carrying amount Contractual term to maturity Bank indebtedness Accounts payable and accrued liabilities Securities sold short Subordinated debt Subject to Investment Industry Regulatory Organization of Canada’s approval. (1) March 31, 2015 March 31, 2014 $ 20,264 $ — 2,527,636 2,877,933 654,639 15,000 913,913 15,000 Due on demand Due within one year Due within one year Due on demand(1) The fair values for cash, accounts receivable and accounts payable and accrued liabilities approximate their carrying values and will be paid within 12 months. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Notes to Consolidated Financial Statements 87 86 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, 2015. 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, 2015 March 31, 2014 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 $ 209,577 $ 7,229 $ (7,229) $ 219,052 $ 8,593 $ (8,593) Equities and convertible debentures sold short (98,847) (3,409) 3,409 (90,765) (3,560) 3,560 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, 2015 March 31, 2014 Effect of a 10% increase in fair value on OCI Effect of a 10% decrease in fair value on OCI Carrying value Effect of a 10% increase in fair value on OCI Effect of a 10% decrease in fair value on OCI Investments $ 8,693 $ 545 $ (545) $ 9,977 $ 712 $ (712) 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, fixed income portion of securities owned and securities sold short, net clients’ balances, RRSP cash balances held in trust, 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 bank indebtedness bears interest at 0.90% per annum. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 86 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 87 The following table provides the effect on net income for the years ended March 31, 2015 and 2014 if interest rates had increased or decreased by 100 basis points applied to balances as of March 31, 2015 and 2014. Fluctuations in interest rates do not have an effect on OCI. This sensitivity analysis assumes all other variables remain constant. The methodology used to calculate the interest rate sensitivity is consistent with the prior year. March 31, 2015 March 31, 2014 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 $ 302,060 $ 1,894 $ (1,907) $ 364,296 $ 2,470 $ (2,470) 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 193,489 (529,407) 276,159 331,468 15,000 (276) (3,462) 1,732 (37) (95) 264 (2,138) (1,732) 229,288 (546,430) 259,614 2 94 346,566 (15,000) (872) (3,888) 1,852 (47) (107) 959 (2,082) (1,852) 2 107 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 & 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 in the statement of operations. The following table summarizes the estimated 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, 2015: Currency US dollar Pound sterling Australian dollar As at March 31, 2014: 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 $ (973) $ 973 $ 8,304 $ (8,304) (1,780) nil 1,780 nil 50,107 2,489 (50,107) (2,489) 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) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 88 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 89 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, 2015: To sell US dollars To buy US dollars To buy pounds sterling (GBP) To buy euro (EUR) Forward contracts outstanding at March 31, 2014: Notional amount (millions) Average price Maturity Fair value USD $ USD $ GBP £ EUR € 7.5 12.0 2.5 1.1 $1.27 (CAD/USD) April 6, 2015 $1.27 (CAD/USD) April 6, 2015 $1.88 (CAD/GBP) April 30, 2015 $1.38 (CAD/EUR) July 31, 2015 $ $ $ $ 11 (20) (6) (24) To sell US dollars To buy US dollars To buy pounds sterling (GBP) Notional amount (millions) Average price Maturity Fair value USD $ USD $ GBP £ 13.8 $1.11 (CAD/USD) April 3, 2014 5.5 2.5 $1.10 (CAD/USD) April 1, 2014 $1.84 (CAD/GBP) April 30, 2014 $ $ $ 11 13 7 The Company’s Canaccord Genuity Wealth Management segment in the UK & 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 103 days as at March 31, 2015 [March 31, 2014 – 115 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, 2015. The fair value of the forward contract assets and liabilities is included in the accounts receivable and payable balances. March 31, 2015 March 31, 2014 Assets Liabilities Notional amount Assets Liabilities Notional amount Foreign exchange forward contracts $ 7,858 $ (7,635) $ 326,058 $ 1,359 $ (1,365) $ 327,386 FUTURES The Company’s Canadian operations are involved in trading bond futures contracts, which are agreements to buy or sell a standardized amount of an underlying Government of Canada bond, at a predetermined future date and price, in accordance with terms specified by a regulated futures exchange, and are subject to daily cash margining. The Company’s Canadian operations trade in bond futures in an attempt to mitigate interest rate risk, yield curve risk and liquidity risk. At March 31, 2015, the notional amount of the bond futures contracts outstanding was long $1.6 million [March 31, 2014 – $nil]. The fair value of all of the above futures contracts is nominal due to their short term to maturity. Realized and unrealized gains and losses related to these contracts are recognized in the statement of operations during the reporting period. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 88 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 89 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, 2015, the floating rates ranged from 0.00% to 0.42% [March 31, 2014 – 0.00% to 0.66%]. March 31, 2015 March 31, 2014 BANK INDEBTEDNESS Cash Securities Loaned or delivered as collateral Borrowed or received as collateral Loaned or delivered as collateral Borrowed or received as collateral $ 155,031 $ 43,393 $ 42,734 $ 172,615 158,430 41,290 41,253 190,689 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, 2015, the Company had $20.3 million of bank indebtedness balance outstanding [March 31, 2014 – $nil]. OTHER CREDIT FACILITIES Subsidiaries of the Company also have other credit facilities with banks in Canada and the UK for an aggregate amount of $770.0 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, 2015 and 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 $1.1 million (US$0.9 million) as rent guarantees for its leased premises in New York. As of March 31, 2015 and 2014, there were no outstanding balances under these standby letters of credit. NOTE 08 Interest in Other Entities The Company has a 60% controlling interest for accounting purposes in Canaccord Financial Group (Australia) Pty Ltd. and Canaccord Genuity (Australia) Limited as of March 31, 2015 [March 31, 2014 – 50%]. 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 the year ended March 31, 2015, the Company purchased $4.6 million of non-controlling interests, which increased its ownership interest from 50% as of March 31, 2014 to 60% as of March 31, 2015. As a result of the purchase, the Company recorded a reduction in its contributed surplus of $3.4 million. Canaccord Genuity Australia reported total net income of $4.6 million in fiscal 2015 [2014 – $1.3 million]. As at March 31, 2015, accumulated non-controlling interest was $10.3 million [March 31, 2014 – $14.9 million]. Summarized financial information including goodwill on acquisition and consolidation adjustments but before inter-company eliminations is presented on the next page. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 90 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 91 Summarized statement of profit or loss for the years ended March 31, 2015 and 2014: For the years ended Revenue Expenses Net income before taxes Income tax expense Net income Attributable to: CGGI shareholders Non-controlling interests Total comprehensive income Attributable to: CGGI shareholders Non-controlling interests Dividends paid to non-controlling interests Summarized statement of financial position as at March 31, 2015 and 2014: For the years ended Current assets Non-current assets Current liabilities Non-current liabilities Summarized cash flow information for the years ended March 31, 2015 and 2014: For the years ended Cash provided by operating activities Cash used by financing activities Cash used by investing activities Foreign exchange impact on cash balance Canaccord Genuity Australia March 31, 2015 March 31, 2014 $ 41,608 $ 34,640 6,968 2,396 4,572 2,706 1,866 6,813 3,933 2,880 1,723 28,138 26,160 1,978 690 1,288 644 644 308 154 154 660 Canaccord Genuity Australia March 31, 2015 March 31, 2014 $ 34,280 $ 28,263 11,440 — 31,897 32,008 (10,067) (155) Canaccord Genuity Australia March 31, 2015 March 31, 2014 $ 9,768 $ (3,545) (8,108) (1,204) 7,427 (1,217) (1,550) (125) Net (decrease) increase in cash and cash equivalents $ (3,089) $ 4,535 NOTE 09 Accounts Receivable and Accounts Payable and Accrued Liabilities ACCOUNTS RECEIVABLE Brokers and investment dealers Clients RRSP cash balances held in trust Other March 31, 2015 March 31, 2014 $ 1,503,666 $ 2,006,183 601,486 276,159 110,177 418,799 259,614 101,302 $ 2,491,488 $ 2,785,898 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 90 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 91 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Brokers and investment dealers Clients Other March 31, 2015 March 31, 2014 $ 1,172,198 $ 1,659,617 1,130,893 224,545 965,229 253,087 $ 2,527,636 $ 2,877,933 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, 2015 – 5.85% to 6.25% and 0.00% to 0.05%, respectively; March 31, 2014 – 6.00% to 6.25% and 0.00% to 0.05%, respectively]. As at March 31, 2015, the allowance for doubtful accounts was $12.0 million [March 31, 2014 – $13.2 million]. See below for the movements in the allowance for doubtful accounts: Balance, March 31, 2013 Charge for the year Recoveries Write-offs Foreign exchange Balance, March 31, 2014 Charge for the year Recoveries Write-offs Foreign exchange Balance, March 31, 2015 NOTE 10 Investments Available for sale $ 13,986 6,208 (6,022) (1,860) 844 $ 13,156 7,510 (8,818) 288 (151) $ 11,985 March 31, 2015 March 31, 2014 $ 8,693 $ 9,977 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, a private company that has been established as a Canadian retail financial services organization. As a result of changes in market indicators, the Company recorded an impairment charge of $1.0 million during the year ended March 31, 2015. These investments are carried at fair value, as described in Note 7. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 92 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 93 NOTE 11 Equipment and Leasehold Improvements March 31, 2015 Computer equipment Furniture and equipment Leasehold improvements March 31, 2014 Computer equipment Furniture and equipment Leasehold improvements Cost Balance, March 31, 2013 Additions Disposals Foreign exchange Balance, March 31, 2014 Additions Disposals Foreign exchange Other Balance, March 31, 2015 Accumulated amortization Balance, March 31, 2013 Amortization Disposals Foreign exchange Balance, March 31, 2014 Amortization Disposals Foreign exchange Other Balance, March 31, 2015 Cost Accumulated amortization Net book value $ $ $ 10,320 $ 3,694 $ 21,080 87,883 15,499 56,717 6,626 5,581 31,166 119,283 $ 75,910 $ 43,373 $ 10,628 21,494 78,833 $ 3,941 14,913 41,126 6,687 6,581 37,707 $ 110,955 $ 59,980 $ 50,975 Computer equipment Furniture and equipment Leasehold improvements $ $ $ $ 10,231 2,550 (6,109) 3,956 10,628 2,913 (2,256) (965) — $ $ 21,073 2,688 (2,771) 504 21,494 660 (1,464) 390 — $ $ 75,685 10,237 (12,706) 5,617 78,833 1,659 (3,155) 8,516 2,030 Total 106,989 15,475 (21,586) 10,077 110,955 5,232 (6,875) 7,941 2,030 $ 10,320 $ 21,080 $ 87,883 $ 119,283 Computer equipment Furniture and equipment Leasehold improvements $ $ $ $ 3,821 3,425 (6,037) 2,732 3,941 3,104 (2,243) (1,108) — $ $ 15,478 1,674 (2,604) 365 14,913 1,728 (1,370) 228 — $ $ 44,711 7,104 (11,773) 1,084 41,126 9,181 (2,840) 7,491 1,759 Total 64,010 12,203 (20,414) 4,181 59,980 14,013 (6,453) 6,611 1,759 $ 3,694 $ 15,499 $ 56,717 $ 75,910 The carrying value of any temporarily idle property, plant and equipment is not considered material as at March 31, 2015 and March 31, 2014. NOTE 12 Business Combination 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 92 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 93 NOTE 13 Goodwill and Other Intangible Assets Identifiable intangible assets Gross amount Goodwill Non- Brand names relationships Technology development competition Customer Software under Trading licences Total 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 Additions Transfer between categories Other Foreign exchange — — — — — (1,865) — — — 5,207 — 966 — 16,884 19,395 (19,395) — 301 — — — — — — — — 16,884 — (1,865) (413) (11) 843 Balance, March 31, 2015 526,364 44,930 97,578 26,595 4,491 13,945 184 187,723 Accumulated amortization and impairment Balance, March 31, 2013 Amortization Impairment Foreign exchange — — (6,250) (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) Amortization Impairment Other Foreign exchange — (14,535) — — Balance, March 31, 2015 (20,785) — — 1,865 — — (9,427) (2,259) — — 77 — — (146) (33,197) (7,352) — — — — — — — — — — (6,566) (3,091) — 105 (9,552) (3,038) — — 293 (12,297) — — — — — — — — — — (23,442) (14,583) — (2,186) (40,211) (14,724) — 1,865 224 (52,846) Net book value March 31, 2014 March 31, 2015 514,907 44,930 72,765 1,952 505,579 44,930 64,381 19,243 7,002 4,491 4,806 1,648 195 131,650 184 134,877 During the year ended March 31, 2015, there were $19.4 million of intangible assets transferred from software under development to technology. These intangible assets relate to a back-office software developed for use in the UK & Europe wealth management operations. The carrying amount of the software at March 31, 2015 was $19.2 million. The software became available for use during the current fiscal year and is being amortized over the estimated useful life of 10 years. The additions to software under development intangible assets prior to being put into use during the year ended March 31, 2015 relate to any costs directly attributable to the development of the software, including employment, consulting and other professional fees. During the year ended March 31, 2014, the Company recorded an impairment charge of $6.3 million related to the goodwill acquired in connection with the acquisition of certain assets and liabilities of Kenosis Capital Partners. This goodwill was allocated to the Other Foreign Locations CGU. During the year ended March 31, 2015, as a result of operating losses in China and reduced revenue forecasts arising from changes in economic and market conditions in Other Foreign Locations – China and Singapore, the Company determined that the carrying amounts of these CGUs exceeded our estimates of their recoverable amounts and that there had been impairment in the goodwill in respect of these CGUs. As a result, the Company recorded impairment charges in respect of the goodwill allocated to these CGUs in the amounts of $4.5 million and $10.0 million, respectively. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 94 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 95 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, 2015 March 31, 2014 March 31, 2015 March 31, 2014 March 31, 2015 March 31, 2014 Canaccord Genuity Canada UK & Europe US Other Foreign Locations (China) Other Foreign Locations (Australia) Other Foreign Locations (Singapore) Canaccord Genuity Wealth Management UK & Europe (Channel Islands) UK & Europe (Eden Financial) $ 44,930 $ 44,930 $ 242,074 $ 242,074 $ 287,004 $ 287,004 — — — 188 — — — — — — 195 — — — 97,676 9,103 — 21,265 22,971 95,789 7,942 4,764 22,537 31,539 97,676 9,103 — 21,453 22,971 95,789 7,942 4,764 22,732 31,539 101,335 11,155 99,322 10,940 101,335 11,155 99,322 10,940 $ 45,118 $ 45,125 $ 505,579 $ 514,907 $ 550,697 $ 560,032 The Genuity brand name is considered to have an indefinite life as the Company has no plans to cease its use in the future. 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 CGUs 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, 2014. 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 & Europe [March 31, 2014 – 12.5%] and 14.0% in respect of Australia, Singapore and the US [March 31, 2014 – 14.0%]. Cash flow estimates for each CGU are based on management assumptions as described above and utilize five-year compound annual revenue growth rates ranging from 5.0% to 10.0% [March 31, 2014 – 9.0% to 15.0%] as well as estimates in respect of operating margins. The compound annual revenue growth rates utilized were: (a) Canaccord Genuity (i) Canada – 5.0%, (ii) UK & Europe – 7.5%, (iii) US – 10.0%, (iv) Other Foreign Locations – 5.0% to 10.0%; and (b) Canaccord Genuity Wealth Management, UK & Europe – 5.0%. The terminal growth rate used for CGUs located in Canada and the UK & Europe was 2.5% [March 31, 2014, Canada – 3.0%] and for CGUs located in all other locations was 3.0% [March 31, 2014 – 5.0%]. At March 31, 2015, 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, 2015 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 rates used were in the range of 0.75% to 2.0%. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 94 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 95 During the year ended March 31, 2015, as a result of operating losses in China and reduced revenue forecasts arising from changes in economic and market conditions in Other Foreign Locations – China and Singapore, the Company determined that the carrying amounts of these CGUs exceeded our estimates of their recoverable amounts and that there had been impairment in the goodwill in respect of these CGUs. As a result, the Company recorded impairment charges in respect of the goodwill allocated to these CGUs in the amounts of $4.5 million and $10.0 million, respectively. Sensitivity testing was conducted as part of the annual impairment test of goodwill and indefinite life intangible assets. The sensitivity testing includes assessing the impact that reasonably possible declines in revenue estimates for the 12-month period ending on March 31, 2016 and declines in growth rates after that period and increases in the discount rates would have on the recoverable amounts of the CGUs, with other assumptions being held constant. The Company’s annual impairment testing has determined that any reasonably possible adverse change in the key assumptions in respect of the CGUs listed below may cause a further impairment loss to be recognized. Reasonably possible declines in the compounded annual growth rates utilized for the five-year period beginning on April 1, 2015, decreases in the revenue estimates for the 12-month period ending on March 31, 2016, decreases in the estimated annual improvement in operating margins, or increases in the discount rates would cause the estimated recoverable amount to equal the carrying value and consequently a further impairment loss to be recognized. These sensitivities are indicative only and should be considered with caution, as the effect of the variation in each assumption on the estimated recoverable amount is calculated in isolation without changing any other assumptions. The extent of any such impairment loss would be determined after incorporating any consequential effects of that change on estimated operating income and on other factors. Change required for carrying value to equal the estimated recoverable amount CGU Canaccord Genuity – Canada Canaccord Genuity – UK & Europe Canaccord Genuity – US Canaccord Genuity Other Foreign Locations – Australia Excess of the estimated recoverable amount over carrying value $ $ $ $ 127,000 24,000 13,000 15,000 Canaccord Genuity Other Foreign Locations – Singapore* $ — Increase in discount rate (p.p.) Decrease in five-year CAGR (p.p.) Decrease in estimated Decrease in revenue for estimated annual improvement in period ending on operating margins (p.p.) March 31, 2016 the 12-month 3.1 1.0 1.1 2.7 1.9 10.4 2.9 4.2 6.3 4.6 $ $ $ $ $ 32,000 7,000 7,000 5,000 1,000 1.4 0.3 0.2 1.1 1.4 * Remaining goodwill allocated to Other Foreign Locations – Singapore after the impairment loss described above is $22,971 as of March 31, 2015. Accordingly, sensitivity testing was also performed in respect of this CGU. p.p.: percentage points 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 (recovery) expense Origination and reversal of temporary differences Impact of change in tax rates Benefit arising from a previously unrecognized tax loss March 31, 2015 March 31, 2014 $ 8,510 $ (1,249) 7,261 (1,589) (11) — (1,600) 6,518 1,752 8,270 4,632 (309) (62) 4,261 Income tax expense reported in the statements of operations $ 5,661 $ 12,531 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 96 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 97 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: (Loss) income before income taxes Income taxes at the statutory rate of 26.0% (2014: 26.0%) 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 and other Tax losses and other temporary differences not recognized (utilization of tax losses previously not recognized) March 31, 2015 March 31, 2014 $ (5,657) $ (1,471) (785) 4,786 760 1,180 1,191 64,588 16,793 1,679 2,957 2,328 (2,882) (8,344) Income tax expense reported in the statements of operations $ 5,661 $ 12,531 The following were the deferred tax assets and liabilities recognized by the Company and movements thereon during the year: Consolidated statements of financial position Consolidated statements of operations March 31, 2015 March 31, 2014 March 31, 2015 March 31, 2014 Unrealized gain on securities owned $ (1,585) $ (1,936) $ (370) $ 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 Other 602 2,179 2,786 3,448 7,612 741 11,898 (21,762) 2,172 1,675 1,936 2,170 3,792 4,531 1,253 15,431 (24,086) 1,941 1,073 109 (598) 344 (3,049) 512 3,520 (2,706) (435) 73 372 (1,615) (68) 2,217 7,024 444 (1,244) (2,720) (222) $ 8,091 $ 6,707 $ (1,600) $ 4,261 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: March 31, 2015 March 31, 2014 $ 10,148 $ (2,057) 9,735 (3,028) $ 8,091 $ 6,707 March 31, 2015 March 31, 2014 Opening balance as of April 1 $ 6,707 $ Tax recovery (expense) recognized in the consolidated statements of operations Foreign exchange on deferred tax position Amounts recognized through other comprehensive income (loss) Other 1,600 — — (216) 9,976 (4,261) 621 47 324 $ 8,091 $ 6,707 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 96 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 97 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 $19.3 million [2014 – $14.6 million] in the UK & Europe have been recognized as a deferred tax asset. The losses in the UK & Europe can be carried forward indefinitely. Tax loss carryforwards of $11.2 million [2014 – $3.1 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 $30.6 million [2014 – $29.1 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 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 $26.7 million at March 31, 2015 [2014 – $17.3 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, 2015 and 2014, the interest rates for the subordinated debt were 6.85% 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, 2015 March 31, 2014 NOTE 16 Preferred Shares March 31, 2015 March 31, 2014 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 97,450 4,000,000 97,450 4,000,000 Series C Preferred Shares held in treasury (2,627) (106,794) (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 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 98 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 99 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. [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 5.5% for the initial five-year period ending on June 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 Issued and fully paid Unvested share purchase loans March 31, 2015 March 31, 2014 Amount Number of shares Amount Number of shares $ 722,509 102,607,705 $ 713,140 101,471,456 (25,852) (3,424,549) (21,275) (3,576,051) Shares repurchased through NCIB for cancellation — — (250) (45,600) Held for the LTIP (75,799) (7,388,489) (38,426) (4,734,446) $ 620,858 91,794,667 $ 653,189 93,115,359 [i] AUTHORIZED Unlimited common shares without par value [ii] ISSUED AND FULLY PAID 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 Shares issued in connection with share-based payment plans [note 19] Shares issued in connection with replacement plans [note 19] Shares cancelled Balance, March 31, 2015 Number of shares Amount 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 2,565,653 270,528 (1,699,932) 18,901 2,420 (11,952) 102,607,705 $ 722,509 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 98 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 99 On August 5, 2014, the Company filed a notice to renew the normal course issuer bid (NCIB) to provide the Company with the choice to purchase up to a maximum of 5,100,049 of its common shares during the period from August 13, 2014 to August 12, 2015 through the facilities of the TSX and on alternative trading systems in accordance with the requirements of the TSX. The purpose of the purchase of common shares under the NCIB is to enable the Company to acquire shares for cancellation. The maximum number of shares that may be purchased under the current NCIB represents 5.0% of the Company’s outstanding common shares at the time of the notice. There were 1,197,649 shares purchased through the NCIB between April 1, 2014 and March 31, 2015 and cancelled. [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] (LOSS) EARNINGS PER COMMON SHARE For the years ended Basic (loss) earnings per common share Net (loss) earnings attributable to CGGI shareholders Preferred shares dividends Net (loss) earnings attributable to common shareholders Weighted average number of common shares (number) Basic (loss) earnings per share Diluted (loss) earnings per common share Net (loss) earnings 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, 2015 March 31, 2014 $ (13,184) $ 51,413 (11,877) (11,762) (25,061) 39,651 91,693,485 94,124,672 $ (0.27) $ 0.42 (25,061) 39,651 n/a n/a n/a n/a 94,124,672 5,260,323 2,607,684 101,992,679 Diluted (loss) earnings per common share $ (0.27) $ 0.39 For the year ended March 31, 2015, the instruments involving potential common shares were excluded from the calculation of diluted (loss) 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, 2015: Record date June 20, 2014 August 29, 2014 November 21, 2014 February 27, 2015 Payment date July 2, 2014 September 10, 2014 December 10, 2014 March 10, 2015 Cash dividend per common share Total common dividend amount $ $ $ $ 0.05 0.05 0.10 0.05 $ $ $ $ 5,093 5,106 10,252 5,101 On June 2, 2015, the Board of Directors approved a cash dividend of $0.05 per common share payable on July 2, 2015 to common shareholders of record as at June 19, 2015 [Note 26]. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Notes to Consolidated Financial Statements 101 100 Notes to Consolidated Financial Statements PREFERRED SHARES DIVIDENDS Record date June 13, 2014 September 19, 2014 December 19, 2014 March 20, 2015 Payment date June 30, 2014 September 30, 2014 December 31, 2014 March 31, 2015 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 2, 2015, the Board also approved a cash dividend of $0.34375 per Series A Preferred Share payable on June 30, 2015 to Series A Preferred shareholders of record as at June 19, 2015 [Note 26]. On June 2, 2015, the Board also approved a cash dividend of $0.359375 per Series C Preferred Share payable on June 30, 2015 to Series C Preferred shareholders of record as at June 19, 2015 [Note 26]. NOTE 19 Share-Based Payment Plans [i] LONG-TERM INCENTIVE PLAN Under the long-term incentive plan (LTIP), eligible participants are awarded restricted share units (RSUs), which generally vest over three years. For employees in Canada, an employee benefit trust has been established. Prior to June 30, 2014, for employees in the United States and the United Kingdom, at the time of each RSU award, the Company allotted common shares and these shares were issued from treasury to plan participants following vesting of the RSUs. Effective from June 2014, employee benefit trusts have also been established in the United States and the United Kingdom. The Company or certain of its subsidiaries, as the case may be, fund the employee benefit trusts (the Trusts) with cash which is used by the trustees to purchase common shares on the open market that will be held in the Trusts until the RSUs vest. The Company also has the option to issue common shares from treasury to plan participants following vesting of the RSUs. There were 5,562,539 RSUs [year ended March 31, 2014 – 5,870,844 RSUs] granted in lieu of cash compensation to employees during the year ended March 31, 2015. The Trusts purchased 5,112,934 common shares [year ended March 31, 2014 – 1,797,069 common shares] for the year ended March 31, 2015. The vested and forfeited numbers include the LTIP portion of the CSH Inducement Plan [Note 19 [iv]]. The fair value of the RSUs at the measurement date is based on the purchase price of the shares by the Trusts on the open market and is amortized on a graded basis over the vesting period of generally three years. The weighted average fair value of RSUs granted during the year ended March 31, 2015 was $10.58 [March 31, 2014 – $6.18]. Awards outstanding, March 31, 2013 Grants Vested Forfeited Awards outstanding, March 31, 2014 Grants Vested Forfeited Awards outstanding, March 31, 2015 Number 9,128,169 5,870,844 (3,666,660) (749,110) 10,583,243 5,562,539 (4,776,985) (622,579) 10,746,218 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 100 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 101 Common shares held by the Trusts, March 31, 2013 Acquired Released on vesting Common shares held by the Trusts, March 31, 2014 Acquired Released on vesting Common shares held by the Trusts, March 31, 2015 Number 4,961,829 1,797,069 (2,024,452) 4,734,446 5,112,934 (2,458,891) 7,388,489 [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]]. [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 options to purchase common shares of the Company under the Replacement ABED Plan. The exercise price of these options was $nil. The options, which are now vested, vested 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 was deferred and amortized to incentive compensation expense over the vesting period. The awards have now been fully amortized as of March 31, 2015. Balance, March 31, 2013 Exercised Forfeited Balance, March 31, 2014 Exercised Forfeited Balance, March 31, 2015 Number 466,645 (349,200) (18,214) 99,231 (66,338) — 32,893 The following table summarizes the share options outstanding as at March 31, 2015: Range of exercise price $nil 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 32,893 5.01 $ nil 32,983 $ nil CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 102 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 103 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 options to purchase shares of the Company awards under the Replacement LTIP. The exercise price of these options was $nil. The options, which are now vested, vested 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 was deferred and amortized to incentive compensation expense over the vesting period. The awards have now been fully amortized as of March 31, 2015. Awards outstanding, March 31, 2013 Exercised Forfeited Balance, March 31, 2014 Exercised Forfeited Balance, March 31, 2015 Number 711,700 (177,283) (37,421) 496,996 (204,190) (10,832) 281,974 The following table summarizes the share options outstanding as at March 31, 2015: Range of exercise price $nil [iv] CSH INDUCEMENT PLAN 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 281,974 5.01 $ nil 281,974 $ nil In connection with the acquisition of CSHP, the Company agreed to establish a retention plan for key CSHP staff. 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) vested on the third anniversary of the date of the grant 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. Balance, March 31, 2013 Forfeited Balance, March 31, 2014 Vested Forfeited Balance, March 31, 2015 LTIP (Number) Non-LTIP (Number) Total RSUs awarded (Number) 774,635 1,549,224 2,323,859 (49,378) (98,744) (148,122) 725,257 1,450,480 2,175,737 (666,551) — (58,706) (117,413) (666,551) (176,119) — 1,333,067 1,333,067 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, 2015 was $1.7 million [March 31, 2014 – $0.3 million]. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 102 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 103 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 has previously granted 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, 2015 and changes during the period then ended: Balance, March 31, 2013 Expired Forfeited Balance, March 31, 2014 Exercised Expired Balance, March 31, 2015 Number of options Weighted average exercise price 2,384,910 (115,642) (309,636) 1,959,632 (234,636) (115,642) 1,609,354 $ $ $ $ $ $ $ 9.84 23.13 9.47 9.23 9.47 9.47 9.25 The following table summarizes the share options outstanding as at March 31, 2015: 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 1,609,354 1.44 $ 9.25 1,609,354 $ 9.25 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. [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, 2015, the Company granted 53,307 DSUs [2014 – 54,332 DSUs]. The carrying amount of the liability relating to DSUs at March 31, 2015 was $1.2 million [2014 – $1.1 million]. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 104 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 105 [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 (cash-settled) Other Accelerated share-based payment expense included as restructuring expense March 31, 2015 March 31, 2014 $ 36,496 $ 15,824 90 4,062 242 (320) 1,151 3,760 28,806 10,249 3,483 5,719 750 187 1,712 1,457 Total share-based compensation expense $ 61,305 $ 52,363 NOTE 20 Related Party Transactions [i] CONSOLIDATED SUBSIDIARIES The financial statements include the financial statements of the Company and the Company’s principal operating subsidiaries and principal intermediate holding companies listed in the following table: Canaccord Genuity Corp. Canaccord Genuity SAS Canaccord Genuity Wealth (International) Limited Canaccord Genuity Financial Planning Limited Canaccord Genuity Wealth Limited Canaccord Genuity Wealth Group Limited Canaccord Genuity Limited Canaccord Genuity Inc. Canaccord Genuity Wealth Management (USA) Inc. Canaccord Wealth & 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* 加通贝祥（北京）投资顾问有限公司 (Canaccord Genuity Asia (Beijing) Limited) The Balloch Group Limited Canaccord Genuity Asia (Hong Kong) Limited Canaccord Genuity (Barbados) Ltd. % equity interest Country of incorporation March 31, 2015 March 31, 2014 Canada France Guernsey 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 China British Virgin Islands China (Hong Kong SAR) Barbados 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% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 100% 100% 100% 100% * The Company owns 50% of the issued shares of Canaccord Financial Group (Australia) Pty Ltd. and Canaccord Genuity (Australia) Limited, but for accounting purposes, as of March 31, 2015, the Company is considered to have a 60% interest because of the shares held in a trust controlled by Canaccord Financial Group (Australia) Pty Ltd. [March 31, 2014 – 50%] [Note 8]. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 104 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 105 [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, 2015 and 2014: Short term employee benefits Share-based payments Total compensation paid to key management personnel March 31, 2015 March 31, 2014 $ 8,063 $ 16,790 9,412 2,001 $ 17,475 $ 18,791 [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, 2015 March 31, 2014 $ 1,041 $ 4,769 [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, advisory, research and trading activities on behalf of corporate, institutional and government clients as well as principal trading activities in Canada, the UK & Europe, and the US. Operations located in Other Foreign Locations under Canaccord Genuity (Barbados) Ltd., Canaccord Genuity Asia and the 60% controlling interest [March 31, 2014 – 50%] 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 & 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 controlling interest in Canaccord Genuity Australia. Amortization of identifiable intangible assets acquired through the purchase of CSHP is allocated to Canaccord Genuity and Canaccord Genuity Wealth Management segments in the UK & 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 & Europe (Eden Financial Ltd.). Income taxes are managed on a Company basis and are not allocated to operating segments. All revenue and income (loss) before taxes and intersegment allocations is derived from external customers. The Company also does not allocate cash flows by reportable segments. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 106 Notes to Consolidated Financial Statements For the years ended March 31, 2015 March 31, 2014 Canaccord Genuity Wealth Genuity Management Canaccord Corporate and Other Total Canaccord Genuity Wealth Genuity Management Canaccord Corporate and Other Total Revenues, excluding interest revenue $ 606,497 $ 240,178 $ 11,876 $ 858,551 $ 606,150 $ 214,143 $ 10,402 $ 830,695 Interest revenue Expenses, excluding undernoted Amortization Development costs Interest expense Restructuring costs Impairment of goodwill Income (loss) before income taxes and 6,608 10,712 4,892 22,212 9,640 9,893 5,016 24,549 527,380 202,480 50,912 780,772 488,670 185,978 46,008 720,656 15,417 9,467 11,467 20,997 14,535 11,091 8,217 539 783 — 1,920 6,764 1,418 3,033 — 28,428 24,448 13,424 24,813 14,535 14,858 9,682 14,166 5,486 — 10,146 10,080 502 — — 1,782 1,607 1,691 — — 26,786 21,369 16,359 5,486 — intersegment allocations 13,842 27,780 (47,279) (5,657) 82,928 17,330 (35,670) 64,588 Less: Intersegment allocations Income (loss) before 11,910 21,683 (33,593) — 8,537 24,719 (33,256) — income taxes $ 1,932 $ 6,097 $ (13,686) $ (5,657) $ 74,391 $ (7,389) $ (2,414) $ 64,588 For geographic reporting purposes, the Company’s business operations are grouped into Canada, the UK & Europe, the United States, and Other Foreign Locations. The following table presents the revenue of the Company by geographic location (revenue is attributed to geographic areas on the basis of the location of the underlying corporate operating results): For the years ended Canada United Kingdom & Europe United States Other Foreign Locations March 31, 2015 March 31, 2014 $ 345,325 $ 273,276 281,493 204,339 49,606 325,353 218,131 38,484 $ 880,763 $ 855,244 The following table presents selected figures pertaining to the financial position of each geographic location: Canada UK & Europe United States Other Foreign Locations Total As at March 31, 2015 Equipment and leasehold improvements $ 15,607 $ 14,300 $ 11,128 $ 2,338 $ 43,373 Goodwill Intangible assets Non-current assets As at March 31, 2014 Equipment and leasehold improvements Goodwill Intangible assets Non-current assets 242,074 60,819 318,500 20,435 242,074 62,763 210,146 68,371 292,817 18,240 206,051 60,165 9,103 90 20,321 9,500 7,942 78 325,272 284,456 17,520 44,256 5,597 52,191 2,800 58,840 8,644 70,284 505,579 134,877 683,829 50,975 514,907 131,650 697,532 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 106 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 107 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, 2015 and 2014: Type of capital Preferred shares Common shares Contributed surplus Retained earnings Accumulated other comprehensive income Shareholders’ equity Subordinated debt March 31, 2015 March 31, 2014 $ 205,641 $ 205,641 620,858 85,597 92,815 112,631 653,189 74,037 144,799 91,014 1,117,542 1,168,680 15,000 15,000 $ 1,132,542 $ 1,183,680 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. (FINRA) • Canaccord Genuity Wealth Management (USA) Inc. is registered as a broker dealer in the US and is subject to regulation primarily by FINRA • 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 as at and during the year ended March 31, 2015. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Notes to Consolidated Financial Statements 109 108 Notes to Consolidated Financial Statements NOTE 23 Client Money At March 31, 2015, the UK & Europe operations held client money in segregated accounts of $1,880.4 million (£1,000 million) [2014 – $1,707.5 million; £926.7 million]. This is comprised of $18.4 million (£9.8 million) [2014 – $10.1 million; £5.5 million] of balances held on behalf of clients to settle outstanding trades and $1,862 million (£991.2 million) [2014 – $1,697.4 million; £921.2 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, 2015 and 2014: Balance, March 31, 2013 $ 10,179 $ 9,876 $ 20,055 Legal provisions Restructuring provisions Total provisions Additions Utilized Recoveries 3,314 (5,891) (190) 5,486 (12,440) — Balance, March 31, 2014 $ 7,412 $ 2,922 $ Additions Utilized Recoveries 4,428 (7,068) (1,926) 24,813 (16,261) — 8,800 (18,331) (190) 10,334 29,241 (23,329) (1,926) Balance, March 31, 2015 $ 2,846 $ 11,474 $ 14,320 During the year ended March 31, 2015, the Company incurred $24.8 million in restructuring costs in connection with the reorganization of the capital markets operations in Canada, the US and the UK & Europe. The restructuring provisions at March 31, 2015 relate primarily to termination benefits and onerous leases incurred as part of the Company’s reorganization. It is expected that the restructuring provisions at March 31, 2015 will be mostly utilized during the year ending March 31, 2016. Commitments, litigation proceedings and contingent liabilities In the normal course of business, the Company is involved in litigation, and as of March 31, 2015, 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 were class action proceedings in which the plaintiffs made 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 were set for trial starting in September 2014, but they have been settled comprehensively by way of court approval (granted on October 27, 2014) of a settlement agreement. The 30-day appeal period expired without any appeal, and the Company has now paid its share of the settlement. Certain claims have been asserted against the Company in respect of the sale of certain conventional wealth management tax advantaged film partnership products in the UK by a predecessor which could be material if such claims are advanced, additional claims are made, and 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. The aggregate investment by the Company’s clients in respect of these products is estimated to be $11.0 million. The aggregate initial tax deferral realized by the Company’s clients in respect of these CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 108 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements 109 products when they were purchased by those clients during the period from 2006 to 2009 is estimated to be $15.0 million. Litigation underway in the UK in respect of the taxation of other similar products sold by other financial advisors (the Litigation) and enforcement in accordance with recent announcements from the UK taxation authority could result in tax liabilities to the purchasers of those products in excess of the initial tax deferral amount. The potential tax liability for the Company’s clients that is in excess of the initial tax deferral amount is estimated to be $15.6 million. The probable outcome of the Litigation and the resulting impact on taxation in respect of this matter and the likelihood of a loss to the Company in connection with any claims asserted against the Company, or which may be asserted against the Company, are not determinable at the date of these consolidated financial statements. The Company is also subject to asserted and unasserted claims arising in the normal course of business which, as of March 31, 2015, 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, 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. 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: 2016 2017 2018 2019 2020 Thereafter $ 34,621 30,039 26,280 21,242 17,084 53,951 $ 183,217 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 as follows: 2016 2017 2018 2019 2020 Thereafter NOTE 26 Subsequent Event DIVIDENDS $ 3,332 478 478 199 — — $ 4,487 On June 2, 2015, the Board of Directors approved the following cash dividends: $0.05 per common share payable on July 2, 2015 to common shareholders with a record date of June 19, 2015; $0.34375 per Series A Preferred Share payable on June 30, 2015 with a record date of June 19, 2015; and $0.359375 per Series C Preferred Share payable on June 30, 2015 with a record date of June 19, 2015. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Supplemental Information 111 110 Supplemental Information Advisory note: This supplemental information is not audited and should be read in conjunction with the audited financial statements contained herein. Financial Highlights(1) (C$ thousands, except for AUM, AUA, common and preferred share information, financial measures and percentages) Financial results Revenue Expenses Income tax expense (recovery) Net (loss) income Net (loss) income attributable to CGGI shareholders Net (loss) income 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 & Europe(4) US(5) Other Foreign Locations(6) Client assets information ($ millions) AUM – Canada (discretionary) AUA – Canada AUM – UK & Europe AUM – Australia Total Common share information Per common share ($) Basic (loss) earnings Diluted (loss) earnings Book value per diluted common share(7) Common share price ($) 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) $ $ $ $ $ $ $ For the years ended and as at March 31 2015 IFRS 880,763 886,420 5,661 (11,318) (13,184) $ 2014 IFRS 855,244 790,656 12,531 52,057 51,413 $ 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 (25,061) 39,651 (28,539) (25,122) 99,743 1,932 6,097 (13,686) 16,487 (3,216) (6,658) (12,270) 1,561 10,729 21,763 836 33,328 (0.27) (0.27) 8.71 13.49 5.98 6.52 91,795 102,608 104,704 91,693 n/a 682,673 8,540 0.25 3.8% (101.9)% (17.4)% (2.9)% (21.0) 0.7 $ $ $ $ $ $ 74,391 (7,389) (2,414) (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 $ $ $ $ $ $ 3,640 (35,978) 8,636 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 $ $ $ $ $ (13,534) (912) (1,673) 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 $ $ $ $ $ 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 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 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 (1) 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 & Europe, the US, Australia, China, Barbados and Singapore. The Company’s Canada geographic segment includes operations for Canaccord Genuity, Canaccord Genuity Wealth Management, and Corporate and Other business segments. The Company’s UK & Europe geographic segment engages in capital markets and wealth management activities. Results of former CSHP entities located in the UK & Europe since March 22, 2012 and the wealth management operations of Eden Financial Ltd. since October 1, 2012 are also included. The Company’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 & 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. (2) (3) (4) (5) (6) (7) (8) 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. The price to earnings multiple is calculated based on the end of period share price and 12-month trailing diluted EPS. The price to book ratio is calculated based on the end of period common share price and book value per diluted common share. (9) (10) (11) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 110 Supplemental Information 111 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 Impairment of goodwill Acquisition-related costs (Loss) income before income taxes Income tax expense (recovery) Net (loss) income for the year Non-controlling interests Net (loss) income attributable to CGGI shareholders Retained earnings, beginning of year Opening IFRS adjustments Common shares dividends Preferred shares dividends $ For the years ended March 31 $ $ 2015 IFRS 374,058 238,517 151,336 75,217 22,212 19,423 880,763 455,480 85,770 52,795 40,281 51,758 13,424 94,688 28,428 24,448 24,813 14,535 — 886,420 (5,657) 5,661 (11,318) 1,866 (13,184) 144,799 — (26,806) (11,994) 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) — Retained earnings, end of year $ 92,815 $ 144,799 $ 126,203 $ 180,748 $ 238,647 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 (loss) earnings per share Diluted (loss) earnings per share Book value per diluted common share(4) Supplemental segmented revenue information Canaccord Genuity Canaccord Genuity Wealth Management Corporate and Other 51.7% 61.5% 39.2% 100.6% (0.6)% (100.1)% (1.3)% (0.27) (0.27) 8.71 613,105 250,890 16,768 $ $ $ $ 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 $ $ $ $ $ $ $ $ $ 880,763 $ 855,244 $ 797,122 $ 604,864 $ 803,631 (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. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 112 Supplemental Information Supplemental Information 113 Condensed Consolidated Statements of Financial Position 2014 As at March 31 (C$ thousands) 2015 IFRS IFRS 2013 IFRS 2012 IFRS 2011 IFRS 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 $ 322,324 848,128 2,491,488 5,295 10,148 8,693 43,373 640,456 $ 4,369,905 $ 20,264 — 654,639 2,541,956 8,172 — 2,057 15,000 10,275 1,117,542 $ 4,369,905 $ 364,296 1,143,201 2,785,898 3,983 9,735 9,977 50,975 646,557 $ 5,014,622 $ — — 913,913 2,888,267 10,822 — 3,028 15,000 14,912 1,168,680 $ 5,014,622 $ 491,012 924,337 2,513,958 — 12,552 3,695 42,979 614,969 $ 4,603,502 $ 66,138 — 689,020 2,746,790 4,428 14,218 2,576 15,000 16,169 1,049,163 $ 4,603,502 $ 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 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 & 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 & Europe(3) Number of Advisors – Australia AUM – Canada (discretionary) (C$ millions) AUA – Canada (C$ millions) AUM – UK & 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 $ $ $ $ $ 2015 2014 2013 2012 201 400 324 925 329 303 269 89 13 1,928 152 437 114 9 1,561 10,729 21,763 836 33,328 53 40 93 1 30 31 $ $ $ $ $ 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 $ $ $ $ $ 2011 268 684 373 1,325 143 — 175 41 — 1,684 271 645 — — 546 16,985 — — 16,985 26 39 65 1 30 31 (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) CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 112 Supplemental Information Supplemental Information 113 Quarterly Financial Highlights(1) (C$ thousands, except for AUM, AUA, common and preferred share information, financial measures and percentages) Q4 Fiscal 2015 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Fiscal 2014 Financial results Revenue Expenses Income tax (recovery) expense Net (loss) income Net (loss) income attributable to $ 232,465 $ 166,471 $ 236,271 $ 245,556 $ 253,748 $ 230,959 $ 183,306 $ 187,231 178,118 191,991 211,326 222,268 221,737 206,539 184,262 260,835 1,230 7,883 6,086 18,334 (2,048) (26,322) (4,041) (21,479) (876) (80) 6,091 25,920 18,869 7,331 17,614 4,419 CGGI shareholders (26,994) (21,380) 17,109 18,081 25,734 17,321 (383) 8,741 Net (loss) income attributable to common shareholders Business segment (Loss) income before income taxes Canaccord Genuity(2) Canaccord Genuity Wealth Management Corporate and Other Geographic segment (Loss) income before income taxes Canada(3) UK & Europe(4) US(5) Other Foreign Locations(6) Client assets ($ millions) AUM – Canada (discretionary) AUA – Canada AUM – UK & Europe AUM – Australia Total Common share information Per common share ($) Basic (loss) earnings Diluted (loss) earnings Book value per diluted common share(7) Common share price ($) 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) (29,992) (24,340) 14,188 15,083 22,774 14,400 (3,304) 5,781 $ (23,264) $ (26,838) $ 25,264 $ 26,770 $ 34,617 $ 27,908 $ (26) $ 11,892 4,353 (9,459) 1,291 27 658 (977) (205) (3,277) 963 (3,569) (3,101) (387) (3,338) 2,408 (1,913) (866) $ (5,983) $ (9,326) (5,470) (7,591) (2,375) $ 17,021 $ (11,291) (6,006) (5,848) 10,618 (2,951) 257 7,808 $ 6,783 7,785 912 (456) $ 37 $ (6,399) $ 17,863 14,905 (301) 17,625 2,887 3,872 3,024 3,147 (728) $ 1,561 $ 1,441 $ 1,391 $ 1,270 $ 1,204 $ 10,729 21,763 836 33,328 10,310 20,307 634 31,251 10,757 20,420 569 31,746 10,958 20,486 631 32,075 10,160 20,156 555 30,871 1,070 $ 9,536 18,984 463 28,983 935 $ 9,427 17,655 411 27,493 (1,746) 8,919 6,374 (4,435) 880 9,325 16,125 360 25,810 $ $ (0.33) $ (0.33) 8.71 (0.27) $ (0.27) 8.63 0.16 $ 0.14 8.90 0.16 $ 0.15 8.70 7.85 $ 6.14 6.52 11.47 $ 5.98 7.81 13.49 $ 10.73 11.19 13.05 $ 7.80 12.29 0.24 $ 0.22 9.05 8.45 $ 6.54 8.20 0.15 $ 0.14 8.43 (0.03) $ (0.03) 8.00 7.00 $ 5.84 6.95 7.06 $ 5.37 6.63 0.06 0.06 7.87 6.94 5.05 5.71 91,795 102,608 104,652 91,252 n/a 682,331 90,878 101,883 104,357 91,404 n/a 91,393 91,104 101,983 102,163 105,470 105,275 92,763 91,070 102,203 101,059 815,027 1,178,027 1,296,226 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 8,540 8,540 8,540 8,540 8,540 8,540 8,540 8,540 $ 0.05 $ 0.05 $ 0.10 $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05 3.1% (17.1)% (15.9)% (13.4)% (21.0) 0.7 2.6% (20.9)% (29.8)% (10.5)% 32.5 0.9 3.6% 72.0% (8.1)% 6.1% 17.2 1.3 1.6% 33.8% 50.5% 6.4% 25.6 1.4 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 (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 & Europe, the US, Australia, China, Barbados and Singapore. The Company’s Canada geographic segment includes operations for Canaccord Genuity, Canaccord Genuity Wealth Management, and Corporate and Other business segments. The Company’s UK & Europe geographic segment engages in capital markets and wealth management activities. Results of former CSHP entities located in the UK & Europe since March 22, 2012 and the wealth management operations of Eden Financial Ltd. since October 1, 2012 are also included. The Company’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 & 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. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 114 Supplemental Information Supplemental Information 115 Condensed Consolidated Statements of Operations(1) (C$ thousands, except per share amounts and percentages) Fiscal 2015 Fiscal 2014 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 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 Impairment of goodwill (Loss) income before income taxes Income tax (recovery) expense Net (loss) income for the period $ 100,869 $ 92,123 $ 86,240 $ 94,826 $ 102,199 $ 87,581 $ 81,832 $ 90,035 31,833 35,905 19,540 6,805 3,113 187,231 40,283 29,894 18,883 6,132 6,282 183,306 78,453 33,585 31,027 5,908 2,576 253,748 70,841 39,758 21,863 5,704 5,212 230,959 87,372 32,694 20,276 6,304 4,084 245,556 57,255 40,283 22,621 4,961 6,476 232,465 66,289 55,741 17,708 5,902 4,391 236,271 27,601 22,618 14,612 5,045 4,472 166,471 126,555 22,539 13,411 10,589 14,343 2,901 22,065 6,994 9,008 22,430 10,000 260,835 (28,370) (2,048) 87,199 20,430 13,975 9,579 12,997 3,291 26,718 6,587 6,680 — 4,535 191,991 (25,520) (4,041) 119,389 20,268 12,775 10,080 12,901 2,977 21,836 7,475 3,625 — — 211,326 24,945 7,331 122,337 22,533 12,634 10,033 11,517 4,255 24,069 7,372 5,135 2,383 — 222,268 23,288 4,419 124,576 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) $ (26,322) $ (21,479) $ 17,614 $ 18,869 $ 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 Non-controlling interests Net (loss) income 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 (loss) earnings per share Diluted (loss) earnings per share $ Book value per diluted common share(4) $ 672 (99) 505 788 186 1,013 303 (858) (26,994) (21,380) 17,109 18,081 25,734 17,321 (383) 8,741 54.4% 52.4% 50.5% 49.8% 49.1% 49.7% 47.7% 46.1% 64.1% 64.7% 59.1% 59.0% 59.0% 59.0% 59.5% 58.4% 48.1% 112.2% (12.2)% 7.2% (11.3)% 50.7% 115.3% (15.3)% 15.8% (12.9)% (0.33) $ (0.33) $ 8.71 $ (0.27) $ (0.27) $ 8.63 $ 30.3% 89.4% 10.6% 29.4% 7.5% 0.16 $ 0.14 $ 8.90 $ 31.5% 90.5% 9.5% 19.0% 7.7% 0.16 $ 0.15 $ 8.70 $ 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 Supplemental segmented revenue information Canaccord Genuity Canaccord Genuity Wealth Management Corporate and Other $ 159,379 $ 103,866 $ 170,615 $ 179,245 $ 186,659 $ 171,234 $ 126,691 $ 131,206 68,751 4,335 53,820 2,205 $ 232,465 $ 166,471 $ 236,271 $ 245,556 $ 253,748 $ 230,959 $ 183,306 $ 187,231 65,236 1,853 54,737 4,988 50,243 6,372 61,423 4,233 58,232 4,373 62,484 3,827 (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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 114 Supplemental Information Supplemental Information 115 Condensed Consolidated Statements of Financial Position (C$ thousands) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Fiscal 2015 Fiscal 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 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 $ 322,324 $ 339,962 $ 290,403 $ 273,880 $ 364,296 $ 357,713 $ 360,172 $ 380,869 1,018,038 1,041,320 1,313,241 1,143,201 1,143,898 929,247 1,426,328 1,868,510 2,679,165 2,068,340 2,785,898 1,912,423 2,268,642 2,843,247 3,276 9,938 4,113 848,128 2,491,488 5,295 10,148 8,693 3,405 10,877 9,267 1,755 9,322 9,491 3,983 9,735 9,977 3,022 9,366 9,920 6,823 9,165 9,931 5,112 9,706 9,964 43,373 640,456 42,293 617,369 $ 4,369,905 $ 3,930,036 $ 4,719,202 $ 4,371,138 $ 5,014,622 $ 4,122,920 $ 4,245,682 $ 5,327,433 41,306 622,766 50,975 646,557 50,390 637,928 43,126 635,618 45,240 640,766 48,500 641,258 $ 20,264 $ 654,639 — $ — $ — $ 839,826 777,237 564,166 — $ 85,080 $ 83,430 $ 84,185 718,815 1,215,685 816,037 913,913 2,541,956 8,172 — 2,057 15,000 10,275 1,117,542 2,064,779 2,317,668 2,915,765 — 14,218 1,711 15,000 12,244 1,107,952 1,141,811 1,123,293 1,168,680 1,119,396 1,082,613 1,068,625 $ 4,369,905 $ 3,930,036 $ 4,719,202 $ 4,371,138 $ 5,014,622 $ 4,122,920 $ 4,245,682 $ 5,327,433 1,948,539 2,756,351 2,637,409 2,888,267 10,822 — 3,028 15,000 14,912 — 14,288 1,493 15,000 12,375 — 5,988 4,530 15,000 12,110 10,653 — 4,796 15,000 15,821 11,774 — 1,899 15,000 15,130 6,082 — 3,029 15,000 9,608 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 & 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 & Europe(3) Number of Advisors – Australia AUM – Canada (discretionary) (C$ millions) AUA – Canada (C$ millions) AUM – UK & 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 2015 Fiscal 2014 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 201 400 324 925 329 303 269 206 405 316 927 373 308 294 208 412 315 935 384 305 295 215 407 320 942 372 305 291 215 420 316 951 372 294 286 214 425 319 958 361 294 279 215 430 320 965 385 287 275 221 448 323 992 388 289 264 89 87 86 88 89 90 90 88 13 1,928 152 437 114 9 13 2,002 161 422 113 9 13 2,018 162 426 113 9 13 2,011 163 422 116 9 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 1,441 $ 1,561 $ 880 $ 1,204 $ $ 10,729 $ 10,310 $ 10,757 $ 10,958 $ 10,160 $ 9,325 $ 21,763 $ 20,307 $ 20,420 $ 20,486 $ 20,156 $ 18,984 $ 17,655 $ 16,125 360 $ $ 33,328 $ 31,251 $ 31,746 $ 32,075 $ 30,871 $ 28,983 $ 27,493 $ 25,810 1,070 $ 9,536 $ 935 $ 9,427 $ 1,270 $ 1,391 $ 411 $ 555 $ 463 $ 631 $ 836 $ 569 $ 634 $ 53 40 93 1 30 31 55 41 96 1 31 32 53 42 95 1 32 33 48 42 90 1 33 34 52 43 95 — 33 33 53 46 99 — 36 36 55 50 105 — 40 40 57 51 108 — 43 43 (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. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Glossary 117 116 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. 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 the Company 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 the Company, for which the Company 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 the Company 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 the Company and is therefore included in AUA. This measure is non-IFRS. Assets under management (AUM) UK & Europe AUM is the market value of client assets managed and administered by the Company, for which the Company earns 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. 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 & Europe. This division has been rebranded to reflect our global capital markets branding. Canaccord Genuity Wealth Management (CGWM) The Company’s wealth management businesses were rebranded Canaccord Genuity Wealth Management on May 1, 2013 to reflect the Company’s global wealth management presence. CGWM has operations in Canada, the UK, Europe and Australia. Collins Stewart Hawkpoint plc (CSHP) Canaccord Genuity Group 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. 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 116 Glossary 117 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). Pinnacle Correspondent Services is being rebranded as Canaccord Genuity 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. Efficiency ratio A financial ratio to measure efficiency calculated by dividing total expense over total revenue. 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. Incentive-based revenue A percentage of incentive-based revenue earned is directly paid out as incentive compensation expense. At Canaccord Genuity Group, 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 Equities Group (IEG) The International Equities 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. International trading Executing trades in Canadian securities on behalf of US brokerage firms. 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. 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. Liquidity The total of cash and cash equivalents available to the Company as capital for operating and regulatory purposes. Fixed income trading Trading in new issues, government and corporate bonds, treasury bills, commercial paper, strip bonds, high-yield debt and convertible debentures. 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. Genuity Capital Markets Canaccord Genuity Group 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, the Company renamed its capital markets division Canaccord Genuity. Long-term incentive plan (LTIP) A reward system designed to align employee and external shareholder interests. Under the Company’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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 118 Glossary 119 Montréal International Financial Centre Membership provides certain tax and financial benefits, reducing the overall corporate tax rate, pursuant to Québec legislation. Return on average common equity (ROE) Net income expressed as a percentage of average common equity. This measure is non-IFRS. National Insurance (NI) tax Payroll tax applicable to UK employees based on a percentage of incentive compensation payout. Risk Financial institutions face a number of risks that may expose them to losses, including market, credit, operational, regulatory and legal risk. 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. 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. 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 22 of this annual report. Offshore operations For the Company’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. 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. Replacement plans Share-based payment plans introduced to replace the share- based payment plans that existed at CSHP at the date of acquisition. Significant items Charges not considered to be recurring or indicative of operating earnings. For Canaccord Genuity Group 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. The Balloch Group (TBG) The Balloch Group was a leading boutique investment bank in China that the Company acquired in January 2011. The Company’s operations in China were subsequently rebranded Canaccord Genuity. 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. 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 118 Glossary 119 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 Chairman & CEO, the Board appoints the senior officers of the Company 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 120 Corporate Governance Corporate Governance 121 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, 2015, an evaluation was carried out, under the supervision of and with the participation of management, including the Chairman & 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 Chairman & 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, 2015. Governance The Board is currently composed of nine directors, eight 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 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 120 Corporate Governance Corporate Governance 121 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 two unrelated directors and a third director who is related only as a director of a subsidiary. 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. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Board of Directors 123 122 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. 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. In addition to Canaccord Genuity Group Inc., Mr. Bralver is a director of the following public companies: NewStar Financial, Inc. and the Co-operative Bank p.l.c. 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. He is the Honorary Vice-President of CLIC Sargent, the UK’s leading cancer charity for children and young people. 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. Kalpana Desai (2014) Kalpana Desai is a corporate director and advisor. She has over 25 years of international investment banking and advisory experience. She was Head of Macquarie Capital Asia, the investment banking division of Macquarie Group, and a member of the Global Macquarie Capital Operations Committee from 2010 to 2013. Before joining Macquarie Group in 2009, Ms. Desai was Head of the Asia-Pacific Mergers & Acquisitions Group and a Managing Director in the investment banking division of Merrill Lynch (now called Bank of America Merrill Lynch) based in Hong Kong, having joined that firm in 1998. Earlier, Ms. Desai worked in the investment banking divisions of Barclays de Zoete Wedd and J. Henry Schroder Wagg in London, having started her career with Coopers & Lybrand Consulting in London. Ms. Desai was a member of the Takeovers and Mergers Panel of the Securities and Futures Commission in Hong Kong from 2007 to 2014. Born in Kenya and educated in the United Kingdom, Ms. Desai has lived in Hong Kong since 1997. Ms. Desai holds a B.Sc. (honours) from the London School of Economics and Political Science and is an Associate Member of the Institute of Chartered Accountants of England and Wales. Ms. Desai is not currently a director of any other public companies. William J. Eeuwes (2002) Audit Committee Corporate Governance and Compensation Committee Mr. Eeuwes retired in April 2015 as Senior Vice President & Global Head, Private Equity, Manulife Financial. In that position, he had executive responsibility for Regional Power Inc., NAL Resources 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. Mr. Eeuwes is a director of several private companies in Canada, and is a member of the Institute of Corporate Directors. Mr. Eeuwes is not a director of any public companies other than Canaccord Genuity Group Inc. 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 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 and Routel Inc. (Chair). CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 122 Board of Directors 123 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. On the death of Paul Reynolds on April 1, 2015, Mr. Kassie was appointed as the Chief Executive Officer of the Company. 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 and the Toronto International Film Festival Group and was formerly on the Board of the Hospital for Sick Children. Mr. Kassie is a director of CFF Bank and its holding company. 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 a corporate director. He is a director of several public and private corporations including Sprott Resource Corp. (Chairman), Martinrea International Inc. and Polaris Minerals Corporation (Chairman). Mr. Lyons is a retired Managing Partner of Brookfield Asset Management and past Chairman of Northgate Minerals Corporation, which was acquired by AuRico Gold Inc. to create a new mid-cap gold company. He was also Chairman of Eacom Timber Corporation, which was sold to a private equity firm in 2013. In 2014, he stepped down as a director of BC Pavilion Corporation (Pavco), Royal Oak Ventures, which was privatized by Brookfield, and the BC Board of the Institute of Corporate Directors. 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 has been active in a number of sports and charitable organizations including Junior Achievement, Special Olympics and United Way. Mr. Lyons is a past Governor of the Olympic Foundation of Canada, past Chairman of the Mining Association of BC, past Governor and member of the Executive Committee of the BC Business Council 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 currently serves as the Lead Director and Chairman of the Audit Committee of Canaccord Genuity Group Inc. Dennis Miller (2014) Dennis Miller is a corporate director and advisor who has spent the last 25 years operating at the intersection of media and technology. He began his career in the entertainment and tax department of the law firm of Manatt, Phelps, Rothenberg and Tunney before becoming Executive Vice President of Turner Network Television from 1991 to 1995. Following this, from 1995 to 1998, Mr. Miller was the Executive Vice President of Sony Pictures Entertainment, a subsidiary of Sony Corporation of America. From 1998 until 2000, Mr. Miller served as Executive Vice President of Lions Gate Entertainment before turning to the private equity industry as Managing Director for Constellation Ventures, the venture arm of Bear Stearns, from 2000 until 2005. In 2005, he became General Partner at Spark Capital, a firm known for investing in notable early stage software and Internet firms including Twitter, Tumblr, Oculus Rift, and Square. Most recently, he advised Lions Gate Entertainment on its digital strategy and investment in TVGN, a fully distributed cable network, through its sale to CBS. In addition to Canaccord Genuity Group Inc., Mr. Miller also serves on the Board of Directors of Radio One Inc. and Nexstar Broadcasting Group, Inc. Dipesh Shah (2012) Dipesh Shah is a director on the boards of Thames 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, Cavendish Fluor Partnership 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 BP Plc, where he was a member of the Group Leadership for more than a decade and latterly also the Global Head of Acquisitions and Divestitures. 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 (O.B.E.) in the 2007 New Year Honours and is a Life Fellow of the Royal Society of Arts (F.R.S.A.). In addition to Canaccord Genuity Group Inc., Mr. Shah is a director of the following public company: JKX Oil & Gas plc. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Locations 125 124 Locations Capital Markets CANACCORD GENUITY Canada United States UK & 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 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 BB11103 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 CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 124 Locations 125 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 Hong Kong 5th Floor, 8 Queen’s Road Central Central Hong Kong Telephone: 852.3919.2505 Fax: 852.3919.2599 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 Road 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. / 2015 ANNUAL REPORT 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.  127 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 126 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 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 & 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 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 126 Locations 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 127 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. 2015 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 2015) Stock exchange Toronto TSX London LSE Diluted shares outstanding at Year-end price Ticker March 31, 2015 March 31, 2015 High CF CF. 104,704,483 $ 104,704,483 £ 6.52 $ 3.35 £ 13.49 7.29 $ £ Low 5.98 3.00 Total volume of shares traded 95,033,200 2,366,623 Fiscal 2015 Preferred Dividend Dates and Amounts Quarter-end date June 30, 2014 September 30, 2014 December 31, 2014 March 31, 2015 Preferred dividend record date Preferred dividend payment date September 19, 2014 September 30, 2014 December 19, 2014 December 31, 2014 March 20, 2015 March 31, 2015 June 19, 2015 June 30, 2015 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 2015 Common Dividend Dates and Amounts Quarter-end date June 30, 2014 September 30, 2014 September 30, 2014 (special dividend) December 31, 2014 March 31, 2015 Common dividend record date Common dividend payment date August 29, 2014 September 10, 2014 November 21, 2014 December 10, 2014 November 21, 2014 December 10, 2014 February 27, 2015 March 10, 2015 June 19, 2015 July 2, 2015 Total preferred dividend 0.703125 0.703125 0.703125 0.703125 2.8125 Common dividend 0.05 0.05 0.05 0.05 0.05 0.25 $ $ $ $ $ $ $ $ $ $ $ 2015 ANNUAL REPORT / CANACCORD GENUITY GROUP INC.CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT 128 Shareholder Information Fiscal 2016 Expected Dividend(1) and Earnings Release Dates Q1/16 Q2/16 Q3/16 Q4/16 Expected earnings release date Preferred dividend record date Preferred dividend payment date Common dividend record date Common dividend payment date August 4, 2015 September 18, 2015 September 30, 2015 August 28, 2015 September 10, 2015 November 4, 2015 December 18, 2015 December 31, 2015 November 20, 2015 December 10, 2015 February 3, 2016 March 18, 2016 March 31, 2016 February 26, 2016 March 10, 2016 June 1, 2016 June 17, 2016 June 30, 2016 June 17, 2016 June 30, 2016 (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 5, 2015 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 Genuity Group Inc.’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 2015 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. (formerly called Canaccord Capital Inc. and Canaccord Financial 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. CANACCORD GENUITY GROUP INC. / 2015 ANNUAL REPORT SHAREHOLDER INFORMATION STOCK EXCHANGE LISTING REGULATORY FILINGS CORPORATE HEADQUARTERS TSX: CF LSE: CF. Member of the S&P/TSX Composite Index To view Canaccord Genuity Group’s regulatory filings on SEDAR, please visit www.sedar.com. WEBSITE www.canaccordgenuity.com FISCAL YEAR END March 31 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 Christina Marinoff Vice President, Investor Relations & Communications Telephone: 416.687.5507 Email: christina.marinoff@canaccord.com GENERAL SHAREHOLDER INQUIRIES For all general shareholder info, or to request a copy of this report, contact: INVESTOR RELATIONS 161 Bay Street, Suite 3000 Toronto, ON, Canada Telephone: 416.869.7293 Fax: 416.947.8343 Email: investor.relations@ canaccordgenuitygroup.com FINANCIAL INFORMATION For present and archived financial information, please visit www.canaccordgenuitygroup.com. TRANSFER AGENT AND REGISTRAR For information about stock transfers, address changes, dividends, lost stock certificates, tax forms and estate transfers, contact: COMPUTERSHARE INVESTOR SERVICES INC. 100 University Avenue, 8th 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 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 AUDITOR Ernst & Young LLP Chartered Accountants Vancouver, BC For information about fees paid to shareholders’ auditors, refer to our fiscal 2015 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. ANNUAL GENERAL MEETING Wednesday, August 5, 2015, at 10:00 a.m. (Eastern Time) TMX Broadcast Centre The Exchange Tower 130 King Street West Toronto, ON, Canada EDITORIAL AND DESIGN SERVICES The Works Design Communications Ltd. 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 the Company’s institutional, corporate and private clients. Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX and the symbol CF. on the London Stock Exchange. 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 US, the UK, France, Ireland, Hong Kong, China, Singapore, Australia and Barbados. 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 clients in each of its markets. The Company’s wealth management division now has Investment Advisors (IAs) and professionals in Canada, Australia, the UK, Guernsey, Jersey and the Isle of Man. Canaccord Genuity Correspondent Services provides trade execution, clearing, settlement, custody, and other middle- and back-office services to introducing brokerage firms, portfolio managers and other financial intermediaries. The business unit was developed as an extension and application of Canaccord Genuity Group Inc.’s substantial investment in its information technology and operating infrastructure. NORTH AMERICA Toronto New York Boston Chicago Houston Minneapolis Nashville San Francisco Vancouver Burlington Calgary Edmonton Gatineau Halifax Kelowna Kitchener Montréal Prince George Trail Waterloo Barbados UK & EUROPE ASIA-PACIFIC London Dublin Guernsey Isle of Man Jersey Paris Beijing Hong Kong Melbourne Singapore Sydney 

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