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ATIF Holdings LimitedC a n a c c o r d G e n u i t y G r o u p I n c . F i s c a l 2 0 1 9 A n n u a l R e p o r t Driven to increase shareholder value Fiscal 2019 Annual Report Financial Overview Selected financial information(1)(2)(8) (C$ thousands, except per share and % amounts, and number of employees) Canaccord Genuity Group Inc. (CGGI) Revenue Commissions and fees Investment banking Advisory fees Principal trading Interest Other Total revenue Expenses Incentive compensation Salaries and benefits Other overhead expenses(3) Restructuring costs(4) Acquisition-related costs Loss on extinguishment of convertible debentures Acceleration of long-term incentive plan expense Share of loss of an associate(5) Total expenses Income before income taxes Net income Net income attributable to CGGI shareholders Non-controlling interests Earnings per common share – basic Earnings per common share – diluted Dividends per common share Dividends per Series A Preferred Share Dividends per Series C Preferred Share Book value per diluted common share(6) Excluding significant items(7) Total revenue Total expenses Income before income taxes Net income Net income attributable to CGGI shareholders Net income attributable to non-controlling interests Earnings per common share – diluted Balance sheet data Total assets Total liabilities Non-controlling interests Total shareholders’ equity Number of employees For the years ended March 31 2019 2018 2017 2019/2018 change $ 556,475 294,241 142,228 125,830 51,008 20,785 $ 461,937 282,195 122,372 113,921 27,875 14,577 1,190,567 1,022,877 599,867 116,758 356,240 13,070 3,064 8,608 — 304 1,097,911 92,656 71,582 70,530 1,052 0.58 0.48 0.20 0.9712 1.2482 6.25 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 526,614 99,239 298,250 7,643 6,732 — 48,355 298 987,131 35,746 17,077 13,024 4,053 0.04 0.03 0.15 0.9712 1.2482 5.71 $ 1,190,567 $ 1,054,981 135,586 $ 107,355 $ 106,303 $ 1,052 $ 0.80 $ $ 1,022,877 912,270 $ 110,607 $ 81,657 $ 77,604 $ 4,053 $ 0.59 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 396,741 196,129 130,749 119,040 16,847 20,040 879,546 454,998 85,698 284,966 — — — — — 825,662 53,884 43,186 38,103 5,083 0.29 0.27 0.10 1.173 1.4375 5.08 878,353 817,096 61,257 49,196 43,903 5,293 0.32 $ 4,749,294 3,870,934 1,997 876,363 2,135 $ 4,020,736 3,165,813 13,571 841,352 1,956 $ 5,203,516 4,426,873 11,858 764,785 1,700 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 94,538 12,046 19,856 11,909 23,133 6,208 167,690 73,253 17,519 57,990 5,427 (3,668) 8,608 (48,355) 6 110,780 56,910 54,505 57,506 (3,001) 0.54 0.45 0.05 0.00 0.00 0.54 167,690 142,711 24,979 25,698 28,699 (3,001) 0.21 728,558 705,121 (11,574) 35,011 179 20.5% 4.3% 16.2% 10.5% 83.0% 42.6% 16.4% 13.9% 17.7% 19.4% 71.0% (54.5)% n.m. (100.0%) 2.0% 11.2% 159.2% n.m. n.m. (74.0)% n.m. n.m. 33.3% 0.0% 0.0% 9.5% 16.4% 15.6% 22.6% 31.5% 37.0% (74.0)% 35.6% 18.1% 22.3% (85.3)% 4.2% 9.2% (1) Data is in accordance with IFRS except for book value per diluted common share, figures excluding significant items and number of employees. See Non-IFRS Measures on page 14. (2) The operating results of the Australian operations have been fully consolidated and a non-controlling interest of 15% has been recognized for the year ended March 31, 2019 [April 1, 2018 to August 9, 2018 – 42% and post-acquisition of an additional 30% interest in the Australian operations on August 10, 2018 – 15%; March 31, 2018 – 42%]. (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) Restructuring costs for the year ended March 31, 2019 related to termination benefits and certain real estate costs incurred as a result of the restructuring of our UK capital markets operations. Restructuring costs for the year ended March 31, 2018 related to termination benefits as a result of the closing of certain trading operations in our UK & Europe capital markets operations, staff reductions in our Canadian and US capital markets operations, as well as real estate costs related to the acquisition of Hargreave Hale. Represents the Company’s equity portion of the net loss of its investment in Canaccord Genuity Growth Corp. and Canaccord Genuity Acquisition Corp. for the year ended March 31, 2019 and the Company’s equity portion of the net loss of its investment in Canaccord Genuity Acquisition Corp for the year ended March 31, 2018. Book value per diluted common share is calculated as total common shareholders’ equity adjusted for assumed proceeds from the exercise of options and warrants, issuance of common shares in connection with deferred consideration related to acquisitions, settlement of a promissory note in shares at the Company’s option, and the conversion of convertible debentures, divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments including options, warrants, other share-based payment plan, deferred consideration related to acquisitions, promissory notes and convertible debentures, and adjusted for shares purchased or committed to be 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 page 24. Data includes the operating results of Hargreave Hale Limited since September 18, 2017, the operating results of Jitneytrade Inc. and Finlogik Inc. since June 6, 2018, the operating results of McCarthy Taylor Ltd. since January 29, 2019 and the operating results of Petsky Prunier LLC since February 13, 2019. (5) (6) (7) (8) n.m.: not meaningful (percentages over 300% are indicated as n.m.) Driven to increase shareholder value Our fiscal 2019 results reflect our priority of increasing contributions from stable and higher margin businesses, as we dive deeper into areas where we have strong domain expertise. With a continued focus on revenue growth and cost discipline, we have achieved meaningful financial improvement, even as we have invested for growth. Revenue (C$ millions, fiscal years ended March 31) Net Income (Loss)(1) (C$ millions, fiscal years ended March 31) 2019 2018 2017 2016 2015 $1,190.6 $1,022.9 2019 2018 2017 2016 2015 ($6.0) $ 49.2 $39.3 $879.5 $787.8 $880.8 $107.4 $81.7 Diluted Earnings (Loss) per Share(1) (C$, fiscal years ended March 31) $0.80 $0.59 ($0.21) $0.32 $0.25 2019 2018 2017 2016 2015 Contents Introduction 1 | Global Performance 2 | Letter to Shareholders 4 | Letter from the Executive Chairman 7 | Canaccord Genuity Wealth Management 8 | Canaccord Genuity Capital Markets 10 | MD&A and Financials 13 | Shareholder Information Inside Back Cover 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 wealth management offices located in Canada, the UK, Guernsey, Jersey, the Isle of Man and Australia. Canaccord Genuity, the international capital markets division, operates in North America, the UK & Europe, Asia, Australia and the Middle East. We are driven by your success. Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX. (1) These figures exclude significant items. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. Canaccord Genuity Group Inc. 2019 Annual Report 1 Driven to increase shareholder value Global Performance With an increasingly lower risk business model and a diversified revenue mix that positions us to be opportunistic in any market environment, we are growing our profitability faster than expenses. / $1.2 billion Record revenue for fiscal 2019 / $0.80 Fiscal 2019 diluted earnings per share(1) Driving stronger returns for our shareholders / 31.5% net income(1) improvement in fiscal 2019 Improved business mix is driving earnings power / 53%of fiscal 2019 EPS(1) from global wealth management Important contributor of stable, recurring revenue / $623.2 million in working capital Well capitalized for continued investment in our key priorities (1) These figures exclude significant items. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. 2 Canaccord Genuity Group Inc. 2019 Annual Report Our efforts to increase stability in our business have delivered the added benefits of driving enhanced outcomes for our clients and making us a stronger competitor. Fiscal 2019 Revenue by Division Fiscal 2019 EPS(1) Contribution by Business Segment • CG Capital Markets(2) 59% • CG Wealth Management 39% • Corporate and Other 2% • CG Wealth Management 53% • CG Capital Markets 47% Total Expenses as a Percent of Revenue(1) (Fiscal years ended March 31) Net Income (Loss) before Income Taxes(1) – Contributions by Business Segment (C$ millions, fiscal years ended March 31) 2019 2018 2017 2016 2015 86.6% 89.2% 93.0% 100.8% 93.9% 2019 2018 2017 2016 2015 $80.4 $75.4 $62.5 $57.5 $46.4 $29.5 -$10.2 $16.4 $44.3 $14.5 • CG Capital Markets • CG Wealth Management Geographic Distribution of Revenue (Percent of total fiscal year revenue) 2019 2018 2017 2016 2015 • Canada • US • Rest of World (1) These figures exclude significant items. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. (2) Includes Australia Wealth Management. Canaccord Genuity Group Inc. 2019 Annual Report 3 Driven to increase shareholder value Letter to Shareholders Fellow Shareholders: Fiscal 2019 was another good year for Canaccord Genuity Group Inc. We continued to deliver on our objectives of strengthening our existing businesses, and expanding into the verticals that we know best. As a result, our Company is demonstrating the resilience and sustainability that we have been working to achieve over the past few years. Revenue for the full fiscal year was a record $1.2 billion, reflecting higher contributions from our global wealth management operations and increased capital raising and advisory activity in our core focus sectors, primarily in our North American capital markets business. On an adjusted(1) basis, Canaccord Genuity Group Inc. earned pre-tax net income of $135.6 million and diluted earnings per share of $0.80 for the fiscal year, a year-over-year improvement of 36%. We estimate that roughly half of this amount was contributed by our global wealth management operations and half from our global capital markets business. Over the past three years we have reshaped our business to derive more predictable contributions from stable businesses and verticals. During this period, we doubled client assets in our global wealth management businesses and increased contributions from higher margin businesses, with an emphasis on increasing our advisory activities. In the second half of fiscal 2019, we announced two acquisitions where we saw opportunities to add complementary growth in these areas: The addition of Thomas Miller’s private client business in the UK and the Isle of Man contributes further growth in our client assets and expands our UK business. It also enhances our financial planning capabilities, as we look to expand our wealth management offering to meet the future planning needs of our growing client base. This transaction closed in May 2019. In our capital markets business, the acquisition of mid- market advisory firm Petsky Prunier adds scale in our US business and creates an exceptional opportunity to diversify our revenue streams and improve earnings power through market cycles. The revenue growth and profitability impact of these developments will be more wholly reflected as we progress through the coming fiscal year. With a more stable and diverse global franchise, we are focused on enhancing our profit margins and delivering stronger, more sustainable returns for our shareholders. We remain balanced in our capital allocation by maintaining capital to support the long-term growth of our business and returning excess capital to our shareholders. During the year we committed capital to grow our wealth management operations and to invest in complementary growth strategies that will make us a stronger capital markets competitor. We also repurchased and cancelled a total of 1,379,200 shares and we expect to increase our activity around our share repurchase program into fiscal 2020. In addition, I am pleased to announce that our Board of Directors has approved a supplemental dividend of $0.16, bringing our full fiscal year dividend payment to $0.20, an increase of 33% from a year ago. Our wholly owned wealth management operations have continued to demonstrate stability of revenues and are increasingly contributing a greater share of our profitability. Excluding significant items, our combined wealth management businesses contributed record pre-tax net income of $75.4 million for the fiscal year, up 31% from a year ago. This was achieved on revenue of $461.8 million, (1) Adjusted earnings is a non-IFRS measure generally referred to by the Company as net income excluding significant items. See Non-IFRS Measures on page 14. 4 Canaccord Genuity Group Inc. 2019 Annual Report a year-over-year increase of 25%. We are entrusted with client assets of $65.7 billion globally. With 73% of revenue derived from recurring, fee-based activities, our UK & European wealth management business is an important driver of our firm-wide stability. Despite increased development costs in connection with our growth initiatives, the adjusted pre-tax profit margin in this business was 19% for the fiscal year. We anticipate greater margin improvement over the coming years, as we unlock synergies and expand our financial planning capability to simultaneously deliver greater value for our clients and shareholders. In Canada, our wealth management business delivered another year of impressive growth, with revenue of $206.8 million, of which 38% was from fee-based assets. Stabilizing market conditions, improved transaction activity and meaningful growth in managed assets supported an increase of client assets to $20.7 billion, while the average book size per IA team improved by 23% over the year, to $135.1 million. The adjusted pre-tax profit margin in this business continued to improve on a year-over-year basis, despite increased costs to support the growth of this segment. Recruiting momentum has remained strong and we have continued to solidify our position as a leading independent wealth management business in Canada, as our investment and improved reputation in recent years is making our platform increasingly attractive to established advisors. Looking ahead, we anticipate that Australia will contribute a greater share of growth for our wealth management operations. Our increased investment in our Australian operation early in the fiscal year has given us a greater foothold in the region, from which we have been actively exploring opportunities to increase contributions from this segment. Although we have placed a strong focus on adding scale in our wealth management businesses through acquisitions and recruiting, a key element of our strategy also involves organic growth through technological innovation, product development and the expansion of our client relationships to increase allocations toward advice-based services. Looking forward, we will continue to focus on asset and revenue growth with a greater emphasis on margin improvement. While we better leverage our scale to generate efficiencies and drive organic growth, we are steadily improving our pre- tax profit margin as we move toward our goal of 20% for our combined global wealth management businesses by fiscal 2022, a material increase from 16% this year. Our strategic focus for our global capital markets businesses has centred on establishing mid-market leadership in our core focus sectors, while making disciplined investments to deepen our client offering and enhance earnings stability through market cycles. / Driven by your success The launch of our new CG brand identity in December marked a pivotal moment in our history, firmly establishing that we have become the better, stronger company that we have all worked so hard to build. Our brand is built on the idea that employees across our organization are driven to always do better – for our clients, our shareholders and our colleagues. We believe that our new visual identity captures the improved energy and engagement across our organization, as we leverage our shared strengths to do our best work. / Driven to deliver superior client outcomes / Driven to strengthen employee engagement / Driven to become more profitable / Driven to increase shareholder value Canaccord Genuity Group Inc. 2019 Annual Report 5 Driven to increase shareholder value Without question, our industry was impacted by significant market headwinds during the fiscal year, largely driven by ongoing political uncertainty in the UK, a US federal government shutdown during our second half, and a rotation away from small-cap equities in Australia. Despite these challenges, our global capital markets operations earned annual revenue of $704.3 million and adjusted pre- tax net income of $80.4 million, year-over-year increases of 11% and 29%, respectively. Proficient integration of our sales, trading, research, investment banking and advisory efforts in all regions has helped drive incremental revenue growth and deeper relationships with our clients. On a regional basis, our US operation was the most significant contributor of revenue for this segment and we expect that profitability in this business will continue to strengthen as we realize the benefits of the expanded advisory capability that has been driven both organically and through our acquisition of mid-market advisory firm Petsky Prunier. Our Canadian business was the strongest contributor to profitability, delivering adjusted pre-tax net income of $63.0 million, reflecting increased activity levels and our active involvement with numerous transactions in the cannabis sector. Commissions and fees revenue in this business also increased each quarter since we completed our acquisition of Jitneytrade in the first fiscal quarter. Market uncertainty in Australia led to a difficult period for small-cap equities, but capital raising activities have recently reaccelerated, and the outcome of the recent federal election gives us optimism that this business will recover as activity levels improve. And finally, despite a strong third quarter in the UK, the three-month period from January to March 2019 experienced an eight-year low for listings on both the LSE and AIM markets, a result of prolonged Brexit uncertainty, further compounded by fears of a global economic slowdown. We took steps to restructure this operation in our fourth quarter and a restructuring charge of $11.8 million has been recorded as a significant item for that period. A substantial headcount reduction will be reflected in our results for the first quarter of fiscal 2020 and we have also taken steps to rationalize our fixed costs, the impact of which will also be seen in the coming fiscal year. we can add the most value, we protect our ability to form lasting partnerships with our clients and provide market- leading services at every stage of the business cycle. Our improved business mix has contributed to both earnings stability and earnings growth. We are excited about the opportunities ahead – and perhaps more importantly, we are advantageously positioned to manage through the inevitable challenges that this dynamic industry and its ever-changing operating environment present us. We continue to watch our expenses closely, and despite higher costs associated with increased activity levels and investments to support growth, we have modestly reduced our total expenses as a percentage of revenue on a year-over-year basis. Underpinning our ability to deliver on our strategic priorities is a very strong culture. While we can’t predict changes in the market environment or regulatory or political challenges, we can ensure that we have a deep bench of talented and committed colleagues working together every day to deliver the very best outcomes for our clients and our shareholders. We have continued to advance our employee development and diversity initiatives, as we endeavour to make Canaccord Genuity the employer of choice for talented professionals who want to build a rewarding career. And finally, the launch of our new CG brand identity in December marked a pivotal moment in our history, firmly establishing that we have become the better, stronger company that we have all worked so hard to build. I would like to thank all our employees and directors for their ongoing commitment to our long-term strategy. And to my fellow shareholders, I thank you for your continued support and remind you that in everything we do, we are driven to increase the long-term value of our business for our clients and our valued investors. Kind regards, “Dan Daviau” As an independent investment bank, Canaccord Genuity occupies an increasingly vital role in supporting healthy economies in the regions where we live and work. By upholding a disciplined focus in the areas where we know Dan Daviau President & CEO Canaccord Genuity Group Inc. 6 Canaccord Genuity Group Inc. 2019 Annual Report Letter from the Executive Chairman Leadership and governance will continue to be critical as we execute the next phase of our growth. We have a very capable and accountable group of professionals leading our firm today, and we are continually taking steps to position our businesses and employees for a successful future. Our strong partnership culture has been integral to our ability to increase productivity and grow our market share in key regions and verticals. As we continue to advance our business goals, we are committed to fostering an inclusive work environment where all employees can thrive and feel like they belong. We recognize that we have more work to do if we want to achieve our longer-term diversity goals, but we have made excellent progress embedding this into our firm-wide culture. This has resulted in positive advancements in our talent management processes and in our daily interactions that I am confident will deliver results over the longer term. We are also committed to ensuring strong corporate governance to support our long-term strategic objectives. As we focus on achieving sustainable growth in the areas where we can add the most value, we will evaluate and adjust our Board composition to reflect our evolving business mix and to represent the best interests of you, our fellow shareholders. On behalf of the Board of Directors, I would also like to thank the senior management team and all employees of Canaccord Genuity Group Inc. for their relentless commitment and support. As I reflect on fiscal 2019, I am resolute in my belief that we have the capacity to create additional shareholder value, as we work to continuously improve our financial performance and establish market leadership in the areas where we are strongest. “David Kassie” David Kassie Executive Chairman Canaccord Genuity Group Inc. Our fiscal 2019 results reflect excellent progress against a strategy that we implemented just a few years ago, to refocus our business and increase firm-wide shareholder alignment. Because of our ongoing efforts, we have improved our business mix to derive a greater share of earnings from our wealth management businesses. We are also improving product and revenue diversity in our capital markets business, to further enhance the stability and predictability of our earnings in varying market conditions. Our strategy has been, and will continue to be, centred on building enduring value for our shareholders. We are committed to returning capital to our shareholders as we balance capital deployment for continued disciplined growth. During fiscal 2019, 1.4 million shares were purchased and cancelled, and we increased the annual dividend payment on our common shares by 33.3% compared to the prior year. The stability and earnings growth that is being driven by our global wealth management businesses has given us increased confidence in the sustainability and direction of our earnings. On that note, I am pleased to report that our Board of Directors has approved a new dividend policy for the coming fiscal year. Beginning in the first quarter of fiscal 2020, we will eliminate the practice of paying a variable supplemental dividend at the end of each fiscal year and we will instead implement a fixed quarterly dividend payment of at least $0.05 per share, which we hope to increase as we achieve further growth in global wealth management operations. We also anticipate that share buybacks will continue to be an important feature in our commitment to providing enhanced returns to our shareholders, particularly in periods when our capital markets businesses deliver outsized returns. 6 Canaccord Genuity Group Inc. 2019 Annual Report Canaccord Genuity Group Inc. 2019 Annual Report 7 Driven to increase shareholder value Canaccord Genuity Wealth Management Canaccord Genuity Wealth Management provides clients with the focused and personalized service that they expect from a local investment manager, with the added benefit of the vast resources, expertise and support uniquely available from a global financial institution. We have continued to add scale across our wholly owned wealth management operations through acquisitions and recruiting, creating a stable financial foundation which is contributing to a more predictable business, with greater consistency of earnings. With strong business momentum and a collaborative culture, Canaccord Genuity Wealth Management continues to be a very attractive destination for top industry talent and the clients they serve. $65.7 billion in total client assets(2) UK & Europe Top 10 wealth manager in the UK & Europe by assets In the UK & Europe, Canaccord Genuity Wealth Management investment professionals and fund managers provide highly tailored discretionary portfolio management, advisory and execution stockbroking, wealth planning and fund management services to individual investors, institutions and charities. With more than 70% of revenues from recurring, fee-based assets, our wealth management operations in the UK & Europe are an important driver of our firm-wide stability. UK & Europe Wealth Management Income (Loss) before Income Taxes(1) (C$ millions, fiscal years ended March 31) UK & Europe Wealth Management Client Assets(2) (C$ billions and £ billions, fiscal years ended March 31) 2019 2018 2017 2016 2015 $48.5 $37.4 2019 2018 2017 2016 2015 $27.6 $23.9 $21.6 $44.2 £25.4 $44.9 £24.8 $24.5 £14.7 $22.8 £12.2 $21.8 £11.6 We continue to advance our objectives of expanding our national footprint across the UK and broadening our offering of fully integrated investment and wealth planning services. (1) These figures exclude significant items. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. (2) Assets under administration, management and management contract. 8 Canaccord Genuity Group Inc. 2019 Annual Report Global Wealth Management Revenue (C$ millions, fiscal years ended March 31) Global Wealth Management Income (Loss) before Income Taxes(1) (C$ millions, fiscal years ended March 31) 2019 2018 2017 2016 2015 $461.8 $370.3 2019 2018 2017 2016 2015 $267.1 $246.6 $250.9 $75.4 $57.6 $29.6 $16.4 $14.5 • Canada • UK & Europe • Canada • UK & Europe Canada On track to become leading independent Canadian wealth management business Our Canadian wealth management business has investment advisory teams operating from a network of offices across the country, providing a full range of investment advisory and wealth planning strategies with an emphasis on bespoke services to meet the unique needs of their clients. Since 2016, we have welcomed 37 IA teams with more than $9.0 billion in client assets, demonstrating our unique ability to drive success regardless of the value proposition to clients. Canada Wealth Management Income (Loss) before Income Taxes(1) (C$ millions, fiscal years ended March 31) Canada Wealth Management Client Assets(2) (C$ billions, fiscal years ended March 31) 2019 2018 2017 2016 2015 $2.0 ($7.5) ($7.1) $26.8 2019 $20.7 $20.2 2018 2017 2016 2015 $15.6 $13.2 $9.2 $10.7 We have made excellent progress against our strategic priorities of increasing client assets and driving better returns, as we help new and existing advisors grow. Australia Canaccord Genuity Wealth Management has offices in Melbourne, Sydney and Perth and our advisors provide comprehensive wealth management solutions to growing numbers of clients in Australia and Southeast Asia. The exceptional performance of our capital markets business in the region has created an opportunity to expand this business and we anticipate that Australia will contribute a greater share of growth for our global wealth management operations, as we further progress with our growth plans. (1) These figures exclude significant items. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. (2) Assets under administration, management and management contract. Canaccord Genuity Group Inc. 2019 Annual Report 9 Driven to increase shareholder value Canaccord Genuity Capital Markets Our global capital markets operations provide investment banking, advisory, sales and trading, equity research and fixed income services to corporate and institutional clients around the world. Independent advice and a globally integrated service model are the hallmarks of our ability to lead the market in key sectors of the global economy. During fiscal 2019, we made disciplined investments to deepen our client offering and enhance our earnings stability through market cycles. C$31.1 billion The amount we have helped raise for global growth companies in fiscal 2019 Our specialized expertise in key sectors of the economy allows us to see ahead of the curve and unlock opportunities for our clients as they grow. 344(1) The number of transactions we participated in around the globe in fiscal 2019 With a proven track record of unparalleled origination and placement capability, we are establishing mid-market leadership in our core focus sectors. Canada Genuity Revenue (C$ millions, fiscal years ended March 31) 2019 2018 2017 2016 2015 $704.3 $637.6 $598.4 $532.3 $613.1 Despite the impact of significant market headwinds during the fiscal year, largely driven by ongoing political uncertainty in the UK, a US federal government shutdown during our second half, and a rotation away from small-cap equities in Australia, revenue earned by our global capital markets operations increased by 11% compared to the previous fiscal year. By upholding a disciplined focus in the areas where we know we can add the most value, we protect our ability to form lasting client partnerships and provide continuous access to market-leading services at every stage of the business cycle. (1) Transactions valued above C$1.5 million. 10 Canaccord Genuity Group Inc. 2019 Annual Report As a leading independent investment bank, Canaccord Genuity occupies an increasingly vital role in supporting healthy economies in the regions where we live and work. Establishing mid-market leadership With deeply established global capabilities and a strong track record of delivering successful outcomes for clients across the value chain, Canaccord Genuity is a powerful mid-market competitor in our core geographies and focus sectors. We are a leading equities underwriter in Canada(1) and this position of strength has helped us expand our competitive positioning in other geographies. Diversifying our revenue streams We have made excellent progress on our strategic priority of increasing contributions from higher margin advisory activities, a reflection of growing demand for independent advice that is free from conflict. Our acquisition of mid- market advisory firm Petsky Prunier adds scale in our US business and advances this priority, while creating a top- tier mid-market M&A franchise in the region. Going deeper in our core strengths During fiscal 2019, we closed our acquisition of Jitneytrade, which has enhanced our market share by expanding our product offering to include futures, options and low latency trading capabilities for our clients in Canada. As we focus on expanding our offering to our targeted client base, we have also established success in alternative financing vehicles, such as SPACs, which provide an attractive option for private companies looking to access public growth markets. A business model centred on stability While we are agile enough to move swiftly into new areas of growth, we are careful to limit our reliance on any single business or sector. Additionally, our unified global network of sales, trading, research, investment banking and advisory efforts in all regions has helped drive incremental revenue growth and deeper relationships with our clients, and ultimately, more predictable returns for our shareholders. Fiscal 2019 Revenue by Activity Fiscal 2019 Revenue by Region • Investment Banking 34% • Commissions and Fees 25% • Advisory 20% • Trading 18% • Interest and Other 3% • US 43% • Canada 36% • UK, Europe & Dubai 16% • Australia 5% (1) Transactions over C$1.5 million. Includes led and co-led common equity deals and income funds (units, flow-through, convertible debt). Excludes prefs. Source: FP Infomart Canaccord Genuity Group Inc. 2019 Annual Report 11 Driven to increase shareholder value A Culture of Partnership and Accountability The Canaccord Genuity brand is built on the idea that employees across our organization are driven to always do better – for our clients, our shareholders and our colleagues. By steadily evolving our platforms and expanding our client focus, while staying true to our independent roots, we have set new benchmarks for excellence and we have become an increasingly stronger company. / We Are Partners. / We Are Entrepreneurial. / We Are Collegial. / We Work Hard. / We Operate with Integrity. / We Are Earnings Focused. 12 Canaccord Genuity Group Inc. 2019 Annual Report 13 Financial Review 14 14 15 17 21 22 23 29 33 43 44 45 46 46 47 Management’s Discussion and Analysis Non-IFRS Measures Business Overview Key Developments During Fiscal 2019 Market Environment During Fiscal 2019 Fiscal 2020 Outlook Financial Overview Quarterly Financial Information Business Segment Results Overview of Preceding Years − Fiscal 2018 vs. 2017 Financial Condition Off-Balance Sheet Arrangements Liquidity and Capital Resources Preferred Shares Outstanding Share Data 48 50 51 55 57 58 58 62 62 62 63 65 117 123 Share-Based Payment Plans 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 Supplemental Information 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 2020 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 Management’s Discussion and Analysis (MD&A) and ‘‘Risk Factors’’ in the AIF, which include market, liquidity, credit, operational, legal, cyber 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 2020 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 also 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 14 Management’s Discussion and Analysis Fiscal year 2019 ended March 31, 2019 − this document is dated June 5, 2019. 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, 2019 compared to the preceding fiscal year, with an emphasis on the most recent year. Unless otherwise indicated or the context otherwise requires, the ‘‘Company’’ or ‘‘Canaccord Genuity Group’’ refers to Canaccord Genuity Group Inc. and its direct and indirect subsidiaries. ‘‘Canaccord Genuity Capital Markets’’ 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, 2019 and 2018, beginning on page 63 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, 2019 and 2018 are prepared in accordance with International Financial Reporting Standards (IFRS). Non-IFRS Measures 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 presented include assets under administration, assets under management, book value per diluted common share, return on common equity and figures that exclude significant items. The Company’s capital is represented by common and preferred 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, which is calculated as total common shareholders’ equity adjusted for assumed proceeds from the exercise of options and warrants, issuance of common shares in connection with deferred consideration related to acquisitions, settlement of a promissory note issued as purchase consideration in shares at the Company’s option, and conversion of convertible debentures divided by the number of diluted common shares that would then be outstanding including estimated amounts in respect of share issuance commitments including options, warrants, other share-based payment plan, deferred consideration related to acquisitions, convertible debentures and a promissory note, as applicable, and adjusted for shares purchased or committed to be 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. 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 − Australia and AUM − UK & Europe are the market value of client assets managed and administered by the Company from which the Company earns commissions and 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 − Australia and AUM − UK & Europe 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 the Company and is included in AUA − Canada. Financial statement items that exclude significant items are non-IFRS measures. Significant items include restructuring costs, amortization of intangible assets acquired in connection with a business combination, impairment of goodwill and other assets and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions, gains or losses related to business disposals including recognition of realized translation gains on the disposal of foreign operations, certain accounting charges related to the change in the Company’s long-term incentive plan (LTIP) as recorded with effect on March 31, 2018, certain incentive-based costs related to the acquisition of Hargreave Hale recorded under development costs, loss related to the extinguishment of convertible debentures as recorded for accounting purposes as well as certain expense items, typically included in development costs, which are considered by management to reflect a singular charge of a non-operating nature. See the Selected Financial Information Excluding Significant Items table on page 24. Management believes that these non-IFRS measures 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 the Company’s core operating results. A limitation of utilizing these figures that exclude significant items is that the IFRS accounting effects of these items do in fact reflect the underlying financial results of the Company’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. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 15 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 wealth management offices located in Canada, the UK, Guernsey, Jersey, the Isle of Man and Australia. Canaccord Genuity Capital Markets, the Company’s international capital markets division, operates in North America, the UK & Europe, Asia, Australia and the Middle East. Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX. 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. The Company’s 6.25% Convertible Unsecured Senior Subordinated Debentures are listed on the TSX under the symbol CF.DA.A. ABOUT CANACCORD GENUITY GROUP INC.’S OPERATIONS Canaccord Genuity Group Inc.’s operations are divided into two business segments: Canaccord Genuity Capital Markets (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 Capital Markets Canaccord Genuity Capital Markets is the global capital markets division of Canaccord Genuity Group Inc., offering institutional and corporate clients idea-driven investment banking, merger and acquisition, research, sales and trading services with capabilities in North America, the UK & Europe, Asia, Australia and the Middle East. We are committed to providing valued services to our clients throughout the entire lifecycle of their business and operating as a gold standard independent investment bank − expansive in resources and reach, but targeted in industry expertise, market focus and individual client attention. 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, the UK, Jersey, Guernsey, the Isle of Man and Australia. 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 Capital Markets 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 UK and Europe Wealth Management sub-group UK and Europe Capital Markets sub-group 80% Jitneytrade Inc. (Canada) Canaccord Genuity Corp. (Canada) Canaccord Genuity Wealth Management (USA) Inc. Canaccord Genuity Petsky Prunier LLC (US) Canaccord Genuity LLC (US) Canaccord Genuity Wealth (International) Limited (Channel Islands) Canaccord Genuity Wealth Limited (UK) McCarthy Taylor Ltd. (UK) Hargreave Hale Limited (UK) Canaccord Genuity (Dubai) Ltd. Canaccord Genuity Limited (UK) Canaccord Genuity Asia (China and Hong Kong) Canaccord Genuity SG Pte. Ltd. (Singapore) Canaccord Genuity (Australia) Limited The chart shows principal operating companies of the Canaccord Genuity Group as of March 31, 2019. Effective August 10, 2018, the Company owns 80% of the issued shares of Canaccord Financial Group (Australia) Pty Ltd. and Canaccord Genuity (Australia) Limited [March 31, 2018 − 50%], but for accounting purposes, as of March 31, 2019, the Company is considered to have an 85% interest because of the shares held in a trust controlled by Canaccord Financial Group (Australia) Pty Ltd. [March 31, 2018 − 58%]. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 16 Management’s Discussion and Analysis BUSINESS ACTIVITY Our business is affected by 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 for the recognition of such transactions in 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. To improve recurring revenue streams and offset the inherent volatility of the capital markets business, the Company has taken steps to increase the scale of its global wealth management operations. Historically, the Company’s diversification across major financial centres has allowed it to benefit from strong equity markets in certain regions and improve our capability for identifying and servicing opportunities in regional centres and across our core focus sectors. 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 disciplined capital strategy allows the Company to remain competitive in today’s changing financial landscape. During fiscal 2019, the Company’s capital markets activities were focused on the following sectors: Healthcare & Life Sciences, Technology, Industrials, Financials, Metals & Mining, Diversified, Consumer & Retail, Real Estate and Sustainability. 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. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 17 Key Developments During Fiscal 2019 CORPORATE (cid:129) On June 1, 2018, the Company created a performance share option (PSO) plan that was approved at the Annual General Meeting on August 2, 2018. On June 14, 2018, the Company granted 5,620,000 options under the PSO plan. The options have an exercise price of $6.73 per share, based on the fair market value of the common shares on the grant date. In addition, the Company granted 600,000 options on August 16, 2018 with an exercise price of $7.067. The PSOs have a term of five years and will time-vest ratably over four years (with one third vesting on each of the second, third and fourth anniversaries of the date of the grant). The PSOs will also be subject to market (stock price) performance vesting conditions, and they will have a three times exercise price cap on payout value. (cid:129) On June 6, 2018, the Company completed its acquisition of Jitneytrade Inc. and Finlogik Inc. (collectively referred to as ‘‘Jitneytrade’’) directly and through the purchase of Finlogik Capital Inc. Jitneytrade Inc. is a direct access broker and an active trader in futures and equity options in Canada. Finlogik Inc. is in the business of delivering value-added fintech solutions in the Canadian market. (cid:129) On August 10, 2018, the Company completed its acquisition of an additional 30% of the shares in its Australian capital markets and wealth management business, Canaccord Genuity (Australia) Limited. This transaction increased the Company’s ownership in Canaccord Genuity (Australia) Limited from 50% to 80%. The consideration for the purchase was $37.0 million (AUD$38.5 million) comprised of $14.4 million (AUD$15.0 million) cash, a promissory note of $5.8 million (AUD$6.0 million) and the issuance of 2,331,132 common shares with a value of $16.8 million (AUD$17.5 million). The shares are subject to a three-year escrow arrangement with annual releases. (cid:129) On August 22, 2018, the Company completed its bought deal offering of convertible unsecured senior subordinated debentures for gross proceeds of $59,225,000 (the Offered Debentures). Concurrently, the Company also closed a non-brokered private placement with a large Canadian asset manager for gross proceeds of $73,500,000, which, together with the gross proceeds from the Offered Debentures, represent an aggregate principal amount of $132,725,000 (together with the Offered Debentures, the ‘‘Convertible Debentures’’). The proceeds of the non-brokered private placement were used to repay the convertible debentures issued in 2016 in the principal amount of $60,000,000 and a premium of $13,500,000 for a total of $73,500,000. The Convertible Debentures bear interest at a rate of 6.25% per annum, payable semi-annually on the last day of December and June each year commencing December 31, 2018. The Convertible Debentures are convertible at the holder’s option into common shares of the Company, at a conversion price of $10.00 per common share. The Convertible Debentures mature on December 31, 2023 and may be redeemed by the Company in certain circumstances, on or after December 31, 2021. (cid:129) On August 10, 2018, the Company announced the filing of a normal course issuer bid (NCIB) to purchase common shares of the Company through the facilities of the TSX and on the alternative Canadian trading systems during the period from August 15, 2018 to August 14, 2019. The purpose of any purchases under this program is to enable the Company to acquire shares for cancellation. The maximum number of shares that may be repurchased is 5,677,589, which represented 5.0% of the Company’s outstanding common shares at the time of filing the NCIB. During the year ended March 31, 2019, there were 152,200 shares purchased and cancelled under the NCIB which commenced August 15, 2017 and ended on August 14, 2018. There were also 1,226,800 shares that were purchased and cancelled under the current NCIB during the year ended March 31, 2019. (cid:129) On December 3, 2018, the Company launched a new brand identity, which has become an integral part of all firm-wide communications, products and experiences. This development honours the transformative changes made across the organization, as the Company significantly advances its strategy to improve alignment across operations and transform its business mix with the objective of delivering more predictable and sustainable results. (cid:129) On January 29, 2019, the Company completed the acquisition of McCarthy Taylor Ltd. as part of its wealth management operations in the UK & Europe. This development advances Canaccord Genuity Wealth Management (UK & Europe)’s objective of expanding its national footprint and broadening its offering of fully integrated investment and wealth planning services. (cid:129) On February 13, 2019, the Company announced that it has acquired 100% of the business of a pre-eminent New York-based boutique M&A advisory firm, Petsky Prunier LLC (Petsky Prunier), in an asset purchase for initial consideration of $40 million (US$30 million) in cash and $20 million (US$15 million) in common shares of the Company to be issued over a three-year period. Additional contingent consideration of up to $53.2 million (US$40 million) will be paid in cash over a four-year period, subject to meeting certain revenue targets over that period. For the year ended December 31, 2018, Petsky Prunier generated revenue of US$43.0 million. All key Petsky Prunier partners have entered into employment agreements with the Company. This development supports the Company’s objective of adding scale to its fixed cost base in the region and diversifying its revenue streams, while enhancing its client offering to capture greater market share in its core areas of strength, primarily in the mid-market Technology and Healthcare & Life Sciences sectors. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 18 Management’s Discussion and Analysis (cid:129) Andrew (Andy) Viles has been appointed an Executive Vice-President and Chief Legal Officer for Canaccord Genuity Group Inc. In this capacity, he becomes responsible for ensuring unified oversight and coordination of legal, regulatory and compliance functions across all businesses and regions where Canaccord Genuity Group operates. Mr. Viles joined Canaccord Genuity in 2003 and most recently served as Head of North American Capital Markets Compliance. He continues to serve as General Counsel for the US entity, where he manages all US legal matters, particularly within investment banking activities. Prior to joining Canaccord Genuity, Mr. Viles was a partner in the national law firm of Goodwin Procter LLP, working in the firm’s corporate department. As an experienced securities lawyer, he has extensive experience advising on mergers and acquisitions, corporate restructurings, corporate finance and capital markets transactions. Mr. Viles holds a Bachelor of Arts from Bates College, Lewiston, Maine, and a Juris Doctor from Boston University School of Law. He is a member of the Massachusetts Bar and the American Bar Association. (cid:129) On March 31, 2019, the Company announced a restructuring of its capital markets business in the UK. The objective of the plan is to enhance the Company’s ability to achieve its goal of operating at a level which can generate profits from all its businesses on a sustained basis. The plan resulted in a significant reduction in the Company’s UK capital markets staff level. In connection with the restructuring, the Company recorded a charge of $11.8 million for the year ended March 31, 2019. (cid:129) On May 1, 2019, the Company announced that through its UK & Europe wealth management business, it has completed the acquisition of Thomas Miller Wealth Management Limited (TMWML) and the private client investment management business of Thomas Miller Investment (Isle of Man) Limited. TMWML provides financial planning and investment management services to private clients, trusts, charities and corporates in the UK. The consideration for the purchase was initial cash consideration of £18.5 million (C$31.8 million), with additional contingent consideration of up to £9.5 million (C$16.8 million) payable over a period of three years following completion, subject to achievement of performance targets related to revenue and client assets. In connection with the acquisition, an additional £17.0 million (C$30.0 million) has been added to the Company’s existing bank loan facility. CANACCORD GENUITY CAPITAL MARKETS Canaccord Genuity Capital Markets generated revenue of $704.3 million, and after intersegment allocations and excluding significant items, recorded net income before taxes of $80.4 million(1) (cid:129) Canaccord Genuity Capital Markets led 176 transactions globally, each over C$1.5 million, to raise total proceeds of C$7.0 billion during fiscal 2019. Of this: (cid:129) Canada led 110 transactions, which raised C$2.8 billion (cid:129) The UK, Europe and Dubai led 10 transactions, which raised C$1.6 billion (cid:129) The US led 24 transactions, which raised C$1.9 billion (cid:129) Australia led 32 transactions, which raised C$669.9 million. (cid:129) During fiscal 2019, Canaccord Genuity Capital Markets participated in a total of 344 transactions globally, each over C$1.5 million, to raise gross proceeds of C$31.1 billion. Of this: (cid:129) Canada participated in 224 transactions, which raised C$14.3 billion (cid:129) The US participated in 63 transactions, which raised C$14.2 billion (cid:129) The UK, Europe and Dubai participated in 16 transactions, which raised C$1.7 billion (cid:129) Australia participated in 41 transactions, which raised C$906.0 million. (cid:129) Significant investment banking transactions for Canaccord Genuity Capital Markets during fiscal 2019 include: (cid:129) £302.1 million for The Renewables Infrastructure Group Limited on LSE (cid:129) US$51.4 million for Vireo Health International, Inc. on CSE (cid:129) US$48.3 million private placement for GreenLane Holdings (cid:129) AUD$20.0 million for Bellevue Gold Limited on ASX (cid:129) C$520.1 million for Curaleaf Holdings, Inc. on CSE (cid:129) US$314.2 million for Acreage Holdings, Inc. on CSE (cid:129) US$305.0 million for BioPharma Credit plc on LSE (cid:129) US$218.1 million for Harvest Health & Recreation Inc. on CSE (cid:129) C$120.2 million for Tilt Holdings Inc. on CSE (cid:129) £108.5 million for Triple Point Social Housing REIT plc on LSE (cid:129) C$107.3 million for Cresco Labs, LLC on CSE (cid:129) US$85.1 million for Canaccord Genuity Capital Markets Growth Corp. on CSE (cid:129) C$76.0 million for The Green Organic Dutchman Holdings Ltd. on TSX (cid:129) AUD$60.6 million for Redbubble Limited on ASX (cid:129) US$110.4 million for Y-mAbs Therapeutics, Inc. on Nasdaq (cid:129) C$115.1 million initial public offering for Charlotte’s Web Holdings, Inc. on CSE (cid:129) US$78.0 million for STAAR Surgical Company on Nasdaq (cid:129) C$80.3 million for Green Thumb Industries (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 19 (cid:129) AUD$75.0 million for Audinate Group Limited on ASX (cid:129) AUD$70.0 million for Nearmap Ltd. on ASX (cid:129) AUD$40.0 million for Dacian Gold Limited (cid:129) C$143.0 million for MedMen Enterprises Inc. on CSE (cid:129) C$132.3 million initial public offering for The Green Organic Dutchman Holdings Ltd. on TSX (cid:129) US$115.0 million for Sientra Inc. on Nasdaq (cid:129) C$100.4 million for CannTrust Holdings Inc. on TSX (cid:129) US$52.6 million for T2 Biosystems Inc. on Nasdaq (cid:129) AUD$70.0 million initial public offering for Marley Spoon AG on ASX (cid:129) AUD$25.0 million placement for Alliance Mineral Assets Ltd. on SGX (cid:129) In Canada, Canaccord Genuity Capital Markets participated in raising $1.0 billion for government and corporate bond issuances during fiscal 2019. (cid:129) Canaccord Genuity Capital Markets generated advisory revenues of $140.7 million during fiscal 2019, an increase of $18.4 million or 15.0% compared to the prior year. (cid:129) During fiscal 2019, significant M&A and advisory transactions included: (cid:129) Natura Naturals Holdings on its sale to Tilray Inc. for up to C$82 million (cid:129) CareATC on its growth recapitalization with LLR PartnersUS (cid:129) HICL Infrastructure PLC on the scheme of arrangement enabling change of domicile to the UK (cid:129) MediaAlpha on its significant minority investment by Insignia Capital Group (cid:129) Strong-Bridge Envision on its sale to HCL Technologies (cid:129) Michelin on its US$1.7 billion acquisition of Camso Inc. (cid:129) Small World on its sale to Equistone Partners Europe (cid:129) Tawana Resources NL on its merger with Alliance Mineral Assets Ltd. (cid:129) ICC Labs Inc. on its C$290 million sale to Aurora Cannabis Inc. (cid:129) Reis, Inc. on its acquisition by Moody’s Corporation (cid:129) Sale of Amplio Energy’s Italian solar portfolio to a consortium of Plenium Partners, Equitix and Access Capital Partners (cid:129) Eurazeo PME on the disposal of Vignal Lighting Group to EMZ Partners (cid:129) Tendril Networks, Inc. on securing a majority investment from Rubicon Technology Partners (cid:129) Jenkins Shipping on its sale to Alcuin Capital Partners (cid:129) Tessi on the €100 million disposal of CPoR (cid:129) Sherrill Inc. on its acquisition by Platte River Equity (cid:129) ABcann Global Corporation on its C$133 million acquisition of Canna Farms Limited (cid:129) Connance on its sale to Waystar Health, a portfolio company of Bain Capital Private Equity (cid:129) DHX Media on its $185 million sale of a minority interest in Peanuts to Sony Music (cid:129) Fluence on its acquisition by OSRAM Licht (cid:129) kSaria on its sale to Behrman Capital (cid:129) MedReleaf Corp. on its C$3.2 billion sale to Aurora Cannabis Inc. (cid:129) South32 on its acquisition of Arizona Mining (cid:129) CDQP on its acquisition of a leading minority stake in Fives Group alongside Investissements PSP and Ardian valued at €1.5 billion (cid:129) Reeher LLC on its sale to Blackbaud Inc. (cid:129) Acasta Enterprises Inc. on the sale of JemPak Corporation to Henkel AG & Co. for C$118 million (cid:129) Kratos Defense & Security Solutions on the sale of its Public Safety and Security division to Securitas WEALTH MANAGEMENT (GLOBAL) (cid:129) Globally, Canaccord Genuity Wealth Management generated $461.8 million in revenue during fiscal 2019 and, excluding significant items, recorded net income before taxes of $75.4 million(1) (cid:129) Assets under administration in Canada and assets under management in the UK & Europe and Australia were $65.7 billion at the end of March 31, 2019, an increase of 7.3% from $61.3 billion at the end of last year (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 20 Management’s Discussion and Analysis WEALTH MANAGEMENT (NORTH AMERICA) (cid:129) Canaccord Genuity Wealth Management (North America) generated $206.8 million in revenue and, after intersegment allocations and before taxes, recorded net income before taxes of $26.8 million in fiscal 2019 (cid:129) Assets under administration in Canada were $20.7 billion as at March 31, 2019 an increase of 32.8% from $15.6 billion at the end of the previous year(2) (cid:129) Assets under management in Canada (discretionary) were $4.2 billion as at March 31, 2019, an increase of 49.9% from $2.8 billion at the end of the previous year(2). These assets are included in total assets under administration. (cid:129) Canaccord Genuity Wealth Management had 155 Advisory Teams(3) at the end of March 31, 2019, an increase of thirteen from March 31, 2018. WEALTH MANAGEMENT (UK & EUROPE) Contributions from McCarthy Taylor from January 29, 2019 are included in the operating figures under Canaccord Genuity Wealth Management (UK & Europe) below. (cid:129) Wealth management operations in the UK & Europe generated $255.0 million in revenue and, after intersegment allocations and excluding significant items, recorded net income before taxes of $48.5 million in fiscal 2019(1) (cid:129) Assets under management (discretionary and non-discretionary) were $44.2 billion (£25.4 billion) as at March 31, 2019, a decrease of 1.5% from $44.9 billion (£24.8 billion) at the end of March 31, 2018(2). In local currency (GBP), assets under management at March 31, 2019 increased by 2.6% compared to March 31, 2018(2). (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. (2) See Non-IFRS Measures on page 14. (3) 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. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 21 Market Environment During Fiscal 2019: Economic backdrop: Global trade tensions, rising interest rates and a strong US dollar increased market volatility in global equities, notably during the third quarter of fiscal 2019. Acknowledging the global growth slowdown, a relatively benign inflation backdrop and heightened stress in financial markets, the US Federal Reserve and other central banks abandoned their hawkish stance. Expectations of a positive resolution over trade tensions between the US and China also contributed to support equities during the late innings of fiscal 2019. As a result, equity markets strongly rebounded in fiscal Q4/19, after registering widespread losses during fiscal Q3/19. For the fourth quarter, the S&P 500, the S&P/TSX and emerging markets advanced 13.6%, 13.3% and 9.9%, respectively. Looking at fiscal 2019, returns were positive in the US (9.5%) and Canada (8.1%) but negative in Emerging Markets (EMs) (-1.6%). Investment banking and advisory Commodity prices have mostly recovered from weaker levels seen during the third quarter of fiscal 2019, but shares of resource stocks remain cheap by historical standards. We believe M&A activities could benefit from perceived low valuations among mining and energy companies. Otherwise, small- and mid-cap growth equities, which represent our primary market, tend to be more domestically focused. Notwithstanding market volatility, they appear less vulnerable to heightened global geopolitical and macroeconomic risks than their large-cap counterparts. In all, financing activity in fiscal 2019 maintained a robust pace. The rebound in small-cap equities during fiscal Q4/19 suggests a favourable environment for capital raising and advisory activities. Index Value at End of Fiscal Quarter Q4/18 Q1/19 Q2/19 Q3/19 3/30/2018 (Y/Y) 6/29/2018 (Y/Y) 9/28/2018 (Y/Y) 12/31/2018 (Y/Y) 3/29/2019 Q4/19 (Y/Y) (Q/Q) S&P IFCI Global Small Cap 306.1 21.7% S&P IFCI Global Large Cap 261.1 22.1% 277.6 239.1 8.3% 5.8% 259.8 236.3 -6.7% -2.1% 238.4 -21.0% 262.4 -14.3% 10.1% 218.6 -15.5% 238.3 -8.7% 9.0% Our capital-raising and advisory activities are primarily focused on small- and mid-capitalization companies in specific growth sectors of the global economy. These sectors may experience growth or downturns independent of broader economic and market conditions, and government regulation can also have a more profound impact on capital formation for smaller companies. Volatility in the business environment for these industries or in the market for securities of companies within these industries in the regions where we operate could adversely affect our financial results and ultimately, the market value of our shares. Advisory revenues are primarily dependent on the successful completion of merger, acquisition or restructuring mandates. Weak economic and global financial market conditions and uncertainties with respect to Brexit and US-China trade relationships could result in a challenging business environment for small and mid-market M&A and capital raising activity but may provide opportunities for our restructuring business. Trading Trading volumes for small- and mid-cap equities in many of the markets where we operate improved compared to the previous fiscal year. Heightened market volatility during the fiscal third quarter notably buoyed our agency trading activities. Looking ahead, trading volumes should be supported by late-cycle dynamics which could lead clients to actively rotate between cyclical and defensive sectors. That said, we continue to expect that the implementation of MiFID II in some of our jurisdictions carries some potential to impair trading volumes in the medium to long-term. Average Value During Fiscal Quarter/Year Q4/18 Q1/19 Q2/19 Q3/19 30-Mar-18 (Y/Y) 29-Jun-18 (Y/Y) 28-Sep-18 (Y/Y) 31-Dec-18 (Y/Y) 29-Mar-19 Russell 2000 1554.1 13.0% 1608.2 15.7% 1698.4 19.9% 1496.8 -1.0% 1509.0 S&P 400 Mid Cap 1914.1 12.2% 1932.6 11.7% 2011.4 15.2% 1824.1 -1.6% 1845.1 FTSE 100 7354.7 1.1% 7544.7 2.1% 7553.0 2.3% 6991.6 -6.5% 7061.3 MSCI EU Mid Cap 1104.5 10.0% 1115.8 4.5% 1123.5 4.9% 1012.0 -8.7% 1027.2 S&P/TSX 15746.2 1.3% 15872.1 2.6% 16303.8 7.4% 15042.0 -5.9% 15621.7 Q4/19 (Y/Y) -2.9% -3.6% -4.0% -7.0% -0.8% FY19 (Q/Q) 29-Mar-19 0.8% 1578.1 1.2% 1903.2 1.0% 7287.4 1.5% 1069.6 3.9% 15707.6 (Y/Y) 7.5% 5.1% -1.5% -1.7% 0.7% 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 22 Management’s Discussion and Analysis Global wealth management Solid market returns in the fourth quarter of fiscal 2019 more than compensated for the volatility experienced in the third quarter. Global equities posted positive returns for the fiscal year (+3.2%), led by US (+9.5%) and Canadian (+8.1%) markets. A weaker Canadian dollar (-3.4%) also helped support the performance of international holdings in investors’ portfolios. In addition, balanced portfolios benefited from positive returns in Treasury bonds throughout fiscal 2019 (+5.5%). Despite a difficult economic and political environment for equities, total AUM in our wealth management businesses continued to improve in fiscal 2019. Total Return (excl. currencies) S&P 500 S&P/TSX MSCI EMERGING MARKETS MSCI WORLD S&P GS COMMODITY INDEX US 10-YEAR T-BONDS CAD/USD CAD/EUR Fiscal 2020 Outlook Q4/18 Change (Q/Q) -0.8% -4.5% 0.8% -0.8% 2.2% -2.4% -2.4% -5.0% Q1/19 Change (Q/Q) 3.4% 6.8% -3.4% 0.7% 8.0% -0.6% -1.8% 3.5% Q2/19 Change (Q/Q) 7.7% -0.6% 0.1% 4.4% 1.3% -1.5% 1.8% 2.4% Q3/19 Change (Q/Q) -13.5% -10.1% -7.3% -12.7% -22.9% 4.6% -5.4% -4.2% Q4/19 Change (Q/Q) 13.6% 13.3% 9.9% 12.3% 15.0% 3.0% 2.2% 4.5% Fiscal 2018 Change Fiscal 2019 Change 14.0% 1.7% 22.4% 15.4% 13.8% -1.1% 3.2% -10.7% 9.5% 8.1% -1.6% 3.2% -3.0% 5.5% -3.4% 6.1% The third global growth slowdown in this business cycle is underway with heightened trade tensions. The US Federal Reserve and other central banks have abandoned their hawkish stance and it is widely expected that more monetary and fiscal reflation will be implemented to offset trade headwinds and protect growth. The timing of central banks’ actions is uncertain, resulting in a period of protracted volatility for risk assets. Should global trade tensions escalate and a full-blown trade war emerge, we expect that financial markets could face the possibility of a recession late this calendar year or in calendar 2020. As such, it will be very important for policymakers to act pre-emptively when it comes to reflating economies, especially if bond yield curves were to invert. For now, odds of a global economic recession are fairly low for our 2020 fiscal year. Credit markets remain liquid and financial stress is benign. Importantly, history has shown that M&A and advisory activities usually accelerate during the late stage of a typical business cycle. We believe that our agency business should continue to grow at a moderate pace, as some investors reassess their asset mix and sector rotation exposure at this stage of the business cycle. Finally, the performance of our wealth management business will likely fluctuate with markets. However, we expect continued momentum in our recruiting and growth strategies to persist and offset some of the financial market headwinds. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 23 Financial Overview SELECTED FINANCIAL INFORMATION(1)(2)(8) (C$ thousands, except per share and % amounts, and number of employees) Canaccord Genuity Group Inc. (CGGI) For the years ended March 31 2019 2018 2017 2019/2018 change Revenue Commissions and fees Investment banking Advisory fees Principal trading Interest Other Total revenue Expenses Incentive compensation Salaries and benefits Other overhead expenses(3) Restructuring costs(4) Acquisition-related costs Loss on extinguishment of convertible debentures Acceleration of long-term incentive plan expense Share of loss of an associate(5) Total expenses Income before income taxes Net income Net income attributable to CGGI shareholders Non-controlling interests Earnings per common share − basic Earnings per common share − diluted Dividends per common share Dividends per Series A Preferred Share Dividends per Series C Preferred Share Book value per diluted common share(6) Excluding significant items(7) Total revenue Total expenses Income before income taxes Net income Net income attributable to CGGI shareholders Net income attributable to non-controlling interests Earnings per common share − diluted Balance sheet data Total assets Total liabilities Non-controlling interests Total shareholders’ equity Number of employees $ 556,475 $ 461,937 $ 396,741 $ 94,538 294,241 142,228 125,830 51,008 20,785 282,195 122,372 113,921 27,875 14,577 196,129 130,749 119,040 16,847 20,040 12,046 19,856 11,909 23,133 6,208 1,190,567 1,022,877 879,546 167,690 599,867 116,758 356,240 13,070 3,064 8,608 — 304 526,614 99,239 298,250 7,643 6,732 — 48,355 298 454,998 85,698 284,966 — — — — — 73,253 17,519 57,990 5,427 (3,668) 8,608 (48,355) 6 1,097,911 987,131 825,662 110,780 $ $ $ $ $ $ $ $ $ $ 92,656 71,582 70,530 1,052 0.58 0.48 0.20 0.9712 1.2482 6.25 $ $ $ $ $ $ $ $ $ $ 35,746 17,077 13,024 4,053 0.04 0.03 0.15 0.9712 1.2482 5.71 $ 1,190,567 $ 1,022,877 $ 1,054,981 $ $ $ $ $ 135,586 107,355 106,303 1,052 0.80 $ $ $ $ $ $ 912,270 110,607 81,657 77,604 4,053 0.59 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 53,884 43,186 38,103 5,083 0.29 0.27 0.10 1.173 1.4375 5.08 878,353 817,096 61,257 49,196 43,903 5,293 0.32 $ 4,749,294 $ 4,020,736 $ 5,203,516 3,870,934 3,165,813 4,426,873 1,997 876,363 2,135 13,571 841,352 1,956 11,858 764,785 1,700 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 56,910 54,505 57,506 (3,001) 0.54 0.45 0.05 0.00 0.00 0.54 167,690 142,711 24,979 25,698 28,699 (3,001) 0.21 728,558 705,121 (11,574) 35,011 179 20.5% 4.3% 16.2% 10.5% 83.0% 42.6% 16.4% 13.9% 17.7% 19.4% 71.0% (54.5)% n.m. (100.0)% 2.0% 11.2% 159.2% n.m. n.m. (74.0)% n.m. n.m. 33.3% 0.0% 0.0% 9.5% 16.4% 15.6% 22.6% 31.5% 37.0% (74.0)% 35.6% 18.1% 22.7% (85.3)% 4.2% 9.2% (1) Data is in accordance with IFRS except for book value per diluted common share, figures excluding significant items and number of employees. See Non-IFRS Measures on page 14. (2) The operating results of the Australian operations have been fully consolidated and a non-controlling interest of 15% has been recognized for the year ended March 31, 2019 [April 1, 2018 to August 9, 2018 − 42% and post-acquisition of an additional 30% interest in the Australian operations on August 10, 2018 − 15%; March 31, 2018 − 42%]. (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) Restructuring costs for the year ended March 31, 2019 related to termination benefits and certain real estate costs incurred as a result of the restructuring of our UK capital markets operations. Restructuring costs for the year ended March 31, 2018 related to termination benefits as a result of the closing of certain trading operations in our UK & Europe capital markets operations, staff reductions in our Canadian and US capital markets operations, as well as real estate costs related to the acquisition of Hargreave Hale. (5) Represents the Company’s equity portion of the net loss of its investment in Canaccord Genuity Growth Corp. and Canaccord Genuity Acquisition Corp. for the year ended March 31, 2019 and the Company’s equity portion of the net loss of its investment in Canaccord Genuity Acquisition Corp. for the year ended March 31, 2018. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 24 Management’s Discussion and Analysis (6) Book value per diluted common share is calculated as total common shareholders’ equity adjusted for assumed proceeds from the exercise of options and warrants, issuance of common shares in connection with deferred consideration related to acquisitions, settlement of a promissory note in shares at the Company’s option, and the conversion of convertible debentures, divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments including options, warrants, other share-based payment plan, deferred consideration related to acquisitions, promissory notes and convertible debentures, and adjusted for shares purchased or committed to be 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 below. (8) Data includes the operating results of Hargreave Hale Limited since September 18, 2017, the operating results of Jitneytrade Inc. and Finlogik Inc. since June 6, 2018, the operating results of McCarthy Taylor Ltd. since January 29, 2019 and the operating results of Petsky Prunier LLC since February 13, 2019. n.m.: not meaningful (percentages over 300% are indicated as n.m.) SELECTED FINANCIAL INFORMATION EXCLUDING SIGNIFICANT ITEMS(1) (C$ thousands, except per share and % amounts) 2019 2018 2017 2019/2018 change For the years ended March 31 Total revenue per IFRS Total expenses per IFRS Revenue $ 1,190,567 $ 1,022,877 $ 879,546 $ 167,690 $ 1,097,911 $ 987,131 $ 825,662 $ 110,780 Significant items recorded in Canaccord Genuity Capital Markets Realized translation gains on disposal of Singapore — — 1,193 — Total revenue excluding significant items 1,190,567 1,022,877 878,353 167,690 Expenses Significant items recorded in Canaccord Genuity Capital Markets Amortization of intangible assets Acquisition-related costs Restructuring costs(2) Acceleration of long-term incentive plan expense Significant items recorded in Canaccord Genuity Wealth Management Amortization of intangible assets Restructuring costs(2) Acquisition-related costs Acceleration of long-term incentive plan expense Development costs(4) Incentive based payments related to acquisition(3) Significant items recorded in Corporate and Other Loss on convertible debentures Acceleration of long-term incentive plan expense Total significant items 2,496 1,976 13,070 — 11,153 — 1,088 — 245 4,294 8,608 — 42,930 2,317 — 4,704 42,399 8,273 2,939 6,732 4,058 — 1,541 — 1,898 74,861 3,304 — — — 5,262 — — — — — — — 8,566 Total expenses excluding significant items 1,054,981 912,270 817,096 Net income before income taxes − adjusted $ 135,586 $ 110,607 Income tax expense − adjusted Net income − adjusted Net income attributable to common shareholders, adjusted Earnings per common share − basic, adjusted Earnings per common share − diluted, adjusted 28,231 $ 107,355 96,899 1.01 0.80 $ $ $ $ $ 28,950 81,657 68,011 0.73 0.59 $ $ $ $ 61,257 12,061 49,196 32,825 0.36 0.32 $ $ $ $ 179 1,976 8,366 (42,399) 2,880 (2,939) (5,644) (4,058) 245 2,753 8,608 (1,898) (31,931) 142,711 24,979 (719) 25,698 28,888 0.28 0.21 16.4% 11.2% — 16.4% 7.7% n.m. 177.8% (100.0)% 34.8% n.m. (83.8)% (100.0)% n.m. 178.7%. n.m. (100.0)% (42.7)% 15.6% 22.6% (2.5)% 31.5% 42.5% 38.4% 35.6% (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. (2) Restructuring costs for the year ended March 31, 2019 related to termination benefits and real estate costs related to the restructuring in our UK capital markets operations. Restructuring costs for the year ended March 31, 2018 related to termination benefits as a result of the closing of certain trading operations in our UK & Europe capital markets operations, staff reductions in our Canadian and US capital markets operations, as well as real estate costs related to the acquisition of Hargreave Hale. Incentive-based costs related to the acquisition of Hargreave Hale determined with reference to financial targets and other performance criteria recorded under development costs. (3) (4) Related to costs directly attributable to internal development of software used in our UK wealth management operations. n.m.: not meaningful (percentages over 300% are indicated as n.m.) CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 25 FOREIGN EXCHANGE Revenues and expenses from our foreign operations are initially recorded in their respective functional currencies and translated into Canadian dollars at the average exchange rates prevailing during the period. On an average basis for the 12-month period ended March 31, 2019 compared to March 31, 2018, the pound sterling appreciated by 1.2% against the Canadian dollar and the US dollar appreciated by 2.3% against the Canadian dollar in fiscal 2019 when compared to fiscal 2018. This change in average foreign exchange rates contributed to certain changes in revenue and expense items measured 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 Capital Markets and Canaccord Genuity Wealth Management UK & Europe. GEOGRAPHIES Commencing in Q3/17, the operating results of our Australian operations were disclosed as a separate geography. Prior to Q3/17 Australia was included as part of Other Foreign Locations. The operating results of the Australian operations have been fully consolidated and a non-controlling interest of 15.0% [prior to closing date of August 10, 2018 and year ended March 31, 2018 − 42%] has been recognized for accounting purposes since the closing date of August 10, 2018 of the Company’s acquisition of an additional 30% interest. Also, commencing in Q3/17, our Dubai operation, which was previously included in Other Foreign Locations, was included as part of Canaccord Genuity Capital Markets UK & Europe. The Other Foreign Locations geographic segment is now comprised of our Asian based operations, including our new Singapore operation that began in fiscal 2019, China and Hong Kong, and prior to their sale or closure also included our former operations in Barbados and our advisory and capital raising business in Singapore. These reclassifications reflect the growing contributions from Australia and the working associations between the UK and Dubai. For purposes of the discussion provided herein, the Canaccord Genuity Capital Markets operations in the UK, Europe and Dubai are referred to as the ‘‘UK’’. Operating results of Hargreave Hale Limited (Hargreave Hale) are included since the closing date of September 18, 2017 and operating results of McCarthy Taylor Ltd. (McCarthy) are included since the closing date of January 29, 2019 as part of Canaccord Genuity Wealth Management UK & Europe. Operating results of Jitneytrade Inc. and Finlogik Inc. (collectively referred to as ‘‘Jitneytrade’’) are included as part of Canaccord Genuity Capital Markets Canada since the closing date of June 6, 2018. In addition, operating results of Petsky Prunier LLC (Petsky Prunier) are included since the closing date of February 13, 2019 as part of Canaccord Genuity Capital Markets US. GOODWILL The Company has recorded on its balance sheet as at March 31, 2019 goodwill in the amount of $370.2 million and included in intangible assets is an intangible asset with an indefinite life in the amount of $154.5 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 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 life intangible assets associated with any of its wealth management business units in the UK & Europe or its goodwill recorded in Canaccord Genuity Capital Markets Canada and US. Notwithstanding this determination as of March 31, 2019, changes or uncertainty in the economic environment may cause this determination to change. If the business climate changes 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 in respect of the Canaccord Genuity Wealth Management business units in the UK & Europe or in respect of the goodwill recorded in Canaccord Genuity Capital Markets Canada and US. Adverse changes in the key assumptions utilized for purposes of impairment testing for goodwill and indefinite life intangible assets may result in the estimated recoverable amount of some or all of the applicable business units declining below the carrying value with the result that impairment charges may be required. The amount of any impairment charge would affect some or all of the amounts recorded for goodwill and indefinite life intangible assets. Any such impairment charges 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. In addition, notwithstanding that there may be no change in the performance estimates used by the Company for purposes of determining whether there has been any impairment in its indefinite life intangible asset related to the Genuity brand name, in the event that the Company changes the way in which it uses that asset, the Company may be required to record an impairment charge. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 26 Management’s Discussion and Analysis 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 2019 was $1.2 billion, an increase of 16.4% or $167.7 million from fiscal 2018, marking the second consecutive year our consolidated revenue has surpassed $1.0 billion. The increase in revenue compared to the prior year was mainly related to an increase in revenue generated in our global wealth management operations of $91.5 million as well as increases in our Canadian and US capital markets operations. As a result of an improvement in capital raising activity in our core focus areas, revenue in our Canaccord Genuity Capital Markets segment increased by $66.8 million or 10.5% compared to fiscal 2018. Our US operations, which benefited from increased capital raising and advisory activities as well as increased trading volumes during the year, generated $303.6 million of revenue in fiscal 2019, an increase of $67.6 million or 28.7% compared to last year. Our Canadian business participated in numerous transactions in the cannabis sector, leading to the higher investment banking revenue and advisory fees recorded during the year. The completion of the acquisition of Jitneytrade in Q1/19 also largely contributed to an increase in commission and fees revenue in our Canadian operations compared to fiscal 2018. On an overall basis, our Canadian operations generated $260.7 million in revenue, an increase of $44.6 million or 20.6% compared to the year ended March 31, 2018. Offsetting these increases were decreases experienced by our UK and Australian operations. Our UK operations were negatively impacted by market uncertainty, leading to a decrease in revenue of $19.7 million or 15.3% compared to fiscal 2018. Our Australian operations recorded a decrease of $25.7 million or 45.0% compared to fiscal 2018, partially due to exceptionally high profits and gains recorded in certain inventory and warrant positions earned in respect of investment banking activity in fiscal 2018 and prior periods. Consistent with our strategic focus to strengthen contributions from our global wealth management operations, revenue from our wealth management operations increased by $91.5 million or 24.7% compared to fiscal 2018. Revenue in our wealth management operations in the UK & Europe increased by $53.6 million or 26.6% compared to the year ended March 31, 2018, largely due to the inclusion of the full annual revenue from our Hargreave Hale operations acquired at the end of Q2/18. Our Canadian wealth management operations also generated $206.8 million of revenue in fiscal 2019, representing an increase of $37.9 million or 22.5% over the prior year. 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 $94.5 million or 20.5% from fiscal 2018 to $556.5 million in fiscal 2019. As discussed above, the continued growth of our wealth management operations was the primary reason for the increase in commissions and fees revenue. In addition, the acquisition of Jitneytrade in Q1/19 contributed to an increase in commission and fees generated in our Canadian capital markets operations. Revenue generated from investment banking activities increased by $12.0 million or 4.3% to $294.2 million in fiscal 2019, compared to $282.2 million in fiscal 2018. Our US operations generated an increase of $32.7 million or 79.5% and our Canadian operations increased by $9.5 million or 7.6% compared to fiscal 2018 as a result of increased activity in our focus sectors. This increase was largely offset by decreases generated in our UK and Australia operations of $9.8 million or 35.5% and $23.5 million or 57.2%, respectively. As discussed above, our UK operations were negatively impacted by reduced financing activity resulting from market uncertainty during fiscal 2019. The decrease in investment banking revenue in our Australian operations partially resulted from lower financing activity as well as large unrealized gains recorded in certain inventory and warrant positions earned in respect of investment banking activity in fiscal 2018 which were partially reversed in fiscal 2019. Advisory fees revenue increased by $19.9 million or 16.2% compared to the prior year to $142.2 million for fiscal 2019. This was primarily due to an increase in the number of completed advisory mandates in our capital markets operations in the US and Canada. The largest increase was in our US capital markets operations, which experienced a growth of $16.0 million or 48.4%, consistent with our emphasis on growing our advisory business in the US. The completion of the acquisition of Petsky Prunier during Q4/19 also made a small contribution to the advisory revenue earned during fiscal 2019. Our Canadian operations also saw an increase of $9.5 million or 23.9% compared to the year ended March 31, 2018. Offsetting these increases were decreases of $6.2 million or 12.9% and $0.9 million or 58.6% in our UK and Australian capital markets operations, respectively, compared to the prior year as a result of a decrease in advisory mandates completed in these two operations. Revenue derived from principal trading grew by $11.9 million to $125.8 million for the year ended March 31, 2019, largely driven by higher revenue generated in our US capital markets operations resulting from increased market volatility. Interest revenue was $51.0 million in fiscal 2019, an increase of $23.1 million or 83.0% from the prior year, due to higher revenue earned in our Canadian operations arising from increased margin loan and stock loan activity. Increased investment banking activity in Canada during the year gave rise to increased opportunities for lending activity and increased interest revenue. Other revenue was $20.8 million, an increase of $6.2 million or 42.6% from the same period a year ago, due to higher foreign exchange gains as well as an increase in revenue from our Pinnacle Correspondent Services business. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT EXPENSES Expenses as a percentage of revenue Incentive compensation Salaries and benefits Other overhead expenses(1) Restructuring costs(2)(3) Acquisition-related costs(2) Acceleration of long-term incentive plan expense(2)(3) Loss on extinguishment of convertible debentures Share of loss of an associate(4) Total Management’s Discussion and Analysis 27 For the years ended March 31 2019 50.4% 9.8% 29.9% 1.1% 0.3% 0.0% 0.7% 0.0% 2018 51.5% 9.7% 29.2% 0.7% 0.7% 4.7% 0.0% 0.0% 92.2% 96.5% 2019/2018 change (1.1) p.p. 0.1 p.p. 0.7 p.p. 0.4 p.p. (0.4) p.p. (4.7) p.p. 0.7 p.p. n.m. (4.3) p.p. (1) Consists of trading costs, premises and equipment, communication and technology, interest, general and administrative, amortization of tangible and intangible assets and development costs. (2) Refer to the Selected Financial Information Excluding Significant Items table on page 24. (3) Restructuring costs for the year ended March 31, 2019 related to termination benefits and certain real estate costs incurred as a result of the restructuring of our UK capital markets operations. Restructuring costs for the year ended March 31, 2018 related to termination benefits as a result of the closing of certain trading operations in our UK & Europe capital markets operations, staff reductions in our Canadian and US capital markets operations, as well as real estate costs related to the acquisition of Hargreave Hale. (4) Represents the Company’s equity portion of the net loss of its investment in Canaccord Genuity Growth Corp. and in Canaccord Genuity Acquisition Corp. for the year ended March 31, 2019 and the Company’s equity portion of its investment in Canaccord Genuity Acquisition Corp. for the year ended March 31, 2018. p.p.: percentage points n.m.: not meaningful Expenses for fiscal 2019 were $1.1 billion, an increase of 11.2% or $110.8 million compared to the last fiscal year. Excluding significant items(1), total expenses were $1.05 billion, up $142.7 million or 15.6% from fiscal 2018. Total expenses excluding significant items(1) as a percentage of revenue decreased slightly by 0.6 percentage points compared to the year ended March 31, 2018. Compensation expenses Incentive compensation expense was $599.9 million, an increase of $73.3 million or 13.9% from the prior year, in line with the increase in incentive-based revenue. Incentive compensation as a percentage of total revenue was 50.4% for fiscal 2019, a decrease of 1.1 percentage points from 51.5% in the prior year. Salaries and benefits expense of $116.8 million for the year ended March 31, 2019 was $17.5 million or 17.7% higher than fiscal 2018. The increase was largely due to additional costs from our expansion in the UK & Europe wealth management operations, including the inclusion of the full annual operating results of Hargreave Hale acquired at the end of Q2/18. The salaries and benefits expense in our Canadian wealth management operations also increased by $2.8 million or 24.5% compared to fiscal 2018 as a result of higher headcount in this operation. Despite the increase in fixed staff costs, total compensation expense (incentive compensation expense and salaries and benefit expense) was 60.2% in fiscal 2019, a decrease of 1.0 percentage point from the prior year. OTHER OVERHEAD EXPENSES (C$ 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 2019 2018 $ 83,577 $ 68,209 41,719 64,930 25,453 100,768 24,280 15,513 39,605 56,346 18,437 83,982 24,007 7,664 $ 356,240 $ 298,250 2019/2018 change 22.5% 5.3% 15.2% 38.1% 20.0% 1.1% 102.4% 19.4% (1) Includes amortization of intangible assets for the years ended March 31, 2019 and March 31, 2018, respectively. See the Selected Financial Information Excluding Significant Items table on page 24. In order to support the higher headcount, increased capital markets activity including our principal trading operations and expansion of our wealth management business with the Hargreave Hale acquisition, all of our overhead expenses increased compared to the year ended March 31, 2018. (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 28 Management’s Discussion and Analysis Other overhead expenses as noted in the table above were $356.2 million or 19.4% higher in fiscal 2019, which as a percentage of revenue was 29.9% compared to 29.2% in fiscal 2018. The most significant increases in overhead expenses included trading costs, communications and technology expense, interest, general and administrative expense as well as development costs. Trading costs increased by $15.4 million or 22.5% compared to the year ended March 31, 2018, primarily as a result of higher costs recorded in our US and Canadian capital markets operations, in line with our increase in the related revenue. The completion of our acquisition of Jitneytrade in Q1/19 also contributed to higher trading costs recorded in our Canadian capital markets operations. Although generally in line with the increase in commissions and fees revenue, trading costs in the US were also impacted by the costs of ADR conversions and international settling and clearing costs, which do not necessarily vary with revenue. Communication and technology expense increased by $8.6 million or 15.2% in fiscal 2019 compared to the prior year. As a result of the higher headcount from the expansion of our wealth management operations, communication and technology expense in our UK & Europe and North American wealth management operations increased by $4.6 million and $1.2 million, respectively, compared to fiscal 2018. The inclusion of the full year of operating expenses for Hargreave Hale during fiscal 2019 also contributed to the increase as the acquisition was completed at the end of Q2/18. Our capital markets operations in Canada also experienced an increase of $1.5 million or 20.1% in communications and technology expense, attributable to the growth in this segment. General and administrative expense, which includes reserves, promotion and travel expense, office expense, professional fees and donations, increased by $16.8 million or 20.0% compared to fiscal 2018. Our North American wealth management operations reported an increase of $6.0 million or 71.9% compared to the prior year as a result of higher conference and office costs to promote the growth of this operation, as well as transfer fees associated with new accounts. Our UK & Europe wealth management operations also experienced an increase of $1.9 million or 11.3% compared to the year ended March 31, 2018 primarily as a result of additional reserves recorded in respect of certain ongoing legal matters and the inclusion of a full year of operations in fiscal 2019 for Hargreave Hale. Furthermore, our US and Canadian capital markets operations reported increases of $2.4 million and $0.7 million, respectively, in fiscal 2019 compared to the prior year, mostly due to additional costs in professional fees incurred to support the growth in these regions. The acquisition of Jitneytrade also contributed to the increase in general and administrative expense in our Canadian capital markets operations. Interest expense for the year ended March 31, 2019 was $25.5 million, an increase of $7.0 million or 38.1% compared to fiscal 2018. In our Corporate and Other segment, acceleration of attributed interest expense related to the redemption of the $60.0 million unsecured senior subordinated debentures issued in October 2016 during Q2/19 and in connection with that redemption, the increase in convertible debentures outstanding as a result of the issuance of convertible debentures in Q2/19, contributed to an increase of $4.8 million in this segment. In addition, interest expense also increased by $1.0 million compared to the prior year in our North American wealth management operations, due to higher client interest resulting from higher cash balances in client accounts held during the period as well as increases in interest rates during the year. Development costs increased by $7.8 million or 102.4% to $15.5 million in fiscal 2019, largely due to the incentive-based costs related to the acquisition of Hargreave Hale. In addition, new hire incentive-based costs recorded by our North American wealth management business unit also contributed to the increase in development costs. There were $13.1 million of restructuring costs recorded in the year ended March 31, 2019 as a result of restructuring in our UK capital markets operations in both Q1/19 and Q4/19. These costs consisted of termination benefits as well as certain real estate costs related to the restructuring. In connection with the acquisition of Jitneytrade, the Company incurred $1.2 million of acquisition-related costs during the year ended March 31, 2019. In addition, the Company recorded $1.1 million of acquisition-related costs related to the acquisition of McCarthy Taylor and the acquisition of Thomas Miller announced in May 2019 in its UK & Europe wealth management operations. In our US capital markets operations, acquisition-related costs were $0.8 million, related to the acquisition of Petsky Prunier. INCOME TAX Income tax expense was $21.1 million for fiscal 2019, reflecting an effective tax rate of 22.7% compared to an effective tax rate of 52.2% in the prior year. The difference in the effective tax rate was mainly due to the non-recognition of certain deferred tax assets in our foreign operations in prior years and certain adjustments made to tax provisions recorded in prior periods. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 29 NET INCOME Net income for fiscal 2019 was $71.6 million compared to net income of $17.1 million in fiscal 2018, an increase of $54.5 million or 319.2%, largely due to the increase in revenue and an acceleration of LTIP expense recorded in fiscal 2018 as discussed in the Management’s Discussion and Analysis and audited consolidated financial statements for the year ended March 31, 2018. Net income attributable to common shareholders was $61.1 million for fiscal 2019 compared to $3.4 million for fiscal 2018. Diluted earnings per common share was $0.48 in fiscal 2019 compared to earnings per common share of $0.03 in the prior fiscal year. Excluding significant items(1), net income for fiscal 2019 was $107.4 million or net income attributable to common shareholders of $96.9 million, compared to net income of $81.7 million or net income attributable to common shareholders of $68.0 million in fiscal 2018. Diluted earnings per share excluding significant items(1) was $0.80 for fiscal 2019 compared to $0.59 for the prior year. Quarterly Financial Information(1)(2) The following table provides selected quarterly financial information for the eight most recently completed financial quarters ended March 31, 2019. This information is unaudited but reflects all adjustments of a recurring nature that are, in the opinion of management, necessary to present a fair statement of the results of operations for the periods presented. Quarter-to-quarter comparisons of financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. (C$ thousands, except per share amounts) Revenue Q4 Q3 Q2 Fiscal 2019 Q1 Q4 Q3 Q2 Fiscal 2018 Q1 Commissions and fees $ 137,578 $ 143,115 $ 139,402 $ 136,380 $ 135,148 $ 125,709 $ 96,125 $ 104,955 Investment banking Advisory fees Principal trading Interest Other Total revenue Total expenses Net income (loss) before income taxes Net income (loss) Earnings (loss) per share − basic(4) Earnings (loss) per share − diluted(4) Excluding significant items(3) $ $ $ 60,316 32,220 35,197 13,733 5,764 284,808 279,265 5,543 2,456 98,978 40,698 30,776 12,703 5,330 331,600 290,991 67,426 44,396 28,949 15,326 4,537 300,036 275,414 67,521 24,914 30,908 9,246 5,154 95,514 40,930 36,047 10,045 4,396 274,123 252,241 322,080 324,379 112,629 31,957 29,138 6,861 3,148 309,442 262,559 33,356 30,589 22,849 5,793 2,835 191,547 198,613 40,609 24,622 21,882 (2,299) 46,883 (7,066) $ 32,458 $ 18,019 $ 18,649 $ (9,703) $ 36,598 $ (7,258) 0.00 0.00 $ $ 0.31 0.25 $ $ 0.11 0.09 $ $ 0.16 0.14 $ $ (0.15) (0.15) $ $ 0.35 0.29 Net income Earnings (loss) per share − basic(4) Earnings (loss) per share − diluted(4) $ 16,610 $ 36,843 $ 28,867 $ 25,035 $ 37,312 $ 39,182 $ $ 0.15 0.12 $ $ 0.35 0.28 $ $ 0.27 0.23 $ $ 0.23 0.19 $ $ 0.36 0.28 $ $ 0.38 0.31 $ $ $ $ $ (0.11) (0.11) 3,548 0.01 0.01 40,696 18,896 25,887 5,176 4,198 199,808 201,580 (1,772) (2,560) (0.05) (0.05) 1,615 (0.01) (0.01) $ $ $ $ $ $ (1) Data is in accordance with IFRS except for figures excluding significant items. See Non-IFRS Measures on page 14. (2) The operating results of the Australian operations have been fully consolidated and a non-controlling interest of 15% has been recognized for the year ended March 31, 2019 [April 1, 2018 to August 9, 2018 − 42% and post-acquisition of an additional 30% interest in the Australian operations on August 10, 2018 − 15%; March 31, 2018 − 42%]. (3) Figures excluding significant items are non-IFRS measures. See the Quarterly Financial Information Excluding Significant Items table below. (4) Due to rounding or calculation of the dilutive impact of share issuance commitments in the quarterly and year to date EPS figures, the sum of the quarterly earnings (loss) per common share figures may not equal the fiscal year earnings (loss) per share figure. (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 30 Management’s Discussion and Analysis QUARTERLY FINANCIAL INFORMATION EXCLUDING SIGNIFICANT ITEMS(1)(2) (C$ thousands, except per share amounts) Total revenue per IFRS Total expenses per IFRS Revenue Total revenue excluding significant items Expenses Significant items recorded in Canaccord Genuity Capital Markets Amortization of intangible assets Restructuring costs(3) Acquisition-related costs Acceleration of long-term incentive plan expense Significant items recorded in Canaccord Genuity Wealth Management Amortization of intangible Restructuring costs Acquisition-related costs Development costs(5) Acceleration of long-term incentive plan expense Incentive payment related to acquisition(4) Significant items recorded in Corporate and Other Loss on convertible debentures(6) Acceleration of long-term incentive plan expense Total significant items Total expenses excluding significant items Net income before income Q4 $ 284,808 279,265 Q3 $ 331,600 290,991 Q2 $ 300,036 275,414 Fiscal 2019 Q1 $ 274,123 252,241 Q4 $322,080 324,379 Q3 $309,442 262,559 Q2 $191,547 198,613 Fiscal 2018 Q1 $ 199,808 201,580 284,808 331,600 300,036 274,123 322,080 309,442 191,547 199,808 639 11,754 803 — 639 — — — 639 — — — 579 1,316 1,173 579 — — — 42,399 2,867 939 184 — 4,058 918 — — 170 245 — — — — — — — (237) 1,490 1,498 1,543 1,541 — — 8,608 — — 579 — — — 2,820 — — — — — — 579 4,256 — — 1,262 2,000 4,364 — — — — 580 448 — — 1,324 — 2,184 — — — — — 16,678 — 5,289 — 13,496 — 7,467 1,898 54,465 — 3,399 — 12,461 — 4,536 262,587 285,702 261,918 244,774 269,914 259,160 186,152 197,044 assets 2,801 2,745 2,751 2,856 taxes − adjusted $ 22,221 $ 45,898 $ 38,118 $ 29,349 $ 52,166 $ 50,282 $ 5,395 $ 2,764 Income tax expense − adjusted Net income − adjusted Net income (loss) attributable to common shareholders Earnings (loss) per share − basic − adjusted(7) Earnings (loss) per share − diluted − adjusted(7) 5,611 $ 16,610 9,055 $ 36,843 9,251 $ 28,867 4,314 $ 25,035 14,854 $ 37,312 11,100 $ 39,182 $ 14,466 $ 34,491 $ 26,291 $ 21,651 $ 33,003 $ 34,665 $ $ 0.15 0.12 $ $ 0.35 0.28 $ $ 0.27 0.23 $ $ 0.23 0.19 $ $ 0.36 0.28 $ $ 0.38 0.31 1,847 3,548 970 0.01 0.01 $ $ $ $ $ $ $ $ 1,149 1,615 (627) (0.01) (0.01) (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. (2) The operating results of the Australian operations have been fully consolidated and a non-controlling interest of 15% has been recognized for the year ended March 31, 2019 [April 1, 2018 to August 9, 2018 − 42% and post-acquisition of an additional 30% interest in the Australian operations on August 10, 2018 − 15%; March 31, 2018 − 42%]. (3) Restructuring costs recorded in Q1/19 and Q4/19 related to termination benefits and real estate costs in connection with the restructuring of the UK capital markets operations. Restructuring costs recorded in Q2 fiscal 2018 related to termination benefits incurred as a result of the closing of certain trading operations in our UK capital markets operations and staff reductions in our Canadian and US capital markets operations. There were also real estate costs related to the acquisition of Hargreave Hale recorded in Q2 and Q4 of fiscal 2018. Incentive-based costs related to the acquisition of Hargreave Hale determined with reference to financial targets and other performance criteria recorded in development costs. (4) (5) Related to costs directly attributable to internal development of software used in our UK wealth management operations. (6) During Q2/19, there was an accounting loss of $13.5 million related to the extinguishment of the $60.0 million convertible unsecured subordinated debentures issued in October 2016. This loss was adjusted to reflect directly in shareholders’ equity $4.9 million of the loss that was related to the conversion feature of the extinguished debentures. The adjustment had no impact on the calculation of the basic or diluted earnings per share. (7) Due to rounding or calculation of the dilutive impact of share issuance commitments in the quarterly and year to date EPS figures, the sum of the quarterly earnings per common share figures may not equal the year to date earnings per share figure. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 31 Quarterly trends and risks Our quarterly results are generally not significantly affected by seasonal factors. However, the Company’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 global capital markets and activity in our core focus sectors as well as changes in the market for growth companies and companies in emerging sectors. The Company’s revenue from an underwriting transaction is recorded only when a transaction has been substantially completed or closed. Consequently, the timing of revenue recognition can materially affect Canaccord Genuity Group Inc.’s quarterly results. With the increase in capital raising and advisory activity in our core focus areas in Canada and the US over the recent quarters and higher contribution from our global wealth management operations, revenue and net income excluding significant items(1) generated in fiscal 2019 have shown marked improvements over the past fiscal year. Revenue for four of the past eight quarters surpassed $300.0 million, with Q3/19 being the highest at $331.6 million. Although revenue for Q4/19 decreased by 14.1% over the previous quarter, overall revenue in fiscal 2019 was $1.2 billion, marking the second consecutive year that the Company crossed the $1.0 billion revenue mark. Despite the declines in global equities towards the end of calendar 2018 and the continuing uncertain outlook for the world economy, our Canaccord Genuity Capital Markets operations generated annual revenue of $704.3 million, an increase of 10.5% over the prior year. Revenue in our Canadian capital markets operations increased overall compared to fiscal 2018, reflecting our active involvement with numerous transactions in the cannabis sector. With the addition of Jitneytrade in Q1/19, commission and fees revenue have increased since the completion of the acquisition. Compared to the exceptionally high revenue generated in Q3/19, revenue in Q4/19 decreased by 34.6% due to a less active financing market as well as the completion of fewer advisory mandates. The Canadian operating region has consistently been profitable for the past eight quarters, with pre-tax profit margins excluding significant items(1) reaching a high of 32.5% in Q2/19. The quarterly revenue earned in our US capital markets operations during fiscal 2019 showed a significant improvement over the earlier quarters in fiscal 2018. The highest quarterly revenue over the past eight completed quarters was Q3/19, with a record revenue of $81.2 million. Our International Equities Group continued to perform well, with the principal trading revenue reaching $27.0 million in each of the last two quarters of fiscal 2019. Our focus on growing our advisory business has to led to an increase in advisory fees revenue over the more recent quarters. The completion of our acquisition of Petsky Prunier in Q4/19 also contributed to the $15.6 million advisory fees revenue recorded during the last quarter of fiscal 2019. Excluding significant items(1), our US operations have also been profitable over the last six consecutive quarters. In our UK capital markets operations, a prolonged period of political and market uncertainty in the UK has impacted capital raising, advisory and related activities, resulting in a decline in revenue and profitability. During Q4/19, a restructuring plan was announced for this operation to achieve a more focused UK capital markets business. As a result of this restructuring, a charge of $11.8 million related to termination benefits and real estate costs was recorded in Q4/19. Our Australian operations generated higher revenue in the first half of fiscal 2019 but the revenue level was impacted by slower financing activity in the latter part of the fiscal year. Despite an operating loss in Q4/19, this operating region was still profitable overall in fiscal 2019. Contributing to the decrease in revenue in this region in fiscal 2019 were profits and unrealized gains recorded during fiscal 2018, particularly during Q3/18 and Q4/18, in certain inventory and warrant positions earned in respect of investment banking activity. Our Canaccord Genuity Wealth Management North America operations have been positively impacted by stabilizing market conditions, improved transaction activity and a growth in managed assets. Revenue increased by 4.2% during Q4/19 compared to the same period a year ago and remained consistent with the previous quarter. In addition to an increase in commissions and fees revenue, revenue attributable to investment banking activity in this segment also increased over the past eight quarters, reflecting the increased private client participation in new issue activity in our Canadian operations because of the increased activity by companies in new and developing industry sectors such as cannabis. This operating region has positively contributed to the profitability of Canaccord Genuity Group over the past few quarters, adding stability to the Company’s overall performance. Assets under management increased in Q4/19 by 49.9% compared to Q4/18 to $4.2 billion as a result of additional client assets with the hiring of new investment advisors as well as generally higher market values. Assets under administration, including assets under management, increased by 32.8% from $15.6 billion at the end of fiscal 2018 to $20.7 billion at the end of fiscal 2019. Our fee-related revenue continued to grow, reaching 38.4% in Q4/19. The Canaccord Genuity Wealth Management UK & Europe operations were expanded during fiscal 2018 with the completion of the Hargreave Hale acquisition at the end of Q2/18 and again in Q4/19 with the acquisition of McCarthy Taylor. The quarterly revenue generated in this region increased from approximately $38.0 million in the first half of fiscal 2018 to over $62.0 million since the completion of the Hargreave Hale acquisition. Although this region incurred higher operating expenses resulting from the expansion of this business and our increased headcount, pre-tax profit margins continued to be strong at 18.0% in Q4/19 excluding significant items(1). At the end of Q4/19, fee-related revenue was at 73.4%, a 6.1 percentage point increase from Q4/18, due to changes in transaction activity during the year. Assets under management for this group decreased by 1.5% as of the end of Q4/19 compared to Q4/18. In local currency, AUM increased by 2.6% to £25.4 billion at the end of March 31, 2019. (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 32 Management’s Discussion and Analysis The movement in revenue in the Corporate and Other segment was mainly due to foreign exchange gains or losses resulting from fluctuations in the Canadian dollar. Fourth quarter 2019 performance Revenue for the fourth quarter was $284.8 million, a decrease of $37.3 million or 11.6% compared to the same period in the previous year. Our global wealth management operations generated an increase in revenue of $0.8 million compared to Q4/18, largely driven by an increase in revenue of $2.2 million in our North American wealth management operations, partially offset by a decline of $1.4 million in our UK & Europe wealth management operations. Our Canaccord Genuity Capital Markets segment recorded a decrease of $40.6 million or 20.3% in revenue compared to Q4/18, with decreases recorded in each of the principal operations except for our US operations. Our US operations recorded an increase of $5.3 million or 7.8% compared to Q4/18, driven mainly by higher advisory fees revenue, partially as a result of the acquisition of Petsky Prunier completed in February 2019. The decrease in revenue recorded in our Canadian capital markets operations was largely driven by decreases in investment banking and advisory fees compared to the record quarter in Q4/18. In Australia, revenue decreased by $16.8 million or 83.7% over Q4/18, primarily due to reduced investment banking revenue from lower financing activity as well as a reduction in gains in certain inventory and warrant positions earned in respect of investment banking activity during the same period in the prior year. A decrease of $5.9 million or 17.0% in our UK operations resulted from a decline in financing activity in that region. On a consolidated basis, commissions and fees revenue increased by $2.4 million or 1.8% to $137.6 million compared to the same period in the previous year, predominantly attributable to our North American wealth management operations as discussed above. Investment banking revenue decreased by $35.2 million or 36.9% to $60.3 million in Q4/19 across all our principal operating regions as financing activity slowed down compared to the same period in the prior year. Advisory fees revenue decreased by $8.7 million or 21.3% to $32.2 million in Q4/19 compared to the same period in the prior year due to lower revenue recorded in our Canadian and UK capital markets operations, partially offset by higher advisory fees recorded in the US. As discussed above, the completion of the acquisition of Petsky Prunier in Q4/19 in our US operations contributed to the increase in advisory fees revenue recorded in that region. Principal trading revenue decreased by $0.9 million during the three months ended March 31, 2019 compared to the same period last year, mostly due to lower trading revenue generated in our US operations. Interest revenue for Q4/19 was $13.7 million, an increase of $3.7 million over Q4/18, mainly attributable to our Canadian wealth management operations arising from increased margin loan and stock loan activity. Other revenue was $5.8 million, an increase of $1.4 million or 31.1% compared to Q4/18, as a result of an increase in revenue in our Pinnacle Correspondent Services business. Expenses were $279.3 million, down $45.1 million or 13.9% from Q4/18, largely due to the acceleration of long-term incentive plan (LTIP) expense recorded in Q4/18 as described in the Management’s Discussion and Analysis and audited consolidated financial statements for the year ended March 31, 2018. Total expenses excluding significant items(1) were $262.6 million, a decrease of $7.3 million or 2.7% from the same period last year. Incentive compensation expense decreased by $16.5 million or 10.3% compared to the same period in the prior year, in line with the decrease in incentive-based revenue. Salaries and benefits expense was $2.7 million or 9.5% higher compared to Q4/18, largely due to higher headcount. Total compensation expense (incentive compensation expense plus salaries and benefits) as a percentage of revenue increased by 2.8 percentage points to 61.5% in Q4/19 compared to Q4/18 as a result of higher fixed staff costs exacerbated by the decrease in revenue. Excluding significant items(1), non-compensation overhead expenses as a percentage of revenue increased by 5.6 percentage points in Q4/19 compared to Q4/18, reflecting the decrease in revenue and the fixed nature of certain expenses. The largest increases in overhead expenses compared to the same period in the prior year were general and administrative expense and communication and technology expense. Offsetting these increases was a decrease in trading costs of $2.4 million as a result of a change in international trading activity. General and administrative costs, which increased by $5.0 million, were mainly driven by higher costs in our North American wealth management operations to support the growth in this region. Communication and technology expense increased by $3.2 million due to the higher headcount across the different regions, with the largest increase recorded in our Canadian capital markets operations. During Q2/19, there was an accounting loss of $13.5 million related to the extinguishment of the $60.0 million convertible unsecured subordinated debentures issued in October 2016. This loss was adjusted to reflect directly in shareholders’ equity $4.9 million of the loss that was related to the conversion feature of the extinguished debentures. The adjustment had no impact on the calculation of the basic or diluted earnings per share. There were restructuring costs of $11.8 million, consisting of termination benefits and real estate costs related to the restructuring in our UK capital markets operations announced in Q4/19. Acquisition-related expenses of $1.7 million were (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 33 recorded in Q4/19 in connection with the acquisitions of McCarthy Taylor and Petsky Prunier completed prior to March 31, 2019, as well as costs related to the acquisition of Thomas Miller announced in May 2019. Income tax expense was $3.1 million in Q4/19 compared to income tax expense of $7.4 million for the three months ended March 31, 2018. Excluding significant items(1), the effective tax rate for Q4/19 was 25.3% compared to 28.5% in Q4/18. Net income for the fourth quarter of fiscal 2019 was $2.5 million compared to a net loss of $9.7 million in Q4/18. Net income attributable to common shareholders was $0.3 million for Q4/19 compared to a net loss attributable to common shareholders of $14.0 million in Q4/18. Diluted income per common share in the current quarter was $0.00, compared to a diluted loss per common share of $0.15 in Q4/18. Excluding significant items(1), net income for Q4/19 was $16.6 million compared to $37.3 million in Q4/18, a decrease of $20.7 million or 55.5%, primarily due to the decrease in revenue compared to the same period in the prior year. Net income attributable to common shareholders excluding significant items(1) was $14.5 million compared to $33.0 million in the same period of the prior year. Diluted EPS excluding significant items(1) was $0.12 in Q4/19 compared to $0.28 in Q4/18. Business Segment Results(1)(2) (C$ thousands, except number of employees) Canaccord Genuity Capital Markets Canaccord Genuity Wealth Management Corporate and Other For the years ended March 31 2019 Total Canaccord Genuity Capital Markets Canaccord Genuity Wealth Management Corporate and Other 2018 Total Revenue Canada UK & Europe US Australia Other Foreign Locations Total revenue Expenses Intersegment allocations Income (loss) before income $260,665 $204,420 $ 24,430 $ 489,515 $ 216,106 $ 165,891 $ 15,056 $ 397,053 108,789 303,587 31,366 (81) 704,326 622,760 18,689 254,985 2,406 — — 461,811 388,741 14,467 — — — — 363,774 305,993 31,366 128,458 235,942 57,022 (81) 28 201,383 2,991 — — — — — — 329,841 238,933 57,022 28 24,430 1,190,567 86,410 1,097,911 (33,156) — 637,556 607,906 16,524 370,265 320,737 15,056 58,488 1,022,877 987,131 15,529 (32,053) — taxes (recovery) $ 62,877 $ 58,603 $(28,824) $ 92,656 $ 13,126 $ 33,999 $ (11,379) $ 35,746 Excluding significant items(3) Revenue Expenses Intersegment allocations Income (loss) before income 704,326 605,218 18,689 461,811 371,961 14,467 24,430 1,190,567 77,802 1,054,981 (33,156) — 637,556 558,486 16,524 370,265 297,194 15,056 56,590 1,022,877 912,270 15,529 (32,053) — taxes (recovery) $ 80,419 $ 75,383 $(20,216) $ 135,586 $ 62,546 $ 57,542 $ (9,481) $ 110,607 Number of employees 832 995 308 2,135 730 938 288 1,956 (1) Data is in accordance with IFRS except for figures excluding significant items and number of employees. See Non-IFRS Measures on page 14. Detailed financial results for the business segments are shown in Note 23 of the audited consolidated financial statements on page 110. (2) The operating results of the Australian operations have been fully consolidated and a non-controlling interest of 15% has been recognized for the year ended March 31, 2019 [April 1, 2018 to August 9, 2018 − 42% and post-acquisition of an additional 30% interest in the Australian operations on August 10, 2018 − 15%; March 31, 2018 − 42%]. (3) See the Selected Financial Information Excluding Significant Items table on page 24. Canaccord Genuity Group’s operations are divided into three segments: Canaccord Genuity Capital Markets and Canaccord Genuity Wealth Management are the main operating segments while Corporate and Other is mainly an administrative segment. (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 34 Management’s Discussion and Analysis CANACCORD GENUITY CAPITAL MARKETS Overview Canaccord Genuity Capital Markets provides investment banking, advisory, equity 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 Capital Markets has offices in 21 cities in 9 countries worldwide. Our operating results demonstrate the strength of our global business and the success of our efforts to diversify our revenue streams and improve alignment across our businesses and regions. For fiscal 2019, 63.0% of total Canaccord Genuity Capital Markets revenue was earned outside of Canada. Canaccord Genuity Capital Markets’ global alignment efforts are helping to firmly position the Company as a leading global independent investment bank focused on the mid-market. During fiscal 2019, Canaccord Genuity Capital Markets participated in 344 transactions to raise gross proceeds of $31.1 billion(1). Of these, Canaccord Genuity Capital Markets led or co-led 176 transactions globally, raising total proceeds of $7.0 billion. Outlook Canaccord Genuity Capital Markets continues to be very well positioned in many of the Company’s key markets. In the fiscal year ahead, management intends to focus on capturing operating efficiencies and improving profitability through further integration of its global capital markets platform and encouraging further cross-border coordination among our global offices. We believe Canaccord Genuity Capital Markets’ integrated global platform provides a competitive advantage for our 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 Capital Markets in the global mid-market, as this space is currently relatively underserviced by other global investment banks. Canaccord Genuity Capital Markets’ mid-market strategy and focus on key growth sectors differentiate the firm from its competition. Canaccord Genuity Capital Markets 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 continue to make disciplined investments with 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 Capital Markets’ global presence and refine its service offering have positioned the business very well for the future. Operating results of Jitneytrade and Petsky Prunier are included since the closing dates of June 6, 2018 and February 13, 2019, respectively. (1) Transactions over C$1.5 million CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 35 FINANCIAL PERFORMANCE(1)(2) For the years ended March 31 2019 (C$ thousands, except number of employees) Revenue Expenses Incentive compensation Salaries and benefits Other overhead expenses Acceleration of long-term incentive plan expense Development costs Acquisition-related costs Restructuring costs Total expenses Intersegment allocations(3) Income (loss) before income taxes (recovery)(3) Excluding significant items(4) Total revenue Total expenses Intersegment allocations(3) Income (loss) before income taxes (recovery)(3) Number of employees Canada UK(5) US Australia $260,665 $108,789 $303,587 $31,366 $ Australia (81) $704,326 $216,106 $128,458 $235,942 $57,022 Canada Total US UK(5) Other Foreign Locations 128,206 6,356 53,052 73,028 160,215 10,403 38,333 101,533 5,250 — 72 1,173 — 96 — — 13,070 — 284 803 — 188,859 129,777 273,238 3,037 12,458 2,908 18,017 1,964 9,407 — — — — 29,388 286 248 379,714 560 24,533 690 203,015 — 452 — — 1,976 — 13,070 1,498 622,760 — 18,689 112,655 5,381 45,875 11,657 — — 2,366 177,934 10,159 80,023 128,023 11,890 87,565 5,672 40,621 12,870 — — 448 17,872 — — 1,890 139,634 247,240 3,113 2,969 30,754 1,881 9,195 — — — — 41,830 283 2018 Other Foreign Locations $ Total 28 $637,556 3 351,458 688 25,512 577 183,833 — 42,399 — — — — 4,704 — 1,268 607,906 — 16,524 $ 59,348 $ (23,896) $ 27,312 $ 1,692 $(1,579) $ 62,877 $ 28,013 $ (14,145) $ (14,411) $14,909 $(1,240)$ 13,126 260,665 108,789 303,587 185,194 116,707 272,431 3,037 12,458 2,908 31,366 29,388 286 (81) 704,326 1,498 605,218 — 18,689 216,106 161,599 10,159 128,458 235,942 126,316 227,473 3,113 2,969 57,022 41,830 283 28 637,556 1,268 558,486 — 16,524 $ 63,013 $ (10,826) $ 28,119 $ 1,692 $(1,579) $ 80,419 $ 44,348 $ 255 197 308 68 4 832 189 (827) $ 214 5,356 $14,909 68 256 $(1,240)$ 62,546 730 3 (1) Data is in accordance with IFRS except for figures excluding significant items and number of employees. See Non-IFRS Measures on page 14. (2) The operating results of the Australian operations have been fully consolidated and a non-controlling interest of 15% has been recognized for the year ended March 31, 2019 [April 1, 2018 to August 9, 2018 − 42% and post-acquisition of an additional 30% interest in the Australian operations on August 10, 2018 − 15%; March 31, 2018 − 42%]. Income (loss) before income taxes includes intersegment allocations. See the Intersegment Allocated Costs section on page 43. (3) (4) Refer to the Selected Financial Information Excluding Significant Items table on page 24. (5) Includes our Dubai based operations. REVENUE REVENUE BY GEOGRAPHY AS A PERCENTAGE OF CANACCORD GENUITY CAPITAL MARKETS REVENUE Revenue generated in: Canada UK & Europe(1) US Australia Other Foreign Locations p.p.: percentage points (1) Includes our Dubai based operations For the years ended March 31 2019 2018 2019/2018 change 37.0% 15.4% 43.1% 4.5% 0.0% 100% 33.9% 20.2% 37.0% 8.9% 0.0% 100.0% 3.1 p.p. (4.8) p.p. 6.1 p.p. (4.4) p.p. (0.0) p.p. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 36 Management’s Discussion and Analysis Canaccord Genuity Capital Markets generated revenue of $704.3 million, an increase of 10.5% or $66.8 million compared to fiscal 2018 as a result of higher financing and advisory activity during the year. Revenue increased most notably in the US, which increased by $67.6 million or 28.7% compared to the prior year. The increase in revenue in our US capital markets operations was driven largely by higher investment banking revenue and advisory fees. In Canada, revenue increased by $44.6 million or 20.6% compared to fiscal 2018, partially as a result of our active involvement with numerous transactions in the cannabis sector. Revenue in our UK operations decreased by $19.7 million or 15.3% to $108.8 million in fiscal 2019 due to reduced financing revenue resulting from the market uncertainty in that operating region. Our Australian operations generated revenue of $31.4 million, which represents a decrease of $25.7 million or 45.0% from fiscal 2018, impacted by a slowdown in financing activity in the second half of fiscal 2019 as well as lower gains recorded in certain of our inventory and warrant positions earned and received as fees in respect of investment banking activity in the current and prior periods. Investment banking activity The company’s focus sector mix in fiscal 2019 showed continued diversity. While capital raising contributions from the Health Care and Life Sciences sector includes revenues from cannabis-related businesses, we note that our US investment banking practice was a significant contributor to revenue growth from the Healthcare and Healthcare IT segments. Revenue from Technology & Industrials sectors was led by our US and Canadian capital markets businesses and reflects our continued growth in the US technology segment. Canaccord Genuity Capital Markets’ transactions and revenue by focus sectors are detailed below. CANACCORD GENUITY CAPITAL MARKETS − OVERALL Investment banking transactions and revenue by sector For the year ended March 31, 2019 as a % of investment banking transactions 24.6% 12.1% 4.3% 9.0% 15.6% 16.4% 6.7% 5.4% 5.2% 0.7% as a % of investment banking revenue 47.9% 15.6% 7.6% 7.6% 6.4% 3.8% 3.8% 3.8% 2.1% 1.4% 100.0% 100.0% Sectors Life Sciences Technology & Industrials Industrials Financials Metals & Mining Others Diversified Consumer & Retail Real Estate Sustainability Total CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 37 CANACCORD GENUITY CAPITAL MARKETS − BY GEOGRAPHY Investment banking transactions by sector (as a % of the number of investment banking transactions for each geographic region) Sectors Life Sciences Technology & Industrials Industrials Consumer & Retail Financials Diversified Metals & Mining Others Real Estate Sustainability Total For the year ended March 31, 2019 Canada 23.1% 7.4% 0.3% 3.5% 7.1% 11.9% 17.6% 21.2% 7.7% 0.2% UK 10.0% 4.3% 8.6% 5.7% 35.7% 0.0% 2.9% 21.4% 7.1% 4.3% US 45.6% 32.5% 14.9% 6.1% 0.9% 0.0% 0.0% 0.0% 0.0% 0.0% Australia 10.0% 6.7% 0.0% 13.3% 3.3% 0.0% 50.0% 16.7% 0.0% 0.0% 100.0% 100.0% 100.0% 100.0% Investment banking revenue by sector (as a % of investment banking revenue for each geographic region) Sectors Life Sciences Technology & Industrials Industrials Financials Metals & Mining Others Diversified Consumer & Retail Real Estate Sustainability Total For the year ended March 31, 2019 Canada 70.2% 6.1% 0.0% 1.3% 6.8% 3.4% 8.1% 1.1% 2.6% 0.4% UK 4.2% 0.6% 15.1% 44.5% 1.3% 11.6% 0.0% 9.5% 5.8% 7.4% US 42.1% 38.1% 16.9% 0.0% 0.0% 0.0% 0.0% 2.9% 0.0% 0.0% Australia 18.6% 12.1% 0.0% 0.6% 48.7% 6.1% 0.5% 13.4% 0.0% 0.0% 100.0% 100.0% 100.0% 100.0% Note for reference in the tables above: transactions with companies in the cannabis sector in Canada are included under the Healthcare & Life Sciences sector. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 38 Management’s Discussion and Analysis EXPENSES Expenses for fiscal 2019 were $622.8 million, an increase of 2.4% or $14.9 million compared to the prior year. Excluding significant items(1), total expenses for fiscal 2019 were $605.2 million, an increase of 8.4% or $46.7 million compared to fiscal 2018. As a percentage of revenue, total expenses decreased by 6.9 percentage points compared to the year ended March 31, 2018. Incentive compensation and salaries and benefits Incentive compensation expense for fiscal 2019 increased by $28.3 million or 8.0% compared to fiscal 2018. Incentive compensation expense as a percentage of revenue was 53.9%, a decrease of 1.2 percentage points from fiscal 2018. Salaries and benefits expense for fiscal 2019 decreased by $1.0 million or 3.8% compared to fiscal 2018. Total compensation expense (incentive compensation expense plus salaries and benefits) as a percentage of revenue was 1.7 percentage points lower than fiscal 2018, at 57.4% for the year ended March 31, 2019. In Canada, total compensation as a percentage of revenue decreased by 3.0 percentage points compared to fiscal 2018 due to an increase in revenue relative to fixed staff costs. Our US operations recorded a compensation ratio of 56.2% in fiscal 2019, a decrease of 3.1 percentage points compared to the prior year, as a result of a reduction in salaries and benefits expense. In our UK operations, total compensation expense as a percentage of revenue increased by 5.3 percentage points compared to fiscal 2018 as a result of the decline in revenue relative to fixed staff costs. Total compensation expense as a percentage of revenue in our Australian operations was 63.7%, an increase of 6.5 percentage points due to the decrease in revenue and the non-variable nature of certain staff costs. Canaccord Genuity Capital Markets total compensation expense (incentive compensation plus salaries and benefits) as a percentage of revenue by geography Canada UK & Europe US Australia Other Foreign Locations Canaccord Genuity Capital Markets (total) p.p.: percentage points n.m.: not meaningful Other overhead expenses For the years ended March 31 2019 51.6% 72.0% 56.2% 63.7% n.m. 57.4% 2018 54.6% 66.7% 59.3% 57.2% n.m. 59.1% 2019/2018 change (3.0) p.p. 5.3 p.p. (3.1) p.p. 6.5 p.p. n.m. (1.7) p.p. Other overhead expenses were $203.0 million for fiscal 2019 compared to $183.8 million in fiscal 2018, an increase of $19.2 million or 10.4%. The most significant increases in overhead costs compared to the prior year include trading costs, communication and technology expense and general and administrative expense, offset by decreases in amortization expense. The increase in trading costs was mainly due to higher execution and settlement charges in connection with our US operations as well as the addition of Jitneytrade in Canada during Q1/19. General and administrative expense increased by $4.9 million or 10.0% compared to fiscal 2018, resulting from higher professional fees, promotion and travel expenses, and other office expenses to support the growth in our business. Amortization expense decreased by $2.3 million to $7.2 million compared to the prior year due to a decrease in amortization in our UK operations related to certain internally developed software. Communication and technology expense increased by $1.9 million to $38.3 million for the year ended March 31, 2019, primarily attributable to increases in our Canadian and US operations due to higher headcount. During the year ended March 31, 2019, there were restructuring costs incurred of $13.1 million related to termination benefits and real estate costs in connection with the restructuring in our UK operations during both Q1/19 and Q4/19. The restructuring costs of $4.7 million recorded in fiscal 2018 related to staff reductions in our US and Canadian capital markets operations, as well as costs related to certain trading operations in Dublin. There were acquisition-related costs of $2.0 million recorded during the year ended March 31, 2019 related to the acquisitions of Jitneytrade and Petsky Prunier. (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 39 INCOME BEFORE INCOME TAXES Income before income taxes in fiscal 2019 was $62.9 million, an increase of $49.8 million compared to fiscal 2018. Excluding significant items(1), income before income taxes, including allocated overhead expenses, increased from $62.5 million to income before income taxes of $80.4 million in fiscal 2019. The increase in income before income taxes excluding significant items(1) was attributable to higher revenue generated in our Canadian and US operating segments combined with a reduction in overhead expenses. 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) in Canada from investment banking and venture capital transactions. The Company has wealth management operations in Canada, the UK & Europe, and Australia. In addition to the acquisition of Hargreave Hale in Q2/18, the Company acquired McCarthy Taylor in Q4/19, further expanding its wealth management operations in the UK & Europe. In the UK & Europe, Canaccord Genuity Wealth Management has 12 offices in the UK, Guernsey, Jersey and the Isle of Man. Revenue earned by this business is largely generated through fee-based accounts and portfolio management activities. The business offers services to both domestic (UK) and international and European clients and provides clients with investing options from both third party and proprietary financial products, including investment funds managed by Canaccord Genuity Wealth Management portfolio managers. At March 31, 2019, Canaccord Genuity Wealth Management had 12 offices located across Canada, including three Independent Wealth Management (IWM) locations. The Company is focused on actively recruiting established Advisory Teams to accelerate growth in this business. Outlook Our strategic shift to strengthening contributions from our global wealth management performance will continue to be a main focus for the Company. Management’s priorities for Canaccord Genuity Wealth Management will be focused on growing assets under administration and management, and increasing the proportion of fee-based revenue as a percentage of total revenue. 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 and trading activity. With 72.6% of the division’s revenue derived from recurring, fee-based activities, the revenue stream generated through Canaccord Genuity Wealth Management’s UK & Europe wealth management business helps to improve the stability of its overall performance. Client holdings in our in-house investment management products exceed $1 billion and are attracting growing interest from both domestic and international intermediaries. The Company will continue to pursue strategic opportunities to increase the scale of its UK wealth management business. In Canada, the Company continues to focus on enhancing margins, managing costs, and growing the business through targeted recruitment and training. While the recruiting environment remains competitive, we expect the benefits of our independent global platform to help drive continued recruiting success in select markets. The Company also intends to invest further in training programs for new and existing Investment Advisors to continue developing and broadening the skills of our Advisory Teams and to support the growth of fee-based services offered through the Canadian business. We maintain a strong focus on attracting and retaining high quality advisors, investing in training programs and building a comprehensive suite of premium products targeted at attracting high net worth investors and helping advisors grow their businesses. In Australia, the Company still has a relatively small wealth management operation; however, expansion is expected to occur through targeted recruiting, and through the build-out of wealth management services and products in this market. (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 40 Management’s Discussion and Analysis FINANCIAL PERFORMANCE − NORTH AMERICA(1)(2) (C$ 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 Acceleration of long-term incentive plan expense Total expenses Intersegment allocations(3) Income before income taxes(3) AUM − Canada (discretionary)(4) AUA − Canada(5) Number of Advisory Teams − Canada Number of employees Excluding significant items(6) Total expenses Intersegment allocations(3) Income before income taxes(3) For the years ended March 31 2019 2018 2019/2018 change $ 206,826 $ 168,882 $ 37,944 22.5% 104,768 14,092 47,968 — 166,828 13,152 $ 26,846 $ 4,221 20,674 155 430 86,382 11,315 36,795 668 135,160 14,200 19,522 2,815 15,567 142 379 $ 166,828 $ 134,492 $ 32,336 13,152 26,846 14,200 20,190 (1,048) 6,656 18,386 2,777 11,173 21.3% 24.5% 30.4% (668) (100.0)% 31,668 (1,048) 7,324 1,406 5,107 13 51 23.4% (7.4)% 37.5% 49.9% 32.8% 9.2% 13.5% 24.0% (7.4)% 33.0% (1) 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 14. (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 Includes Canaccord Genuity Wealth Management operations in Canada and the US. Income before income taxes includes intersegment allocations. See the Intersegment Allocated Costs section on page 43. Canaccord Private Investment Management Program. (5) AUA is the market value of client assets administered by the Company, for which the Company earns commissions or fees. AUA includes AUM. (6) Refer to the Selected Financial Information Excluding Significant Items table on page 24. n.m.: not meaningful Revenue from Canaccord Genuity Wealth Management North America was $206.8 million, an increase of $37.9 million or 22.5% from fiscal 2018, driven by higher commissions and fees revenue as well as higher interest on stock loan activity and margin accounts. AUA in Canada increased by 32.8% to $20.7 billion at March 31, 2019 from $15.6 billion at March 31, 2018, reflecting our development initiatives in this sector as well as higher market values over the year. There were 155 Advisory Teams in Canada, an increase of thirteen from a year ago. The fee-based revenue in our North American operations was 1.4 percentage points higher than in the prior year and accounted for 34.9% of the wealth management revenue earned in Canada during the year ended March 31, 2019. Expenses for fiscal 2019 were $166.8 million, an increase of $31.7 million or 23.4% from fiscal 2018. Total expenses as a percentage of revenue increased slightly by 0.6 percentage points compared to last year. Incentive compensation expense increased by $18.4 million or 21.3% compared to the prior year, consistent with the increase in incentive-based revenue. Salaries and benefits expense increased by $2.8 million compared to the year ended March 31, 2018 as a result of higher headcount. Total compensation expense (incentive compensation expense plus salaries and benefits) as a percentage of revenue decreased by 0.4 percentage points compared to last year to 57.5% in fiscal 2019. Other overhead expenses as a percentage of revenue increased slightly by 1.0% compared to fiscal 2018. Trading costs increased by $0.8 million as a result of an increase in commission and fees revenue. Communication and technology expense increased by $1.2 million or 27.8% compared to the prior year as a result of higher headcount. General and administrative expense increased by $6.0 million or 71.9% due to higher conference costs, as well as transfer fees associated with new accounts and provisions for legal costs and settlements. Development costs increased by $3.9 million as a result of additional hiring incentives recorded in the current fiscal year compared to fiscal 2018. Partially offsetting these increases in overhead expenses was a decrease of $1.1 million in premises and equipment expense. Income before income taxes increased by $7.3 million in fiscal 2019 to $26.8 million as a result of the net increase in revenue after variable costs. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT FINANCIAL PERFORMANCE − UK & EUROPE(1)(5) (C$ 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 Acceleration of long-term incentive plan expense Restructuring costs Acquisition-related 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) $ $ Management’s Discussion and Analysis 41 For the years ended March 31 2019 2018 2019/2018 change $ 254,985 $ 201,383 $53,602 26.6% 96,005 48,822 75,998 — — 1,088 221,913 1,315 31,757 44,195 200 565 205,133 1,315 48,537 $ $ 77,303 36,214 58,999 3,390 2,939 6,732 185,577 1,329 14,477 44,877 188 559 162,702 1,329 37,352 18,702 12,608 16,999 (3,390) (2,939) (5,644) 36,336 (14) $17,280 (682) 12 6 $42,431 (14) 11,185 24.2% 34.8% 28.8% (100.0)% (100.0)% (83.8)% 19.6% (1.1)% 119.4% (1.5)% 6.4% 1.1% 26.1% (1.1)% 29.9% (1) 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 14. Income before income taxes includes intersegment allocations. See the Intersegment Allocated Costs section on page 43. (2) (3) 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. (4) Refer to the Selected Financial Information Excluding Significant Items table on page 24. (5) Includes the operating results of Hargreave Hale since the closing date of September 18, 2017. Operating results of Hargreave Hale and McCarthy Taylor are included under Canaccord Genuity Wealth Management (UK & Europe) since the closing dates of September 18, 2017 and January 29, 2019, respectively. 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 2019 was $255.0 million, an increase of 26.6% compared to fiscal 2018. Measured in local currency (GBP), revenue was £148.1 million during fiscal 2019, an increase of £30.1 million or 25.5% compared to the previous year. AUM in the UK & Europe as of March 31, 2019 was $44.2 billion, a decrease of 1.5% compared to $44.9 billion as of March 31, 2018. Measured in local currency (GBP), AUM increased by 2.6% compared to March 31, 2018. The fee-related revenue in our UK & European wealth management operations accounted for 72.6% of total revenue in this geography in fiscal 2019, an increase of 4.1 percentage points compared to last year. Incentive compensation expense was $96.0 million, an $18.7 million increase from $77.3 million in fiscal 2018, in line with the increase in incentive-based commissions and fees revenue. Salaries and benefits expense increased by $12.6 million compared to fiscal 2018 to $48.8 million, primarily as a result of the full inclusion of the annual expense for Hargreave Hale which was acquired at the end of Q2/18, as well as a larger infrastructure team required to support the growth in the existing UK & Europe wealth management business. Total compensation expense (incentive compensation expense plus salaries and benefits) as a percentage of revenue increased slightly by 0.4 percentage points from 56.4% in fiscal 2018 to 56.8% in fiscal 2019. Other overhead expenses for the year ended March 31, 2019 increased by $17.0 million or 28.8% compared to the prior year. The increase in headcount and the inclusion in the current fiscal year of a full year of operating results for Hargreave Hale, which was acquired at the end of Q2/18, led to an increase in most of our overhead expenses in this region, particularly in communication and technology expense, general and administrative expense, amortization expense as well as development costs. Communication and technology expense increased by $4.6 million or 41.8% compared to fiscal 2018, mainly as a result of higher headcount in the current fiscal year. General and administrative expense increased by $1.9 million or 11.3% largely as a result of additional reserves recorded in respect of certain ongoing legal matters. The increase in amortization expense of $3.6 million or 31.2% compared to fiscal 2018 was attributable to the inclusion of the full year of amortization of intangible assets acquired through the acquisition of Hargreave Hale. Development costs increased by $4.2 million compared to the prior year as a result of incentive-based costs related to the Hargreave Hale acquisition. There were no restructuring costs recorded in fiscal 2019. There were $2.9 million of restructuring costs recorded in fiscal 2018 related to the rationalization of office space due to the acquisition of Hargreave Hale. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 42 Management’s Discussion and Analysis The Company also recorded $1.1 million of acquisition-related costs in relation to the acquisition of McCarthy Taylor in Q4/19 and also the acquisition of Thomas Miller announced in May 2019. The acquisition-related costs included professional and consulting fees incurred during the year. The $6.7 million of acquisition-related costs recorded in fiscal 2018 related to the acquisition of Hargreave Hale. Income before income taxes was $31.8 million compared to $14.5 million in the prior year mainly as a result of higher revenue and a full year of operating results for Hargreave Hale. Excluding significant items(1), income before income taxes was $48.5 million, an increase of $11.2 million or 29.9% from the prior year, reflecting the net contribution from our expanded operations. CORPORATE AND OTHER SEGMENT Overview The Corporate and Other segment includes Pinnacle Correspondent Services, interest, foreign exchange revenue, and expenses not specifically allocable to Canaccord Genuity Capital Markets or Canaccord Genuity Wealth Management. Pinnacle Correspondent Services provides trade execution, clearing, settlement, custody, and other middle- and back-office services to other introducing brokerage firms, portfolio managers and other financial intermediaries. This business unit was developed as an extension and application of the Company’s substantial investment in its information technology and operating infrastructure. Also included in this segment are the Company’s administrative, operational and support services departments, which are responsible for front- and back-office information technology systems, compliance and risk management, operations, legal, finance, and other administrative functions. The Company has 308 employees in the Corporate and Other segment. Most of the Company’s corporate support functions are based in Vancouver and Toronto, Canada. Our operations group is responsible for processing securities transactions, including the clearing and settlement of securities transactions, account administration and custody of client securities. The finance department is responsible for internal financial accounting and controls, and external financial and regulatory reporting, while the compliance department is responsible for client credit and account monitoring in relation to certain legal and financial regulatory requirements. The Company’s risk management and compliance activities include procedures to identify, control, measure and monitor the Company’s risk exposure at all times. FINANCIAL PERFORMANCE(1) (C$ thousands, except number of employees and % amounts) 2019 2018 2019/2018 change For the years ended March 31 $ 24,430 $ 15,056 $ 9,374 62.3% Revenue Expenses Incentive compensation Salaries and benefits Other overhead expenses Acceleration of long-term incentive plan expense Loss on convertible debentures Share of loss of an associate Total expenses Intersegment allocations(2) Loss before income tax recovery(2) Number of employees Excluding significant items(3) Total expenses Intersegment allocations(2) Loss before income taxes (recovery)(2) 19,380 29,311 28,807 — 8,608 304 86,410 (33,156) (28,824) 308 11,471 26,198 18,623 1,898 — 298 58,488 (32,053) (11,379) 288 7,909 3,113 10,184 (1,898) 8,608 6 27,922 (1,103) (17,445) 20 $ 77,802 $ 56,590 $ 21,212 68.9% 11.9% 54.7% n.m. n.m. 2.0% 47.7% (3.4)% n.m. 6.9% 37.5% (3.4)% (33,156) (20,216) (32,053) (1,103) (9,481) (10,735) (113.2)% (1) Data is in accordance with IFRS except for figures excluding significant items and number of employees. See Non-IFRS Measures on page 14. (2) Loss before income tax recovery includes intersegment allocations. See the Intersegment Allocated Costs section on page 43. (3) Refer to the Selected Financial Information Excluding Significant Items table on page 24. (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 43 Revenue for fiscal 2019 was $24.4 million, an increase of $9.4 million or 62.3% from fiscal 2018 resulting from an increase in interest revenue from higher cash balances held during the year and higher interest rates, foreign exchange gains as well as higher revenue from our Pinnacle Correspondence Services business. Total expenses were $86.4 million for the year ended March 31, 2019, an increase of $27.9 million or 47.7% compared to the prior year. Incentive compensation expense increased by $7.9 million or 68.9% compared to the prior year, driven by higher profitability of the Company. Salaries and benefits expense increased by $3.1 million compared to fiscal 2018, attributable to the higher headcount to support the growth in our capital markets and wealth management business in Canada. Other overhead expenses increased by $10.2 million or 54.7% compared to the prior year. The most significant increases were general and administrative expense, interest, as well as premises and equipment expense. Interest expense grew by $4.8 million or 77.5% in fiscal 2019 due to higher interest expense in connection with the unsecured senior subordinated convertible debentures issued in Q2/19 and the acceleration of interest charges recognized in connection with the redemption of the previously outstanding convertible debentures issued in October 2016. As a result of the redemption of the $60.0 million unsecured subordinated convertible debentures issued in October 2016, during the year ended March 31, 2019, there was a loss of $8.6 million recognized on the extinguishment of the Debentures for accounting purposes. Loss before income taxes was $28.8 million for fiscal 2019 compared to a loss before income taxes of $11.4 million for the prior year. Excluding significant items(1), loss before income taxes was $20.2 million for the year ended March 31, 2019 compared to a loss before income taxes of $9.5 million last year as a result of an increase in overhead expenses to support the growth in our capital markets and wealth management operations. 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 Capital Markets 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 Capital Markets UK & Europe to Canaccord Genuity Wealth Management UK & Europe and included in intersegment allocated costs for these business units. Overview of Preceding Years – Fiscal 2018 vs. 2017 Total revenue for the year ended March 31, 2018 was $1.0 billion, an increase of $143.3 million or 16.3% compared to the year ended March 31, 2017. The increase in revenue was mainly related to an increase of $86.1 million in investment banking revenue as well as an increase of $65.2 million in commissions and fees revenue. As a result of an improvement in capital raising activity in our core focus areas, particularly during the second half of fiscal 2018, revenue in our Canaccord Genuity Capital Markets segment increased by $39.2 million or 6.5% compared to fiscal 2017. Also, as part of our strategic focus to expand our wealth management operations and the completion of the Hargreave Hale acquisition at the end of Q2/18, revenue from the global wealth management group increased by $103.2 million or 38.6%. Canaccord Genuity Group recorded net income of $17.1 million during fiscal 2018, compared to a net income of $43.2 million in fiscal 2017, largely due to an acceleration of LTIP expense related to the change in the LTIP plan as discussed in the Management’s Discussions and Analysis and the audited consolidated financial statements for the year ended March 31, 2018. Excluding significant items(1), net income for fiscal 2018 was $81.7 million, compared to $49.2 million in fiscal 2017, largely attributable to the increase in revenue. (1) Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 44 Management’s Discussion and Analysis Financial Condition Below are selected balance sheet items for the past five years: (C$ thousands) Assets Cash and cash equivalents Securities owned Accounts receivable Income taxes recoverable Deferred tax assets Investments Equipment and leasehold improvements Goodwill and other intangible assets Total assets Liabilities and shareholders’ equity Bank indebtedness Securities sold short Balance sheet summary as at March 31 2019 2018 2017 2016 2015 $ 820,739 $ 862,838 $ 677,769 $ 428,329 $ 322,324 690,499 469,217 784,230 564,746 848,128 2,656,664 2,215,837 3,395,736 2,041,150 2,491,488 2,502 22,117 6,224 25,792 1,170 19,941 2,035 30,967 1,085 15,323 2,829 31,479 12,537 11,221 5,578 37,049 5,295 10,148 8,693 43,373 524,757 418,731 295,065 323,936 640,456 $ 4,749,294 $ 4,020,736 $ 5,203,516 $ 3,424,546 $ 4,369,905 $ 9,639 $ — $ 25,280 $ 14,910 $ 20,264 373,419 301,006 645,742 427,435 654,639 Accounts payable and accrued liabilities 3,123,765 2,638,954 3,669,883 2,185,047 2,527,636 Provisions Income taxes payable Current portion of bank loan Deferred consideration Contingent consideration Promissory note Other long-term liability Bank loan Deferred tax liabilities Liability portion of Convertible Debenture Subordinated debt Shareholders’ equity Non-controlling interests 18,212 5,415 9,294 22,225 108,319 5,832 1,741 50,370 7,978 127,225 7,500 876,363 1,997 8,428 7,851 9,679 9,997 49,844 — — 61,758 13,715 57,081 7,500 841,352 13,571 11,793 10,093 18,811 4,242 14,320 8,172 — — — — — — — — — — — — — — — — — — 140 56,442 7,500 764,785 11,858 450 — 15,000 749,929 8,722 2,057 — 15,000 1,117,542 10,275 Total liabilities and shareholders’ equity $ 4,749,294 $ 4,020,736 $ 5,203,516 $ 3,424,546 $ 4,369,905 ASSETS Cash and cash equivalents were $820.7 million at March 31, 2019 compared to $862.8 million at March 31, 2018. Refer to the Liquidity and Capital Resources section for more details. Securities owned were $690.5 million at March 31, 2019 compared to $469.2 million at March 31, 2018 mainly due to an increase in corporate and government debt owned. Accounts receivable were $2.7 billion at March 31, 2019 compared to $2.2 billion at March 31, 2018, mainly due to an increase in receivables from brokers and investment dealers. Goodwill was $370.2 million and intangible assets were $154.5 million at March 31, 2019. At March 31, 2018, goodwill was $258.0 million and intangible assets were $160.8 million. These amounts represent the goodwill and intangible assets acquired through the purchases of Genuity Capital Markets, Collins Stewart Hawkpoint plc (CSHP), Eden Financial Ltd., Hargreave Hale, Jitneytrade, McCarthy Taylor and Petsky Prunier. Other assets, consisting of income taxes receivable, deferred tax assets, equipment and leasehold improvements, and investments were $56.6 million at March 31, 2019 compared to $54.1 million at March 31, 2018, mainly due to an increase in income taxes receivable and investments. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 45 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, 2019, Canaccord Genuity Group had available credit facilities with banks in Canada and the UK & Europe in the aggregate amount of $743.6 million [March 31, 2018 − $669.2 million]. These credit facilities are utilized by the Company to facilitate settlement activities and consist of call loans, letters of credit and daylight overdraft facilities, and are collateralized by unpaid client securities and/or securities owned by the Company. On March 31, 2019, there was bank indebtedness of $9.6 million, compared to $nil on March 31, 2018. Securities sold short were $373.4 million at March 31, 2019 compared to $301.0 million at March 31, 2018, mostly due to an increase in short positions in corporate and government debt. Accounts payable and accrued liabilities, including provisions, were $3.1 billion, an increase from $2.6 billion on March 31, 2018, mainly due to an increase in payables to clients and brokers and investment dealers. Other liabilities, including subordinated debt, income taxes payable, other long-term liability and deferred tax liabilities, were $22.6 million at March 31, 2019 compared to $29.1 million in the prior year. The decrease was mostly due to a decrease in income tax payable. In connection with our acquisition of Hargreave Hale through a subsidiary of the Company, that subsidiary obtained a £40.0 million bank loan to finance a portion of the cash consideration. During the year ended March 31, 2019, the Company made a repayment of £5.3 million ($9.3 million). The balance outstanding as of March 31, 2019, net of unamortized financing fees, was £34.3 million ($59.7 million) [£39.4 million (C$71.4 million) as of March 31, 2018]. The loan is repayable in instalments of principal and interest over the period ending in September 2021. The interest rate on this loan is LIBOR plus 2.125% per annum at March 31, 2019 [March 31, 2018 − LIBOR plus 3.375% per annum]. There were deferred and contingent considerations of $22.2 million and $108.3 million, respectively, recorded at March 31, 2019 in connection with the acquisitions of Hargreave Hale, Jitneytrade, McCarthy Taylor as well as Petsky Prunier. There was also a promissory note of $5.8 million related to the purchase of an additional 30% interest in Canaccord Genuity (Australia) Limited during the year ended March 31, 2019. Refer to Notes 7, 8 and 12 of the audited consolidated financial statements for the year ended March 31, 2019 for further information. Non-controlling interests were $2.0 million at March 31, 2019 compared to $13.6 million at March 31, 2018, which represents 15% [March 31, 2018 − 42%] 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 totaling $2.8 million (US$2.1 million) [March 31, 2018 − $2.7 million (US$2.0 million)] as rent guarantees for its leased premises in New York. Bank Indebtedness and Other Credit Facilities 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 of March 31, 2019, the Company had $9.6 million of bank indebtedness outstanding [March 31, 2018 − $nil million]. As discussed above, excluding the bank loan of £34.3 million outstanding in connection with the acquisition of Hargreave Hale, subsidiaries of the Company also have other credit facilities, such as call loans, letters of credit and overdraft facilities, with banks in Canada and the UK. The aggregate amount of other credit facilities available to the Company was $714.0 million as of March 31, 2019 [March 31, 2018 − $669.2 million]. As of March 31, 2019, there were no balances outstanding under these other credit facilities. In the normal course of business, the Company enters into contracts that give rise to commitments of future minimum payments that affect its liquidity. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 46 Management’s Discussion and Analysis The following table summarizes Canaccord Genuity Group’s long-term contractual obligations on March 31, 2019: (C$ thousands) Premises and equipment operating leases Bank loan(1) Convertible debenture(2) Total contractual obligations Total Fiscal 2020 Fiscal 2021 − Fiscal 2022 Fiscal 2023 − Fiscal 2024 Thereafter 158,850 63,833 174,200 396,883 33,399 10,945 8,295 52,639 61,440 52,888 16,590 130,918 40,600 23,411 — 149,315 189,915 — — 23,411 (1) Bank loan consists of £40,000,000 credit facility obtained to finance a portion of the cash consideration for the acquisition of Hargreave Hale. The bank loan bears interest at LIBOR plus 3.375% per annum and is repayable in instalments of principal and interest over four years and matures in September of 2021. The current balance outstanding is £34.3 million. (2) Convertible debentures consist of the unsecured senior subordinated convertible debentures (the Debentures) issued in Q2/19. The Debentures bear interest at a rate of 6.25% per annum and mature on December 31, 2023. The Company, under certain circumstances, may redeem the Debentures on or after December 31, 2021. Liquidity and Capital Resources The Company has a capital structure comprised of the equity portion of the convertible debentures, preferred shares, common shares, contributed surplus, warrants, retained deficit and accumulated other comprehensive income. On March 31, 2019, cash and cash equivalents were $820.7 million, a decrease of $42.1 million from $862.8 million as of March 31, 2018. During the year ended March 31, 2019, financing activities used cash in the amount of $0.3 million, mainly due to purchases of common shares for the LTIP ($32.1 million) and cash dividends paid on the preferred and common shares ($25.9 million), partially offset by proceeds from the issuance of convertible debentures ($56.7 million) and an increase in bank indebtedness ($9.6 million). Investing activities used cash in the amount of $76.3 million mainly for the acquisitions of Jitneytrade, McCarthy Taylor and Petsky Prunier during the year, as well as the purchase of the non-controlling interest in our Australian operations. Operating activities generated cash of $42.1 million, which was largely due to changes in non-cash working capital. A decrease in cash of $7.7 million was attributable to the effect of foreign exchange translation 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 collectability. Receivables and payables from brokers and dealers represent the following: current open transactions that generally settle within the normal two-day settlement cycle; collateralized securities borrowed and/or loaned in transactions that can be closed within a few days on demand; and balances on behalf of introducing brokers representing net balances in connection with their client accounts. Preferred Shares SERIES A PREFERRED SHARES In fiscal 2012, the Company issued 4,540,000 Cumulative 5-Year Rate Reset First Preferred Shares, Series A (Series A Preferred Shares) at a purchase price of $25.00 per share for gross proceeds of $113.5 million. The aggregate net amount recognized after deducting issue costs, net of deferred taxes of $1.0 million, was $110.8 million. Quarterly cumulative cash dividends, as declared, were paid at an annual rate of 5.5% for the initial five-year period ended on September 30, 2016. Commencing October 1, 2016 and ending on and including September 30, 2021, quarterly cumulative dividends, if declared, will be paid at an annual rate of 3.885%. 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 had the 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 have the option on September 30 every five years thereafter. The number of shares tendered for conversion by the conversion deadline of September 15, 2016 was below the minimum required to proceed with the conversion and, accordingly, no Series B Preferred Shares were issued. Series B Preferred Shares would entitle any holders thereof 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 had the option to redeem the Series A Preferred Shares on September 30, 2016, and has the option to redeem on September 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 47 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, as declared, were paid at an annual rate of 5.75% for the initial five-year period ending on June 30, 2017. Commencing July 1, 2017 and ending on and including June 30, 2022, quarterly cumulative dividends, if declared, will be paid at an annual rate of 4.993%. 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 had the 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 have the option on June 30 every five years thereafter. The number of shares tendered for conversion by the conversion deadline of June 30, 2017 was below the minimum required to proceed with the conversion and, accordingly, no Series D Preferred Shares were issued. Series D Preferred Shares would entitle any holders thereof 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 had the option to redeem the Series C Preferred Shares on June 30, 2017 and has the option to redeem on June 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. CONVERTIBLE DEBENTURES On August 22, 2018, the Company completed its bought deal offering of convertible unsecured senior subordinated debentures for gross proceeds of $59,225,000 (the Offered Debentures). The Company had also closed the concurrent non-brokered private placement with a large Canadian asset manager for gross proceeds of $73,500,000, which together with the gross proceeds from the Offered Debentures, represent an aggregate principal amount of $132,725,000 (together with the Offered Debentures, the ‘‘Convertible Debentures’’). The proceeds of the non-brokered private placement were used to repay the convertible debentures issued in October 2016 in the principal amount of $60,000,000 and a premium of $13,500,000 for a total of $73,500,000. The remainder of the proceeds will be used by the Company to finance growth in its wealth management business in Canada and the UK & Europe, and elsewhere as opportunities arise. The Convertible Debentures bear interest at a rate of 6.25% per annum, payable semi-annually on the last day of December and June each year commencing December 31, 2018. The Convertible Debentures are convertible at the holder’s option into common shares of the Company, at a conversion price of $10.00 per common share. The Convertible Debentures mature on December 31, 2023 and may be redeemed by the Company in certain circumstances, on or after December 31, 2021. 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) Average shares outstanding − diluted, excluding significant items(4)(5) Outstanding shares as of March 31 2019 2018 4,540,000 4,000,000 4,540,000 4,000,000 97,580,334 115,616,744 140,241,098 96,259,582 130,943,743 130,943,743 93,053,875 113,522,629 124,294,132 92,587,216 110,862,087 120,092,856 Includes 346 unvested shares related to share purchase loans for recruitment and 18,036,064 unvested shares purchased by the employee benefit trusts for the LTIP. Includes 24,624,354 of share issuance commitments net of forfeitures. (1) Excludes 346 outstanding unvested shares related to share purchase loans for recruitment and 18,036,064 unvested shares purchased by the employee benefit trusts for the LTIP. (2) (3) (4) This is the diluted share number used to calculate diluted EPS. (5) See Non-IFRS Measures on page 14. This is the diluted share number used to calculate diluted EPS on an excluding significant items basis. On August 10, 2018, 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 5,677,589 of its common shares during the period from August 15, 2018 to August 14, 2019 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. During the year ended March 31, 2019, there were 152,200 shares purchased and cancelled under the NCIB which commenced August 15, 2017 and ended on August 14, 2018. There were also 1,226,800 common shares that were purchased and cancelled during the current NCIB during the year ended March 31, 2019. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 48 Management’s Discussion and Analysis 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. The ability to make purchases under the current NCIB commenced on August 15, 2018 and will continue for one year (to August 14, 2019) 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, the daily purchases are limited to 60,212 common shares of the Company (which is 25% of the average daily trading volume of common shares of the Company on the TSX (ADTV) in the six calendar months from February 2018 to July 2018 [25% of the ADTV of 240,851]). During the year ended March 31, 2019, the Company issued 2,331,132 shares with a value of $16.8 million (AUD$17.5 million) as part of the purchase consideration for the acquisition of an additional 30% of the shares in its Australian capital markets and wealth management business, Canaccord Genuity (Australia) Limited. In addition, during the year ended March 31, 2019, as part of the purchase consideration for the acquisition of Petsky Prunier, the Company issued 1,105,275 common shares for a total value of $6.6 million (US$5.0 million). As of May 31, 2019, the Company has 115,616,744 common shares issued and outstanding. ISSUANCE AND CANCELLATION OF COMMON SHARE CAPITAL Balance, March 31, 2018 Shares issued in connection with share-based payment plans Shares issued in connection with purchase of non-controlling interest Shares issued in connection with acquisition of Petsky Prunier Shares cancelled Balance, March 31, 2019 Share-Based Payment Plans LONG-TERM INCENTIVE PLAN 113,522,629 36,708 2,331,132 1,105,275 (1,379,000) 115,616,744 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, the United States, Channel Islands, Australia and the United Kingdom, employee benefit trusts (the Trusts) have been established. The Company or certain of its subsidiaries, as the case may be, fund 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. FORGIVABLE COMMON SHARE PURCHASE LOANS The Company provides loans to certain employees (other than directors or executive officers) for the purpose of partially funding the purchase of shares of the Company and increasing share ownership by the employees. The Company has provided such loans to executive officers in the past but has now adopted a policy not to make any further such loans to directors or executive officers. When made, these loans are forgiven over a vesting period. No interest is charged related to the share purchase loans. REPLACEMENT PLANS As a result of the acquisition of Collins Steward Hawkpoint plc (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. 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. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 49 PERFORMANCE SHARE UNITS Beginning March 31, 2018, the Company adopted a performance share unit (PSU) plan for certain senior executives. The PSUs are a notional equity-based instrument linked to the value of the Company’s common shares. At the end of a three-year vesting period, the number of PSUs which vest is determined upon performance against certain pre-determined metrics. The PSUs cliff vest on the third anniversary of the date of the grant. The PSUs are settled in cash, based on the share price of the Company’s shares at the time of vesting. PERFORMANCE STOCK OPTIONS On June 6, 2018, the Company created a performance share option (‘‘PSO’’) plan that was approved at the Company’s Annual General Meeting held on August 2, 2018. On June 14, 2018, the Company granted 5,620,000 options under the PSO plan. The options have an exercise price of $6.73 per share. In addition, the Company granted 600,000 options on August 16, 2018 with an exercise price of $7.067. The PSOs have a term of five years and will time-vest ratably over four years (with one third vesting on each of the second, third and fourth anniversaries of the date of the grant). The PSOs will also be subject to market (stock price) performance vesting conditions, as well as have a four times exercise price cap on payout value (i.e., the gain on the exercise of the options is limited to three times the exercise price). The PSOs will expire on June 14, 2023. OTHER SHARE-BASED PAYMENT PLAN During the year ended March 31, 2019, the company granted a share-based award to a senior executive. The award vests on March 31, 2021, or at the holder’s option, can be extended to March 31, 2022. OTHER RETENTION AND INCENTIVE PLANS 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 50 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 trading subsidiaries and intermediate holding companies are listed in the following table: % equity interest Country of incorporation March 31, 2019 March 31, 2018 Canaccord Genuity Corp. CG Investments Inc. CG Investments III Inc. Jitneytrade Inc. Finlogik Inc. Finlogik Inc. Tunisia Canaccord Genuity SAS Canaccord Genuity Wealth (International) Limited Canaccord Genuity Financial Planning Limited Canaccord Genuity Wealth Limited Canaccord Genuity Wealth Group Limited Canaccord Genuity Wealth (International) Holdings Limited Hargreave Hale Limited McCarthy Taylor Ltd. Canaccord Genuity Limited Canaccord Genuity Wealth Group Holdings Ltd. Canaccord Genuity LLC Canaccord Genuity Wealth Management (USA) Inc. Canaccord Genuity Wealth & Estate Planning Services Ltd. Canaccord Genuity Petsky Prunier LLC Canaccord Asset Management Inc. Canaccord Adams Financial Group Inc. Collins Stewart Inc. Canaccord Adams BC ULC Canaccord Genuity Finance Corp. Canaccord Adams Finance Company ULC Canaccord Adams Finance Company LLC Canaccord Adams (Delaware) Inc. Canaccord Genuity Securities LLC Stockwave Equities Ltd. CLD Financial Opportunities Limited Canaccord Genuity (Hong Kong) Limited Canaccord Financial Group (Australia) Pty Ltd* Canaccord Genuity (Australia) Limited* Canaccord Genuity Asia (Beijing) Limited The Balloch Group Limited Canaccord Genuity Asia (Hong Kong) Limited Canaccord Genuity (Dubai) Ltd. Canaccord Genuity SG Pte Canaccord Genuity Wealth Group Holdings (Jersey) Limited Canaccord Genuity Hawkpoint Limited Canaccord Genuity Management Company Limited Canada Canada Canada Canada Canada Tunisia France Guernsey United Kingdom United Kingdom United Kingdom Guernsey United Kingdom United Kingdom United Kingdom Canada United States United States Canada United States Canada United States United States Canada Canada Canada United States United States United States Canada Canada China (Hong Kong SAR) Australia Australia China British Virgin Islands China (Hong Kong SAR) United Arab Emirates Singapore Jersey United Kingdom Ireland 100% 100% 100% 100% 100% 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% 80% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% n/a n/a n/a 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% n/a 100% 100% 100% 100% n/a n/a n/a 100% 100% 100% 100% 100% 50% 50% 100% 100% 100% 100% 100% 100% 100% 100% * The Company owns 80% of the issued shares of Canaccord Financial Group (Australia) Pty Ltd and Canaccord Genuity (Australia) Limited, but for accounting purposes, as of March 31, 2019 the Company is considered to have an 85% interest because of the shares held in a trust controlled by Canaccord Financial Group (Australia) Pty Ltd [March 31, 2018 − 58%]. 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 Inc. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 51 The Company offers various share-based payment plans to its key management personnel, including common share purchase loans, a long-term incentive plan, a PSU plan and a PSO plan. Independent directors have also been granted DSUs. Disclosed in the table below are the amounts recognized as expenses related to individuals who are key management personnel as at March 31, 2019 and March 31, 2018. (in thousands) Short term employee benefits Share-based payments Total compensation paid to key management personnel March 31, 2019 10,167 2,656 12,823 $ $ Accounts payable and accrued liabilities include the following balances with key management personnel: (in thousands) Accounts receivable Accounts payable and accrued liabilities Critical Accounting Policies and Estimates March 31, 2019 837 942 $ $ March 31, 2018 10,515 4,933 15,448 March 31, 2018 969 1,527 $ $ $ $ The following is a summary of Canaccord Genuity Group’s critical accounting estimates. The Company’s significant 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, 2019. The Company’s consolidated financial statements for the years ended March 31, 2019 and 2018 were also prepared in accordance with IFRS. The preparation of the March 31, 2019 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 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. Amendments may be made to estimates relating to net assets acquired in an acquisition as well as the allocation of identifiable intangible assets between indefinite life and finite lives. Judgments, estimates and assumptions were also utilized in connection with the valuation of goodwill and intangible assets acquired in connection with the acquisitions of McCarthy Taylor and Petsky Prunier. 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, 2019. CONSOLIDATION The Company owns 80% of the voting shares of Canaccord Genuity (Australia) Limited (CGAL) as at March 31, 2019. The Company also completed an evaluation of its contractual arrangements with the other shareholders of CGAL and the control 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, 2019 and 2018. Therefore, the financial position, financial performance and cash flows of CGAL have been consolidated. Although the Company owns 80% of the issued shares of CGAL as at March 31, 2019, for accounting purposes, the Company is considered to have an 85% interest because of the shares held in a trust controlled by Canaccord Financial Group (Australia) Pty Ltd. Accordingly, the Company has consolidated the entity and recognized a 15% non-controlling interest [prior to closing date of August 10, 2018 and year ended March 31, 2018 − 42%] since the closing date of August 10, 2018 of the Company’s acquisition of an additional 30% interest, which represents the portion of CGAL’s net identifiable assets not owned by the Company. Net income and each component of other comprehensive income 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 52 Management’s Discussion and Analysis The useful lives of identifiable intangible assets are assessed to be either finite or indefinite. Identifiable intangible assets with finite lives are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the identifiable intangible asset may be impaired. The amortization period and the amortization method for an identifiable intangible asset are reviewed at least annually, at each financial year end. Identifiable intangible assets with indefinite useful lives are not amortized but are tested for impairment annually. Technology development expenditures on an individual project are recognized as an intangible asset when the Company can demonstrate that the technical feasibility of the asset for use has been established. The asset is carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete, and the asset is available for use. It is amortized over the period of expected future benefit. IMPAIRMENT OF NON-FINANCIAL ASSETS The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value-in-use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount, and the impairment is recognized in the consolidated statements of operations. 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 consolidated statement of operations 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 either at a point in time when a single performance obligation is satisfied at once or over the period of time when a performance obligation is received and utilized by the customer over that period. The Company assesses its revenue arrangements in order to determine if it is acting as principal or agent. The main types of revenue contracts are as follows: Commissions and fees revenue consist 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 net of commission revenues. Facilitation losses for the year ended March 31, 2019 were $6.4 million [2018 – $8.4 million]. Commissions are recognized at a point in time (trade date) as the performance obligation is satisfied. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 53 Investment banking revenue consists of underwriting fees and commissions earned on corporate finance activities. The act of underwriting the securities is the sole performance obligation and revenue is recognized at the point in time when the underwriting transaction is complete. Advisory fees consist of ongoing management and advisory fees that are recognized over the period of time that this performance obligation is delivered. Also included in advisory fees is revenue from mergers and acquisitions activities, which is recognized at the point in time when the underlying transaction is substantially completed under the engagement terms and it is probable that a significant revenue reversal will not occur. Principal trading revenue consists of income earned in connection with principal trading operations and is outside the scope of IFRS 15. Interest revenue consists of interest earned on client margin accounts, interest earned on the Company’s cash, interest earned on cash delivered in support of securities borrowing activity, and dividends earned on securities owned. Interest and dividend revenue is outside the scope of IFRS 15. Other revenue includes foreign exchange gains or losses, revenue earned from correspondent brokerage services and administrative fee revenue. INCOME TAXES Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of operations. Deferred tax Deferred taxes are accounted for using the liability method. This method requires that deferred taxes reflect the expected deferred tax effect of temporary differences at the reporting date between the carrying amounts of assets and liabilities for financial statement purposes and their tax bases. Deferred tax liabilities are recognized for all taxable temporary differences, except for taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and carryforward of unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carryforward of unused tax credits and unused tax losses can be utilized. The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is charged or credited in the statements of operations except where it relates to items that may be credited directly to equity, in which case the deferred tax is recognized directly against equity. Sales tax Revenues, expenses and assets are recognized net of the amount of sales tax, except where the amount of sales tax incurred is not recoverable from the tax authority. In these circumstances, sales tax is recognized as part of the cost of acquisition of the asset or as part of an item of the expense. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of accounts receivable or accounts payable in the consolidated statements of financial position. SHARE-BASED PAYMENTS Employees (including senior executives) 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). The participating employees are eligible to receive shares that generally vest over three years (the RSUs). This program is referred to as the LTIP (or the Plan). 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 54 Management’s Discussion and Analysis Independent directors also receive deferred share units (DSUs) as part of their remuneration, which can only be settled in cash. For the year ended March 31, 2018, certain senior executives receive performance share units (PSUs) as part of their remuneration, which can only be settled in cash (cash-settled transactions). In addition, certain employees receive performance stock options (PSOs) which will time-vest ratably over four years and also be subject to market (stock price) performance vesting conditions. 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. Effective as of March 31, 2018 the Plan was changed so that the vesting of certain RSUs was no longer necessarily contingent upon continued employment. With the change, RSUs will continue to vest after termination of employment so long as the employee does not violate certain post-termination restrictions and is not engaged in certain competitive or soliciting activities as provided in the Plan. Because of this change, the Company determined that the awards do not meet the criteria for an in-substance service condition, as defined by IFRS 2. Accordingly, RSUs granted as part of the normal course incentive compensation payment cycle are expensed in the period in which those awards are deemed to be earned with a corresponding increase in contributed surplus, which is generally the fiscal period in which the awards are either made or the immediately preceding fiscal year for those awards made after the end of such fiscal year but were determined and earned in respect of that fiscal year. For certain awards, typically new hire awards or retention awards, vesting is subject to continued employment and therefore these awards are subject to a continuing service requirement. Accordingly, the Company recognizes the cost as an expense on a graded basis over the applicable vesting period with a corresponding increase in contributed surplus. 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 and PSUs 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. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 55 Translation of foreign subsidiaries Assets and liabilities of foreign subsidiaries with a functional currency other than the Canadian dollar are translated into Canadian dollars at rates prevailing at the reporting date, and income and expenses are translated at average exchange rates prevailing during the period. Unrealized gains or losses arising as a result of the translation of the foreign subsidiaries are recorded in accumulated other comprehensive income (loss). On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in the consolidated statements of operations. The Company also has monetary assets and liabilities that are receivable or payable from a foreign operation. If settlement of the receivable or payable is neither planned nor likely to occur in the foreseeable future, the differences upon translation are recognized in accumulated other comprehensive income (loss) as these receivables and payables form part of the net investment in the foreign operation. PROVISIONS Provisions are recognized when the Company has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the statements of operations net of any reimbursement. If the effect of the time value of money is significant, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. 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. The Company 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, 2019. FOREIGN EXCHANGE The Company manages its foreign exchange risk by periodically hedging pending settlements in foreign currencies. Realized and unrealized gains and losses related to these transactions are recognized in income during the period. On March 31, 2019, forward contracts outstanding to sell US dollars had a notional amount of US$0.2 million, a decrease of US$17.5 million compared to March 31, 2018. Forward contracts outstanding to buy US dollars had a notional amount of US$5.7 million, an increase of US$3.6 million from March 31, 2018. The fair value of these contracts was nominal. Some of the Company’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. These contracts were entered into in an attempt to mitigate 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. 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. FUTURES The Company’s Canadian operations are involved in trading various futures contracts, in an attempt to mitigate market risk, interest rate risk, yield curve risk and liquidity risk. Futures contracts are agreements to buy or sell a standardized amount of an underlying asset, 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 have traditionally engaged in the trading of Canadian and US government bond futures contracts to mitigate its risk. At March 31, 2019, the notional amount of the bond futures contracts outstanding was long $0.1 million [March 31, 2018 − long $0.1 million]. The Company’s Canadian operations are also involved in trading US Treasury futures in an attempt to mitigate interest rate risk, yield curve risk and liquidity risk. There were no outstanding US Treasury futures contracts outstanding as at March 31, 2019 and March 31, 2018. 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 56 Management’s Discussion and Analysis Adoption of New and Revised Standards IFRS 9, ‘‘FINANCIAL INSTRUMENTS’’ On April 1, 2018, the Company adopted IFRS 9, ‘‘Financial Instruments’’ (IFRS 9), which replaces IAS 39 − ‘‘Financial Instruments: Recognition and Measurement’’ (IAS 39). The Company adopted the standard using the modified retrospective approach. The adoption of IFRS 9 did not have a significant effect on the Company’s measurement of financial assets and liabilities. The following summarizes the impact of IFRS 9 on the audited consolidated financial statements for the year ended March 31, 2019: Classification − financial assets and liabilities IFRS 9 sets out requirements for recognizing and measuring financial assets and financial liabilities. IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. On initial recognition, financial assets are classified as instruments measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit and loss (FVTPL). The classification is based on two criteria: the Company’s business approach for managing the financial assets; and whether the instruments’ contractual cash flows result in cash flows that are solely payments of principal and interest on the principal amount outstanding (the SPPI criterion). The business approach considers whether the Company’s objective is to receive cash flows from holding the financial assets, from selling the assets or a combination of both. (cid:129) Amortized costs − A financial asset is measured at amortized cost if it is held within a business model that has an objective to hold financial assets to collect contractual cash flows and the contractual terms of the financial asset result in cash flows that meet the SPPI criteria. Items included in this category include cash and cash equivalents and accounts receivable. (cid:129) FVOCI − A financial asset is classified as FVOCI if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset result in cash flows that are SPPI. Included in the FVOCI category is our investment in Euroclear, which was previously classified as available for sale under IAS 39. There are no other financial assets classified as FVOCI. (cid:129) All other financial assets are measured at FVTPL and consist of marketable securities owned and sold short. The Company reclassifies financial assets only when its business approach for managing those assets changes. Impairment − financial assets The adoption of IFRS 9 changed the Company’s accounting for impairment loss for financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. Under the ECL model, the Company has to record an allowance for ECL either based on a 12-month ECL or on a lifetime ECL. ECLs are recognized on the following basis: (cid:129) A maximum 12-month allowance for ECL is recognized from initial recognition, reflecting the portion of lifetime cash shortfalls that would result if a default occurs in the 12 months after the reporting date, weighted by the risk of a default occurring. (cid:129) A lifetime ECL allowance is recognized if a significant increase in credit risk is detected subsequent to the instruments’ initial recognition, reflecting lifetime cash shortfalls that would result over the expected life of a financial instrument. (cid:129) A lifetime ECL allowance is recognized for credit-impaired financial instruments. IFRS 9 also provides a simplified approach to ECLs for trade receivables that is based on the adoption of a valuation policy which utilizes an entity’s historic loss experience by age banding, adjusted for forward-looking estimates and other considerations as applicable. The Company’s accounts receivables are classified as financial assets measured at amortized cost and are subject to the new ECL model. Accounts receivable includes trade receivables from clients and brokers and dealers. All our corporate finance and client receivables have a maturity of less than 12 months from initial recognition, therefore the allowance is limited to 12-month ECLs. The Company established a valuation policy that is based on its historical credit loss experience adjusted for forward-looking factors or other considerations as appropriate. The impact of the provision is not considered to have a significant impact on our consolidated financial statements for the year ended March 31, 2019. Hedge accounting IFRS 9 offers greater flexibility to the types of transactions eligible for hedge accounting. As the Company currently does not have any material position that qualifies for hedge accounting under IAS 39 and IFRS 9, the adoption of IFRS 9 does not have any material impact on our consolidated financial statements for the year ended March 31, 2019. IFRS 15, ‘‘REVENUE FROM CONTRACTS WITH CUSTOMERS’’ On April 1, 2018, the Company adopted IFRS 15, ‘‘Revenue from Contracts with Customers’’ (IFRS 15), using the modified retrospective approach. IFRS 15 replaces IAS 18, ‘‘Revenue’’ (IAS 18), and establishes a single five-step model framework for determining the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 57 Under IFRS 15, the initial steps in revenue recognition are to identify the appropriate contracts with customers and define the performance obligations in the contracts. Revenue is recognized when the performance obligations are satisfied, which is when control of goods or services transfers to the customers. IFRS 15 also requires the transaction price to be allocated to each separate performance obligation in proportion to stand-alone selling prices. In addition, variable consideration should only be recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The impact on adoption of IFRS 15 on the Company’s standard revenue contracts are as follows: (cid:129) Commissions and fees − Commission and fees revenue consists of revenue generated through commission-based brokerage services and the sale of fee-based products and services. As discussed above, IFRS 15 requires entities to recognize revenue when control of goods or services transfers to the customers whereas IAS 18 required entities to recognize revenue when the risk and rewards of the goods or services are transferred to the customers. The performance obligation for the recognition of commission and fees revenue is satisfied through the settlement of trades for clients. There is no material change in the amount or timing of revenue recognized under IFRS 15 compared to IAS 18 as the point of transfer of risk and reward for services and transfer of control occur at the same time. Also included within commission and fees is revenue earned in relation to the supply of the Company’s research, which is recognized over time in line with the satisfaction of the performance obligation. (cid:129) Investment banking − Investment banking revenue consists of underwriting fees and commissions earned on corporate finance activities. There is no material impact on the recognition of investment banking revenue under IFRS 15 compared to IAS 18. Under IAS 18, revenue was recognized upon closing of the underwriting mandate, which also represents completion of the performance obligation under IFRS 15. (cid:129) Advisory fees − Advisory fees consist of management and advisory fees, including fees from mergers and acquisition activities. The performance obligation for the recognition of advisory fees revenue is met when the underlying transaction is substantially completed under the engagement terms and the related revenue is reasonably determinable. In certain cases, some fees are collected based on progress and do not correspond to the satisfaction of any discrete performance obligation. Under IFRS 15, such payments may need to be deferred or recognized on an amortized basis until the performance obligation is satisfied. The impact of this change on the opening retained earnings as of April 1, 2018 and for the year ended March 31, 2019 is insignificant. (cid:129) The following revenue types are excluded from the scope of IFRS 15: Principal trading revenue which consists of revenue earned in connection with principal trading operations, interest revenue, as well as other revenue consisting of foreign exchange gains or losses and revenue earned from our correspondent brokerage services. 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. STANDARDS ISSUED BUT NOT YET EFFECTIVE Standards issued, which may be reasonably expected to impact upon the Company’s financial statements, but which are not yet effective are listed below. IFRS 16, ‘‘LEASES’’ In January 2016, the IASB issued IFRS 16, ‘‘Leases’’ (IFRS 16), which replaces IAS 17, “Leases” (IAS 17), with the key change being that lessee accounting will eliminate the IAS 17 distinction between operating leases and finance leases, treating most leases in the same manner as finance leases under IAS 17. The new standard requires lessees to recognize assets and liabilities for most leases, other than leases eligible for low-value (less than USD $5,000) or short-term (12 months or less) exemption. Where an arrangement meets the IFRS 16 definition of a lease, at the commencement a loan obligation for future lease payables will be recognized together with an equal value non-current asset representing the right to use the underlying asset during the lease term. In place of the lease rental expense in the consolidated statement of operations, lease costs will be recognized in the form of depreciation of the right-of-use asset and interest on the lease liability. IFRS 16 also has the effect of skewing expenses towards the earlier years of a lease (when the outstanding lease liability, and thus interest expense, is higher), although both the total expense and cash flows during the life of a lease are identical under IFRS 16 and IAS 17. The Company will implement IFRS 16 for its fiscal year ending March 31, 2020 and has elected to adopt IFRS 16 using the modified retrospective method with no restatement of prior year comparatives. Upon adoption of IFRS 16 on April 1, 2019, the Company is required to recognize both a right of use (ROU) asset and a corresponding lease liability for each lease (subject to the low-value and short-term exemptions noted above). Lease liabilities will initially be calculated at the present value of expected lease payments and a transition option allows for the recognition of a ROU asset at the same value. The Company is in the process of finalizing its calculation of the right of use asset and corresponding lease liabilities to be recognized in the consolidated statement of financial position upon adoption of IFRS 16. Please see Note 4 of the audited consolidated financial statements for the year ended March 31, 2019 for further information. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 58 Management’s Discussion and Analysis Disclosure Controls and Procedures and Internal Control over Financial Reporting DISCLOSURE CONTROLS AND PROCEDURES As of March 31, 2019, an evaluation was carried out, under the supervision of and with the participation of management, including the President & CEO and the Executive Vice President, Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined under National Instrument 52-109. Based on that evaluation, the President & CEO and the Executive Vice President, Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of and during the fiscal year ended March 31, 2019. INTERNAL CONTROL OVER FINANCIAL REPORTING Management, including the President & CEO and the Executive Vice President, Chief Financial Officer, has designed internal control over financial reporting as defined under National Instrument 52-109 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Based on that evaluation, the President & CEO and the Executive Vice President, Chief Financial Officer concluded that the Company’s internal control over financial reporting was designed and operating effectively as of and during the year ended March 31, 2019 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, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’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, the Company 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 The Company’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 the Company’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: Audit Committee Board of Directors Canaccord Genuity Group Inc. Corporate Governance & Compensation Committee Risk Management Committee Cyber Security Committee Canaccord Genuity Global Operating Committee CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 59 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 the company’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 firm’s Chief Risk Officer and committee members include the CEO, the CFO and senior management representation from the key revenue-producing businesses and functional areas of the Company. The Risk Management 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. The Company 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 Audit, Treasury, Finance, Information Technology and Legal. The Company’s global Cybersecurity Committee exists to help identify, monitor and manage risks specific to the company’s information networks, data and internal systems. This committee is chaired by the firm’s Chief Risk Officer and committee members include senior IT management from across the firm, as well as representation from Legal, Compliance, Internal Audit and Operations. The Cybersecurity Committee is focused on issues such as cybersecurity risk assessment, IT safeguards and controls, risks related to third-party service provides, employee training and awareness and incident response planning. 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 their market risk exposure is prudent within a set of risk limits set by the Risk Management Committee and approved by the Audit Committee. In addition, the Company has established procedures to ensure that risks are measured, closely monitored, controlled and visible to senior levels of management. The Company is exposed to equity price risk, liquidity risk and volatility risk as a result of its principal trading activities in listed options and 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, as well as by trading desk. Canaccord Genuity Group utilizes scenario analysis and a Value-at-Risk (VaR) risk measurement system for its equity and fixed income and derivative inventories. Management also regularly reviews and monitors inventory levels and positions, trading results, liquidity profile, 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. 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 recently acquired Jitneytrade and Canaccord Genuity Wealth Management business segments, including 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. The Company provides financing to clients by way of margin lending. In margin-based lending, the Company extends credit for a portion of the market value of the securities in a client’s account, up to certain limits. The margin loans are collateralized by those securities in the client’s account. In connection with this lending activity, the Company 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, the Company has established risk-based limits that are generally more restrictive than those required by applicable regulatory policies. In addition, the Company has established limits to how much it will lend against an individual security or group of securities in a single sector so as to limit credit concentration risk. The extension of credit via margin lending is overseen by the firm’s Credit Committee. The Committee meets regularly to review and discuss the firm’s credit risks, including large individual loans, collateral quality, loan coverage ratios and concentration risk. The Committee will also meet, as required, to discuss any new loan arrangements proposed by senior management. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 60 Management’s Discussion and Analysis The Company 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 and principal trading, securities borrowing and lending, and entering into repurchase agreements and reverse repurchase agreements. In the event that counterparties do not fulfill their obligations, the Company 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 monitoring individual and aggregate trading and 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. The Company 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, 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, credit or other risks. The Company 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). The Company 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: (cid:129) Identify and assess key risks inherent to the business and categorize them based on severity and frequency of occurrence (cid:129) Rate the effectiveness of the control environment associated with the key risks (cid:129) Mitigate the risks through the identification of action plans to improve the control environment where appropriate (cid:129) Provide management with a consistent approach to articulate and communicate the risk profiles of their areas of responsibility (cid:129) Meet regulatory requirements and industry standards The Company 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. The Company has established procedures to ensure compliance with all applicable statutory and regulatory requirements in each jurisdiction in which it operates. 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, use of and safekeeping of client data, credit granting, collection activity, anti-money laundering, insider trading, employee misconduct, conflicts of interest and recordkeeping. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Management’s Discussion and Analysis 61 Legal risk results from potential criminal, civil or regulatory litigation against the Company that could materially affect the Company’s business, operations or financial condition. The Company 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 the Company’s audited consolidated financial statements. The Company and its affiliates provide financial advisory, underwriting and other services to, and trade the securities of issuers that are involved with, new and emerging industries, including the US cannabis industry. Activities within such industries, including the US cannabis industry, typically have not had the benefit of a history of successful operating results. In addition to the economic uncertainties associated with new industries, new activities and new issuers, the laws applicable to such industries or activities, particularly the US cannabis industry and the activities of issuers in that industry, and the effect or enforcement of such laws are undetermined, conflicting and uncertain. With respect to the US cannabis industry, cannabis continues to be a controlled substance under the United States Controlled Substances Act and as such, there is a risk that certain issuers, while in compliance with applicable state law, may be prosecuted under federal law. Accordingly, the Company has adopted policies and procedures reasonably designed to ensure compliance with the United States Currency and Foreign Transactions Reporting Act of 1970 (the Bank Secrecy Act) and the guidance issued by the United States Department of the Treasury Financial Crimes Enforcement Network, FIN-2014-G001 (the FinCEN Guidance) relating to providing financial services to marijuana related businesses in the United States (as that term is used in the FinCEN Guidance). While the Company takes steps to identify the risks associated with emerging industries, including the US cannabis industry, and only provides services to those issuers where it determines that there is no material risk to the Company or where any risk is unlikely to result in a material adverse consequence to the Company, there is a risk that the Company could be the subject of third party proceedings which may have a material adverse effect on the Company business, revenues, operating results and financial condition as well as the Company’s reputation, even if such proceedings were concluded successfully in favour of the Company. The Company has determined that any such proceedings are unlikely and, accordingly, has not recorded a provision in respect of such matters. Cybersecurity risk Cybersecurity risk is the risk that the Company’s information networks, data or internal systems will be damaged, disrupted, misappropriated, stolen, accessed without permission or otherwise attacked. This risk exists due to the interconnected nature of the Company’s business with its clients, suppliers, vendors, partners and the public via the internet and other networks. As a result of this interconnectivity, third parties with which the Company does business with or that facilitate the Company’s business may also be a source of cybersecurity risk to the firm. The Company devotes considerable effort and resources to defend against and mitigate cybersecurity risk, including increasing awareness throughout the organization by implementing a firm-wide cybersecurity training program for all employees. The Company’s management of cybersecurity risk, as well as any reported incidents, is regularly presented to both senior management via the Cybersecurity Committee and the Audit Committee of the Board of Directors Reputational risk Reputational risk is the risk that an activity undertaken, or alleged to have been 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, disparaging traditional or online media coverage, or leading an unsuccessful financing. The Company could face reputational risk through its association with past or present corporate finance clients who are the subject of regulatory and/or legal scrutiny. 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, the Company 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. Control Risk As of March 31, 2019, senior officers and directors of the Company collectively owned approximately 10.4% of the issued and outstanding (16.3% 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. 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 the Company’s business. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 62 Management’s Discussion and Analysis Restrictions on ownership and transfer of common shares Restrictions on ownership and transfer of common shares in the articles of Canaccord Genuity Group Inc. to prevent unauthorized change in control without regulatory approval could, in certain cases, affect the marketability and liquidity of the common shares. Risk factors For a detailed list of the risk factors that are relevant to the Company’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 the Company considers to be of particular relevance. Other risk factors may apply. Further discussion regarding risks can be found in our Annual Information Form. 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, the Company’s financial condition, results of operations, capital requirements and such other factors as the Board determines to be relevant. Dividend Declaration On June 5, 2019, the Board of Directors approved a dividend of $0.17 per common share, payable on July 2, 2019, with a record date of June 21, 2019. This dividend is comprised of a $0.01 base quarterly dividend and a $0.16 supplemental dividend as outlined below. The Company’s fiscal 2019 dividend policy which was first adopted for the fiscal year ended March 31, 2017, was to pay a quarterly dividend of $0.01 per common share, and following the end of each fiscal year, pay a supplemental dividend. Supplemental dividends, if declared, would be variable from year to year. In accordance with this policy, a supplemental dividend for fiscal 2019 was declared as described above. On June 5, 2019, with the increasing stability in the Company’s wealth management business and its expected growth profile, the Board of Directors implemented a new dividend policy pursuant to which the Company intends to pay a quarterly dividend of at least $0.05 per share subject to the conditions described below. This new dividend policy will take effect for the first quarter of fiscal 2020. With this new policy, the Company will no longer pay a supplemental dividend at the end of each fiscal year but instead will adjust the regular quarterly dividend as appropriate in accordance with the factors described under ‘‘Dividend Policy’’ above and with a strategy that the Company expects will lead to growth in the quarterly dividend amount. On June 5, 2019, the Board of Directors approved the following cash dividends: $0.24281 per Series A Preferred Share payable on July 2, 2019 with a record date of June 21, 2019; and $0.31206 per Series C Preferred Share payable on July 2, 2019 with a record date of June 21, 2019. Additional Information Additional information relating to Canaccord Genuity Group Inc., including our Annual Information Form, is available on our website at www.canaccordgenuitygroup.com/EN/IR/FinReports/Pages/default.aspx and on SEDAR at www.sedar.com. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT 63 Independent Auditors’ Report To the Shareholders of Canaccord Genuity Group Inc. Opinion We have audited the consolidated financial statements of Canaccord Genuity Group Inc. and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at March 31, 2019 and 2018, and the consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Canaccord Genuity Group Inc. as at March 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information Management is responsible for the other information. The other information comprises: (cid:129) Management’s Discussion and Analysis (cid:129) The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard. The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this other information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, 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. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 64 Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: (cid:129) Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (cid:129) Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. (cid:129) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. (cid:129) Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. (cid:129) Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (cid:129) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is Andre de Haan. Chartered Professional Accountants Licensed Public Accountants Toronto, Canada June 5, 2019 CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Consolidated Statements of Financial Position As at (in thousands of Canadian dollars) 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 Total assets LIABILITIES AND EQUITY Current Bank indebtedness Securities sold short Accounts payable and accrued liabilities Provisions Income taxes payable Subordinated debt Current portion of bank loan Total current liabilities Deferred tax liabilities Convertible debentures Deferred consideration Contingent consideration Promissory note Other long-term liability Bank loan Total liabilities Equity Preferred shares Common shares Equity portion of convertible debentures Warrants Contributed surplus Retained deficit Accumulated other comprehensive income Total shareholders’ equity Non-controlling interests Total equity 65 Notes March 31, 2019 March 31, 2018 6, 7 9, 22 14 10 11 13 13 $ 820,739 $ 690,499 2,656,664 2,502 862,838 469,217 2,215,837 1,170 4,170,404 3,549,062 22,117 6,224 25,792 154,521 370,236 19,941 2,035 30,967 160,757 257,974 $ 4,749,294 $ 4,020,736 7 $ 9,639 $ — 6, 7 9, 22 26 15 16 14 17 7, 12 7, 12 7, 8 21 16 18 19 17 19 8 373,419 3,123,765 18,212 5,415 7,500 9,294 301,006 2,638,954 8,428 7,851 7,500 9,679 3,547,244 2,973,418 7,978 127,225 22,225 108,319 5,832 1,741 50,370 3,870,934 205,641 672,896 5,156 1,975 124,710 (237,770) 103,755 876,363 1,997 878,360 13,715 57,081 9,997 49,844 — — 61,758 3,165,813 205,641 649,846 2,604 1,975 145,426 (277,472) 113,332 841,352 13,571 854,923 Total liabilities and shareholders’ equity $ 4,749,294 $ 4,020,736 See accompanying notes On behalf of the Board: ‘‘Daniel Daviau’’ DANIEL DAVIAU Director ‘‘Terrence A. Lyons’’ TERRENCE A. LYONS Director 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 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 Acquisition-related costs Loss on extinguishment of convertible debentures Share of loss of an associate Income before income taxes Income tax expense (recovery) Current Deferred Net income for the year Net income attributable to: CGGI shareholders Non-controlling interests Weighted average number of common shares outstanding (thousands) Basic Diluted 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 CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT March 31, 2019 $ 556,475 $ 294,241 142,228 125,830 51,008 20,785 March 31, 2018 461,937 282,195 122,372 113,921 27,875 14,577 1,190,567 1,022,877 599,867 116,758 83,577 41,719 64,930 25,453 100,768 24,280 15,513 13,070 3,064 8,608 304 $ 1,097,911 $ 92,656 31,611 (10,537) 21,074 71,582 70,530 1,052 96,260 130,944 0.58 0.48 0.97 1.25 0.20 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 11, 13 26 17 14 8 19 19 19 19 20 20 20 574,969 99,239 68,209 39,605 56,346 18,437 83,982 24,007 7,664 7,643 6,732 — 298 987,131 35,746 20,620 (1,951) 18,669 17,077 13,024 4,053 92,587 110,862 0.04 0.03 0.97 1.25 0.15 Consolidated Statements of Comprehensive Income For the years ended (in thousands of Canadian dollars) Net income for the year Other comprehensive income Net change in valuation of available for sale investments, net of tax Net change in unrealized (losses) 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 67 March 31, 2019 71,582 $ March 31, 2018 17,077 443 (9,448) 62,577 60,953 1,624 $ $ $ 2,993 15,671 35,741 31,086 4,655 $ $ $ $ 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. Notes March 31, 2019 18 $ 205,641 $ 8 12 19 20 20 17 649,846 331 (32,073) 39,322 16,807 6,631 (9,419) 1,451 672,896 1,975 2,604 2,552 5,156 145,426 7,306 827 (27,315) (1,058) (476) 124,710 (277,472) 70,530 (16,534) (9,402) (4,892) (237,770) 113,332 (9,577) 103,755 876,363 13,571 (777) 1,624 (9,697) (2,724) 1,997 March 31, 2018 205,641 641,449 101 (28,093) 32,121 — — — 4,268 649,846 1,975 2,604 — 2,604 85,405 60,460 — — (1,427) 988 145,426 (267,559) 13,024 (13,344) (9,593) — (277,472) 95,270 18,062 113,332 841,352 11,858 503 4,655 — (3,445) 13,571 $ 878,360 $ 854,923 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 trusts Shares issued in connection with purchase of non-controlling interests Shares issued in connection with acquisition of Petsky Prunier Shares cancelled Net unvested share purchase loans Common shares, closing Warrants, opening and closing Convertible debentures − equity, opening Equity portion of convertible debentures issued during the period, net of tax Convertible debentures − equity, closing Contributed surplus, opening Share-based payments, net Shares cancelled Purchase of non-controlling interests Unvested share purchase loans Change in deferred tax asset relating to share-based payments Contributed surplus, closing Retained deficit, opening Net income attributable to CGGI shareholders Common share dividends Preferred share dividends Equity portion of loss on extinguishment of convertible debentures Retained deficit, closing Accumulated other comprehensive income, opening Other comprehensive (loss) 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 Purchase of non-controlling interests Dividends paid to non-controlling interests Non-controlling interests, closing Total equity See accompanying notes CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Consolidated Statements of Cash Flows For the years ended (in thousands of Canadian dollars) OPERATING ACTIVITIES Net income for the year Items not affecting cash Amortization Deferred income tax recovery Share-based compensation expense Loss on extinguishment of convertible debentures Share of loss of associate Changes in non-cash working capital (Increase) decrease in securities owned (Increase) decrease in accounts receivable (Increase) decrease in income taxes receivable, net Increase (decrease) in securities sold short Increase (decrease) in accounts payable, accrued liabilities and provisions Cash provided by operating activities FINANCING ACTIVITIES Increase (decrease) in bank indebtedness Purchase of shares for cancellation Acquisition of common shares for long-term incentive plan Proceeds from convertible debentures Proceeds from bank loan Cash dividends paid on common shares Cash dividends paid on preferred shares Cash used in financing activities INVESTING ACTIVITIES Purchase of equipment and leasehold improvements Acquisition of Hargreave Hale Limited, net of cash acquired Investment in associate Acquisition of Jitneytrade Inc. and Finlogik Inc., net of cash acquired Purchase of non-controlling interests Purchase of investments Acquisition of McCarthy Taylor Limited, net of cash acquired Acquisition of Petsky Prunier LLC, net of cash acquired Purchase of intangible assets Cash used in investing activities Effect of foreign exchange on cash balances (Decrease) increase 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, 2019 March 31, 2018 $ 71,582 $ 17,077 11, 13 21 17 24,280 10,537 49,500 8,608 304 (221,282) (446,453) (10,227) 72,413 482,886 42,148 9,639 (8,592) (32,073) 56,699 — (16,534) (9,402) (263) (4,382) — (2,500) (7,545) (14,431) (4,063) (3,611) (39,783) — (76,315) (7,669) (42,099) 862,838 820,739 $ $ $ 51,429 23,396 38,464 $ $ $ 24,007 (1,951) 95,357 — 298 314,871 1,185,922 8,582 (344,736) (1,055,366) 244,061 (25,280) — (28,093) — 66,016 (13,345) (9,592) (10,294) (6,311) (54,051) (2,500) — — — — — (795) (63,657) 14,959 185,069 677,769 862,838 27,900 17,470 24,023 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 70 Notes to Consolidated Financial Statements As at March 31, 2019 and March 31, 2018 and for the years ended March 31, 2019 and 2018 (in thousands of Canadian dollars, except per share amounts) NOTE 01 Corporate Information Through its principal subsidiaries, Canaccord Genuity Group Inc. (the Company or CGGI) is a leading independent, full-service investment dealer with capital markets operations in Canada, the United Kingdom (UK) & Europe, the United States of America (US), Australia, China and Dubai. 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. 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 400 − 725 Granville Street, Vancouver, British Columbia, V7Y 1G5. The Company’s common shares are publicly traded under the symbol CF on the Toronto Stock Exchange (TSX). 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 6.25% Convertible Unsecured Senior Subordinated Debentures are listed on the TSX under the symbol CF.DA.A. 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). These audited consolidated financial statements have been prepared on a historical cost basis except for investments, securities owned, securities sold short, deferred and contingent consideration, and certain impaired non-current assets, which have been measured at fair value as set out in the relevant accounting policies. These audited 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 5, 2019. 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 are 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. USE OF JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of these 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 CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 71 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. Amendments may be made to estimates relating to net assets acquired in an acquisition as well as the allocation of identifiable intangible assets between indefinite life and finite lives. Judgments, estimates and assumptions were also utilized in connection with the valuation of goodwill and intangible assets acquired in connection with the acquisitions of Jitneytrade Inc. and Finlogik Inc., McCarthy Taylor Ltd. (McCarthy Taylor) and Petsky Prunier LLC (Petsky Prunier) (Note 12). Consolidation The Company owns 80% of the voting shares of Canaccord Genuity (Australia) Limited (CGAL) as at March 31, 2019. The Company also completed an evaluation of its contractual arrangements with the other shareholders of CGAL and the control 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, 2019 and 2018. Therefore, the financial position, financial performance and cash flows of CGAL have been consolidated. Although the Company owns 80% of the issued shares of CGAL as at March 31, 2019, for accounting purposes, the Company is considered to have an 85% interest because of the shares held in a trust controlled by Canaccord Financial Group (Australia) Pty Ltd. Accordingly, the Company has consolidated the entity and recognized a 15% non-controlling interest (prior to closing date of August 10, 2018 and year ended March 31, 2018 − 42%) since the closing date of August 10, 2018 of the Company’s acquisition of an additional 30% interest, which represents the portion of CGAL’s net identifiable assets not owned by the Company. Net income and each component of other comprehensive income 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 21), 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 Company has an enforceable right to payment for performance completed to date and that a transaction price can be reliably measured. Estimation may be required to determine the amount of revenue that can be recognized and also the timing of the substantial completion of the performance obligations 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 21. 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. 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 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 72 Notes to Consolidated Financial Statements 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 based on a forward-looking, expected credit loss approach (ECL). The Company establishes an allowance for credit losses in accordance with management’s valuation policy based on its historical credit loss experience adjusted for forward-looking factors or other considerations as appropriate. 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 a number of its financial instruments at fair value as discussed in Note 7. Fair value is determined based on 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 IFRS 9, ‘‘Financial Instruments’’ On April 1, 2018, the Company adopted IFRS 9, ‘‘Financial Instruments’’ (IFRS 9), which replaces IAS 39 ‘‘Financial Instruments: Recognition and Measurement’’ (IAS 39). The Company adopted the standard using the modified retrospective approach. The adoption of IFRS 9 did not have a significant effect on the Company’s measurement of financial assets and liabilities. The following summarizes the impact of IFRS 9 on the consolidated financial statements for the year ended March 31, 2019: Classification − financial assets and liabilities IFRS 9 sets out requirements for recognizing and measuring financial assets and financial liabilities. IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. On initial recognition, financial assets are classified as instruments measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit and loss (FVTPL). The classification is based on two criteria: the Company’s business approach for managing the financial assets; and whether the instruments’ contractual cash flows result in cash flows that are solely payments of principal and interest on the principal amount outstanding (the SPPI criterion). The business approach considers whether the Company’s objective is to receive cash flows from holding the financial assets, from selling the assets or a combination of both. (cid:129) Amortized costs − A financial asset is measured at amortized cost if it is held within a business model that has an objective to hold financial assets to collect contractual cash flows; and the contractual terms of the financial asset result in cash flows that meet the SPPI criteria. Items included in this category include cash and cash equivalents and accounts receivable. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 73 (cid:129) FVOCI − A financial asset is classified as FVOCI if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset result in cash flows that are SPPI. Included in the FVOCI category is our investment in Euroclear, which was previously classified as available for sale under IAS 39. There are no other financial assets classified as FVOCI. (cid:129) All other financial assets are measured at FVTPL and consist of marketable securities owned and sold short. The Company reclassifies financial assets only when its business approach for managing those assets changes. Impairment − financial assets The adoption of IFRS 9 changed the Company’s accounting for impairment loss for financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. Under the ECL model, the Company has to record an allowance for ECL either based on a 12-month ECL or on a lifetime ECL. ECLs are recognized on the following basis: (cid:129) A maximum 12 month allowance for ECL is recognized from initial recognition, reflecting the portion of lifetime cash shortfalls that would result if a default occurs in the 12 months after the reporting date, weighted by the risk of a default occurring. (cid:129) A lifetime ECL allowance is recognized if a significant increase in credit risk is detected subsequent to the instruments’ initial recognition, reflecting lifetime cash shortfalls that would result over the expected life of a financial instrument. (cid:129) A lifetime ECL allowance is recognized for credit-impaired financial instruments. IFRS 9 also provides a simplified approach to ECLs for trade receivables that is based on the adoption of a valuation policy which utilizes an entity’s historic loss experience by age banding, adjusted for forward-looking estimates and other considerations as applicable. The Company’s accounts receivables are classified as financial assets measured at amortized costs and are subject to the new ECL model. Accounts receivable includes trade receivables from clients and brokers and dealers. All our corporate finance and client receivables have a maturity of less than 12 months from initial recognition, therefore the allowance is limited to 12-month ECLs. The Company established a valuation policy that is based on its historical credit loss experience adjusted for forward-looking factors or other considerations as appropriate. The impact of the provision is not considered to have a significant impact to our consolidated financial statements for the year ended March 31, 2019. Hedge accounting IFRS 9 offers greater flexibility to the types of transactions eligible for hedge accounting. As the Company currently does not have any material position that qualifies for hedge accounting under IAS 39 and IFRS 9, the adoption of IFRS 9 does not have any material impact on our consolidated financial statements for the year ended March 31, 2019. IFRS 15, ‘‘Revenue from Contracts with Customers’’ On April 1, 2018, the Company adopted IFRS 15, ‘‘Revenue from Contracts with Customers’’ (IFRS 15), using the modified retrospective approach. IFRS 15 replaces IAS 18, ‘‘Revenue’’ (IAS 18), and establishes a single five-step model framework for determining the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. Under IFRS 15, the initial steps in revenue recognition are to identify the appropriate contracts with customers and define the performance obligations in the contracts. Revenue is recognized when the performance obligations are satisfied, which is when control of goods or services transfers to the customers. IFRS 15 also requires the transaction price to be allocated to each separate performance obligation in proportion to stand-alone selling prices. In addition, variable consideration should only be recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The impact on adoption of IFRS 15 on the Company’s standard revenue contracts are as follows: (cid:129) Commissions and fees − Commission and fees revenue consists of revenue generated through commission-based brokerage services and the sale of fee-based products and services. As discussed above, IFRS 15 requires entities to recognize revenue when control of goods or services transfers to the customers whereas IAS 18 required entities to recognize revenue when the risk and rewards of the goods or services are transferred to the customers. The performance obligation for the recognition of commission and fees revenue is satisfied through the settlement of trades for clients. There is no material change in the amount or timing of revenue recognized under IFRS 15 compared to IAS 18 as the point of transfer of risk and reward for services and transfer of control occur at the same time. Also included within commission and fees is revenue earned in relation to the supply of the Company’s research, which is recognized over time in line with the satisfaction of the performance obligation. (cid:129) Investment banking − Investment banking revenue consists of underwriting fees and commissions earned on corporate finance activities. There is no material impact on the recognition of investment banking revenue under IFRS 15 compared to IAS 18. Under IAS 18, revenue was recognized upon closing of the underwriting mandate, which also represents completion of the performance obligation under IFRS 15. (cid:129) Advisory fees − Advisory fees consist of management and advisory fees, including fees from mergers and acquisition activities. The performance obligation for the recognition of advisory fees revenue is met when the underlying transaction is 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 74 Notes to Consolidated Financial Statements substantially completed under the engagement terms and the related revenue is reasonably determinable. In certain cases, some fees are collected based on progress and do not correspond to the satisfaction of any discrete performance obligation. Under IFRS 15, such payments may need to be deferred or recognized on an amortized basis until the performance obligation is satisfied. The impact of this change on the opening retained earnings as of April 1, 2018 and for the year ended March 31, 2019 is insignificant. (cid:129) The following revenue types are excluded from the scope of IFRS 15: Principal trading revenue which consists of revenue earned in connection with principal trading operations, interest revenue, as well as other revenue consisting of foreign exchange gains or losses and revenue earned from our correspondent brokerage services. NOTE 04 Future Changes in Accounting Policies Standards issued but not yet effective Standards issued, which may be reasonably expected to impact upon the Company’s financial statements, but which are not yet effective are listed below. IFRS 16, ‘‘Leases’’ In January 2016, the IASB issued IFRS 16, ‘‘Leases’’ (IFRS 16), which replaces IAS 17, ‘‘Leases’’ (IAS 17), with the key change being that lessee accounting will eliminate the IAS 17 distinction between operating leases and finance leases, treating most leases in the same manner as finance leases under IAS 17. The new standard requires lessees to recognize assets and liabilities for most leases, other than leases eligible for low-value (less than USD $5,000) or short-term (12 months or less) exemption. Where an arrangement meets the IFRS 16 definition of a lease, at the commencement a loan obligation for future lease payables will be recognized together with an equal value non-current asset representing the right to use the underlying asset during the lease term. In place of the lease rental expense in the consolidated statement of operations, lease costs will be recognized in the form of depreciation of the right-of-use asset and interest on the lease liability. IFRS 16 also has the effect of skewing expenses towards the earlier years of a lease (when the outstanding lease liability, and thus interest expense, is higher), although both the total expense and cash flows during the life of a lease are identical under IFRS 16 and IAS 17. The Company will implement IFRS 16 for its fiscal year ending March 31, 2020 and has elected to adopt IFRS 16 using the modified retrospective method with no restatement of prior year comparatives. Upon adoption of IFRS 16 on April 1, 2019, the Company is required to recognize both a right of use (ROU) asset and a corresponding lease liability for each lease (subject to the low-value and short-term exemptions noted above). Lease liabilities will initially be calculated at the present value of expected lease payments and a transition option allows for the recognition of a ROU asset at the same value. The Company is in the process of finalizing its calculation of the right of use asset and corresponding lease liabilities to be recognized in the consolidated statement of financial position upon adoption of IFRS 16. NOTE 05 Summary of Significant Accounting Policies 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. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 75 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 80% interest in Canaccord Genuity (Australia) Limited (Canaccord Genuity Australia), Collins Stewart Hawkpoint plc (CSHP), Eden Financial, Hargreave Hale, McCarthy Taylor and Petsky Prunier are customer relationships, non-competition agreements, trading licenses, fund management contract and technology, which have finite lives and are amortized on a straight-line basis over their estimated useful lives. Branding acquired through the acquisition of Genuity is considered to have an indefinite life, as it will provide benefit to the Company over a continuous period. Software under development or acquired is amortized over its useful life once the asset is available for use. The estimated amortization periods of the amortizable intangible assets are as follows: Brand names Customer relationships Non-competition agreements Technology Fund management contract Contract book Favourable lease Genuity indefinite 11 years 5 years n/a n/a n/a n/a Canaccord Genuity Australia Acquired in business combinations Hargreave Eden Hale Financial CSHP McCarthy Taylor Internally developed or acquired Petsky Prunier Software n/a n/a n/a n/a 11.5 to n/a 3 years 5 years 8 to 24 years 8 years 12.5 years 12.8 years 4.5 years n/a n/a n/a n/a n/a 3 years n/a n/a n/a n/a n/a n/a n/a n/a 10.5 years n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.9 years 2.5 years n/a n/a n/a 10 years n/a n/a n/a Internally developed or acquired software Expenditures towards the development or acquisition of projects are recognized as intangible assets when the Company can demonstrate that the technical feasibility of the assets for use has been established. The assets are carried at cost less any accumulated amortization and accumulated impairment losses in accordance with IAS 38, ‘‘Intangible Assets’’. Capitalized costs are expenditures directly attributable to the software development, such as employment, consulting or professional fees. Amortization of the assets begins when development is complete, and the assets are available for use. The assets are 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 the impairment is 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 76 Notes to Consolidated Financial Statements 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 an 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. [i] Financial assets Initial recognition and measurement On initial recognition, financial assets are classified as instruments measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit and loss (FVTPL). The classification is based on two criteria: the Company’s business approach for managing the financial assets; and whether the instruments’ contractual cash flows result in cash flows that are solely payments of principal and interest on the principal amount outstanding (the SPPI criterion). The business approach considers whether the Company’s objective is to receive cash flows from holding the financial assets, from selling the assets or a combination of both. Classification and subsequent measurement Financial assets classified as fair value through profit and loss (FVTPL) Financial assets are classified as FVTPL when they either fail the contractual cash flow test or are held in a business model in which the aim is to realize the asset’s value through a short-term sale. Financial assets at FVTPL are stated at fair value, with any resulting gain or loss recognized in the statement of operations. The net gain or loss recognized in the statement of operations includes any dividend or interest earned on the financial asset. Financial assets measured at FVTPL consist of marketable securities owned and sold short. The Company periodically evaluates the classification of its financial assets classified as FVTPL 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 fair value through other comprehensive income (FVOCI) A financial asset is classified as FVOCI if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset result in cash flows that meet the SPPI criteria. Included in the FVOCI category is our investment in Euroclear, which was previously classified as available for sale under IAS 39. There are no other financial assets classified as FVOCI. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 77 Financial assets classified as amortized costs A financial asset is measured at amortized cost if it is held within a business model that has an objective to hold financial assets to collect contractual cash flows and the contractual terms of the financial asset result in cash flows that meet the SPPI criteria. Items included in this category include cash and cash equivalents and accounts receivable. Under IAS 39, the Company classified its financial instruments as fair value through profit or loss, available for sale, held to maturity and loans and receivables. Financial assets classified as fair value through profit or loss included financial assets held for trading and financial assets designated upon initial recognition as fair value through profit or loss with unrealized gains (losses) recognized in the consolidated statements of operations. Available for sale assets were 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. Financial assets classified as loans and receivables and held to maturity were measured at amortized cost using the effective interest rate (EIR) method, less impairment. The Company did not have any held to maturity investments during the year ended March 31, 2018. The Company reclassifies financial assets only when its business approach for managing those assets changes. Impairment of financial assets The Company’s accounts receivables are classified as financial assets measured at amortized cost and are subject to the ECL model. Accounts receivable includes trade receivables from clients and brokers and dealers. All our corporate finance and client receivables have a maturity of less than 12 months from initial recognition, therefore the allowance is limited to 12-month ECLs. The Company established a valuation policy that is based on its historical credit loss experience adjusted for forward-looking factors or other considerations as appropriate. The impact of the provision is not considered to have a significant impact to our audited consolidated financial statements for the year ended March 31, 2019. Under IAS 39, Company assessed at each reporting date whether there is objective evidence that financial assets classified as available for sale or as loans and receivables were impaired. A financial asset or group of financial assets was deemed to be impaired if there was objective evidence of impairment as a result of one or more events that occurred since the initial recognition of the asset. 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 All financial liabilities are recognized initially at fair value and classified as either FVTPL or other financial liabilities. 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, securities sold short, including derivative financial instruments, contingent and deferred considerations are classified as held for trading and recognized at fair value. Financial liabilities classified as amortized costs After initial recognition, financial liabilities classified as other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the statements of operations. Financial liabilities classified as amortized costs include accounts payable and accrued liabilities, bank loan and subordinated debt. The carrying value of other financial liabilities 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 78 Notes to Consolidated Financial Statements The Company uses derivative financial instruments to manage foreign exchange risk on pending security settlements in foreign currencies. The fair value of these contracts is nominal due to their short term to maturity. Realized and unrealized gains and losses related to these contracts are recognized in the consolidated statements of operations during the reporting period. The Company trades in futures contracts, which are agreements to buy or sell standardized amounts of a financial instrument at a predetermined future date and price, in accordance with terms specified by a regulated futures exchange, and subject to daily cash margining. The Company trades in futures in an attempt to mitigate interest rate risk, yield curve risk and liquidity risk. The Company also trades in forward contracts, which are non-standardized contracts to buy or sell a financial instrument at a specified price on a future date. The Company trades in forward contracts in an attempt to mitigate foreign exchange risk on pending security settlements in foreign currencies. FAIR VALUE MEASUREMENT The Company measures financial instruments at fair value at each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. When available, quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs, are used to determine fair value. For financial instruments not traded in an active market, the fair value is determined using appropriate and reliable valuation techniques. Such techniques may include recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models. Valuation techniques may require the use of estimates or management assumptions if observable market data is not available. When the fair value cannot be reliably measured using a valuation technique, then the financial instrument is measured at cost. The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s 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. The convertible unsecured senior subordinated debentures are classified as compound financial instruments. On initial recognition, the fair value of the liability was calculated based on the present value of future cash flows under the instruments, discounted at 7%, [March 31, 2018 − 8%] being equal to the rate of interest applied by the market at the time of issue to instruments of comparable credit status and future cash flows, without the conversion feature. The residual amount is recorded as a component of shareholders’ equity. 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. The value of collaterals for 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. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 79 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 trade 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 either at a point in time when a single performance obligation is satisfied at once or over the period of time when a performance obligation is received and utilized by the customer over that period. The Company assesses its revenue arrangements in order to determine if it is acting as principal or agent. The main types of revenue contracts are as follows: 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 net of commission revenue. Facilitation losses for the year ended March 31, 2019 were $6.4 million [2018 − $8.4 million]. Commissions are recognized at a point in time (trade date) as the performance obligation is satisfied. Investment banking revenue consists of underwriting fees and commissions earned on corporate finance activities. The act of underwriting the securities is the sole performance obligation and revenue is recognized at the point in time when the underwriting transaction is complete. Advisory fees consist of ongoing management and advisory fees that are recognized over the period of time that this performance obligation is delivered. Also included in advisory fees is revenue from mergers and acquisitions activities, which is recognized at the point in time when the underlying transaction is substantially completed under the engagement terms and it is probable that a significant revenue reversal will not occur. Principal trading revenue consists of income earned in connection with principal trading operations and is outside the scope of IFRS 15. Interest revenue consists of interest earned on client margin accounts, interest earned on the Company’s cash, interest earned on cash delivered in support of securities borrowing activity, and dividends earned on securities owned. Interest and dividend revenue is outside the scope of IFRS 15. Other revenue includes foreign exchange gains or losses, revenue earned from correspondent brokerage services and administrative fee revenue. 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 Straight-line over useful life Straight-line over useful life 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 methods 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 Company’s tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 80 Notes to Consolidated Financial Statements Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of operations. Deferred tax Deferred taxes are accounted for using the liability method. This method requires that deferred taxes reflect the expected deferred tax effect of temporary differences at the reporting date between the carrying amounts of assets and liabilities for financial statement purposes and their tax bases. Deferred tax liabilities are recognized for all taxable temporary differences, except for taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and carryforward of unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses, can be utilized. The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. No deferred tax liability has been recognized for taxable temporary differences associated with investments in subsidiaries from undistributed profits and foreign exchange translation differences as the Company is able to control the timing of the reversal of these temporary differences. The Company has no plans or intention to perform any actions that will cause the temporary differences to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized, or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is charged or credited in the statements of operations except where it relates to items that may be credited directly to equity, in which case the deferred tax is recognized directly against equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity. Sales tax Revenues, expenses and assets are recognized net of the amount of sales tax, except where the amount of sales tax incurred is not recoverable from the tax authority. In these circumstances, sales tax is recognized as part of the cost of acquisition of the asset or as part of an item of the expense. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of accounts receivable or accounts payable in the consolidated statements of financial position. 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 employee benefits trusts and unvested share purchase loans and preferred shares held in treasury. No gain or loss is recognized in the statements of operations on 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 (loss) 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, warrants, other share-based payment plans as well as the convertible debentures 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) 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). The participating employees are eligible to receive shares that generally vest over three years (the ‘‘RSUs’’). This program is referred to as the Long-Term Incentive Plan (the ‘‘LTIP’’ or the ‘‘Plan’’). Independent directors also receive deferred share units (DSUs) as part of their remuneration, which can only be settled in cash (cash-settled transactions). Certain executives may also receive performance stock options (PSOs) as part of their remuneration. Beginning for the year ended March 31, 2018, certain senior executives receive performance share units (PSUs) as part of their remuneration, which can only be settled in cash (cash-settled transactions). CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 81 The dilutive effect, if any, of outstanding options and share-based payments is reflected as additional share dilution in the computation of diluted earnings per common share. Equity-settled transactions For equity-settled transactions, the Company measures the fair value of share-based awards as of the grant date. Effective as of March 31, 2018, the Plan was changed to remove certain employment-related conditions for the vesting of RSU awards made as part of the normal course incentive compensation payment cycle. With the change, RSUs will continue to vest after termination of employment so long as the employee does not violate certain post-termination restrictions and is not engaged in certain competitive or soliciting activities as provided in the Plan. Because of this change, the Company determined that the awards do not meet the criteria for an in-substance service condition, as defined by IFRS 2. Accordingly, RSUs granted as part of the normal course incentive compensation payment cycle are expensed in the period in which those awards are deemed to be earned with a corresponding increase in contributed surplus, which is generally the fiscal period in which the awards are either made or the immediately preceding fiscal year for those awards made after the end of such fiscal year but determined and earned in respect of that fiscal year. For certain awards, typically new hire awards or retention awards, vesting is subject to continued employment and therefore these awards are subject to a continuing service requirement. Accordingly, the Company recognizes the cost of such awards as an expense on a graded basis over the applicable vesting period with a corresponding increase in contributed surplus. 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 and PSUs are expensed upon grant, as there are no vesting conditions (Note 21). The liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognized through the statements of operations. PROVISIONS Provisions are recognized when the Company has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the statements of operations net of any reimbursement. If the effect of the time value of money is significant, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. 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 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 82 Notes to Consolidated Financial Statements 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 25. SEGMENT REPORTING The Company’s segment reporting is based on the following operating segments: Canaccord Genuity Capital Markets, Canaccord Genuity Wealth Management and Corporate and Other. The Company’s business operations are grouped into the following geographic regions: Canada, UK, Europe and Dubai, Australia, the US, and Other Foreign Locations which is comprised of our Asian operations. NOTE 06 Securities Owned and Securities Sold Short Corporate and government debt Equities and convertible debentures Securities owned 364,546 325,953 690,499 $ $ March 31, 2019 Securities sold short $ $ 262,720 110,699 373,419 $ $ Securities owned 254,671 214,546 469,217 March 31, 2018 Securities sold short $ $ 220,792 80,214 301,006 As at March 31, 2019, corporate and government debt maturities range from 2019 to 2098 [March 31, 2018 − 2018 to 2098] and bear interest ranging from 0.00% to 14.00% [March 31, 2018 − 0.00% to 14.00%]. NOTE 07 Financial Instruments CATEGORIES OF FINANCIAL INSTRUMENTS The categories of financial instruments, other than cash and cash equivalents and bank indebtedness, as well as investment accounted for under the equity method, held by the Company at March 31, 2019 and 2018 are as follows: Fair value through profit and loss Fair value through other comprehensive income Amortized costs Total March 31, 2019 March 31, 2018 March 31, 2019 March 31, 2018 March 31, 2019 March 31, 2018 March 31, 2019 March 31, 2018 $ 683,920 $ 462,774 $ 6,579 $ 6,443 $ — $ — $ 690,499 $ 469,217 — — — — 3,993 — — — — — $ 687,913 $ 462,774 $ $ 373,419 $ 301,006 $ — — — — — 22,225 108,319 — — — — — — — — 9,997 49,844 — — — $ 503,963 $ 360,847 $ — — — — — 6,579 $ — $ — — — — — — — — — — — $ — 1,498,516 530,933 — 328,528 — 298,687 — — — 1,405,380 333,434 330,369 146,654 — 6,443 $ 2,656,664 $2,215,837 $ 3,351,156 $ 2,685,054 1,405,380 333,434 330,369 146,654 — 1,498,516 530,933 328,528 298,687 3,993 — $ — $ 373,419 $ 301,006 — $ 1,051,546 — 1,166,550 1,228,201 — 1,499,390 359,207 457,825 — 7,500 7,500 — 57,081 127,225 — 9,997 — — 49,844 — — — 5,832 — — 1,741 — — 71,437 59,664 — $ 3,325,727 $2,774,972 $ 3,829,690 $ 3,135,819 1,051,546 1,228,201 359,207 7,500 57,081 — — — — 71,437 1,166,550 1,499,390 457,825 7,500 127,225 22,225 108,319 5,832 1,741 59,664 Financial assets Securities owned Accounts receivable from brokers and investment dealers Accounts receivable from clients RRSP cash balances held in trust Other accounts receivable Investments Total financial assets Financial liabilities Securities sold short Accounts payable to brokers and investment dealers Accounts payable to clients Other accounts payable and accrued liabilities Subordinated debt Convertible debentures Deferred consideration Contingent consideration Promissory note Other long-term liability Bank loan Total financial liabilities The Company has not designated any financial instruments as fair value through profit or loss upon initial recognition using the fair value option. 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: CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 83 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 84 Notes to Consolidated Financial Statements As at March 31, 2019 and 2018, the Company held the following classes of financial instruments measured at fair value: March 31, 2019 Level 1 Estimated fair value March 31, 2019 Level 2 $ 79,642 $ — $ 79,642 $ 284,904 364,546 325,683 270 325,953 690,499 3,993 694,492 (6,613) (256,107) (262,720) (110,699) — (110,699) (373,419) (22,225) (108,319) (503,963) 49,946 49,946 262,641 — 262,641 312,587 — 234,958 314,600 62,991 270 63,261 377,861 — 312,587 377,861 — (54,852) (54,852) (94,797) — (94,797) (149,649) — — (6,613) (201,255) (207,868) (15,902) — (15,902) (223,770) — — (149,649) (223,770) Estimated fair value March 31, 2018 Level 3 — — — 51 — 51 51 3,993 4,044 — — — — — — — (22,225) (108,319) (130,544) March 31, 2018 Level 1 Level 2 Level 3 $ 13,794 $ — $ 13,794 $ 240,877 254,671 214,086 460 214,546 469,217 (4,836) (215,956) (220,792) (79,011) (1,203) (80,214) (301,006) (9,997) (49,844) 30,593 30,593 165,546 — 165,546 196,139 — (34,388) (34,388) (66,714) — (66,714) (101,102) — — 210,284 224,078 48,404 460 48,864 272,942 (4,836) (181,568) (186,404) (12,297) (1,203) (13,500) (199,904) — — (360,847) (101,102) (199,904) — — — 136 — 136 136 — — — — — — — (9,997) (49,844) (59,841) Securities owned Corporate debt Government debt Corporate and government debt Equities Convertible debentures Equities and convertible debentures Investments Securities sold short Corporate debt Government debt Corporate and government debt Equities Convertible debentures Equities and convertible debentures Deferred considerations Contingent consideration 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 Convertible debentures Equities and convertible debentures Deferred considerations Contingent consideration CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 85 Movement in net Level 3 financial liabilities Balance, March 31, 2017 Other Addition of deferred consideration in connection with acquisition of Hargreave Hale Limited Addition of contingent consideration in connection with acquisition of Hargreave Hale Limited Balance, March 31, 2018 Addition of contingent consideration in connection with acquisition of Jitneytrade Inc. and Finlogik Inc. [Note 12] Addition of deferred consideration in connection with acquisition of Jitneytrade Inc and Finlogik Inc. [Note 12] Addition of contingent consideration in connection with acquisition of McCarthy Taylor [Note 12] Addition of contingent consideration in connection with acquisition of Petsky Prunier [Note 12] Addition of deferred consideration in connection with acquisition of Petsky Prunier [Note 12] Partial settlement of deferred consideration in connection with acquisition of Hargreave Hale Limited Purchase of investments [Note 10] Foreign exchange revaluation Balance, March 31, 2019 $ $ 142 (6) (9,997) (49,844) (59,705) (4,000) (744) (3,052) (53,044) (13,261) 1,470 4,063 1,773 $ (126,500) In addition to the deferred and contingent consideration in connection with the acquisition of Hargreave Hale Limited during the year ended March 31, 2018 included as Level 3 financial liabilities, there was $4.7 million of contingent and deferred considerations included as part of the total purchase consideration for the acquisition of Jitneytrade Inc. and Finlogik Inc. directly and indirectly through the purchase of Finlogik Capital Inc. (collectively referred to as ‘‘Jitneytrade’’). As part of the purchase consideration for the acquisition of McCarthy Taylor Ltd., contingent consideration of $3.1 million was recorded during the year ended March 31, 2019. The deferred and contingent consideration in connection with the acquisition of Petsky Prunier were $13.3 million and $53.0 million, respectively. The contingent and deferred considerations will be settled in cash. Any subsequent gains or losses are recognized in earnings. During the year ended March 31, 2019, the Company also invested $4.1 million in Family Office Networks Inc. (FON) and Capital Markets Gateway Inc. (CMG) which have been included as Level 3 financial instruments given the investments do not have any observable inputs or market indicators. (Note 10). Fair value estimation i. Level 2 financial instruments 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 investment in Euroclear, which has an estimated fair value of $6.6 million (€4.4 million) as at March 31, 2019 [March 31, 2018 − $6.4 million (€4.1 million)]. The current fair value is determined using a market-based approach based on recent share buyback transactions. This investment is classified as a financial asset measured at fair value through other comprehensive income. ii. Level 3 financial instruments Held for Trading 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, 2019 was $0.1 million [March 31, 2018 − $0.1 million]. During the year ended March 31, 2019, the Company invested $4.1 million in FON and CMG which have been classified as Level 3 financial instruments given the investments do not have any observable inputs or market indicators [Note 10]. Level 3 financial liabilities also include the deferred and contingent considerations included as part of the total purchase consideration for the acquisitions of Hargreave Hale, Jitneytrade, McCarthy Taylor and Petsky Prunier [Note 12]. The fair value for these financial liabilities approximate their carrying value as of March 31, 2019. 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 86 Notes to Consolidated Financial Statements 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 Company’s audited consolidated financial statements as at March 31, 2019 and 2018. 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 collectability 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 $4.2 million as at March 31, 2019 [March 31, 2018 − $3.4 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, 2019 and 2018, 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 collectability. 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 24. The following table presents the contractual terms to maturity of the financial liabilities owed by the Company as at March 31, 2019 and March 31, 2018, respectively: Financial liability Bank indebtedness Securities sold short Accounts payable and accrued liabilities Subordinated debt Convertible debentures Current portion of bank loan Bank loan Contingent consideration Deferred consideration Promissory note Other long-term liability Carrying amount Contractual term to maturity March 31, 2019 March 31, 2018 $ 9,639 $ — 373,419 3,123,765 301,006 2,638,954 7,500 127,225 9,294 50,370 108,319 22,225 5,832 1,741 7,500 57,081 9,679 61,758 49,844 9,997 — — Due on demand Due on demand Due within one year Due on demand(1) Due in December 2023 Due within one year 2020 to 2021 2020 to 2023 2020 to 2022 February 2020 March 2023 (1) Subject to Investment Industry Regulatory Organization of Canada’s approval. 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. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 87 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, 2019 and March 31, 2018, respectively. This analysis assumes all other variables remain constant. The methodology used to calculate the fair value sensitivity is consistent with the prior year. Financial instrument Equities and convertible debentures owned Equities and convertible debentures sold short Effect of a 10% increase in fair value on net income March 31, 2019 Effect of a 10% decrease in fair value on net income Effect of a 10% increase in fair value on net income March 31, 2018 Effect of a 10% decrease in fair value on net income Carrying value Asset (Liability) Carrying value Asset (Liability) 319,374 11,338 (11,338) 208,103 8,584 (8,584) (110,699) (3,930) 3,930 (80,214) (3,308) 3,308 The following table summarizes the effect on other comprehensive income (OCI) as a result of a fair value change in the financial instruments classified as fair value through other comprehensive income. 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 Equities held within securities Effect of a 10% increase in fair value on OCI March 31, 2019 Effect of a 10% decrease in fair value on OCI Effect of a 10% increase in fair value on OCI March 31, 2018 Effect of a 10% decrease in fair value on OCI Carrying value owned $ 6,579 $ 0.7 $ (0.7) $ 6,443 $ 0.6 $ (0.6) 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 and bank loan. 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 4.0%, payable monthly. The following table provides the effect on net income for the years ended March 31, 2019 and 2018 if interest rates had increased or decreased by 100 basis points applied to balances as of March 31, 2019 and March 31, 2018, respectively. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 88 Notes to Consolidated Financial Statements 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. Net income effect of a 100 bps increase in interest rates March 31, 2019 Net income effect of a 100 bps decreases in interest rates(1) Carrying value Asset (Liability) Net income effect of a 100 bps increase in interest rates March 31, 2018 Net income effect of a 100 bps decreases in interest rates(1) Carrying value Asset (Liability) Cash and cash equivalents, net of bank indebtedness $ 811,100 $ 5,759 $ (5,759) $ 862,838 $ 6,471 $ (6,471) 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 Promissory note Bank loan (1) Subject to a floor of zero Foreign exchange risk 317,080 (968,457) 328,528 331,966 (7,500) (5,832) (59,664) 2,251 (6,876) 2,333 2,357 (53) (41) (424) (2,251) 6,876 (2,333) (2,357) 53 41 424 168,211 (894,767) 330,369 353,834 (7,500) — (71,437) 1,262 (6,711) 2,478 1,343 (56) — (536) (1,262) 6,711 (2,478) (3,560) 56 — 536 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 5% 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, 2019: Currency US dollar Pound sterling Australian dollar As at March 31, 2018: 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 $ (1,101) $ (1,221) nil 1,101 1,221 nil $ 11,709 $ 27,155 1,767 (11,709) (27,155) (1,767) Effect of a 5% appreciation in foreign exchange rate on net income Effect of a 5% depreciation in foreign exchange rate on net income Effect of a 5% appreciation in foreign exchange rate on OCI Effect of a 5% depreciation in foreign exchange rate on OCI $ (1,074) $ 1,074 $ 7,363 $ (1,560) nil 1,560 nil 34,708 1,852 (7,363) (34,708) (1,852) 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. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 89 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, 2019: To sell US dollars To buy US dollars Forward contracts outstanding at March 31, 2018: To sell US dollars To buy US dollars Notional amount (millions) USD $ USD $ 0.2 5.7 Notional amount (millions) USD $ USD $ 17.7 2.1 Average price Maturity Fair value $1.34 (CAD/USD) April 1, 2019 $1.34 (CAD/USD) April 1, 2019 $ $ 0 (9) Average price Maturity Fair value $1.28 (CAD/USD) April 2, 2018 $1.29 (CAD/USD) April 2, 2018 $ $ (240) 3 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 77 days as at March 31, 2019 [March 31, 2018 − 85 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, 2019 and March 31, 2018, respectively. The fair value of the forward contract assets and liabilities is included in the accounts receivable and payable balances. Assets Liabilities March 31, 2019 Notional amount Assets Liabilities March 31, 2018 Notional amount Foreign exchange forward contracts $ 1,124 $ 1,011 $ 102,052 $ 847 $ 747 $ 141,662 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, 2019, the notional amount of the bond futures contracts outstanding was long $0.1 million [March 31, 2018 − $0.1 million]. The Company’s Canadian operations are also involved in trading US Treasury futures in an attempt to mitigate interest rate risk, yield curve risk and liquidity risk. There were no outstanding US Treasury futures contracts outstanding as at March 31, 2019 and March 31, 2018. The fair value of all of the above futures contracts is nominal due to their short term to maturity and are included in accounts receivable and accounts payable and accrued liabilities. Realized and unrealized gains and losses related to these contracts are recognized in the statement of operations during the reporting period. 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 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 90 Notes to Consolidated Financial Statements payable. Interest earned on cash collateral is based on a floating rate. At March 31, 2019, the floating rates ranged from 1.25% to 1.61% [March 31, 2018 − 0.50% to 0.75%]. March 31, 2019 March 31, 2018 BANK INDEBTEDNESS Cash Securities Loaned or delivered as collateral Borrowed or received as collateral Loaned or delivered as collateral $ 314,448 $ 45,328 $ 66,239 $ 185,042 36,359 52,685 Borrowed or received as collateral 407,561 227,677 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, 2019 the Company had a balance of $9.6 million (£5.5 million) outstanding [March 31, 2018 − $nil]. BANK LOAN A subsidiary of the Company entered into a £40.0 million (C$69.6 million as of March 31, 2019) senior credit facility to finance a portion of the cash consideration for its acquisition of Hargreave Hale Limited. During the year ended March 31, 2019, the Company made a repayment of £5.3 million ($9.3 million). The balance outstanding as of March 31, 2019 net of unamortized financing fees was £34.3 million ($59.7 million) [March 31, 2018 − £39.4 million ($71.4 million)]. The loan is repayable in instalments of principal and interest over a period of four years. The interest rate on this loan is LIBOR plus 2.125% per annum as at March 31, 2019 [March 31, 2018 − LIBOR plus 3.375% per annum]. OTHER CREDIT FACILITIES Excluding the bank loan of £40.0 million in connection with the acquisition of Hargreave Hale, subsidiaries of the Company have credit facilities with banks in Canada and the UK for an aggregate amount of $743.6 million [March 31, 2018 − $669.2 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, 2019 and 2018, 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 $2.8 million (US$2.1 million) [March 31, 2018 − $2.7 million (US$2.0 million)] as rent guarantees for its leased premises in New York. As of March 31, 2019 and 2018, there were no outstanding balances under these standby letters of credit. NOTE 08 Interest in Other Entities On August 10, 2018, the Company completed its acquisition of an additional 30% of the shares in its Australian capital markets and wealth management business, Canaccord Genuity (Australia) Limited (the ‘‘Purchase’’). This transaction increases the Company’s ownership in Canaccord Genuity (Australia) Limited from 50% to 80%. An additional 5% [March 31, 2018 − 8%] of the issued shares of Canaccord Genuity (Australia) Limited are held by CGA Employee Share Trust which is considered controlled by the Company under IFRS 10. As a result, the Company has an 85% controlling interest in Canaccord Genuity (Australia) Limited [March 31, 2018 − 58%]. As discussed in Note 24, Canaccord Genuity (Australia) Limited is regulated by the Australian Securities and Investments Commission. The consideration for the Purchase as of August 10, 2018 was $37.0 million (AUD$38.5 million) comprised of $14.4 million (AUD$15.0 million) cash, a promissory note of $5.8 million (AUD$6.0 million), and an issuance of 2,331,132 common shares with a value of $16.8 million (AUD$17.5 million). The shares are subject to a three-year escrow arrangement with annual releases. The promissory note may be settled in cash or shares at the Company’s option, bears interest at 4.0% per annum and is payable by February 9, 2020. As a result of the purchase of non-controlling interests, the Company recorded a reduction in its non-controlling interest of $9.7 million and in its contributed surplus of $27.3 million during the year ended March 31, 2019. Canaccord Genuity Australia reported total net income of $1.6 million in fiscal 2019 [March 31, 2018 − net income of $9.6 million]. As at March 31, 2019, accumulated non-controlling interest was $2.0 million [March 31, 2018 − $13.6 million]. Summarized financial information including goodwill on acquisition and consolidation adjustments before inter-company eliminations is presented. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Summarized statement of profit or loss for the years ended March 31, 2019 and 2018: Notes to Consolidated Financial Statements 91 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, 2019 and 2018: Current assets Non-current assets Current liabilities Non-current liabilities Summarized cash flow information for the years ended March 31, 2019 and 2018: Cash provided by operating activities Cash used by financing activities Cash used by investing activities Foreign exchange impact on cash balance Net increase (decrease) in cash and cash equivalents NOTE 09 Accounts Receivable and Accounts Payable and Accrued Liabilities ACCOUNTS RECEIVABLE Brokers and investment dealers Clients RRSP cash balances held in trust Other Canaccord Genuity Australia March 31, 2019 March 31, 2018 $ 31,366 $ 29,674 1,692 117 1,575 523 1,052 5,254 3,630 1,624 2,724 57,022 42,113 14,909 5,261 9,648 5,595 4,053 11,084 6,429 4,655 3,445 Canaccord Genuity Australia March 31, 2019 $ 48,047 $ 980 16,922 1,670 March 31, 2018 55,486 1,302 21,974 3,525 Canaccord Genuity Australia March 31, 2019 9,520 $ (2,359) (144) (38) March 31, 2018 2,069 (6,890) (120) 10 6,979 $ (4,931) $ $ March 31, 2019 March 31, 2018 $ 1,498,516 $ 1,405,380 530,933 328,528 298,687 333,434 330,369 146,654 $ 2,656,664 $ 2,215,837 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 92 Notes to Consolidated Financial Statements ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Brokers and investment dealers Clients Other March 31, 2019 March 31, 2018 $ 1,166,550 $ 1,051,546 1,499,390 457,825 1,228,201 359,207 $ 3,123,765 $ 2,638,954 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, 2019 − 6.95% to 8.50% and 0.00% to 0.95%, respectively; March 31, 2018 − 6.45% to 7.50% and 0.00% to 0.45%, respectively]. As at March 31, 2019, the allowance for doubtful accounts was $4.2 million [March 31, 2018 − $3.4 million]. See below for the movements in the allowance for doubtful accounts: Balance, March 31, 2017 Charge for the year Recoveries Write-offs Foreign exchange Balance, March 31, 2018 Charge for the year Recoveries Write-offs Foreign exchange Balance, March 31, 2019 NOTE 10 Investments Investment accounted for under the equity method Investments held as fair value through profit and loss $ $ $ 4,942 4,831 (4,168) (2,235) (7) 3,363 5,378 (4,264) (149) (170) 4,158 March 31, 2019 2,231 3,993 6,224 $ $ March 31, 2018 2,035 — 2,035 During the year ended March 31, 2018, the Company, through a wholly owned subsidiary, invested $2.5 million for 833,333 Class B Units, at $3.00 per unit, in Canaccord Genuity Acquisition Corp. (CGAC). CGAC was a special purpose acquisition corporation formed to effect an acquisition of one or more businesses. On August 13, 2018, CGAC announced that it has completed its qualifying transaction (the Closing), pursuant to which it has merged with Spark Power Corp. In conjunction with the Closing, CGAC has been renamed Spark Power Group Inc. (Spark Power). Following the Closing, the Company is no longer considered to exert significant influence over the operations of Spark Power. Accordingly, the investment in Spark Power is accounted for as financial assets measured at FVTPL and included as securities owned on the consolidated statement of financial position as at March 31, 2019. During the year ended March 31, 2019, the Company, through a wholly owned subsidiary, invested $2.5 million for 833,333 Class B Units, at $3.00 per unit, in Canaccord Genuity Growth Corp. (CGGC). CGGC is a special purpose acquisition corporation formed to effect an acquisition of one or more businesses. Each Class B Unit consists of one Class B Share and one warrant. The Company holds a 23.5% interest in CGGC and is considered to exert significant influence over the operations of CGGC. Accordingly, the investment in CGGC is accounted for using the equity method. The Company’s equity portion of the net loss of CGGC for the year ended March 31, 2019 was $0.4 million. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 93 Subsequent to the year ended March 31, 2019, CGGC completed its qualifying transaction with Columbia Care LLC and CGGC was renamed ‘‘Columbia Care Inc.’’ The Company is no longer considered to exert significant influence over the operations of Columbia Care. Accordingly, the investment in Columbia Care will be accounted for as financial assets measured at FVTPL and included as securities owned on the consolidated statement of financial position as at March 31, 2019. During the year ended March 31, 2019, the Company, through a wholly owned subsidiary, invested US$1.0 million ($1.3 million as at March 31, 2019) for 8,889 Series A Preferred Shares, at $112.50 per unit, in Family Office Networks Inc. (FON). FON offers a diverse list of financial management services to its clients. The Company is not considered to exert significant influence over the operations of FON. Accordingly, the investment in FON is accounted for as financial assets measured at FVTPL and included as investments on the consolidated statement of financial position as at March 31, 2019. During the year ended March 31, 2019, the Company, through a wholly owned subsidiary, invested U$2.0 million ($2.7 million as at March 31, 2019) for 579,206 Series A Preferred Shares, at $3.453 per unit, in Capital Markets Gateway Inc. (CMG). CMG offers its clients a comprehensive suite of financial services. The Company is not considered to exert significant influence over the operations of CMG. Accordingly, the investment in CMG is accounted for as financial assets measured at FVTPL and included as investments on the statement of financial position as at March 31, 2019. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 94 Notes to Consolidated Financial Statements NOTE 11 Equipment and Leasehold Improvements March 31, 2019 Computer equipment Furniture and equipment Leasehold improvements March 31, 2018 Computer equipment Furniture and equipment Leasehold improvements Cost Balance, March 31, 2017 Acquired upon acquisition Additions Disposals Foreign exchange Balance, March 31, 2018 Acquired upon acquisition Additions Disposals Foreign exchange Balance, March 31, 2019 Accumulated amortization and impairment Balance, March 31, 2017 Acquired upon acquisition Amortization Disposals Foreign exchange Cost Accumulated amortization Net book value $ 19,068 $ 15,789 $ 26,918 86,492 132,478 19,929 26,265 86,533 21,407 69,490 106,686 13,350 20,237 68,173 132,727 101,760 Computer equipment Furniture and equipment Leasehold improvements 3,279 5,511 17,002 25,792 6,579 6,028 18,360 30,967 Total $ 9,999 $ 21,953 $ 83,513 $ 115,465 6,523 2,656 (501) 1,252 3,933 1,390 (1,567) 556 — 2,265 (239) 994 10,456 6,311 (2,307) 2,802 $ 19,929 $ 26,265 $ 86,533 $ 132,727 — 1,608 (1,855) (614) — 804 — (151) 329 1,970 (1,695) (645) 329 4,382 (3,550) (1,410) $ 19,068 $ 26,918 $ 86,492 $ 132,478 Computer equipment Furniture and equipment Leasehold improvements $ 4,476 $ 17,764 $ 61,746 $ 5,083 3,347 (501) 945 2,608 934 (1,474) 405 — 5,964 (238) 701 Total 83,986 7,691 10,245 (2,213) 2,051 Balance, March 31, 2018 $ 13,350 $ 20,237 $ 68,173 $ 101,760 Amortization Disposals Foreign exchange 3,523 (699) (385) 1,297 — (127) 2,683 (1,676) 310 7,503 (2,375) (202) Balance, March 31, 2019 $ 15,789 $ 21,407 $ 69,490 $ 106,686 The carrying value of any temporarily idle property, plant and equipment is not considered material as at March 31, 2019 and March 31, 2018. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 95 NOTE 12 Business Combinations i. Jitneytrade Inc. and Finlogik Inc. On June 6, 2018 the Company completed its acquisition of Jitneytrade Inc. and Finlogik Inc., directly and indirectly through the purchase of Finlogik Capital Inc. (collectively referred to as ‘‘Jitneytrade’’). Jitneytrade Inc. is a direct access broker and an active trader in futures and equity options in Canada. Finlogik Inc. is in the business of delivering value-added fintech solutions in the Canadian market. This acquisition serves to support the Company’s mid-market growth strategy by enhancing its market share of equities trading and providing access to new areas of growth through accelerating its development of an enhanced fintech product offering. Total purchase consideration was $14.8 million, of which $10.1 million was paid on closing with an additional $0.7 million of deferred consideration payable on June 8, 2020. There is also an estimated $4.0 million of contingent consideration payable over a period of up to five years, based on certain performance measures. Of the total cash consideration, $1.3 million is being held in escrow to be released over a period of up to June 8, 2020. The preliminary purchase price, determined by the fair value of the consideration given at the date of the acquisition and the fair value of the net assets acquired on the date of the acquisition, was as follows: Consideration paid Cash Deferred consideration Contingent consideration Net assets acquired Cash Accounts receivable Other tangible assets Liabilities Identifiable intangible assets Deferred tax liability related to identifiable intangible assets Goodwill $ $ $ 10,058 744 4,000 14,802 2,513 4,894 3,114 (6,790) 1,922 (509) 9,658 $ 14,802 Identifiable intangible assets of $1.9 million were recognized and relate to customer relationships. The goodwill of $9.7 million represents the value of expected synergies arising from the acquisition. Goodwill is not deductible for tax purposes. Management has estimated the fair value of the contingent consideration related to this acquisition to be up to $4.0 million as of the acquisition date and will be payable over a period of up to five years. The contingent consideration must be settled in cash and meets the definition of a financial liability, and subsequent changes to the fair value of the contingent consideration will be recognized in the statement of operations. The determination of the fair value is based upon discounted cash flows, and the key assumption affecting the fair value is the probability that the performance measures will be met. The above amounts including the fair value of the net assets acquired from Jitneytrade are estimates, which were made by management at the time of the preparation of these audited consolidated financial statements based on available information. Amendments may be made to these amounts as well as the allocation of identifiable intangible assets between indefinite life and finite lives. Values based on estimates are subject to changes during the period ending 12 months after the acquisition date. The aggregate acquisition-related expenses incurred by the Company in connection with the acquisition of Jitneytrade are $1.2 million. These expenses are mainly comprised of professional and employment costs. Revenue and net loss generated by Jitneytrade, including acquisition-related costs, were $16.6 million and $1.9 million, respectively, since the acquisition date. Had Jitneytrade been consolidated from April 1, 2018, as part of the consolidated statement of operations, the consolidated revenue and net income would have been approximately $1.19 billion and $71.9 million, respectively, for the year ended March 31, 2019. These figures represent historical results and are not necessarily indicative of future performance. ii. McCarthy Taylor Ltd. On January 29, 2019, the Company, through its UK & Europe wealth management business, completed the acquisition of McCarthy Taylor Ltd. (‘‘McCarthy Taylor’’), an independent UK-based financial advisory firm. This development advances the Company’s objective of expanding its national footprint and broadening its offering of fully integrated investment and wealth planning services. Total purchase consideration was $7.1 million (£4.1 million), of which $4.0 million (£2.3 million) was paid on 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 96 Notes to Consolidated Financial Statements closing. There is also an estimated $3.1 million (£1.8 million) of contingent consideration payable over a period of up to two years, based on certain performance measures. The preliminary purchase price, determined by the fair value of the consideration given at the date of the acquisition and the fair value of the net assets acquired on the date of the acquisition, was as follows: Consideration paid Cash Contingent consideration Net assets acquired Cash Accounts receivable Other tangible assets Liabilities Identifiable intangible assets Deferred tax liability related to identifiable intangible assets Goodwill $ $ $ $ 4,034 3,052 7,086 423 511 64 (433) 3,725 (723) 3,519 7,086 Identifiable intangible assets of $3.7 million were recognized and relate to customer relationships. The goodwill of $3.5 million represents the value of expected synergies arising from the acquisition. Goodwill is not deductible for tax purposes. Management has estimated the fair value of the contingent consideration related to this acquisition to be up to $3.1 million (£1.8 million) as of the acquisition date and will be payable over a period of up to two years. The contingent consideration must be settled in cash and meets the definition of a financial liability, and subsequent changes to the fair value of the contingent consideration will be recognized in the statement of operations. The determination of the fair value is based upon discounted cash flows, and the key assumption affecting the fair value is the probability that the performance measures will be met. The above amounts included in the purchase price allocation are preliminary pending finalization of the valuation of the intangibles acquired. The purchase price and the fair value of the net assets acquired from McCarthy Taylor are estimates, which were made by management at the time of the preparation of these audited consolidated financial statements based on available information. Amendments may be made to these amounts as well as the identification of intangible assets and the allocation of identifiable intangible assets between indefinite life and finite lives. Values based on estimates are subject to changes during the period ending 12 months after the acquisition date. The aggregate acquisition-related expenses incurred by the Company in connection with the acquisition of McCarthy Taylor were $0.2 million. These expenses are mainly comprised of professional fees. Revenue and net loss generated by McCarthy Taylor, including acquisition-related costs, were $0.6 million and $0.1 million, respectively, since the acquisition date. Had McCarthy Taylor been consolidated from April 1, 2018, as part of the consolidated statement of operations, the consolidated revenue and net income would have been approximately $1.19 billion and $72.0 million, respectively, for the year ended March 31, 2019. These figures represent historical results and are not necessarily indicative of future performance. iii. Petsky Prunier LLC On February 13, 2019, the Company completed its acquisition of 100% of the business of a pre-eminent New York-based boutique M&A Advisory firm, Petsky Prunier LLC (Petsky Prunier), in an asset purchase for initial consideration of $39.8 million (US$30 million) in cash and $6.6 million (US$5.0 million) in common shares of the Company. There is also deferred consideration of $13.3 million (US$10.0 million) of common shares of the Company to be issued over a three-year period. Additional contingent consideration of up to $53.0 million (US$40 million) will be paid in cash over a four-year period, subject to meeting certain revenue targets over that period. This development supports the Company’s objective of adding scale to its fixed cost base in the region and diversifying its revenue streams, while enhancing its client offering to capture greater market share in its core areas of strength. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 97 The preliminary purchase price, determined by the fair value of the consideration given at the date of the acquisition and the fair value of the net assets acquired on the date of the acquisition, was as follows: Consideration paid Cash Shares issuance Deferred consideration Contingent consideration Net assets acquired Accounts receivable Other tangible assets Liabilities Identifiable intangible assets Goodwill $ $ $ $ 39,783 6,631 13,261 53,044 112,719 263 522 (519) 7,339 105,114 112,719 Identifiable intangible assets of $7.3 million were recognized and relate to brand name, contract book and favourable lease. The goodwill of $105.1 million represents the value of expected synergies arising from the acquisition. Goodwill is not deductible for tax purposes. Management has estimated the fair value of the contingent consideration related to this acquisition to be up to $53.0 million as of the acquisition date and will be payable over a four-year period. The contingent consideration must be settled in cash and meets the definition of a financial liability, and subsequent changes to the fair value of the contingent consideration will be recognized in the statement of operations. The determination of the fair value is based upon discounted cash flows, and the key assumption affecting the fair value is the probability that the performance measures will be met. The above amounts included in the purchase price allocation are preliminary pending finalization of the valuation of the acquired intangibles. The purchase price and the fair value of the net assets acquired from Petsky Prunier are estimates, which were made by management at the time of the preparation of these audited consolidated financial statements based on available information. Amendments may be made to these amounts as well as the identification of intangible assets and the allocation of identifiable intangible assets between indefinite life and finite lives. Values based on estimates are subject to changes during the period ending 12 months after the acquisition date. The aggregate acquisition-related expenses incurred by the Company in connection with the acquisition of Petsky Prunier are $0.8 million. These expenses are mainly comprised of professional and employment costs. Revenue and net loss generated by Petsky Prunier, including acquisition-related costs, were $2.1 million and $1.4 million, respectively, since the acquisition date. Had Petsky Prunier been consolidated from April 1, 2018, as part of the consolidated statement of operations, the consolidated revenue and net income would have been approximately $1.24 billion and $80.8 million, respectively, for the year ended March 31, 2019. These figures represent historical results and are not necessarily indicative of future performance. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 98 Notes to Consolidated Financial Statements NOTE 13 Goodwill and Other Intangible Assets Goodwill $ Brand names $ Customer relationships $ Technology $ Software under development $ Non- competition $ Trading licenses $ Fund management $ Contract book Favourable lease Total $ Identifiable intangible assets 514,898 52,254 44,930 — — 13,454 — — 580,606 118,291 (6,029) 44,930 574 4 91,123 24,921 — 7,130 123,174 5,647 (3,518) 29,202 795 3,045 2,359 35,401 1,150 (1,253) 692,868 45,508 125,303 35,298 3,045 — (3,045) — — — — — 14,153 — — — 14,153 — — 14,153 196 — — — 196 — — 196 — 36,639 — 3,599 40,238 — (1,253) — — — — — 6,209 43 — 182,649 62,355 — — — — 13,088 — 258,092 14,136 (5,972) 556 5 38,985 6,252 561 266,256 (50,532) (12,619) (2,350) (14,153) (196) (322,632) — — — (322,632) — — (322,632) — — — — — — — — — (8,700) (2,546) (61,778) (12,076) 1,267 (2,350) (3,339) (1,065) (19,373) (2,378) 1,063 (72,587) (20,688) 257,974 370,236 44,930 45,508 61,396 52,716 16,028 14,610 2,350 — — — — — — — — — — — — — — (14,153) (196) — — — — (14,153) (196) (4,111) — — — — 38,403 34,874 — — (1,723) (112) (1,835) (2,323) 47 — — — — — — — — — 6,252 — (79,850) — — — (13,762) — (3,723) — (97,335) — — (16,777) 2,377 — (111,735) — 160,757 561 154,521 Gross amount Balance, March 31, 2017 Additions Transfer between categories Foreign exchange Balance, March 31, 2018 Additions Foreign exchange Balance, March 31, 2019 Accumulated amortization and impairment Balance, March 31, 2017 Transfer between categories Amortization Foreign exchange Balance, March 31, 2018 Amortization Foreign exchange Balance, March 31, 2019 Net book value March 31, 2018 March 31, 2019 IMPAIRMENT TESTING OF GOODWILL AND OTHER ASSETS The carrying amounts of goodwill and indefinite life intangible assets acquired through business combinations are as follows: Intangible assets with indefinite lives Goodwill Total March 31, 2019 March 31, 2018 March 31, 2019 March 31, 2018 March 31, 2019 March 31, 2018 Canaccord Genuity Capital Markets CGUs Canada (Genuity) Canada (Jitneytrade) US (Petsky Prunier) Canaccord Genuity Wealth Management CGUs UK & Europe (Channel Islands) UK & Europe (Eden Financial Ltd [Eden]) UK & Europe (Hargreave Hale) UK & Europe (McCarthy Taylor) $ 44,930 $ 44,930 $ 92,074 $ 92,074 $ 137,004 $ 137,004 — 578 — — — — — — — — — — 9,658 105,682 — — 9,658 106,260 — — 93,870 97,754 93,870 97,754 10,333 55,106 3,513 10,761 57,385 — 10,333 55,106 3,513 10,761 57,385 — The Genuity brand name is considered to have an indefinite life as the Company has no plans to cease its use in the future. $ 45,808 $ 44,930 $ 370,236 $ 257,974 $ 415,744 $ 302,904 CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 99 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 and other assets impairment testing was carried out for all applicable CGUs at June 30, September 30 and December 31, 2018. In accordance with IAS 36, ‘‘Impairment of Assets’’ (IAS 36), the recoverable amounts of the CGUs’ net assets have been determined using fair value less costs to sell (FVLCS) calculations, which are based on future cash flow assumptions considered to be appropriate for the purposes of such calculations. In accordance with IFRS 13 fair value represents an estimate of the price at which an orderly transaction to sell an asset or transfer a liability would take place between market participants as at the end of the reporting period under market conditions as at that date (an exit price as at the measurement date). 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 CGUs which recorded goodwill in their carrying value as of March 31, 2019 were Canaccord Genuity Canada (Genuity) and Canada (Jitneytrade), Canaccord Genuity US (Petsky Prunier), Canaccord Genuity Wealth Management UK & Europe (Channel Islands), UK (Eden), UK (Hargreave Hale) and UK (McCarthy Taylor). The discount rate utilized for each of these CGUs for the purposes of these calculations was 12.5% [March 31, 2018 − 12.5%]. Cash flow estimates for each of these CGUs were based on management assumptions as described above and utilize a five-year compound annual revenue growth rate of 5.0% [March 31, 2018 − 5.0%] as well as estimates in respect of operating margins. The terminal growth rate used for each of Canaccord Genuity, Canada (Genuity) and Canada (Jitneytrade), Canaccord Genuity US (Petsky Prunier) and Canaccord Genuity Wealth Management UK & Europe (Channel Islands), UK (Eden), UK (Hargreave Hale) and UK (McCarthy Taylor) was 2.5% [March 31, 2018 − 2.5%]. 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 Origination and reversal of temporary differences Impact of change in tax rates Income tax expense reported in the statements of operations March 31, 2019 March 31, 2018 $ $ 34,897 (3,286) 31,611 (10,543) 6 (10,537) 21,074 $ $ 23,630 (3,010) 20,620 (1,807) (144) (1,951) 18,669 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 100 Notes to Consolidated Financial Statements 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: Net income before income taxes Income tax expense at the statutory rate of 27.0% (2018 − 26.25%) Difference in tax rates in foreign jurisdictions Non-deductible items affecting the determination of taxable income Change in accounting and tax base estimate Other Utilization of tax losses and other temporary differences not recognized Impact of change in tax rates in temporary differences Share-based payments Income tax expense reported in the statements of operations March 31, 2019 92,656 25,018 (599) 5,450 (5,140) (952) (1,106) (1,300) (297) 21,074 $ $ $ $ March 31, 2018 35,746 9,381 (1,631) 2,555 3,248 558 (5,409) 6,201 3,766 18,669 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 Unrealized gain on securities owned Legal provisions Unpaid remunerations Unamortized capital cost of equipment and leasehold improvements over their net book value Unamortized common share purchase loans Loss carryforwards Long-term incentive plan Other intangible assets Other March 31, 2019 (7,116) 917 4,375 3,434 2,949 7,186 26,008 (26,053) 2,439 14,139 $ $ March 31, 2018 (10,053) 774 6,359 2,984 2,434 5,224 25,365 (28,066) 1,205 6,226 March 31, 2019 (3,385) (143) (445) (449) (515) (1,962) (643) (2,734) (261) (10,537) $ $ $ $ Deferred tax assets and liabilities as reflected in the consolidated statements of financial position are as follows: Deferred tax assets Deferred tax liabilities The movement for the year in the net deferred tax position was as follows: Opening balance Tax recovery recognized in the consolidated statements of operations Foreign exchange on deferred tax position Deferred tax liability on convertible debentures Deferred taxes acquired in business combination Other Ending balance as of March 31 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. At the balance sheet date, the Company has tax loss carryforwards of approximately $33.9 million [2018 − $35.5 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 2019. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT $ $ $ $ March 31, 2018 9,939 421 (1,388) (10) (641) 1,267 (10,967) (1,318) 746 (1,951) March 31, 2018 19,941 (13,715) 6,226 2018 15,183 1,951 1,111 — (11,308) (711) 6,226 March 31, 2019 22,117 (7,978) 14,139 $ $ 2019 $ 6,226 $ 10,537 197 (944) (1,168) (709) $ 14,139 $ Notes to Consolidated Financial Statements 101 Other temporary differences not recognized as deferred tax assets in relation to subsidiaries outside of Canada amount to $35.0 million at March 31, 2019 [2018 − $38.8 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 $ 7,500 $ 7,500 The loan payable is subject to a subordination agreement and may only be repaid with the prior approval of IIROC. As at March 31, 2019 and 2018, the interest rates for the subordinated debt were 7.95% and 7.45%, respectively. The carrying value of subordinated debt approximates its fair value due to the short-term nature of this liability. March 31, 2019 March 31, 2018 NOTE 16 Bank Loan Loan Less: Unamortized financing fees Current portion Long term portion March 31, 2019 March 31, 2018 $ 60,326 $ (662) 59,664 9,294 50,370 72,500 (1,063) 71,437 9,679 61,758 In connection with the acquisition of Hargreave Hale Limited, a subsidiary of the Company entered into a senior credit facility in the amount of £40.0 million to finance a portion of the cash consideration. During the year ended March 31, 2019, the Company made a repayment of £5.3 million ($9.3 million). The balance outstanding as of March 31, 2019 net of unamortized financing fees was £34.3 million (C$59.7 million) [2018 − £39.4 million (C$71.4 million) as of March 31, 2018]. The loan is repayable in instalments of principal and interest over the period ending in September 2021. The interest rate on this loan is LIBOR plus 2.125% per annum at March 31, 2019 [March 31, 2018 − LIBOR plus 3.375% per annum]. NOTE 17 Convertible Debentures Liability March 31, 2019 Equity Liability March 31, 2018 Equity Convertible debentures $ 127,225 $ 5,156 $ 57,081 $ 2,604 On August 22, 2018, the Company completed its bought deal offering of convertible unsecured senior subordinated debentures for gross proceeds of $59,225,000 (the ‘‘Offered Debentures’’). The Company had also closed the concurrent non-brokered private placement with a large Canadian asset manager for gross proceeds of $73,500,000, which, together with the gross proceeds from the Offered Debentures, represent an aggregate principal amount of $132,725,000 (together with the Offered Debentures, the ‘‘Convertible Debentures’’). The Company used the proceeds from the Convertible Debentures to redeem the $60.0 million convertible unsecured subordinated debentures issued in 2016. The net amount recognized after deducting issue costs net of deferred tax liability was $129.2 million. The $60.0 million convertible unsecured subordinated debentures issued in October 2016 were considered extinguished for accounting purposes under IFRS 9, ‘‘Financial Instruments’’ (IFRS 9). As a result, the liability associated with the extinguished debentures was derecognized on the statement of financial position as at March 31, 2019 and the Company recorded a loss of $13.5 million on the extinguishment during the year ended March 31, 2019, with $8.6 million recorded through the consolidated statement of operations and $4.9 million recorded directly against shareholders’ equity. The Convertible Debentures bear interest at a rate of 6.25% per annum payable semi-annually on the last day of December and June each year commencing December 31, 2018. The Convertible Debentures are convertible at the holder’s option into common shares of the Company, at a conversion price of $10.00 per common share. The Convertible Debentures mature on December 31, 2023 and may be redeemed by the Company in certain circumstances, on or after December 31, 2021. The Debentures are classified as compound financial instruments. On initial recognition, the fair value of the liability is calculated based on the present value of future cash flows under the instruments, discounted at 7%, being equal to the rate of interest 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 102 Notes to Consolidated Financial Statements applied by the market at the time of issue to instruments of comparable credit status and future cash flows, without the conversion feature. The residual amount is recorded as a component of shareholders’ equity. NOTE 18 Preferred Shares March 31, 2019 March 31, 2018 Amount Number of shares Amount Number of shares Series A Preferred Shares issued and outstanding $ 110,818 $ 4,540,000 $ 110,818 $ 4,540,000 Series C Preferred Shares issued and outstanding Series C Preferred Shares held in treasury 97,450 (2,627) 94,823 4,000,000 (106,794) 3,893,206 97,450 (2,627) 94,823 4,000,000 (106,794) 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, as declared, were paid at an annual rate of 5.5% for the initial five-year period ended on September 30, 2016. Commencing October 1, 2016 and ending on and including September 30, 2021, quarterly cumulative dividends, if declared, will be paid at an annual rate of 3.885%. 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 had the 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 have the option on September 30 every five years thereafter. The number of shares tendered for conversion by the conversion deadline of September 15, 2016 was below the minimum required to proceed with the conversion and, accordingly, no Series B Preferred Shares were issued. Series B Preferred Shares would entitle any holders thereof 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 had the option to redeem the Series A Preferred Shares on September 30, 2016, and has the option to redeem 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, as declared, were paid at an annual rate of 5.75% for the initial five-year period ending on June 30, 2017. Commencing July 1, 2017 and ending on and including June 30, 2022, quarterly cumulative dividends, if declared, will be paid at an annual rate of 4.993%. 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 had the 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 have the option on June 30 every five years thereafter. The number of shares tendered for conversion by the conversion deadline of June 30, 2017 was below the minimum required to proceed with the conversion and, accordingly, no Series D Preferred Shares were issued. Series D Preferred Shares would entitle any holders thereof 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 had the option to redeem the Series C Preferred Shares on June 30, 2017, and has the option to redeem on June 30 every five years thereafter, in whole or in part, at $25.00 per share together with all declared and unpaid dividends. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 103 March 31, 2019 March 31, 2018 Amount Number of shares Amount Number of shares $ 787,096 115,616,744 $ 772,746 113,522,629 (3,647) (346) (5,098) (654,322) (110,553) (18,036,064) (117,802) (19,814,432) $ 672,896 97,580,334 $ 649,846 93,053,875 March 31, 2019 March 31, 2018 Amount 1,975 $ Number of shares 3,438,412 $ Amount 1,975 Number of shares 3,438,412 NOTE 19 Common shares and warrants Issued and fully paid Unvested share purchase loans Held for the LTIP Warrants Warrants issued in connection with private placement [i] AUTHORIZED Unlimited common shares without par value. [ii] ISSUED AND FULLY PAID Balance, March 31, 2017 Shares issued in connection with replacement plans [Note 21] Balance, March 31, 2018 Shares issued in connection with share-based payment plans [Note 21] Shares issued in connection with purchase of non-controlling interest [Note 8] Shares issued in connection with acquisition of Petsky Prunier [Note 12] Shares cancelled Balance, March 31, 2019 Number of shares 113,511,468 $ 11,161 113,522,629 36,708 2,331,132 1,105,275 (1,379,000) Amount 772,645 101 772,746 331 16,807 6,631 (9,419) 115,616,744 $ 787,096 On August 10, 2018, 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 5,677,589 of its common shares during the period from August 15, 2018 to August 14, 2019 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. During the year ended March 31, 2019, there were 152,200 shares purchased and cancelled under the NCIB which commenced August 15, 2017 and ended on August 14, 2018. There were also 1,226,800 common shares that were purchased and cancelled under the current NCIB during the year ended March 31, 2019. During the year ended March 31, 2019, the Company issued 2,331,132 shares with a value of $16.8 million (AUD$17.5 million) as part of the purchase consideration for the acquisition of an additional 30% of the shares in its Australian capital markets and wealth management business, Canaccord Genuity (Australia) Limited [Note 8]. In addition, during the year ended March 31, 2019, as part of the purchase consideration for the acquisition of Petsky Prunier [Note 12], the Company issued 1,105,275 common shares for total value of $6.6 million (US$5.0 million). [iii] FORGIVABLE COMMON SHARE PURCHASE LOANS The Company provides forgivable common share purchase loans to certain employees (other than directors or executive officers) in order to purchase common shares of the Company. The Company has provided such loans to executive officers in the past but has now adopted a policy not to make any further such loans to directors or executive officers. 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 104 Notes to Consolidated Financial Statements [iv] EARNINGS PER COMMON SHARE Earnings per common share Net income attributable to CGGI shareholders Preferred shares dividends Equity portion of loss on extinguishment of convertible debentures Net income attributable to common shareholders Weighted average number of common shares (number) Basic earnings per share Diluted earnings per common share Net income attributable to common shareholders Interest on convertible debentures, net of tax Adjusted net earnings available to common shareholders Weighted average number of common shares (number) Dilutive effect in connection with LTIP (number) Dilutive effect in connection with warrants (number) Dilutive effect in connection with a promissory note (number) Dilutive effect in connection with other share-based payment plans (number) Dilutive effect in connection with convertible debentures (number) Dilutive effect in connection with acquisition of Petsky Prunier (number) Adjusted weighted average number of common shares (number) Diluted earnings per common share For the years ended March 31, 2019 March 31, 2018 $ 70,530 $ (9,402) (4,892) 56,236 13,024 (9,593) — 3,431 96,259,582 92,587,216 $ 0.58 $ 0.04 56,236 7,216 63,452 3,431 n/a 3,431 96,259,582 17,568,822 92,587,216 17,089,575 819,097 661,728 151,464 13,272,500 2,210,550 206,487 n/a 978,809 n/a n/a 130,943,743 110,862,087 $ 0.48 $ 0.03 The promissory note issued as part of the purchase consideration for the purchase of non-controlling interests can be partially or completely settled in shares at the Company’s option [Note 8]. As such, as per IAS 33, the weighted average number of common shares for the purpose of the diluted EPS calculation is increased by the weighted average number of additional common shares that would have been outstanding, assuming the promissory note is settled in shares. In addition, in connection with the acquisition of Petsky Prunier [Note 12], the Company has a commitment to issue 2,210,550 shares as part of the deferred purchase consideration. As a result, the weighted average number of common shares for the purpose of the diluted EPS calculation is increased accordingly. There have been no other transactions involving common shares or potential common shares between the reporting period and the date of authorization of these financial statements which would have a significant impact on earnings per common share. NOTE 20 Dividends COMMON SHARE DIVIDENDS The Company declared the following common share dividends during the year ended March 31, 2019: Record date March 1, 2019 November 30, 2018 August 31, 2018 June 22, 2018 Payment date March 15, 2019 December 10, 2018 September 10, 2018 July 3, 2018 Cash dividend per common share Total common dividend amount $ $ $ $ 0.01 0.01 0.01 0.12 $ $ $ $ 1,145 1,157 1,157 13,626 On June 5, 2019, the Board of Directors approved a dividend of $0.17 per common share, payable on July 2, 2019, with a record date of June 21, 2019. This dividend is comprised of a $0.01 base quarterly dividend and a $0.16 variable supplemental dividend [Note 28]. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 105 PREFERRED SHARE DIVIDENDS Record date March 15, 2019 December 14, 2018 September 14, 2018 June 22, 2018 Payment date April 1, 2019 December 31, 2018 October 1, 2018 July 3, 2018 Cash dividend per Series A Preferred Share Cash dividend per Series C Preferred Share Total preferred dividend amount $ $ $ $ 0.24281 0.24281 0.24281 0.24281 $ $ $ $ 0.312060 0.312060 0.312060 0.312060 $ $ $ $ 2,351 2,351 2,351 2,351 On June 5, 2019, the Board approved a cash dividend of $0.24281 per Series A Preferred Share payable on July 2, 2019 to Series A Preferred shareholders of record as at June 21, 2019 [Note 28]. On June 5, 2019, the Board approved a cash dividend of $0.31206 per Series C Preferred Share payable on July 2, 2019 to Series C Preferred shareholders of record as at June 21, 2019 [Note 28]. NOTE 21 Share-Based Payment Plans [i] LONG-TERM INCENTIVE PLAN Under the long-term incentive plan (LTIP or the Plan), eligible participants are awarded restricted share units (RSUs), which generally vest over three years. All awards under the LTIP plan are settled by transfer of shares from employee benefit trusts (Trusts) which are funded by the Company, or certain of its subsidiaries, as the case may be, 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. No further shares may be issued from treasury under the LTIP. Effective as of March 31, 2018 the Plan was changed to remove certain employment-related conditions for the vesting of RSU awards made as part of the normal course incentive compensation payment cycle. With the change, RSUs will continue to vest after termination of employment so long as the employee does not violate certain post-termination restrictions and is not engaged in certain competitive or soliciting activities as provided in the Plan. Because of this change, the Company determined that the awards do not meet the criteria for an in-substance service condition, as defined by IFRS 2, ‘‘Share-based payments’’ (IFRS 2). Accordingly, RSUs granted as part of the normal course incentive compensation payment cycle are expensed in the period in which those awards are deemed to be earned with a corresponding increase in contributed surplus, which is generally the fiscal period in which the awards are either made or the immediately preceding fiscal year for those awards made after the end of such fiscal year but were determined and earned in respect of that fiscal year. For certain awards, typically new hire awards or retention awards, vesting is subject to continued employment and therefore these awards are subject to a continuing service requirement. Accordingly, the Company recognizes the cost of such awards as an expense on a graded basis over the applicable vesting period with a corresponding increase in contributed surplus. There were 4,661,519 RSUs [year ended March 31, 2018 − 7,292,403 RSUs] granted in lieu of cash compensation to employees during the year ended March 31, 2019. The Trusts purchased 4,554,070 common shares [year ended March 31, 2018 − 5,681,240 common shares] during the year ended March 31, 2019. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 106 Notes to Consolidated Financial Statements The fair value of the RSUs at the measurement date is based on the fair value on the grant date. The weighted average fair value of RSUs granted during the year ended March 31, 2019 was $7.06 [March 31, 2018 − $5.00]. Awards outstanding, March 31, 2017 Grants Vested Forfeited Awards outstanding, March 31, 2018 Grants Vested Forfeited Awards outstanding, March 31, 2019 Common shares held by the Trusts, March 31, 2017 Acquired Released on vesting Common shares held by the Trusts, March 31, 2018 Acquired Released on vesting Common shares held by the Trusts, March 31, 2019 [ii] FORGIVABLE COMMON SHARE PURCHASE LOANS Number 18,179,745 7,292,403 (4,906,479) (435,281) 20,130,388 4,661,519 (6,311,853) (115,120) 18,364,934 Number 19,141,505 5,681,240 (5,008,313) 19,814,432 4,554,070 (6,332,438) 18,036,064 The Company provides loans to certain employees (other than directors or executive officers) for the purpose of partially funding the purchase of shares of the Company and increasing share ownership by the employees. The Company has provided such loans to executive officers in the past but has now adopted a policy not to make any further such loans to directors or executive officers. 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 19 [iii]]. [iii] REPLACEMENT PLANS As a result of the acquisition of Collins Stewart Hawkpoint plc (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 were fully amortized as of March 31, 2015. Balance, March 31, 2017 Exercised Balance, March 31, 2018 Exercised Balance, March 31, 2019 Number 18,482 — 18,482 (3,226) 15,256 The following table summarizes the share options outstanding under the Replacement ABED Plan as at March 31, 2019: 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 15,256 1.0 $ nil 15,256 $ nil Range of exercise price $nil CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 107 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 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 were fully amortized as of March 31, 2015. Balance, March 31, 2017 Exercised Balance, March 31, 2018 Exercised Balance, March 31, 2019 Number 132,619 (11,161) 121,458 (33,482) 87,976 The following table summarizes the share options outstanding under the Replacement LTIP as at March 31, 2019: 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 87,976 1.0 $nil 87,976 $ nil In connection with the acquisition of CSHP, the Company agreed to establish a retention plan for key CSHP staff. The awards were fully vested and fully amortized as of March 31, 2017. As of March 31, 2019, there was no award outstanding [2018 − 9,257]. [v] DEFERRED SHARE UNITS Beginning April 1, 2011, the Company adopted a deferred share units (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, 2019, the Company granted 62,916 DSUs [2018 − 77,720 DSUs]. The carrying amount of the liability relating to DSUs at March 31, 2019 was $2.7 million [2018 − $2.2 million]. [vi] PERFORMANCE SHARE UNITS The Company adopted a performance share unit (PSU) plan for certain senior executives during the year ended March 31, 2018. On June 12, 2018 the Company granted 877,485 units under the PSU plan. The PSUs are a notional equity-based instrument linked to the value of the Company’s common shares. At the end of a three-year vesting period, the number of PSUs which vest is determined upon performance against certain pre-determined metrics. The PSUs cliff vest on the third anniversary of the date of the grant. The PSUs are settled in cash, based on the market price of the Company’s shares at the time of vesting. The PSUs were measured at fair value on the grant date. 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. The carrying amount of the liability recognized in accounts payable and accrued liabilities relating to PSUs at March 31, 2019 was $5.7 million [March 31, 2018 − $6.1 million]. [vii] PERFORMANCE STOCK OPTIONS On June 1, 2018, the Company created a performance share option (‘‘PSO’’) plan that was approved at the Company’s Annual General Meeting held on August 2, 2018. On June 14, 2018, the Company granted 5,620,000 options under the PSO plan. The options have an exercise price of $6.73 per share. In addition, the Company granted 600,000 options on August 16, 2018 with an exercise price of $7.067. For accounting purposes under IFRS 2, the grant date of the PSOs is August 2, 2018, being the date the PSO plan was approved at the Annual General Meeting. The PSOs have a term of five years and will time-vest ratably over four years (with one third vesting on each of the second, third and fourth anniversaries of the date of the grant). The PSOs will also be subject to market (stock price) performance vesting conditions, as well as have a four times exercise price cap on payout value (i.e., the gain on the exercise of the options is limited to three times the exercise price). The PSOs will expire on June 14, 2023. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 108 Notes to Consolidated Financial Statements The following is a summary of the Company’s PSOs as at March 31, 2019: Balance, March 31, 2018 Granted Exercised Balance, March 31, 2019 Number of PSOs Weighted average exercise price — $ 6,220,000 — 6,220,000 $ — 6.76 — 6.76 Under IFRS 2, ‘‘Share-Based Payments’’, the impact of market conditions, such as a target share price upon which vesting is conditioned, should be considered when estimating the fair value of the PSOs. A Monte Carlo simulation is used to simulate a range of possible future stock prices for the Company over the period from the grant date to the expiry date of the PSOs. The purpose of this modelling is to use a probabilistic approach for estimating the fair value of the PSOs under IFRS 2. The following assumptions were used in the Monte Carlo model for grants made in the year ended March 31, 2019: Dividend yield Expected volatility Risk-free interest rate Expected life 2.16% 40.92% 2.24% 4 years The weighted average fair value of the PSOs awarded is $1.93 per option. Compensation expense of $3.5 million was recognized for the year ended March 31, 2019. Option pricing models require the input of highly subjective assumptions including the expected price volatility. 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 PSOs. [viii] OTHER SHARE-BASED PAYMENT PLAN During the year ended March 31, 2019, the Company granted a share-based award to a senior executive. The award vests on March 31, 2021, or at the holder’s option, can be extended to March 31, 2022. Compensation expense of $0.1 million was recorded for the year ended March 31, 2019. [IX] SHARE-BASED COMPENSATION EXPENSE Long-term incentive plan Forgivable common share purchase loans Deferred share units (cash-settled) PSO PSU (cash-settled) Other Share-based incentive compensation expense Accelerated share-based payment expense included as restructuring expense For the years ended March 31, 2019 March 31, 2018 $ 45,184 $ 93,673 335 128 3,483 (488) — 48,642 858 199 661 — — 67 94,600 757 Total share-based compensation expense $ 49,500 $ 95,357 CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 109 NOTE 22 Related Party Transactions [i] CONSOLIDATED SUBSIDIARIES The consolidated financial statements include the financial statements of the Company and the Company’s operating subsidiaries and intermediate holding companies listed in the following table: % equity interest Country of incorporation March 31, 2019 March 31, 2018 Canaccord Genuity Corp. CG Investments Inc. CG Investments Inc. III Jitneytrade Inc. Finlogik Inc. Finlogik Inc. Tunisia Canaccord Genuity SAS Canaccord Genuity Wealth (International) Limited Canaccord Genuity Financial Planning Limited Canaccord Genuity Wealth Limited Canaccord Genuity Wealth Group Limited Canaccord Genuity Wealth (International) Holdings Limited Hargreave Hale Limited McCarthy Taylor Ltd. Canaccord Genuity Limited Canaccord Genuity Wealth Group Holdings Ltd. Canaccord Genuity LLC Canaccord Genuity Wealth Management (USA) Inc. Canaccord Genuity Wealth & Estate Planning Services Ltd. Canaccord Genuity Petsky Prunier LLC Canaccord Asset Management Inc. Canaccord Adams Financial Group Inc. Collins Stewart Inc. Canaccord Adams BC ULC Canaccord Genuity Finance Corp. Canaccord Adams Finance Company ULC Canaccord Adams Finance Company LLC Canaccord Adams (Delaware) Inc. Canaccord Genuity Securities LLC Stockwave Equities Ltd. CLD Financial Opportunities Limited Canaccord Genuity (Hong Kong) Limited Canaccord Financial Group (Australia) Pty Ltd* Canaccord Genuity (Australia) Limited* Canaccord Genuity Asia (Beijing) Limited The Balloch Group Limited Canaccord Genuity Asia (Hong Kong) Limited Canaccord Genuity (Dubai) Ltd. Canaccord Genuity SG Pte. Ltd. Canaccord Genuity Wealth Group Holdings (Jersey) Limited Canaccord Genuity Hawkpoint Limited Canaccord Genuity Management Company Limited Canada Canada Canada Canada Canada Tunisia France Guernsey United Kingdom United Kingdom United Kingdom Guernsey United Kingdom United Kingdom United Kingdom Canada United States United States Canada United States Canada United States United States Canada Canada Canada United States United States United States Canada Canada China (Hong Kong SAR) Australia Australia China British Virgin Islands China (Hong Kong SAR) United Arab Emirates Singapore Jersey United Kingdom Ireland 100% 100% 100% 100% 100% 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% 80% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% n/a n/a n/a n/a 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% n/a 100% 100% 100% 100% n/a n/a n/a 100% 100% 100% 100% 100% 50% 50% 100% 100% 100% 100% n/a 100% 100% 100% * The Company owns 80% of the issued shares of Canaccord Financial Group (Australia) Pty Ltd. and Canaccord Genuity (Australia) Limited, but for accounting purposes, as of March 31, 2019 the Company is considered to have an 85% interest because of the shares held in a trust controlled by Canaccord Financial Group (Australia) Pty Ltd. [March 31, 2018 − 58%] [Note 8]. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 110 Notes to Consolidated Financial Statements [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, 2019 and 2018: Short term employee benefits Share-based payments Total compensation paid to key management personnel March 31, 2019 10,167 2,656 12,823 $ $ $ $ March 31, 2018 10,515 4,933 15,448 [iii] OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL Accounts payable and accrued liabilities include the following balances with key management personnel: Accounts receivable Accounts payable and accrued liabilities March 31, 2019 $ $ 837 942 March 31, 2018 969 1,527 [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 23 Segmented Information The Company operates in two industry segments as follows: Canaccord Genuity Capital Markets − 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 Dubai, Australia and the US. Operations located in Other Foreign Locations under Canaccord Genuity Asia are also included in Canaccord Genuity Capital Markets. 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 Capital Markets 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 Capital Markets segment, as it relates to the acquisitions of Genuity, Jitneytrade, the initial 50% interest in Canaccord Genuity Australia and Petsky Prunier. Amortization of the identifiable intangible assets acquired through the purchase of Collins Stewart Hawkpoint plc (CSHP) is allocated to Canaccord Genuity Capital Markets 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.). Amortization of identifiable intangible assets acquired through the acquisition of Hargreave Hale is allocated to Canaccord Genuity Wealth Management segments in the UK & Europe (Hargreave Hale). Amortization of identifiable intangible assets acquired through the acquisition of McCarthy Taylor is allocated to Canaccord Genuity Wealth Management segments in the UK & Europe (McCarthy Taylor). Amortization of identifiable intangible assets acquired through the acquisition of Petsky Prunier is allocated to the Canaccord Genuity US segment. There are no significant intersegment revenues. Income taxes are managed on a Company basis and are not allocated to operating segments. All revenue and operating profit is derived from external customers. The Company also does not allocate cash flows by reportable segments. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 111 For the years ended March 31, 2019 Canaccord Genuity Capital Markets Canaccord Genuity Wealth Management Corporate and Other Total Canaccord Genuity Capital Markets Canaccord Genuity Wealth Management March 31, 2018 Corporate and Other Total Commissions and fees $ 175,511 $ 380,964 $ — $ 556,475 $ 155,126 $ 306,816 $ (5) $ 461,937 Investment banking Advisory fees Principal trading Interest Other Expenses, excluding undernoted Amortization Development costs Interest expense Restructuring costs Acquisition-related costs Loss on extinguishment of convertible debentures Share of loss of an associate Income (loss) before intersegment allocations and income taxes Intersegment allocations Income (loss) before income 243,715 140,744 125,753 13,882 4,721 50,526 1,484 100 24,136 4,601 — — (23) 12,990 11,463 294,241 142,228 125,830 51,008 20,785 234,820 122,372 113,715 9,735 1,788 47,375 — 201 12,072 3,801 — — 5 6,068 8,988 282,195 122,372 113,921 27,875 14,577 590,253 351,929 65,437 1,007,619 583,577 288,400 50,373 922,350 7,199 452 9,810 13,070 1,976 — — 16,225 14,906 4,593 — 1,088 — — 856 155 11,050 — — 24,280 15,513 25,453 13,070 3,064 8,608 8,608 304 304 9,464 690 9,471 4,704 — — — 13,152 6,773 2,741 2,939 6,732 — — 1,391 201 6,225 — — — 298 24,007 7,664 18,437 7,643 6,732 — 298 81,566 18,689 73,070 14,467 (61,980) (33,156) 92,656 — 29,650 16,524 49,528 15,529 (43,432) (32,053) 35,746 — taxes $ 62,877 $ 58,603 $ (28,824) $ 92,656 $ 13,126 $ 33,999 $ (11,379) $ 35,746 For geographic reporting purposes, the Company’s business operations are grouped into Canada, the UK & Europe (including Dubai), the United States, Australia, and Other Foreign Locations, which is comprised of our Asian operations. 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): Canada UK & Europe United States Australia Other Foreign Locations For the years ended March 31, 2019 $ 489,515 $ 363,774 305,993 31,366 (81) March 31, 2018 397,053 329,841 238,933 57,022 28 $ 1,190,567 $ 1,022,877 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 112 Notes to Consolidated Financial Statements The following table presents selected figures pertaining to the financial position of each geographic location: Canada UK & Europe United States Other Foreign Locations Australia Total As at March 31, 2019 Equipment and leasehold improvements $ 7,919 $ 11,376 $ 5,463 $ Goodwill Intangible assets Non-current assets As at March 31, 2018 Equipment and leasehold improvements Goodwill Intangible assets Non-current assets 101,732 52,484 162,135 9,483 92,074 53,201 162,822 94,553 268,751 13,156 165,900 107,464 105,682 7,484 118,629 6,960 — 92 $ 154,758 $ 286,520 $ 7,052 $ 54 — — 54 66 — — 66 $ 980 $ — — 980 1,302 — — 25,792 370,236 154,521 550,549 30,967 257,974 160,757 $ 1,302 $ 449,698 NOTE 24 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, warrants, retained deficit and accumulated other comprehensive income (loss), and is further complemented by the subordinated debt, bank loans and convertible debentures. The following table summarizes our capital as at March 31, 2019 and 2018: Type of capital Preferred shares Common shares Convertible debentures − equity portion Warrants Contributed surplus Retained deficit Accumulated other comprehensive income Shareholders’ equity Convertible debentures Subordinated debt Bank loan March 31, 2019 $ 205,641 $ 672,896 5,156 1,975 124,710 (237,770) 103,755 876,363 127,225 7,500 59,664 March 31, 2018 205,641 649,846 2,604 1,975 145,426 (277,472) 113,332 841,352 57,081 7,500 71,437 $ 1,070,752 $ 977,370 The Company’s capital management framework is designed to maintain the level of capital that will: (cid:129) Meet the Company’s regulated subsidiaries’ target ratios as set out by the respective regulators (cid:129) Fund current and future operations (cid:129) Ensure that the Company is able to meet its financial obligations as they become due (cid:129) Support the creation of shareholder value The following subsidiaries are subject to regulatory capital requirements in the respective jurisdictions by the listed regulators: (cid:129) Canaccord Genuity Corp. and Jitneytrade Inc. are subject to regulation in Canada primarily by the Investment Industry Regulatory Organization of Canada (IIROC) (cid:129) Canaccord Genuity Limited, Canaccord Genuity Wealth Limited, Canaccord Genuity Financial Planning Limited, McCarthy Taylor Ltd. and Hargreave Hale Limited are regulated in the UK by the Financial Conduct Authority (FCA) (cid:129) 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 (cid:129) Canaccord Genuity (Australia) Limited is regulated by the Australian Securities and Investments Commission (cid:129) Canaccord Genuity (Hong Kong) Limited is regulated in Hong Kong by the Securities and Futures Commission (cid:129) Canaccord Genuity LLC 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 GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 113 (cid:129) Canaccord Genuity Wealth Management (USA) Inc. is registered as a broker dealer in the US and is subject to regulation primarily by FINRA (cid:129) Canaccord Asset Management Inc. is subject to regulation in Canada by the Ontario Securities Commission (cid:129) Canaccord Genuity (Dubai) Ltd is subject to regulation in the United Arab Emirates by the Dubai Financial Services Authority (DFSA) 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, 2019. NOTE 25 Client Money At March 31, 2019, the UK & Europe operations held client money in segregated accounts of $3.042 billion (£1.748 billion) [2018 − $2.978 billion (£1.643 billion)]. This is comprised of $6.9 million (£4.0 million) [2018 − $11.1 million (£6.1 million)] of balances held on behalf of clients to settle outstanding trades and $3.035 billion (£1.744 billion) [2018 − $2.967 billion (£1.637 billion)] 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 26 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, 2019 and 2018: Legal provisions Restructuring provisions Total provisions Balance, March 31, 2017 $ 6,940 $ 4,853 $ Additions Utilized Recoveries Balance, March 31, 2018 Additions Utilized Balance, March 31, 2019 2,704 (5,991) (400) 7,643 (7,321) — $ $ 3,253 $ 5,175 $ 4,078 (1,660) 13,070 (5,704) 5,671 $ 12,541 $ 11,793 10,347 (13,312) (400) 8,428 17,148 (7,364) 18,212 The restructuring provision recorded during the period ended March 31, 2019 related to termination benefits and certain real estate costs incurred as a result of the restructuring in our UK & Europe capital markets operations. Commitments, litigation proceedings and contingent liabilities In the normal course of business, the Company is involved in litigation, and as of March 31, 2019, 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 Company is also subject to asserted and unasserted claims arising in the normal course of business which, as of March 31, 2019, 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. 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. Although the Company intends to vigorously defend itself in the event that claims are advanced, and believes that such 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 114 Notes to Consolidated Financial Statements claims would be without merit, 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 who have standstill agreements in place in respect of these products, and for whom such information is available, is estimated to be $10.4 million (£6.0 million). The aggregate initial tax deferral amount realized by the Company’s clients, who have standstill agreements, in respect of these products when they were purchased by those clients during the period from 2006 to 2009 is estimated to be $15.5 million (£8.9 million). Enforcement in accordance with announcements from HMRC, the outcome of certain litigation proceedings in respect of the taxation of other similar products sold by other financial advisors and certain settlements reached with HMRC by some investors may result in tax liabilities to the purchasers of those products in excess of the initial tax deferral amount. As at the date of these audited consolidated financial statements two pre-action protocols have been issued by certain clients, which have been rebutted by the Company. The potential tax liability for those clients engaged in such pre-action protocols which is in excess of the initial tax deferral amount, is estimated to be in the region of $18.6 million (£10.7 million) plus other potential costs (for example interest). For those clients not currently engaged in pre-action protocols where we believe that the limitation period for bringing a claim has been preserved, the potential tax liability which is in excess of the initial tax deferral amount is estimated to be a further $5.2 million (£3.0 million). The probable outcome of the enforcement actions by the HMRC in respect of this matter and the likelihood of a loss or the amount of any such loss to the Company in connection with any such claims asserted against the Company, or which may be asserted against the Company, are not determinable at the date of these audited consolidated financial statements. An action has been commenced in Alberta by a former client and others claiming the return of losses in certain accounts, return of administration fees, interest and costs. The claim alleges breach of contract and negligence in the administration of the accounts. The damages claimed in this action are in excess of $14 million. Although the Company has denied the allegations and intends to vigorously defend itself, the probable outcome of this action and a reliable estimate of the amount of damages in the event of an adverse outcome are not determinable at the date of these audited consolidated financial statements. An action has been commenced in the Dubai International Financial Centre (DIFC) against the Company and one other claiming US$10 million in damages against the defendants in connection with a takeover bid made by a third party in the United States and the use of the plaintiff’s name by that third party. Although the Company has denied the allegations and intends to vigorously defend itself, the outcome of this action cannot be predicted with certainty and an estimate of the amount of damages in the event of an adverse outcome is not determinable at the date of these audited consolidated financial statements. The Company provides financial advisory, underwriting and other services to, and trades the securities of issuers that are involved with new and emerging industries, including the US cannabis industry. Activities within such industries, including the US cannabis industry, typically have not had the benefit of a history of successful operating results. In addition to the economic uncertainties associated with new industries, new activities and new issuers, the laws applicable to such industries or activities, particularly the US cannabis industry and the activities of issuers in that industry, and the effect or enforcement of such laws are undetermined, conflicting and uncertain. With respect to the US cannabis industry, cannabis continues to be a controlled substance under the United States Controlled Substances Act and as such, there is a risk that certain issuers, while in compliance with applicable state law, may be prosecuted under federal law. Accordingly, the Company has adopted policies and procedures reasonably designed to ensure compliance with the United States Currency and Foreign Transactions Reporting Act of 1970 (the Bank Secrecy Act) and the guidance issued by the United States Department of the Treasury Financial Crimes Enforcement Network, FIN-2014-G001 (the FinCEN Guidance) relating to providing financial services to marijuana related businesses in the United States (as that term is used in the FinCEN Guidance). While the Company takes steps to identify the risks associated with emerging industries, including the US cannabis industry, and only provides services to those issuers where it determines that there is no material risk to the Company or where any risk is unlikely to result in a material adverse consequence to the Company, there is a risk that the Company could be the subject of third party proceedings which may have a material adverse effect on the Company business, revenues, operating results and financial condition as well as the Company’s reputation, even if such proceedings were concluded successfully in favour of the Company. The Company has determined that any such proceedings are unlikely and, accordingly, has not recorded a provision in respect of such matters. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Notes to Consolidated Financial Statements 115 NOTE 27 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: 2020 2021 2022 2023 2024 Thereafter $ 33,399 31,978 29,462 21,930 18,670 23,411 $ 158,850 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: 2020 2021 2022 2023 2024 Thereafter The Company is committed to principal and interest payments under the convertible debentures as follows: 2020 2021 2022 2023 2024 Thereafter The Company is committed to principal and interest payments under the bank loan as follows: 2020 2021 2022 2023 2024 $ $ $ 2,285 2,619 2,624 797 — — 8,325 8,295 8,295 8,295 8,295 141,020 — $ 174,200 $ 10,945 15,230 37,658 — — $ 63,833 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 116 Notes to Consolidated Financial Statements NOTE 28 Subsequent Events (i) ACQUISITION On May 1, 2019, the Company, through its UK & Europe wealth management business, has completed the acquisition of Thomas Miller Wealth Management Limited (TMWML) and the private client investment management business of Thomas Miller Investment (Isle of Man) Limited. TMWML provides financial planning and investment management services to private clients, trusts, charities and corporations in the UK. There was initial cash consideration of £18.5 million (C$31.8 million), with additional contingent consideration of up to £9.5 million (C$16.8 million) payable over a period of three years following completion, subject to achievement of performance targets related to revenue and client assets. In connection with the acquisition, an additional £17.0 million (C$30.0 million) has been added to the Company’s existing bank loan facility. (ii) DIVIDENDS On June 5, 2019, the Board of Directors approved a dividend of $0.17 per common share, payable on July 2, 2019, with a record date of June 21, 2019. This dividend is comprised of a $0.01 base quarterly dividend and a $0.16 variable supplemental dividend [Note 20]. On June 5, 2019, the Board approved a cash dividend of $0.24281 per Series A Preferred Share payable on July 2, 2019 to Series A Preferred shareholders of record as at June 21, 2019 [Note 20]. On June 5, 2019, the Board approved a cash dividend of $0.31206 per Series C Preferred Share payable on July 2, 2019 to Series C Preferred shareholders of record as at June 21, 2019 [Note 20]. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT 117 Supplemental Information Advisory note: This supplemental information is not audited and should be read in conjunction with the audited financial statements contained herein. Financial Highlights(1) (C$ thousands, except for AUM, AUA, common and preferred share information, financial measures and percentages) Financial results Revenue Expenses Income taxes expense (recovery) Net income (loss) Net income (loss) attributable to CGGI shareholders Net income (loss) attributable to common shareholders Business segment Income (loss) before income taxes Canaccord Genuity Capital Markets(2) Canaccord Genuity Wealth Management(3)(5) Corporate and Other Geographic segment Income (loss) before income taxes Canada(4) UK & Europe(5) US(6) Australia Other Foreign Locations(7) Client assets information ($ millions) AUM − Canada (discretionary) AUA − Canada AUM − UK & Europe AUM − Australia Total Common share information Per common share ($) Basic (loss) earnings Diluted (loss) earnings Book value per diluted common share(8) Common share price ($) 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 For the years ended and as at March 31 2019 2018 2017 2016 2015 1,190,567 1,097,911 21,074 71,582 70,530 61,126 1,022,877 987,131 18,669 17,077 13,024 3,431 879,546 825,662 10,698 43,186 38,103 27,025 787,805 1,151,776 (5,404) (358,567) (358,471) (370,463) 62,877 58,603 (28,824) 57,370 7,861 27,312 1,692 (1,579) 4,221 20,674 44,195 854 65,723 0.58 0.48 6.25 7.47 5.54 5.84 97,580 115,617 140,241 96,260 130,944 819,007 8,540 0.20 3.4% 37.8% 13,126 33,999 (11,379) 36,156 332 (14,411) 14,909 (1,240) 2,815 15,567 44,877 830 61,274 0.04 0.03 5.71 7.49 4.08 6.93 93,054 113,523 124,294 92,587 110,862 861,357 8,540 0.15 2.2% 496.3% 44,268 24.267 (14,651) (349,110) 10,171 (25,032) 8,604 26,946 2,606 17,127 (1,399) 2,637 13,228 24,526 862 38,616 0.29 0.27 5.08 5.70 3.53 5.09 92,780 113,511 124,479 91,657 101,149 633,598 8,540 0.10 2.0% 42.0% (179,586) (104,685) (24,606) (23,889) (31,205) 1,257 9,192 22,791 731 32,714 (4.09) (4.09) 4.99 8.58 3.50 4.01 89,084 103,812 109,072 90,553 n/a 437,379 8,540 0.10 2.5% (2.8)% 880,763 886,420 5,661 (11,318) (13,184) (25,061) 1,932 6,097 (13,686) 16,487 (3,216) (6,658) 6,686 (18,956) 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)% (1) (2) (3) (4) (5) (6) (7) (8) 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: book value per diluted common share, common dividend yield, common dividend payout ratio, assets under management (AUM) and assets under administration (AUA). Includes the global capital markets division in Canada, the UK & Europe, the US, Australia, China, Dubai and Singapore. Also, commencing in Q3/17, our Dubai operation, which was previously included in Other Foreign Locations, was included as part of Canaccord Genuity Capital Markets UK & Europe. The Other Foreign Locations geographic segment is now comprised of our Asian based operations, including our new Singapore operation that began in fiscal 2019, China and Hong Kong, and prior to their sale or closure also included our former operations in Barbados and our advisory and capital raising business in Singapore. Operating results of Jitneytrade Inc. and Finlogik Inc. (Jitneytrade) are included within Canaccord Genuity Capital Markets Canada since the closing dates of June 6, 2018. Operating results of Petsky Prunier LLC are included within Canaccord Genuity Capital Markets US since the closing date of February 13, 2019 The operating results of Hargreave Hale are included since the closing date of September 18, 2017. Operating results of McCarthy Taylor Ltd. (McCarthy Taylor) are included under Canaccord Genuity Wealth Management (UK & Europe) since the closing date of January 29, 2019 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. Commencing in Q3/17, the operating results of Canaccord Genuity (Dubai) are included as Canaccord Genuity UK, Europe, and Dubai. The Company’s US geographic segment includes US capital markets and wealth management operations. Commencing in Q3/17, the operating results of our Australian operations are disclosed as a separate geography. Prior to Q3/17 Australia was included as part of Other Foreign Locations. Also, commencing in Q3/17, our Dubai operation, which was previously included in Other Foreign Locations, is now included as part of Canaccord Genuity UK & Europe. The Other Foreign Locations geographic segment is now comprised of our Asian based operations, including China and Hong Kong and prior to their sale of closure also included Singapore and Barbados. Book value per diluted common share is calculated as total common shareholders’ equity adjusted for assumed proceeds from the exercise of options and warrants, issuance of common shares in connection with deferred consideration related to acquisitions, settlement of a promissory note in shares at the Company’s option, and the conversion of convertible debentures, divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments including options, warrants, other share-based payment plan, deferred consideration related to acquisitions, promissory notes and convertible debentures, and adjusted for shares purchased or committed to be 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 118 Supplemental Information Condensed Consolidated Statements of Operations and Retained Earnings(1)(2)(3) (C$ thousands, except per share amounts and percentages) Revenue Commissions and fees Investment banking Advisory fees Principal trading Interest Other Expenses Incentive compensation(4) Salaries and benefits Trading costs Premises and equipment Communication and technology Interest General and administrative Amortization Development costs Restructuring costs(5) Acceleration of long-term incentive plan expense(6) Impairment of goodwill Share of loss from associate(7) Loss on extinguishment of convertible debentures Acquisition-related costs Income (loss) before income taxes Income taxes expense (recovery) Net income (loss) for the year Non-controlling interests Net income (loss) attributable to CGGI shareholders Retained earnings, beginning of year Common shares dividends Preferred shares dividends Equity portion of loss on extinguishment of convertible debentures Retained earnings, end of year Incentive compensation expenses as a % of revenue Total compensation expenses as a % of revenue(8) Non-compensation expenses as a % of revenue Total expenses as a % of revenue Pre-tax profit margin Effective tax rate Net profit margin Basic earnings (loss) per share Diluted earnings (loss) per share Book value per diluted common share(9) Canaccord Genuity Capital Markets Canaccord Genuity Wealth Management Corporate and Other For the years ended March 31 2019 2018 2017 2016 2015 556,475 294,241 142,228 125,830 51,008 20,785 1,190,567 599,867 116,758 83,577 41,719 64,930 25,453 100,768 24,280 15,513 13,070 — — 304 8,608 3,064 1,097,911 92,656 21,074 71,582 1,052 70,530 (277,472) (16,534) (9,402) (4,892) (237,770) 50.4% 60.2% 32.0% 92.2% 7.8% 22.7% 6.0% 0.58 0.48 6.25 704,326 461,811 24,430 1,190,567 461,937 282,195 122,372 113,921 27,875 14,577 1,022,877 526,614 99,239 68,209 39,605 56,346 18,437 83,982 24,007 7,664 7,643 48,355 — 298 — 6,732 987,131 35,746 18,669 17,077 4,053 13,024 (267,559) (13,344) (9,593) — (277,742) 51.5% 61.2% 30.6% 96.5% 3.5% 52.2% 1.7% 0.04 0.03 5.71 637,556 370,265 15,056 1,022,877 396,741 196,129 130,749 119,040 16,847 20,040 879,546 454,998 85,698 65,211 42,286 52,381 12,744 79,011 21,124 12,209 — — — — — — 825,662 53,884 10,698 43,186 5,083 38,103 (294,586) — (11,076) — (267,559) 51.7% 61.5% 32.4% 93.9% 6.1% 19.9% 4.9% 0.29 0.27 5.08 598,391 267,111 14,044 879,546 376,817 132,029 160,180 85,559 16,830 16,390 787,805 417,876 92,981 56,998 40,863 55,975 10,222 87,004 25,339 26,129 17,352 — 321,037 — — — 1,151,776 (363,971) (5,404) (358,567) (96) (358,471) 92,815 (16,938) (11,992) — (294,586) 53.0% 64.8% 81.4% 146.2% (46.2)% 1.5% (45.5)% (4.09) (4.09) 4.99 532,270 246,567 8,968 787,805 374,058 236,551 153,302 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) — 92,815 51.7% 61.5% 39.2% 100.6% (0.6)% (100.1)% (1.3)% (0.27) (0.27) 8.71 613,105 250,890 16,768 880,763 (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: 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. The operating results of the Australian operations have been fully consolidated and a non-controlling interest of 15% has been recognized for the year ended March 31, 2019 [April 1, 2018 to August 9, 2018 − 42% and post-acquisition of an additional 30% interest in the Australian operations on August 10, 2018 − 15%; March 31, 2018 − 42%]. Data includes the results of Hargreave Hale since the closing date of September 18, 2017; Jitneytrade since the closing date of June 6, 2018; McCarthy Taylor since the closing date of January 29, 2019; and, Petsky Prunier since the closing date of February 13, 2019. Incentive compensation expenses include the National Insurance Tax applicable to the UK. Restructuring costs for the year ended March 31, 2019 related to termination benefits and certain real estate costs incurred as a result of the restructuring of our UK capital markets operations. Restructuring costs for the year ended March 31, 2018 related to termination benefits as a result of the closing of certain trading operations in our UK & Europe capital markets operations, staff reductions in our Canadian and US capital markets operations, as well as real estate costs related to the acquisition of Hargreave Hale. Restructuring costs for the year ended March 31, 2016 were related to staff reductions in our US capital markets operations and the closure of our Barbados office in Other Foreign Locations, as well as charges related to changes in our Corporate and Other segment. Effective as of March 31, 2018 the Plan was changed to remove certain employment-related conditions for the vesting of RSU awards made as part of the normal course incentive compensation payment cycle. As a result of this change, the costs of RSUs granted as part of the normal course incentive compensation payment cycle will now be expensed in the period in which those awards are deemed to be earned, instead of recognizing the costs over the vesting period. This change led to the acceleration of the remaining expense for certain awards made under the LTIP which had not been fully amortized as of March 31, 2018. The total charge recorded during the year ended March 31, 2018 in respect of awards granted prior to fiscal 2018 was $48.4 million. Represents the Company’s equity portion of the net loss of its investment in Canaccord Genuity Growth Corp. and Canaccord Genuity Acquisition Corp. for the year ended March 31, 2019 and the Company’s equity portion of the net loss of its investment in Canaccord Genuity Acquisition Corp for the year ended March 31, 2018. Total compensation expenses include incentive compensation and salaries and benefits, but exclude hiring incentives, which are included in development costs. Book value per diluted common share is calculated as total common shareholders’ equity adjusted for assumed proceeds from the exercise of options and warrants, issuance of common shares in connection with deferred consideration related to acquisitions, settlement of a promissory note in shares at the Company’s option, and the conversion of convertible debentures, divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments including options, warrants, other share-based payment plan, deferred consideration related to acquisitions, promissory notes and convertible debentures, and adjusted for shares purchased or committed to be purchased under the normal course issuer bid and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Supplemental Information 119 Condensed Consolidated Statements of Financial Position As at March 31 (C$ thousands) Assets Cash and cash equivalents Securities owned, at market Accounts receivable Income taxes recoverable Deferred tax assets Investments Equipment and leasehold improvements Goodwill and other intangibles Liabilities and shareholders’ equity Bank indebtedness Short term credit facility Securities sold short Accounts payable, accrued liabilities and other Income taxes payable Current portion of bank loan Deferred consideration Contingent consideration Promissory note Other long-term liability Bank loan Deferred tax liabilities Subordinated debt Convertible debentures Non-controlling interests Shareholders’ equity Miscellaneous Operational Statistics(1) As at March 31 Number of employees in Canada Number in Canaccord Genuity Capital Markets Number in Canaccord Genuity Wealth Management Number in Corporate and Other Total Canada Number of employees in the UK & Europe Number in Canaccord Genuity Capital Markets Number in Canaccord Genuity Wealth Management Number of employees in the US Number in Canaccord Genuity Capital Markets Number of employees in Australia Number in Canaccord Genuity Capital Markets Number in Canaccord Genuity Wealth Management Number of employees in Other Foreign Locations Number in Canaccord Genuity Capital Markets 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) 2019 2018 2017 2016 2015 820,739 690,499 2,656,664 2,502 22,117 6,224 25,792 524,757 4,749,294 9,639 — 373,419 3,141,977 5,415 9,294 22,225 108,319 5,832 1,741 50,370 7,978 7,500 127,225 1,997 876,363 4,749,294 862,838 469,217 2,215,837 1,170 19,941 2,035 30,967 418,731 4,020,736 — — 301,006 2,647,382 7,851 9,679 9,997 49,844 — — 61,758 13,715 7,500 57,081 13,571 841,352 4,020,736 677,769 784,230 3,395,736 1,085 15,323 2,829 31,479 295,065 5,203,516 25,280 — 645,742 3,681,676 10,093 — — — — — — 140 7,500 56,442 11,858 764,785 5,203,516 428,329 564,746 2,041,150 12,537 11,221 5,578 37,049 323,936 3,424,546 14,910 — 427,435 2,203,858 4,242 — — — — — — 450 15,000 8,722 749,929 3,424,546 322,324 848,128 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 2019 2018 2017 2016 2015 255 430 308 993 197 565 308 58 10 4 2,135 155 420 200 6 4,221 20,674 44,195 854 65,723 189 379 288 856 214 559 256 57 11 3 1,956 142 374 188 7 2,815 15,567 44,877 830 61,274 178 359 279 816 225 313 275 58 11 2 1,700 141 367 118 8 2,637 13,228 24,526 862 38,616 180 354 288 822 282 312 291 55 10 23 1,795 139 392 118 7 1,257 9,192 22,791 731 32,714 201 400 324 925 329 303 269 56 13 33 1,928 152 437 114 9 1,561 10,729 21,763 836 33,328 (1) (2) (3) These miscellaneous operational statistics are non-IFRS measures. 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 120 Supplemental Information Quarterly Financial Highlights(1) (C$ thousands, except for AUM, AUA, common and preferred share information, financial measures and percentages) Financial results Fiscal 2019 Fiscal 2018 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Revenue Expenses Income taxes expense (recovery) Net income (loss) Net income (loss) attributable to CGGI shareholders Net income (loss) attributable to common shareholders 284,808 279,265 3,087 2,456 2,663 312 331,600 290,991 8,151 32,458 32,457 30,106 300,036 274,123 275,414 252,241 3,233 18,649 17,616 15,265 6,603 18,019 17,794 15,443 322,080 324,379 7,404 (9,703) (11,661) (14,012) 309,442 262,559 10,285 36,598 34,432 32,081 191,547 198,613 192 (7,258) (7,485) (9,836) 199,808 201,580 788 (2,560) (2,262) (4,802) Business segment Income (loss) before income taxes Canaccord Genuity(2) Canaccord Genuity Wealth Management(3) Corporate and Other Geographic segment Income (loss) before income taxes Canada(4) UK & Europe(5) US(6) Australia Other Foreign Locations(7) Client assets ($ millions) AUM − Canada (discretionary) AUA − Canada AUM − UK & Europe AUM − Australia Total Common share information Per common share ($) Basic earnings (loss) Diluted earnings (loss) Book value per diluted common share(8) Common share price ($) High Low Close Common shares outstanding (thousands) Issued shares excluding unvested shares Issued and outstanding Diluted shares Average basic Average diluted Average diluted − adjusted 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 (2,529) 13,099 (5,027) 31,096 14,813 (5,300) 24,214 16,385 (15,977) 10,096 14,306 (2,520) (6,977) 8,642 (3,964) 34,266 16,322 (3,705) (6,773) 919 (1,212) (7,390) 8,116 (2,498) 6,152 (6,885) 8,481 (1,792) (413) 4,221 20,674 44,195 854 65,723 0.00 0.00 6.25 6.65 5.65 5.84 25,722 10,196 5,215 (64) (460) 3,954 18,260 41,153 771 60,184 0.31 0.25 6.04 7.11 5.54 5.77 97,580 115,617 140,241 96,696 118,327 131,510 819,007 96,259 114,857 136,659 97,163 129,169 129,169 788,522 16,055 2,234 6,003 672 (342) 4,158 19,746 45,230 834 65,810 9,441 2,316 7,613 2,876 (364) 3,721 18,921 46,434 845 66,200 0.11 0.09 5.69 7.47 6.83 6.90 0.16 0.14 5.52 7.44 5.76 7.26 12,282 (10,073) (11,032) 6,786 (262) 2,815 15,567 44,877 830 61,274 (0.15) (0.15) 5.71 7.49 5.50 6.93 24,740 8,959 5,111 8,379 (306) 2,838 14,451 43,791 928 59,170 0.35 0.29 5.11 5.91 4.08 5.80 (4,139) 2,387 (6,257) 1,059 (116) 2,688 12,801 40,797 866 54,464 (0.11) (0.11) 4.74 6.68 4.26 4.29 3,273 (941) (2,233) (1,315) (556) 2,647 12,669 25,755 860 39,284 (0.05) (0.05) 4.91 5.42 4.17 5.33 97,055 96,502 115,707 113,548 137,741 124,646 94,363 115,861 117,541 129,133 117,541 950,413 904,930 96,583 93,054 113,523 124,294 92,730 112,187 121,418 861,357 92,281 113,511 124,209 92,030 113,613 113,613 720,412 91,602 113,511 124,141 92,529 104,741 104,741 532,565 92,904 113,511 124,281 93,069 n/a n/a 662,418 8,540 8,540 8,540 8,540 8,540 8,540 8,540 8,540 0.17 2.9% 6,299.6% 0.01 0.7% 3.8% 0.01 0.6% 11.0% 0.01 0.6% 7.4% 0.12 1.7% (97.2)% 0.01 0.7% 3.5% 0.01 0.9% (11.5)% 0.01 0.8% (23.6)% (1) (2) (3) (4) (5) (6) (7) (8) 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: book value per diluted common share, common dividend yield, common dividend payout ratio, assets under management (AUM) and assets under administration (AUA). Includes the global capital markets division in Canada, the UK & Europe, the US, Australia, China, Dubai and Singapore. Also, commencing in Q3/17, our Dubai operation, which was previously included in Other Foreign Locations, was included as part of Canaccord Genuity Capital Markets UK & Europe. The Other Foreign Locations geographic segment is now comprised of our Asian based operations, including our new Singapore operation that began in fiscal 2019, China and Hong Kong, and prior to their sale or closure also included our former operations in Barbados and our advisory and capital raising business in Singapore. Operating results of Jitneytrade Inc. and Finlogik Inc. (Jitneytrade) are included within Canaccord Genuity Capital Markets Canada since the closing dates of June 6, 2018. Operating results of Petsky Prunier LLC are included within Canaccord Genuity Capital Markets US since the closing date of February 13, 2019 The operating results of Hargreave Hale are included since the closing date of September 18, 2017. Operating results of McCarthy Taylor Ltd. (McCarthy Taylor) are included under Canaccord Genuity Wealth Management (UK & Europe) since the closing date of January 29, 2019 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. Commencing in Q3/17, the operating results of Canaccord Genuity (Dubai) are included as Canaccord Genuity UK, Europe, and Dubai. The Company’s US geographic segment includes US capital markets and wealth management operations. Commencing in Q3/17, the operating results of our Australian operations are disclosed as a separate geography. Prior to Q3/17 Australia was included as part of Other Foreign Locations. Also, commencing in Q3/17, our Dubai operation, which was previously included in Other Foreign Locations, is now included as part of Canaccord Genuity UK & Europe. The Other Foreign Locations geographic segment is now comprised of our Asian based operations, including China and Hong Kong and prior to their sale of closure also included Singapore and Barbados. Book value per diluted common share is calculated as total common shareholders’ equity adjusted for assumed proceeds from the exercise of options and warrants, issuance of common shares in connection with deferred consideration related to acquisitions, settlement of a promissory note in shares at the Company’s option, and the conversion of convertible debentures, divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments including options, warrants, other share-based payment plan, deferred consideration related to acquisitions, promissory notes and convertible debentures, and adjusted for shares purchased or committed to be 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. / 2019 ANNUAL REPORT Supplemental Information 121 Condensed Consolidated Statements of Operations(1)(2)(3) (C$ thousands, except per share amounts and percentages) Revenue Commissions and fees Investment banking Advisory fees Principal trading Interest Other Expenses Incentive compensation(4) Salaries and benefits Trading costs Premises and equipment Communication and technology Interest General and administrative Amortization Development costs Restructuring costs(5) Acquisition-related costs Acceleration of long-term Incentive plan(6) expense Share of loss from associate(7) Loss on extinguishment of convertible debentures Impairment of goodwill (Loss) income before income taxes Income tax (recovery) expense Net (loss) income for the period Non-controlling interests Net (loss) income attributable to CGGI shareholders Incentive compensation expenses as a % of Q4 Fiscal 2019 Q3 Q2 Q1 Q4 Fiscal 2018 Q3 Q2 137,578 60,316 32,220 35,197 13,733 5,764 284,808 143,909 31,353 18,040 10,895 18,154 5,738 29,103 5,769 2,940 11,754 1,721 143,115 98,978 40,698 30,776 12,703 5,330 331,600 166,719 29,220 24,575 10,647 16,575 5,903 26,689 5,675 4,661 — 170 139,402 67,426 44,396 28,949 15,326 4,537 300,036 151,493 27,598 22,462 10,230 15,015 8,218 21,292 6,198 4,053 — — 136,380 67,521 24,914 30,908 9,246 5,154 274,123 137,746 28,587 18,500 9,947 15,186 5,594 23,684 6,638 3,859 1,316 1,173 135,148 95,514 40,930 36,047 10,045 4,396 322,080 160,409 28,631 20,428 10,138 14,967 6,090 24,106 6,949 3,187 939 184 125,709 112,639 31,947 29,138 6,861 3,148 309,442 158,631 26,537 16,521 10,511 14,558 4,171 23,108 6,916 1,512 — — 96,125 33,356 30,589 22,849 5,793 2,835 191,547 101,270 21,664 14,008 8,847 14,163 3,731 17,468 5,148 1,486 6,256 4,364 Q1 104,955 40,696 18,896 25,887 5,176 4,198 199,808 106,304 22,407 17,252 10,109 12,658 4,445 19,300 4,994 1,479 448 2,184 — (111) — 157 — 247 — 11 48,355 (4) — 94 — 208 — — — — 279,265 5,543 3,087 2,456 (207) — — 290,991 40,609 8,151 32,458 1 8,608 — 275,414 24,622 6,603 18,019 225 — — 252,241 21,882 3,233 18,649 1,033 — 324,379 (2,299) 7,404 (9,703) 1,958 — 262,559 46,883 10,285 36,598 2,166 — 198,613 (7,066) 192 (7,258) 227 — 201,580 (1,772) 788 (2,560) (298) 2,663 32,457 17,794 17,616 (11,661) 34,432 (7,485) (2,262) revenue 50.5% 50.3% 50.5% 50.2% 49.8% 51.3% 52.9% 53.2% Total compensation expenses as a % of revenue(8) 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(9) Canaccord Genuity Capital Markets Canaccord Genuity Wealth Management Corporate and Other 61.5% 36.5% 98.1% 1.9% 55.7% 0.9% 0.00 0.00 6.25 160,047 117,130 7,631 284,808 59.15 28.7% 87.8% 12.2% 20.1% 9.8% 0.31 0.25 6.04 209,387 115,979 6,248 331,600 59.7% 32.1% 91.8% 8.2% 26.8% 6.0% 0.11 0.09 5.69 178,723 116,126 5,176 300,036 60.7% 31.3% 92.0% 8.0% 58.7% 27.0% 100.7% (0.7)% 14.8% (322.1)% (3.0)% (0.15) (0.15) 5.71 200,687 116,378 5,015 322,080 6.8% 0.16 0.14 5.52 156,194 112,576 5,375 274,123 59.8% 25.0% 84.8% 15.2% 21.9% 11.8% 0.35 0.29 5.11 196,203 109,373 3,866 309,442 64.2% 39.5% 103.7% (3.7)% (2.7)% (3.8)% (0.11) (0.11) 4.74 118,880 69,563 3,104 191,547 64.4% 36.5% 100.9% (0.9)% (44.5)% (1.3)% (0.05) (0.05) 4.91 121,786 74,951 3,071 199,808 (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: 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. The operating results of the Australian operations have been fully consolidated and a non-controlling interest of 15% has been recognized for the year ended March 31, 2019 [April 1, 2018 to August 9, 2018 − 42% and post-acquisition of an additional 30% interest in the Australian operations on August 10, 2018 − 15%; March 31, 2018 − 42%]. Data includes the results of Hargreave Hale since the closing date of September 18, 2017; Jitneytrade since the closing date of June 6, 2018; McCarthy Taylor since the closing date of January 29, 2019; and, Petsky Prunier since the closing date of February 13, 2019. Incentive compensation expenses include the National Insurance Tax applicable to the UK. Restructuring costs for the year ended March 31, 2019 related to termination benefits and certain real estate costs incurred as a result of the restructuring of our UK capital markets operations. Restructuring costs for the year ended March 31, 2018 related to termination benefits as a result of the closing of certain trading operations in our UK & Europe capital markets operations, staff reductions in our Canadian and US capital markets operations, as well as real estate costs related to the acquisition of Hargreave Hale. Restructuring costs for the year ended March 31, 2016 were related to staff reductions in our US capital markets operations and the closure of our Barbados office in Other Foreign Locations, as well as charges related to changes in our Corporate and Other segment. Effective as of March 31, 2018 the Plan was changed to remove certain employment-related conditions for the vesting of RSU awards made as part of the normal course incentive compensation payment cycle. As a result of this change, the costs of RSUs granted as part of the normal course incentive compensation payment cycle will now be expensed in the period in which those awards are deemed to be earned, instead of recognizing the costs over the vesting period. This change led to the acceleration of the remaining expense for certain awards made under the LTIP which had not been fully amortized as of March 31, 2018. The total charge recorded during the year ended March 31, 2018 in respect of awards granted prior to fiscal 2018 was $48.4 million. Represents the Company’s equity portion of the net loss of its investment in Canaccord Genuity Growth Corp. and Canaccord Genuity Acquisition Corp. for the year ended March 31, 2019 and the Company’s equity portion of the net loss of its investment in Canaccord Genuity Acquisition Corp for the year ended March 31, 2018. Total compensation expenses include incentive compensation and salaries and benefits, but exclude hiring incentives, which are included in development costs. Book value per diluted common share is calculated as total common shareholders’ equity adjusted for assumed proceeds from the exercise of options and warrants, issuance of common shares in connection with deferred consideration related to acquisitions, settlement of a promissory note in shares at the Company’s option, and the conversion of convertible debentures, divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments including options, warrants, other share-based payment plan, deferred consideration related to acquisitions, promissory notes and convertible debentures, and adjusted for shares purchased or committed to be purchased under the normal course issuer bid and not yet cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 122 Supplemental Information Condensed Consolidated Statements of Financial Position (C$ thousands) Assets Cash and cash equivalents Securities owned 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 Accounts payable, accrued liabilities and other Income taxes payable Current portion of bank loan Deferred consideration Contingent consideration Promissory note Other long-term liability Bank loan Deferred tax liabilities Subordinated debt Convertible debentures Non-controlling interests Shareholders’ equity 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 Australia Number in Canaccord Genuity Number in Canaccord Genuity Wealth Management Number of employees in Other Foreign Locations Number in Canaccord Genuity 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) (1) (2) Fiscal 2019 Fiscal 2018 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 820,739 690,499 2,656,664 2,502 22,117 6,224 25,792 524,757 4,749,294 9,639 — 373,419 3,141,977 5,415 9,294 22,225 108,319 5,832 1,741 50,370 7,978 7,500 127,225 1,997 876,363 4,749,294 930,912 709,037 1,888,600 9,789 20,831 6,184 25,941 406,789 3,998,083 5,903 — 438,348 2,426,381 6,527 9,238 9,553 51,572 5,733 — 54,596 14,264 7,500 126,964 2,338 839,166 3,998,083 897,276 654,784 2,209,995 5,697 20,802 2,278 26,014 403,285 4,220,131 40,635 — 409,623 2,691,837 4,344 8,982 9,743 50,258 5,594 — 53,003 11,848 7,500 126,707 2,004 798,053 4,220,131 739,311 625,799 592,873 514,220 862,838 469,217 543,109 469,433 2,388,761 2,215,837 1,758,532 1,944,939 2,716 15,006 2,321 30,717 405,157 4,221,836 4,020,736 3,317,204 3,413,398 242 12,412 2,030 31,966 404,929 1,170 19,941 2,035 30,967 418,731 5,362 18,200 2,191 28,467 413,745 14,526 — 418,081 — — 301,006 2,767 — 342,754 27,300 — 316,003 2,742,571 2,647,382 1,982,336 2,130,560 9,666 4,463 10,030 45,969 — — 61,244 10,170 7,500 56,755 13,354 720,384 4,221,836 4,020,736 3,317,204 3,413,398 12,988 4,529 9,958 46,643 — — 62,230 10,220 7,500 56,916 12,031 766,332 7,851 9,679 9,997 49,844 — — 61,758 13,715 7,500 57,081 13,571 841,352 3,739 9,233 10,117 51,550 — — 59,009 13,435 7,500 57,249 15,259 819,567 Fiscal 2019 Fiscal 2018 Q4 255 430 308 993 197 565 308 58 10 4 2,135 155 420 200 6 4,221 20,674 44,195 854 65,723 Q3 248 425 303 976 192 548 260 58 10 4 2,048 150 416 188 6 3,954 18,260 41,153 771 60,184 Q2 248 413 294 955 192 559 260 56 10 4 2,036 150 410 193 6 4,158 19,746 45,230 834 65,810 Q1 244 412 291 947 197 559 263 57 11 4 2,038 148 407 190 7 3,721 18,921 46,434 845 66,200 Q4 189 379 288 856 214 559 256 57 11 3 1,956 142 374 188 7 2,815 15,567 44,877 830 61,274 Q3 189 352 282 823 214 574 257 56 12 3 1,939 134 353 197 8 2,838 14,451 43,791 928 59,170 Q2 194 353 276 823 217 586 258 55 12 2 1,953 134 356 200 8 2,688 12,801 40,797 866 54,464 521,725 585,258 2,171,795 884 16,231 2,960 30,592 293,805 3,623,250 — — 410,303 2,383,957 10,394 — — — — — — 141 7,500 56,597 12,481 741,877 3,623,250 Q1 190 351 274 815 222 314 275 58 11 2 1,697 135 355 119 8 2,647 12,669 25,755 860 39,284 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. 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. / 2019 ANNUAL REPORT Glossary Acquisition-related expense items These expenses are mainly comprised of professional and employment costs in connection with 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. 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 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 of business. 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 Complete Canaccord Private Investment Management. 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 and 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 as total common shareholders’ equity adjusted for assumed proceeds from the exercise of options and warrants, issuance of common shares in connection with deferred consideration related to acquisitions, settlement of a promissory note issued as purchase consideration in shares at the Company’s option, and conversion of convertible debentures divided by the number of diluted common shares that would then be outstanding including estimated amounts in respect of share issuance commitments including options, warrants, other share-based payment plan, deferred consideration related to acquisitions, convertible debentures and a promissory note, as applicable, and adjusted for shares purchased or committed to be purchased under the normal course issuer bid and not yet 123 cancelled, and estimated forfeitures in respect of unvested share awards under share-based payment plans. This measure is non-IFRS. Canaccord Genuity Capital Markets Canaccord Genuity refers to the Company’s global capital markets division, offering institutional and corporate clients idea-driven investment banking, merger and acquisition, research, sales and trading services with capabilities in North America, the UK & Europe, Asia, Australia and the Middle East. Canaccord Genuity Wealth Management (CGWM) 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, the UK, Jersey, Guernsey, the Isle of Man and Australia. Commissions and fees Commission and fees revenue consist of revenue generated through commission-based brokerage services and the sale of fee-based products and services. 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. 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 Capital Markets 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 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). 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 124 Glossary Earnings (loss) per share (EPS) Basic earnings (loss) per common share is computed by dividing the net income (loss) 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, warrants, other share-based payment plans as well as the convertible debentures 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. Employee Stock Purchase Plan (ESPP) Voluntary plan that provides eligible employees with the ability to purchase shares in the Company through payroll deductions, with an additional contribution by the Company. Escrowed securities Common shares in the Company that are subject to specific terms of release. Fair value adjustment An estimate of the fair value of an asset (or liability) for which a market price cannot be determined, usually because there is no established market for the asset. Fixed income trading Trading in new issues, government and corporate bonds, treasury bills, commercial paper, strip bonds, high-yield debt and convertible debentures. Incentive-based revenue A percentage of incentive-based revenue earned is directly paid out as incentive compensation expense, including commission, investment banking, advisory fees, and principal trading revenue. 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. Investment banking Assisting public and private businesses and governments to obtain financing in the capital markets through the issuance of debt, equity and derivative securities on either an underwritten or an agency basis. Investment professionals and fund managers Investment professionals include all staff with direct sales responsibilities, which include brokers and assistants with direct contacts. Fund managers include all staff who manage client assets. Liquidity The total of cash and cash equivalents available to the Company as capital for operating and regulatory purposes. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Long-term incentive plan (LTIP) Employees (including senior executives) 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). The participating employees are eligible to receive shares that generally vest over three years (the “RSUs”). This program is referred to as the Long-Term Incentive Plan (the “LTIP” or the “Plan”). National Insurance (NI) tax Payroll tax applicable to UK employees based on a percentage of incentive compensation payout. 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 measured presented by other companies. Performance stock options The PSOs have a term of five years and will time-vest ratably over four years (with one third vesting on each of the second, third and fourth anniversaries of the date of the grant). The PSOs will also be subject to market (stock price) performance vesting conditions, as well as have a four times exercise price cap on payout value (i.e., the gain on the exercise of the options is limited to three times the exercise price). The PSOs will expire on June 14, 2023. Performance share units The Company adopted a performance share unit (PSU) plan for certain senior executives beginning the year ended March 31, 2018. The PSUs are a notional equity-based instrument linked to the value of the Company’s common shares. At the end of a three-year vesting period, the number of PSUs which vest is determined upon performance against certain pre-determined metrics. The PSUs cliff vest on the third anniversary of the date of the grant. The PSUs are settled in cash, based on the market price of the Company’s shares at the time of vesting. 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. Replacement plans Share-based payment plans introduced to replace the share-based payment plans that existed at CSHP at the date of acquisition. Glossary 125 Risk Financial institutions face a number of risks that may expose them to losses, including market, credit, operational, regulatory and legal risk. Separately managed accounts (SMAs) Investment portfolios available to clients that are managed by a senior portfolio manager. In SMAs, clients own the individual securities within the portfolio, rather than a portion of a pooled fund. Significant items Significant items include restructuring costs, amortization of intangible assets acquired in connection with a business combination, impairment of goodwill and other assets, and acquisition-related expense items which include costs recognized in relation to both prospective and completed acquisitions, gains or losses related to business disposals including recognition of realized translation gains on the disposal of foreign operations, certain accounting charges related to the change in the Company’s long-term incentive plan (LTIP) as recorded with effect on March 31, 2018, certain incentive-based costs related to the acquisition of Hargreave Hale recorded under development costs, loss related to the extinguishment of convertible debentures as recorded for accounting purposes as well as certain expense items, typically included in development costs, which are considered by management to reflect a singular charge of a non-operating nature. Financial statement items that exclude significant items are non-IFRS measures. Syndicate participation A group of investment banking firms coordinating the marketing, distribution, pricing and stabilization of equity financing transactions. 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. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 126 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: (cid:129) The Business Corporations Act (British Columbia) (cid:129) The Company’s articles (cid:129) The charters of its committees (cid:129) 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: (cid:129) Assisting management to identify the principal business risks of the Company (cid:129) Taking reasonable steps to ensure the implementation of appropriate systems to manage and monitor those risks (cid:129) Reviewing plans for evaluating and testing the Company’s internal financial controls (cid:129) 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. (cid:129) 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 (cid:129) The succession plan is reviewed, at least annually, by the CGCC (cid:129) On the recommendation of the Chairman & CEO, the Board appoints the senior officers of the Company CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Corporate Governance 127 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. (cid:129) The DCP is reviewed annually by the Board (cid:129) The DCP, public securities regulatory filings, press releases and investor presentations are posted on the Company’s website (cid:129) 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. (cid:129) 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 (cid:129) 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, 2019 an evaluation was carried out, under the supervision of and with the participation of management, including the President & CEO and the Executive Vice President & CFO, of the effectiveness of our disclosure controls and procedures as defined under National Instrument 52-109. Based on that evaluation, the President & CEO and the Executive Vice President & CFO concluded that the design and operation of these disclosure controls and procedures were effective as of March 31, 2019. Governance The Board is currently composed of eight directors, six of whom are independent of management as determined under applicable securities legislation. In order to facilitate the exercise of independent judgment by the Board of Directors, the Board has appointed a lead director and holds regular meetings without management directors present. (cid:129) The CGCC is responsible for periodically reviewing the composition of the Board and its committees (cid:129) 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 (cid:129) New directors are provided with substantial reference material on the Company’s strategic focus, financial and operating history, corporate governance practices and corporate vision 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 128 Corporate Governance Summary of Charters and Committees The Board has delegated certain of its responsibilities to two committees, each of which has specific roles and responsibilities as defined by the Board. Both of these Board committees are made up of independent directors. AUDIT COMMITTEE The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities by monitoring the Company’s financial reporting practices and financial disclosure. It comprises four independent directors. All members of the Audit Committee are financially literate; that is, they are able to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements. The current members of the Audit Committee are Terrence Lyons (Chair), Charles Bralver, Merri Jones and Dipesh Shah. 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 2015 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 four unrelated directors: Michael Harris (Chair), Charles Bralver, Kalpana Desai and Terrence 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. / 2019 ANNUAL REPORT Board of Directors Charles N. Bralver (2010) Audit Committee Corporate Governance and Compensation Committee Charles N. Bralver, age 67, is a financial services executive with over forty years of financial services 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 served as Senior Associate Dean for International Business and Finance at the Fletcher School of Law and Diplomacy from 2007 to 2010, and from 2007 to 2009 as a strategic advisor to Warburg Pincus LLC. Mr. Bralver serves as a director of the Company, and insurance risk exchange AkinovA, on the Leadership Council of AI solution developer r4, and on the Board of Visitors of the Fletcher School of Law and Diplomacy. He is also a member of the Boston Financial Leadership Council and Business Executives for National Security. Mr. Bralver started his career at Booz Allen Hamilton. He is a graduate of the Fletcher School and Dartmouth College. Mr. Bralver is not currently a director of any other public companies. Daniel Daviau (2015) Dan Daviau, age 54, was appointed President and Chief Executive Officer and a director of the Company and Chief Executive Officer of Canaccord Genuity Corp. effective on October 1, 2015. Mr. Daviau served as President of Canaccord Genuity’s North American capital markets business from February 2015. From 2012 to 2015, he was President of the firm’s US capital markets business, where he helped to structure the firm’s investment banking, research, sales and trading operations in the region and improve cross-border capabilities. From 2010 to 2012, Mr. Daviau was Head of Investment Banking for Canaccord Genuity. Before the Canaccord/Genuity merger that was announced in 2010, Mr. Daviau was a Principal and Founder of Genuity Capital Markets, where he held a variety of senior roles since 2005. Before 2005, Mr. Daviau was Co-Head of Investment Banking at CIBC World Markets, a firm he joined in 1991. While at CIBC World Markets, Mr. Daviau also served as the Head of the Media and Telecommunications Group since 2000 and Head of the Technology Investment Banking Group in Canada since 1997. Having started his career as a securities lawyer with Goodman & Co., Mr. Daviau has extensive experience in a broad range of financing transactions and M&A assignments. Mr. Daviau is based in Toronto, Canada. He holds an MBA from York University, an LL.B. from Osgoode Hall/York University and a B.A. (Math and Statistics) from the University of Western Ontario. Mr. Daviau is not currently a director of any other public companies. 129 Kalpana Desai (2014) Corporate Governance and Compensation Committee Kalpana Desai, age 52, 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, an Executive Director 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 Senior Managing Director in the investment banking division of Bank of America Merrill Lynch based in Hong Kong, having joined Merrill Lynch in 1998. Earlier, Ms. Desai worked in the investment banking divisions of Barclays de Zoete Wedd (now part of Credit Suisse) and J. Henry Schroder Wagg (now part of Citibank) in London, having started her career in the financial services consulting division of PricewaterhouseCoopers. 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 lived in Hong Kong from 1997 to 2017 and now lives in the United Kingdom. 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. In addition to Canaccord Genuity Group Inc., Ms. Desai is a non-executive director of Janus Henderson Group plc which is listed on the New York Stock Exchange (NYSE), the London Stock Exchange and the Australian Securities Exchange (ASX). Michael D. Harris, ICD.D. (2004) Corporate Governance and Compensation Committee Michael Harris, ICD.D, age 74, is the President of his own consulting firm, Steane Consulting Ltd., and, in this capacity, acts as a consultant to various Canadian companies, including Fasken Martineau DuMoulin LLP. Before joining Fasken in September 2013, he was a senior business advisor with the law firm of Cassels Brock & Blackwell 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, Mr. 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 has also served as a director of the Manning Centre for Building Democracy and as 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 and a director of the New Haven Learning Centre. He has received his ICD.D certification from the Institute of Corporate Directors. 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 130 Board of Directors In addition to Canaccord Genuity Group Inc., Mr. Harris is a director of the following public companies: Chartwell Retirement Residences (Chair), Colliers International Group Inc. (CIGI) and Routel Inc. (Chair). Merri Jones, ICD.D (2018) Audit Committee Merri Jones, age 68, is a corporate director and advisor. She has over 40 years’ experience within financial services with expertise across sales and marketing, finance, strategy and human resources. She was the first female to lead a Schedule II Bank in Canada. She was the Executive Vice President, Private Wealth, at Fiera Capital from 2010 to 2015; President of GBC Asset Management in 2008 and 2009; President and Chief Executive Officer of AGF Private Wealth Management from 2003 to 2007; President, Chief Operating Officer and Director of TAL Private Management from 1996 to 2003; and President and Chief Executive Officer of CIBC Trust in 1995 and 1996. Before joining CIBC in 1995, Ms. Jones had been President and Chief Executive Officer of First Interstate Bancorp from 1986 to 1990 and had worked at Chemical Bank and the Royal Bank of Canada, where she began her career. Ms. Jones was educated at the University of Western Ontario, the Wharton School of Business and the University of Toronto. She has received her ICD.D certification from the Institute of Corporate Directors. Ms. Jones is a director of the following public company: Data Communications Management Corp. She is also the Chair of the investment review committee of the Starlight Group of Funds. David Kassie (2010) David Kassie, age 63, became Group Chairman and a director of the Company 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 and on October 1, 2015, upon succession, Mr. Kassie became the Executive Chairman. 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 the Chairman of the Board of Baycrest Health Sciences and is on the board of the Richard Ivey School of Business and was formerly on the boards of the Toronto International Film Festival Group and the Hospital for Sick Children. Mr. Kassie holds a B.Comm. (Honours) in Economics from McGill University (1977), and an MBA from the University of Western Ontario (1979). In addition to Canaccord Genuity Group Inc., Mr. Kassie is a director of the following public company: Reitmans (Canada) Limited. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Terrence A. Lyons, ICD.D. (2004) Audit Committee Corporate Governance and Compensation Committee Terrence (Terry) Lyons, ICD.D, age 69, is a corporate director. He is a director of several public and private corporations including Sprott Resource Holdings Inc. (Chairman) and Martinrea International Inc. Mr. Lyons is a retired Managing Partner of Brookfield Asset Management, past Chairman of Northgate Minerals Corporation which was acquired by AuRico Gold Inc. (now Alamos Gold Inc.), past Chairman of Eacom Timber Corporation which was sold to a private equity firm, past Chairman of Westmin Mining, past Vice-Chairman of Battle Mountain Gold and past Chairman of Polaris Materials Corporation. Mr. Lyons is a Civil Engineer (UBC) with an MBA from the University of Western Ontario (1974). He sits on the Advisory Board of the Richard Ivey School of Business and is active in sports and charitable activities, is a past Governor of the Olympic Foundation of Canada, past Chairman of the Mining Association of B.C., past Governor and member of the Executive Committee of the B.C. Business Council and a past director of the Institute of Corporate Directors (B.C.). In 2007, Mr. Lyons was awarded the INCO Medal by the Canadian Institute of Mining and Metallurgy for distinguished service to the mining industry. In addition to Canaccord Genuity Group Inc., Mr. Lyons is a director of the following public companies: Martinrea International Inc. and Sprott Resource Holdings Inc. Dipesh Shah, OBE, FRSA (2012) Audit Committee Dipesh Shah, OBE, FRSA, age 66, is Chairman of Notting Hill Genesis and Genesis Housing Association and a director on the boards of The Crown Estate and the two 2020 European Funds for Energy, Climate Change and Infrastructure (‘‘EU Marguerite Fund I’’ and ‘‘EU Marguerite Fund II’’, for each of which 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. He was the Senior Independent Director and Chair of the Remuneration Committee of JKX Oil & Gas Plc from 2008 to 2015, the Senior Independent Director and Chair of the Nominations Committee of Equus Petroleum Plc from 2013 to 2016 and a Director of Thames Water from 2007 to August 2017 and of Cavendish Fluor Partnership from 2014 to August 2017. In addition, he has been a Director of several major organizations, including Babcock International Group Plc and Lloyd’s of London, the insurance market. He was also a member of the UK Government’s Renewable Energy Advisory Committee from 1994 to 2002. Earlier, Mr. Shah was the Chief Economist for BP Oil UK. Born in India, and brought up in Uganda, Mr. Shah is a graduate of the University of London, the University of Warwick and the Harvard Business School management program. He was appointed an Officer of the Order of the British Empire (OBE) in the 2007 New Year Honours and is a Life Fellow of the Royal Society of Arts (FRSA). Mr. Shah is not currently a director of any other public companies. 131 UK & Europe London 88 Wood Street London, UK EC2V 7QR Telephone: 44.20.7523.8000 Dublin 38 Fitzwilliam Street Upper Grand Canal Dock Dublin 2 D02 KV05 Ireland Telephone: 353.1.635.0210 Paris Washington Plaza 29 rue de Berri 75008 Paris France Telephone: 33.1.56.69.66.66 Dubai Gate Village Building 4 Suite 402, DIFC PO Box 507023 Dubai United Arab Emirates Telephone: 971.4.454.1215 Locations Capital Markets CANACCORD GENUITY CAPITAL MARKETS Canada 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 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 Calgary Centennial Place − East Tower Suite 2400, 520 3rd Ave. SW Calgary, AB Canada T2P 0R3 Telephone: 403.508.3800 Montréal 1250 René-Lévesque Boulevard West Suite 2930 Montréal, QC Canada H3B 4W8 Telephone: 514.844.5443 United States New York 535 Madison Avenue New York, NY USA 10022 Telephone: 212.355.7570 Boston 99 High Street, Suite 1200 Boston, MA USA 02110 Telephone: 617.371.3900 Toll free: 1.800.225.6104 San Francisco 44 Montgomery Street, Suite 1600 San Francisco, CA USA 94105 Telephone: 415.392.8844 Toll free: 1.800.225.6104 Nashville 1033 Demonbreun Street, Suite 620 Nashville, TN USA 37203 Telephone: 615.490.8500 Chicago 22 W. WASHINGTON SUITE 1500 CHICAGO, IL USA 60602 Telephone: 847.864.1139 Toll free:1.888.866.9799 Minneapolis 45 South 7th Street, Suite 2640 Minneapolis, MN USA 55402-1648 Telephone: 805.205.0589 Washington 1200 G Street, NW Suite 725 Washington, DC 20036 USA Telephone: 301.657.4600 New York 2570 North Rd. N Bellmore NY 11710 Telephone: 954-579-7930 New York 1600 Broadway New York, NY 10019 Telephone 203.367.9400 New York 60 Broad Street, 38th Floor New York, NY USA 10004 Telephone: 212-483-8890 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 132 Locations Asia-Pacific Beijing Unit 2401-33, Level 24, China World Office 2, 1 Jianguomenwai Avenue, Chaoyang District Beijing 100004 China Telephone: 8610.5929 8650 Hong Kong 1505, 15/F, ICBC Tower, Three Garden Road, Central, Hong Kong Telephone: 852.3919.2500 Singapore Level 42, Six Battery Road Singapore 049909 Telephone: 65.6232.2187 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 Kelowna Landmark 5, 320 − 1620 Dickson Avenue Kelowna, BC Canada V1Y 9Y2 Telephone: 250.712.1100 Toll free: 1.888.389.3331 Ontario Toronto Brookfield Place, Suite 3100 P.O. Box 516 161 Bay Street Toronto, ON Canada M5J 2S1 Telephone: 416.869.7368 Toll free (Canada): 1.800.382.9280 CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Melbourne Level 4, 60 Collins Street Melbourne, VIC, 3000, Australia Telephone: 61.3.8688.9100 Perth 1292 Hay Street Suite 2.4, Level 2 West Perth 6005 WA Telephone: 61.8.6216.2018 Sydney Suite 62.01, Level 62, MLC Centre 19-29 Martin Place Sydney NSW 2000 Telephone: 61.2.9263.2700 Waterloo 80 King Street South, Suite 101 Waterloo, ON Canada N2J 1P5 Telephone: 519.886.1060 Toll free: 1.800.495.8071 Alberta Calgary Centennial Place − East Tower 520 3rd Avenue SW, Suite 2400 Calgary, AB Canada T2P 0R3 Telephone: 403.508.3800 Toll free: 1.800.818.4119 Edmonton Manulife Place 10180 − 101st Street, Suite 570 Edmonton, AB Canada T5J 3S4 Telephone: 780.408.1500 Toll free: 1.877.313.3035 Manitoba Winnipeg 1010-201 Portage Avenue Winnipeg, MB Canada R3B 3K6 Telephone: 204.259.2850 Toll free: 1.877.259.2888 Québec Montréal 1250 René-Lévesque Boulevard West, Suite 2930 Montreal, 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 Canaccord Genuity Wealth Management (USA), Inc. Vancouver Pacific Centre 609 Granville Street, Suite 2200 P.O. Box 10337 Vancouver, BC Canada V7Y 1H2 Telephone: 604.684.5992 Independent Wealth Management Branches British Columbia Prince George 101 − 1840 Third Avenue Prince George, BC Canada V2M 1G4 Telephone: 250.614.0888 Too free: 1.866.614.0888 Alberta Calgary #207 − 322 11th Avenue SW Calgary, AB Canada T2R 0W7 Telephone: 403.531.2444 Toll free: 1.866.531.2444 UK & Europe London 41 Lothbury London, UK EC2R 7AE Telephone: 44.20.7523.4500 Jersey 37 The Esplanade St Helier Jersey JE4 0XQ Telephone: 44.1534.708090 Guernsey Trafalgar Court, Admiral Park, St. Peter Port Guernsey GY1 2JA Telephone: 44.1481.733900 Isle of Man Anglo International House Bank Hill Douglas Isle of Man IM1 4LN Telephone: 44.1624.690100 Blackpool Talisman House Boardmans Way Blackpool FY4 5FY Telephone: 44.1253.621575 Lancaster 2 Waterview Lancaster LA1 4XS Telephone: 44.1524.541560 Norwich 13-15 St Georges Street Norwich Norfolk NR3 1AB Telephone: 44.1603.567120 Llandudno Junction Anson House 1 Cae’r Llynen Llandudno Junction Conwy LL31 9LS Telephone: 44.1492.558359 Nottingham The Point Loughborough Road West Bridgford, Locations 133 Nottingham NG2 7QW Telephone: 44.1158.965840 Worcester Saggar House Princes Drive Worcester WR1 2PG Telephone: 44.1905.723551 York 23 High Petergate York YO1 7HS Telephone: 44.1904.232780 Southampton Ocean Village Innovation Centre Ocean Way Southampton SO14 3JZ Telephone: 44.2380.381670 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 2019 ANNUAL REPORT / CANACCORD GENUITY GROUP INC. 134 Shareholder Information Common Share Trading Information (Fiscal 2019) Stock exchange Toronto TSX Diluted shares outstanding at March 31, 2019 Year-end price March 31, 2019 High 115,616,744 $ 5.84 $ 7.49 $ Ticker CF Low 5.54 Total volume of shares 50,383,161 Fiscal 2019 Preferred Dividend Dates and Amounts Quarter end date June 30, 2018 September 30, 2018 December 31, 2018 March 31, 2019 Preferred dividend record date Preferred dividend payment date September 14, 2018 October 1, 2018 December 14, 2018 December 31, 2018 March 15, 2019 June 21, 2019 April 1, 2019 July 2, 2019 Series A preferred dividend 0.24281 0.24281 0.24281 0.24281 0.97124 $ $ $ $ $ $ $ $ $ $ Series C preferred dividend 0.31206 0.31206 0.31206 0.31206 1.24824 Fiscal 2019 Common Dividend Dates and Amounts Quarter end date June 30, 2018 September 30, 2018 December 31, 2018 March 31, 2019 Common dividend record date Common dividend payment date August 31, 2018 September 10, 2018 November 30, 2018 December 10, 2018 March 1, 2019 June 21, 2019 March 15, 2019 July 2, 2019 Total preferred dividend 0.55487 0.55487 0.55487 0.55487 2.21948 Common dividend 0.01 0.01 0.01 0.17 0.20 $ $ $ $ $ $ $ $ $ $ Fiscal 2020 Expected Dividend(1) and Earnings Release Dates Expected earnings release date Preferred dividend record date Preferred dividend payment date Common dividend record date Common dividend payment date Q1/20 Q2/20 Q3/20 Q4/20 August 7, 2019 September 13, 2019 September 30, 2019 August 30, 2019 September 10, 2019 November 6, 2019 December 20, 2019 December 31, 2019 November 29, 2019 December 10, 2019 February 5, 2020 March 20, 2020 March 31, 2020 February 28, 2020 June 3, 2020 June 19, 2020 June 30, 2020 June 19, 2020 March 10, 2020 June 30, 2020 (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. CANACCORD GENUITY GROUP INC. / 2019 ANNUAL REPORT Shareholder Information Stock Exchange Listing TSX: CF Website and Financial Information For TSX required corporate governance disclosures and current financial information, please visit www.canaccordgenuity.com/ investor-relations. Fiscal Year End March 31 Regulatory Filings To view Canaccord Genuity Group’s regulatory filings on SEDAR, please visit www.sedar.com. Institutional Investors, Analysts and Media Contact Christina Marinoff Vice President, Investor Relations & Communications Telephone: 416.687.5507 Email: cmarinoff@cgf.com General Shareholder Inquiries For all general shareholder info, or to request a copy of this report: INVESTOR RELATIONS 161 Bay Street, Suite 3000 Toronto, ON, Canada Telephone: 416.869.7293 Fax: 416.947.8343 Email: investor.relations@cgf.com Transfer Agent and Registrar For information about stock transfers, address changes, dividends, lost stock certificates, tax forms and estate transfers, contact: Corporate Headquarters STREET ADDRESS Canaccord Genuity Group Inc. 609 Granville Street, Suite 2200 Vancouver, BC, Canada 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 provide lower levels of taxation for Canadian individuals who receive eligible dividends. All of the common share dividends paid by Canaccord Genuity Group Inc. since 2006 are eligible, as are common share dividends paid hereafter, unless otherwise indicated. MAILING ADDRESS Pacific Centre 609 Granville Street, Suite 2200 P.O. Box 10337 Vancouver, BC V7Y 1H2, Canada Independent Auditor Ernst & Young LLP Chartered Professional Accountants Vancouver, BC For information about fees paid to shareholders’ auditors, refer to our Fiscal 2019 Annual Information Form. Qualified Foreign Corporation Canaccord Genuity Group Inc. is a “qualified foreign corporation” for US tax purposes under the Jobs & Growth Tax Reconciliation Act of 2003. Annual General Meeting Wednesday, August 7, 2019 at 11:00 a.m. (Eastern time) InterContinental Boston 510 Atlantic Avenue Boston, MA, USA Editorial and Design Services The Works Design Communications Ltd. C a n a c c o r d G e n u i t y G r o u p I n c . F i s c a l 2 0 1 9 A n n u a l R e p o r t Beijing Blackpool Boston Calgary Dubai Dublin Edmonton Guernsey Halifax Hong Kong Isle of Man Jersey Kelowna Kitchener Lancaster Llandudno London Melbourne Minneapolis Montréal Nashville New York Norwich Nottingham Paris Penticton Perth Prince George San Francisco Singapore Sydney Toronto Vancouver Washington Waterloo Winnipeg Worcester York More information about Canaccord Genuity Group Inc., including the Company’s fiscal 2019 online annual report, can be found at www.canaccordgenuity.com/investor-relations.
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