Guardian Capital Group Ltd
Annual Report 2014

Plain-text annual report

Financial Highlights “On behalf of your Board of Directors, I am pleased to report to you that Guardian enjoyed another successful year in 2014...” see more on page 4 James Anas, Chairman of the Board Assets Under Management As at December 31 ($ in millions) 8 2 2 , 2 2 8 6 9 4 2 , 4 1 0 2 2 3 8 , 8 1 8 2 9 , 5 1 6 6 2 , 6 1 Assets Under Administration As at December 31 ($ in millions) 6 2 1 , 3 1 4 1 0 2 9 5 5 , 1 1 8 1 9 9 , 4 5 6 , 8 3 8 7 , 7 Shareholders’ Equity (per share, diluted) As at December 31 (in $) 2 6 . 5 1 4 1 0 2 7 1 . 3 1 6 1 . 1 1 0 9 9 . 1 0 0 1 . Value of the Company’s Corporate Holdings of Securities (per share, diluted) As at December 31 (in $) 8 7 . 6 1 4 1 0 2 6 2 . 4 1 9 9 . 1 1 7 1 . 1 1 7 5 . 1 1 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 Assets under management increased 12% in 2014, as a result of a combination of the overall positive per- formance of the financial markets and net new mon- ies received from new and existing clients. Assets under administration increased 14% in 2014, as a result of market perfor- mance, the recruitment of new advisors, and addi- tional assets provided by clients, with the additions coming from each of the three financial advisory subsidiaries. The fair value of the Company’s Corporate Holdings of Securities, increased 18% in 2014, reflecting the growth in the fair value of the Company’s investments, substantially the Bank of Montreal shares. The Company’s Shareholders’ Equity, increased 19% in 2014, indicating the growth in the net value of all of the Company’s recorded assets and liabilities, reflecting both the increase in the value of its Securities Holdings and the profitable operations, net of amounts returned to shareholders during the year. “In 2014, our company, once again set new historical highs for such key financial metrics as assets under management, assets under administration, shareholders’ equity, operating earnings and adjusted cash flow from operations...” see more on page 5 George Mavroudis, President and Chief Executive Officer Operating Earnings For the years ended December 31 ($ in thousands) 1 4 1 , 8 3 4 1 0 2 1 3 9 6 2 , 8 3 1 , 0 2 3 3 1 , 7 1 9 3 5 , 3 1 Net Earnings Available to Shareholders (per share, diluted) For the years ended December 31 (in $) 1 1 . 1 9 1 . 1 4 1 0 2 1 7 . 0 9 6 0 . 1 3 . 0 Adjusted Cash Flow From Operations (per share, diluted) For the years ended December 31 (in $) 6 1 . 1 4 1 0 2 9 8 . 0 6 6 0 . 0 6 0 . 5 5 . 0 EBITDA (per share, diluted) For the years ended December 31 (in $) 8 3 . 1 4 1 0 2 4 0 . 1 8 7 . 0 6 6 0 . 5 5 . 0 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 Operating Earnings increased 42% in 2014, reflecting substantial improvements in the Company’s Investment Management and Financial Advisory businesses. Net Earnings available to shareholders, increased 7% in 2014, reflecting the improved Operating Earnings partially offset by decreased Net Gains on the sale of securities. Adjusted Cash Flow from Operations, increased 30% in 2014, reflecting the improvements in Operating Earnings. EBITDA increased 33% in 2014, reflecting the improvements in the Company’s operations during the year. I H G H L I G H T S F I N A N C I A L 3 2014 Annual Report From the Chairman of the Board Dear Fellow Shareholders, On behalf of your Board of Directors, I am pleased to report to you that Guardian enjoyed another successful year in 2014, and continued to add value for our shareholders. In fact, record revenues, earnings and assets under management and administration were achieved, reinforcing our confidence in our strategic priorities. In May, 2014, your Board approved an increase in the quarterly dividend of 18%, to 6.5 cents. Guardian returned to its shareholders $12.9 million in 2014, made up of dividends of $7.2 million and share purchases of $5.7 million. With the growth in earnings in 2014, your Board has declared a quarterly dividend of $0.075 per share, an increase of 15%, payable on April 17, 2015, to the shareholders of record on April 10, 2015. Your company’s strategy for accelerated international expansion came to fruition during the year, with the acqui- sition of GuardCap Asset Management Limited in the United Kingdom, and we look forward to future growth from this new venture. Our confidence in Guardian’s leadership and strategy continues. We believe that the measured and focused approach to growth which has been shown in our businesses will continue to provide the high level of perfor- mance which has been demonstrated to date. Most of all, I want to, once again, recognize the dedicated efforts of Guardian’s associates across all of our businesses, who have contributed to our successes. We congratulate all of them for their outstanding efforts and commitment. I thank all of the members of your Board of Directors for their counsel throughout the year. Your ongoing support and trust is valued. We look forward to reviewing our progress further with you at the Annual Meeting. Respectfully, James Anas Chairman of the Board February 26, 2015 4 Guardian Capital Group Limited From the President and Chief Executive Officer Dear Shareholders, In 2014, Guardian once again set new historic highs for such key financial metrics as assets under management, assets under administration, shareholders’ equity, operating earnings and adjusted cash flow from operations. This annual report highlights key financial results, and provides evidence of the many areas in which we have achieved success throughout the year. Guardian’s approach to achieving these results has been based on a belief that patient, steady, conservative and controlled investment is the preferred route to sustainable growth and pro- vides the greatest value over the long term to our clients, employees and shareholders. Key among the ingredients to achieving the above success has been the company’s stability. At Guardian, we define stability in terms of our clients, employees and financial resources. We continue to gain and retain clients across all of our business platforms and, more importantly, to build on these relationships for the long term. The stability of our client base is a result of placing the client first, delivering good quality work that meets their objectives, and ultimately earning their trust that we will continue to deliver future successes on their behalf. A growing and stable client base has encouraged an environment which allows us to recruit and retain the brightest and best employ- ees. Finally, the third leg to our stool of stability consists of the financial resources of the company, provided by the strength of our balance sheet, and our profitability. These financial resources provide great confidence to our clients, employees and business partners, that our long-term commitment is matched by our significant financial strength. This stability has been and will continue to be a major driver of Guardian’s overall success. Operating earnings in 2014 have grown significantly compared to prior years, as many of the businesses that we have been patient to seed over the years have continued to deliver improved results. The institutional investment business segment continued to grow assets under management, with a balanced and diversified client base, consist- ing of traditional pension, corporate and endowment institutions, and retail financial intermediaries that regard Guardian’s investment solutions as quality offerings for their various wealth platforms. Guardian’s private client investment counseling business continues to attract new high net worth clients, growing assets under manage- ment to more than $2 billion dollars. Overall, our combined investment management businesses succeeded in reaching $25 billion in assets under management. Worldsource, our financial advisory business segment which serves independent financial advisors across Canada, also contributed improved operating earnings through strong recruitment and new life insurance sales. Despite delivering record operating earnings, we continue to balance the need to deliver improved current profit- ability with the need to invest in new initiatives to deliver future growth in earnings. Over the past year, we have, in accordance with our strategies, explored several new initiatives, including acquisitions, but have maintained our discipline and remain very selective in our approach. Clearly, any new initiative must provide us the con- fidence it will be financially worthwhile; additionally, it must deliver on one or more of our three key strategic objectives: 1) providing an opportunity to develop a sustainable business; 2) diversifying from our concentrated exposure to Canadian equities; and 3) building a global footprint. One new initiative which we are confident will meet our key strategic objectives is the establishment of a presence in London, UK, with the acquisition of an emerging markets equity team, followed by the recruitment to our organization of additional investment professionals, including an experienced fundamental global equity team. The UK business is in its infancy, continued 4 5 2014 Annual Reportbut we have plans to build a high-quality investment team there, focusing on both emerging market and global equity fundamental strategies. These strategies share the characteristics of constructing portfolios with a focused list of securities of our highest conviction, and yet delivering results with less risk than the benchmark indices. Guardian’s stability and patience in investing over the long term were critical factors in the recruitment of many of those who have joined us to build this business unit. We anticipate that our commitment in building this team in London, together with our successes in the growth of our systematic global equity team in Toronto, will provide long-term sustainable growth, diversified from our traditional Canadian focus, in the years ahead. As we deliver improved financial results, we plan to share the rewards with our shareholders, in the form of sus- tainable and growing dividend payments and, where market conditions permit, an active share buyback program. This past year, we returned more than $12.8 million to shareholders through dividends and share repurchases, including raising the dividend by 18% to $0.065 per share per quarter. We are always thankful to the many clients who have entrusted us with the responsibility to manage or admin- ister their assets, and never assume this privilege lightly. Shareholders have our assurances that the entire management and associates of Guardian are completely dedicated to making Guardian a successful, independent and diversified financial services company. Our values of Trustworthiness, Integrity and Stability are embodied by all who serve, with the best intentions, our clients and shareholders, and we thank them all for their dedication. Warmest regards, George Mavroudis, President and Chief Executive Officer February 26, 2015 6 Guardian Capital Group Limited Review of Operations INSTITUTIONAL INVESTMENT MANAGEMENT Institutional investment management services are provided by Guardian Capital LP (“GCLP”), which serves pension plan sponsors, broker dealer third-party platforms, closed-end funds and mutual funds, operating and endowment funds, and foundations. GCLP’s capabilities span a range of asset classes, geographic regions, and specialty mandates. One of the largest independent investment management firms in Canada, GCLP is the successor to our investment management business, which was founded in 1962. In 2014, GCLP diversified its investment management capabilities by acquiring a London, UK-based investment management firm, which was renamed GuardCap Asset Management Limited (“GuardCap”). Assets under management (“AUM”) in GCLP were $22.8 billion at the end of 2014, up from $20.4 billion at the end of 2013. The increase in assets under management was due both to strong net inflow of new monies from clients across the institutional and retail intermediary client base, and overall positive growth in equity markets. The S&P/TSX Composite benchmark, in which a majority of our assets under management are invested, rose 10.6% and provided a healthy balance of growth in AUM. In addition, continued stability in the investment team and organization, and strong client service and business development efforts, set the stage for overall growth. Canadian Equity In 2014, performance of our Canadian equity strategies was mixed. Many strategies added value relative to the main S&P/TSX Composite benchmark, while others lagged. Looking at the past three years, all remain in significant value-added territory and this should continue to provide support for further growth in 2015. Client demand for strategies with a bias toward income generation continued to be strong in 2014, particularly among the retail investors. Our leading expertise in managing Equity Income and Growth & Income strategies for well over 15 years, and our partnership with several leading retail intermediaries, resulted in significant net new monies from our retail partners. We believe this theme will continue to remain popular with retail investors, as yield on fixed income continues to shrink and dividends provide a compelling alternative for income generation; this should support further growth in 2015. At times when many institutional investors are shrinking their allocation to Canadian equities, we are proud to have experienced continued growth in this area, and intend to continue providing the solutions that investors desire. Guardian has one of the deepest Canadian Equity investment teams in the industry, with ten investment professionals who have an average of 25 years of experience overseeing a total of approximately $13.7 billion in assets under management. Global Equity The recent and longer-term performance history of our Global Dividend Equity strategy was instrumental in placing us on several key retail intermediary platforms over the past few years. This acquired shelf space, along with a demand by retail investors for strategies with a bias toward income generation and lower volatility, continued to provide us with strong cash inflow momentum in 2014, which was a large contributor to the growth in AUM for the global equity team this past year. As a result of these strong cash inflows for the Global Dividend Equity strategy, the team at the end of 2014 is reporting total global equity AUM of $2.5 billion, representing growth of over 40% during the year. Absolute and relative performance for our global equity strategies in 2014 was very strong and helped lift the longer-term performance that had been affected by weaker returns in recent years. A return to strong relative value-added performance will help regain the confidence within the consultant and institutional client channels. The appetite of retail investors for income-generating equities mentioned above in the context of Canadian equities also applies in global markets. We have recently initiated a significant retail distribution relationship in the U.S., and early signs show that these investors are also embracing our Global Dividend Equity strategy. With the addition of the investment professionals at GuardCap in 2014, we have added expertise in managing emerging markets and global equities. While our team based in Toronto mainly follows a quantitative approach, our team based in London follows a fundamental approach, and offers highly concentrated strategies. We believe these strategies complement each other and provide a broader set of choices to investors. The longer-term $22.8B 1 3 8 , 2 2 3 9 3 , 0 2 6 4 3 , 7 1 9 8 4 , 4 1 0 1 9 , 4 1 4 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 Institutional Assets Under Management as at Dec. 31 ($ mil) O P E R A T I O N S R E V I E W O F 7 2014 Annual Report performance of the strategies managed by GuardCap are very strong and should appeal to the growing number of investors seeking high-conviction portfolios. We are continuing to build the team in London and expect to add additional resources in 2015 to complement the current team of six investment professionals. Fixed Income The fixed income team faced a more challenging relative return year in 2014. Our focus on higher-quality securities, combined with a short-duration bias, positioning was not rewarded. Nevertheless, our consistent conservative style of management continues to appeal to investors seeking safety in their bond allocations, as evidenced by the growth experienced in our Liability Duration Investing (“LDI”) strategies. Our approach to LDI is to construct portfolios tied to the liability structure of our clients, while seeking to add modest value above the rate of growth in underlying liabilities. The ongoing investor appetite for higher-yielding securities supported continued growth in our high-yield bond strategies. However, we expect bond yields to rise eventually, and therefore the prospects of adding significant absolute returns from core bond investments will be limited. This will be a challenging environment for many strategies that have performed well over the last 20 to 30 years. As a result, we have initiated new strategies over the past several years, including a short-duration bond strategy focusing on high-quality corporate issues, and a variation on this strategy incorporating an allocation to high-yield bonds. We also launched a more benchmark-free fixed income product, with a focus on producing a reliable income payout of 5.75% per annum, while attempting to preserve capital in a changing rate environment by allowing the portfolio manager to roam between high-yield, investment-grade and government bonds, having the ability to both lever and short any of these credits. This strategy has so far consistently generated returns in excess of its target payout through some difficult bond markets, and has surpassed $40 million in assets under management. We believe this strategy will increasingly become a compelling choice for investors. The product is being offered through an offering memorandum, and represents our initial efforts to carve a niche in alternative fixed income strategy. We intend to be well-prepared to meet investor needs in a changing fixed income landscape. Balanced Funds Balanced or multi-asset class strategies, have historically been a relatively small component of our AUM, but have witnessed increased momentum over the past few years. Investors have started recognizing Guardian’s ability to customize balanced funds, by selecting strategies from its wide range of Canadian and foreign equity solutions, combined with a solid fixed income offering. We continued to add balanced fund clients in 2014, and expect to continue the momentum in 2015, particularly with smaller endowments, foundations and third-party retail platforms. Investment Client Distribution The composition of our client base remains broadly diversified, with approximately 50% of assets from institutional corporate and pension accounts, and 50% from retail intermediary clients. Retail intermediary includes sub-advisory relationships with mutual funds and closed-end funds, and our leading position in the separately-managed wrap account programs with the top broker-dealers in the country. The separately-managed wrap account assets continued to deliver excellent growth in net new assets over the 2014 calendar year, as we finished the year with more than $5.2 billion in AUM in this channel. Many of our existing broker-dealer partners, in particular the big six Canadian banks, consider us as a preferred provider of core investment solutions on their managed account platforms. Our independence as a wholesaler of diversified investment solutions that deliver consistent returns and our strong investment team continuity, coupled with our excellence in servicing the advisors in these large broker-dealer distribution channels, positions us as a strong partner for their fast-growing managed fee-based programs. In 2011 and 2012 we experienced our highest levels of requests for proposals and finalist opportunities for any two-year period. Over the past two years, we received fewer requests for proposals, partly attributable to a general trend experienced by the overall market and partly because searches that were in demand were in areas that we currently do not serve, such as a host of private assets in equity and infrastructure searches. Search activity also tends to be slower in a relatively strong market environment, as investors are less inclined or pressured to initiate changes in their lists of managers. Much of our growth in institutional assets over the past year came from existing clients, who continue to add net new inflows to their existing mandates with us. We remain committed to serving the institutional pension market and their consultants, as this channel requires a constant connection with the key decision-makers, so that when certain needs arise, we are a familiar alternative to meet them. Our broad strength in relative performance for our domestic equities is an area where we continue to have respect as a top manager, for consideration by the consultant community. Unfortunately, barring any major competitor setbacks, this is an asset class that involves taking away market share from others, rather than a segment of the market that is experiencing overall growth. Global equity searches continue to be an area where we can see overall market demand and growth. The recent strong performance of our quantitative equity strategies and the addition of compelling strategies offered by GuardCap will help us take advantage of this trend. $5.2B 3 8 1 , 5 9 4 5 , 4 0 9 4 , 3 9 5 2 , 2 9 1 5 , 1 4 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 Wrap Assets Under Management as at Dec. 31 ($ mil) 8 Guardian Capital Group LimitedPart of a successful distribution strategy is the ability to launch new investment mandates and relevant investment vehicles, to market to specific segments of the market. In 2013 we successfully launched our first private direct real estate fund, subscribed largely by a select group of corporate third party clients, together with Guardian’s corporate assets, for an aggregate capital commitment of $80 million. In 2014, we successfully deployed the majority of this capital through the acquisition of one property at a time to construct a portfolio of diversified real estate holdings. We shall continue in the year ahead to raise further capital, to grow our core balanced direct real estate fund. In 2014, our other new product development efforts were focused largely on growing our global equity assets under management. We launched several new initiatives to open investment strategies and markets, including a proprietary UCITs vehicle in Dublin, which is a prospectus mutual fund, to market our new fundamental concentrated global equity strategy to European institutional investors; and a 40 Act fund, a US prospectus mutual fund, partnering with a US mutual fund company, where our systematic global equity team is sub-advising the fund with our relatively strong global dividend strategy. These new initiatives are evidence of our desire to expand our client base, either directly or through partnerships, into new geographic regions, with solutions that have wide appeal to a large and diverse investor universe. Building the infrastructure involves a great deal of time and cost, but we expect that over the course of the next few years, these new initiatives will deliver growth in assets under management and further diversify our client base. Fostering a stable investment environment for professionals to meet their value-added targets over full cycles is of paramount importance. We shall complement this effort with our ongoing search to deepen our investment teams and diversify our strategies, so as to meet our goal of building a stable but growing pool of assets and revenues. PRIVATE WEALTH MANAGEMENT Guardian Capital Advisors LP (“GCA”) provides portfolio management services to private wealth clients, foundations and endowments within Canada and abroad. We assist our private clients to achieve their investment objectives, by constructing tax-efficient, fully-discretionary segregated or investment fund solutions that are tailored to the individual client. Our investment process combines the depth of proprietary research available from Guardian’s institutional investment management teams with the experience of dedicated private wealth client portfolio managers. We work not only with the clients themselves, but also with their financial, legal, accounting and other advisors, to ensure that the services we provide are properly integrated with the overall financial objectives of our clients. Through offices in Vancouver, Calgary and Toronto, clients and their advisors have local direct access to experienced investment professionals, supported by the vast intellectual resources of the firm, to construct custom-designed solutions for each client. A strong administrative and support team ensures that client requirements are met in a timely manner. GCA’s assets under management and supervision were $2.1 billion at the end of 2014, compared to $1.8 billion at the end of 2013. We believe that a focus on risk management, as well as on enhanced returns over the long term, will provide the desired benefits to our client base, which are protection against short-term volatility, long-term growth and tax-efficient cash flows. GCA continues to attract new clients, both directly and through referrals from financial advisors. The majority of our client base is domestic, divided almost equally between Eastern and Western Canada. Our business development efforts will continue to focus on promoting awareness in the legal, accounting, family office and financial advisory communities. INTERNATIONAL PRIVATE BANKING As an extension of our Private Wealth Management business, our International Private Banking subsidiaries service the wealth management needs of our international clients. Alexandria Trust Corporation (“ATC”) is a licensed and regulated domestic trust company based in Barbados, which provides fiduciary and corporate administration services to international clients. The acquisition completed in 2013 added to our presence on the island and solidified our offerings to existing and new clients. With enhanced commitment to provide corporate and trust management services to international clients in Barbados, we gained new clients in 2014, who have historically refrained from retaining us due to our limited presence. Alexandria Bancorp Limited (“ABL”) is a private bank based in the Cayman Islands, which was established in 1990. ABL is licensed and regulated by the Cayman Islands Monetary Authority to provide investment management, fiduciary and banking services to international clients. ABL has substantial investment management capabilities, both through its own Alexandria Fund and its managed segregated account platform. In 2015, in coordination with our expanded offering in Barbados through ATC, ABL plans to continue to strengthen its international referral network and to improve its pooled investment alternatives. $2.1B 3 5 0 , 2 3 6 7 , 1 8 1 4 , 1 1 3 3 , 1 0 3 2 , 1 4 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 Private Wealth Assets Under Management as at Dec. 31 ($ mil) O P E R A T I O N S R E V I E W O F 9 2014 Annual Report FINANCIAL ADVISORY Worldsource Wealth Management Inc. (“Worldsource”) is an integrated financial advisory platform, with independent financial advisors offering mutual funds, securities and life insurance products to Canadians from coast to coast. Total assets under administration (“AUA”) in Worldsource were $13.1 billion at December 31, 2014, compared to $11.6 billion at the end of 2013. The operating earnings from the Financial Advisory segment for 2014 were $6.4 million, a $4.2 million increase from the same period in 2013. The operating improvements in this segment is even more significant when compared to a loss of $3 million in 2011. Worldsource operates two businesses within the Financial Advisory segment. The financial planning and advisory services are provided to retail clients through Worldsource Financial Management Inc., the mutual fund dealer, and Worldsource Securities Inc., the securities dealer (together the “Dealers”) and insurance advisory services are provided through IDC Worldsource Insurance Network (“IDC WIN”). Worldsource promotes an open architecture, and thus provides advisors with the independence to choose the best available solutions for their clients. The advisors are further supported with quality reporting and administration, and a professional approach to sales compliance and product suitability. The Dealers completed a successful 2014, ending the year with $10.1 billion in AUA, an 11% increase compared to $9.1 billion in 2013. The increase in AUA and operating earnings were attributable to successful recruiting programs, higher sales productivity and improved cost management. The Dealers’ net commission revenues have grown but the gross sales commissions continue to trend lower in 2014, due to a general move by advisors away from deferred sales charge “rear-load” funds to lower sales commission rate “front-load” funds. The front load funds generally have higher continuing or “trailer” fees, so that future periods will benefit from the build-up of these continuing commissions. We believe that the move toward greater trailer fee revenue better aligns the advisors’ businesses with the clients’ interests. It also improves the advisors’ and the Dealers’ business models, by providing for higher recurring revenue as opposed to the historical reliance on active sales commission activity. Due to the volatility in the equity markets, advisors and their clients remain cautious, as they continue to allocate a significant amount of their investments into balanced and equity income strategies. With the recent volatility in oil prices and the resulting volatility in the Canadian equity market, investors are also increasingly seeking diversification into global equity solutions. During 2014, the Dealers began working more closely with their independent advisors, to create an investment solutions program where Guardian’s investment management capabilities will be leveraged to convert more Worldsource AUA into Guardian AUM. We have seen some success in 2014 as $398 million in AUM at the end of 2014 originated from the Dealers, with the Private Client business being the main beneficiary of the referred assets. We plan to continue to focus on increasing our AUM through the Dealers’ network of advisors. IDC WIN is a national insurance Managing General Agency (“MGA”), which is 79% owned by Worldsource and which provides sales, marketing and administrative support to licensed insurance advisors. IDC WIN is a leader in the MGA market in Canada, and has a significant competitive advantage for meaningful growth and profitability, as the industry continues to consolidate. The annual premiums on insurance policies sold (“Annual Premiums Sold”) were $45.0 million in 2014, compared to $38.5 million in 2013, a 17% increase. Segregated fund and accumulation annuity AUA was $3.0 billion as at December 31, 2014, up from $2.5 billion as at the end of 2013, a 20% increase. Led by the growth in Annual Premiums Sold and strong segregated fund sales in 2014, IDC WIN has generated net commission revenue of $17.1 million, compared to $14.1 million in 2013. Included in the 2014 net commission revenue are annual service fees of $6.4 million which grew by $1.1 million from 2013. Each dollar of Annual Premiums Sold generates sales commission at the time of the sale and adds continuing annual service fee revenue based on the Annual Premiums Sold, 12 months after the sale, for the duration of the policies. $13.1B 6 2 1 , 3 1 9 5 5 , 1 1 8 1 9 9 , 4 5 6 , 8 3 8 7 , 7 4 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 Total Assets Under Administration as at Dec. 31 ($ mil) $3.0B 7 9 9 , 2 2 6 4 , 2 7 2 2 , 2 3 3 6 , 1 3 2 7 4 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 Insurance Assets Under Administration as at Dec. 31 ($ mil) $45M 0 . 5 54 . 8 3 . 9 6 3 . 0 0 2 2 . 6 4 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 Premiums on Annual Insurance Policies Sold for the years ended Dec. 31 ($ mil) 10 Guardian Capital Group LimitedManagement’s Discussion and Analysis In accordance with securities regulatory requirements, the discussion and analysis which follows for Guardian Capital Group Limited (“Guardian”) pertains to the year ended December 31, 2014, with comparatives for the year 2013. Readers are encouraged to refer to the discussions and analyses contained in the 2013 Annual Report and the First, Second and Third Quarter 2014 Reports. This discussion and analysis has been prepared as of February 26, 2015. Additional information relating to Guardian and its business, including Guardian’s Annual Information Form, is available on “SEDAR” at www.sedar.com. CAUTION CONCERNING FORWARD-LOOKING STATEMENTS Guardian may, from time to time, make “forward-looking statements” in annual and quarterly reports, and in other documents prepared for shareholders or filed with securities regulators. These statements, characterized by such words as “goal”, “outlook”, “intends”, “expects”, “plan”, “prospects”, “are confident”, “believe” and “anticipate”, are intended to reflect Guardian’s objectives, plans, expectations, estimates, beliefs and intentions. By their nature, forward-looking statements involve risks and uncertainties. There is a risk that these forward- looking statements will not be achieved. Undue reliance should not be placed on these statements, as a number of factors could cause actual results to differ from Guardian’s objectives, plans, expectations and estimates reflected in the forward-looking statements. OVERVIEW OF GUARDIAN’S BUSINESS Guardian is a diversified financial services company, which serves the wealth management needs of a range of clients through its various business segments. The areas in which Guardian operates are: institutional and private client investment management; financial advisory, which includes an insurance managing general agency (“MGA”), a mutual fund dealer, and a securities dealer; and corporate activities and investments. As at December 31, 2014, Guardian had $25 billion of assets under management (“AUM”), $13 billion of assets under administration (“AUA”) and $45 million in annual premiums on insurance policies sold (“Annual Premiums Sold”) during the year. In addition, Guardian has a diversified portfolio of securities which, together with its investment in Bank of Montreal shares, had a fair value of approximately $525 million at the end of the year. 2014 HIGHLIGHTS Guardian had a successful 2014, reaching historic highs in many of its key measures. The AUM reached $25 billion for the first time in 2014. The AUA and Annual Premiums Sold reached $13 billion and $45 million, respectively, each being new highs. The operating earnings continued to show strong growth, surpassing $38 million, a 42% increase from the prior year. The operating segments contributed 68% of the operating earnings, compared to 56% in the prior year. The financial advisory segment contributed $6.4 million in operating earnings, an increase of just under 200% from 2013 and even a more significant achievement compared to a loss of $3 million in 2011. Guardian strengthened and diversified its investment management capabilities through an acquisition of a London UK-based emerging market investment management firm and recruitment of new investment professionals. Guardian entered into new geographical markets and launched new products, including a UCITS fund in Europe. USE OF NON-IFRS MEASURES Guardian’s management uses certain measures to evaluate and assess the performance of its business. Two of the measures that Guardian uses, EBITDA and adjusted cash flow from operations, are not in accordance with International Financial Reporting Standards (“IFRS”). Non-IFRS measures do not have standardized meanings prescribed by IFRS, and are therefore unlikely to be strictly comparable to similar measures presented by other companies. & A N A L Y S I S D I S C U S S I O N M A N A G E M E N T ‘ S 11 2014 Annual Report However, Guardian’s management believes that most shareholders, creditors, other stakeholders and investment analysts prefer to include the use of these measures in analyzing Guardian’s results. EBITDA Guardian defines EBITDA as net earnings before interest, income tax, amortization, stock-based compensation, and any net gains or losses less amounts attributable to non-controlling interest. Guardian believes this is an important measure, as it allows management to assess the operating profitability of our business and to compare it with other investment management companies, without the distortion caused by the impact of non-core business items, different financing methods, levels of income taxes, and capital expenditures. The most comparable IFRS measure is “Net earnings”, which is disclosed in Guardian’s Consolidated Statements of Operations. The following is a reconciliation of this non-IFRS measure to the IFRS measure: For the years ended December 31 ($ in thousands) Net earnings, as reported Add (deduct): Net (gains) losses on securities held for sale Income tax expense Net (gains) Stock-based compensation Interest expense Amortization Non-controlling interests EBITDA 2014 2013 $ 37,613 $ 34,743 (360) 7,663 (6,775) 1,348 981 3,591 (1,169) 42,892 58 3,767 (11,637) 1,247 1,130 3,706 (707) $ 32,307 $ Adjusted Cash Flow From Operations Adjusted cash flow from operations is used by management to indicate the amount of cash either provided by or used in Guardian’s operating activities, and many companies similar to Guardian use a similar measure in this manner. The most comparable IFRS measure is “Net cash from operating activities”, which is disclosed in Guardian’s Consolidated Statements of Cash Flow. The following is a reconciliation of this non-IFRS measure to the IFRS measure: For the years ended December 31 ($ in thousands) Net cash from operating activities, as reported Net change in non-cash working capital items Non-controlling interests Adjusted cash flow from operation 2014 38,083 (1,004) (854) 36,225 $ $ 2013 $ 30,669 (2,631) (416) $ 27,622 CONSOLIDATED FINANCIAL RESULTS The comparative financial results of Guardian on a consolidated basis are summarized in the following table: For the years ended December 31 ($ in thousands, except per share amounts) 2014 2013 % change Net revenue Expenses Operating earnings Net gains Earnings before income taxes and net gains (losses) on securities held for sale Income tax expense Net earnings before net gains (losses) on securities held for sale Net gains (losses) on securities held for sale Net earnings Available to shareholders Net earnings EBITDA Adjusted cash flow from operations Available to shareholders, per share, diluted Net earnings EBITDA Adjusted cash flow from operations $ $ $ $ 119,275 81,134 38,141 6,775 44,916 7,663 37,253 360 37,613 37,017 42,892 36,225 1.19 1.38 1.16 $ 101,278 74,347 26,931 11,637 38,568 3,767 34,801 (58) $ 34,743 $ 34,432 32,307 27,622 $ 1.11 1.04 0.89 18 % + + 9 % + 42 % – 42 % + 16 % + 103 % 7 % + + 721 % 8 % + + + + + + + 8 % 33 % 31 % 7 % 33 % 30 % 1 . 8 3 . 9 6 2 1 . 0 2 1 . 7 1 5 . 3 1 4 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 Operating Earnings for the years ended Dec. 31 ($ mil) 12 Guardian Capital Group Limited As at December 31 ($ in millions, except per share amounts) Assets under management Assets under administration Shareholders’ equity Value of corporate holdings of securities Per share, diluted Shareholders’ equity Value of corporate holdings of securities For the years ended December 31 ($ in millions) $ $ 2014 24,968 13,126 489 525 15.62 16.78 2013 % change $ 22,228 11,559 415 449 $ 13.17 14.26 + + + + + + 12 % 14 % 18 % 17 % 19 % 18 % Annual premiums on insurance policies sold $ 45.0 $ 38.5 + 17 % The operating earnings for 2014 were $38.1 million, compared to $26.9 million in 2013, a 42% increase. Each operating segment contributed positively to the increase in Guardian’s operating earnings. Reducing the current year’s operating earnings are $1.5 million in operating losses from the recently acquired GuardCap and the real estate investment management business. As we continue to build out these two businesses, we expect their expenses to outpace their revenue growth in the near term. A more detailed discussion is provided under “Revenues and Expenses” below. The net gains for the year was $6.8 million, a decrease of $4.9 million compared to 2013. The decrease was largely due to a decrease in the number of Bank of Montreal shares sold in 2014 compared to 2013. Higher income tax expense in 2014 was the result of higher operating income, offset by the reduction in net gains during the year, compared to 2013. The increase in net gains on securities held for sale was due to the recording of increases in the market value of investments in mutual funds which were launched in 2014, and were classified into securities held for sale category. Net earnings available to shareholders for 2014 were $37.0 million, compared to $34.4 million in 2013, an 8% increase. The higher net earnings available to shareholders is largely due to significantly higher operating earnings in 2014, offset by the reduction in net gains. EBITDA for 2014 was $42.9 million, compared to $32.3 in 2013, a 33% increase. The increase was caused by the improvements in operating results from all of Guardian’s operating segments. Adjusted cash flow from operations for the year amounted to $36.2 million, compared to $27.6 million in 2013, a 31% increase. The differences between net earnings and adjusted cash flow from operations arise primarily due to the impact of future income taxes, amortization expense and stock-based compensation, as well as the exclusion of gains or losses from the calculation of cash flow from operations. REVENUES AND EXPENSES Investment Management Revenues The largest source of revenue at Guardian is management fees received from clients, which vary as a result of changes in the amounts of client assets managed, and variations in the rates of management fees charged. The following is a summary of the assets under management: Years ended December 31 ($ in millions) Assets under management, beginning of year Net additions from clients during year Market appreciation Assets under management, end of year Composed of: Institutional Private client and international private banking Total Institutional AUM is composed of: Canadian equities Global equities Fixed Income Total institutional AUM 2014 2013 $ 22,228 1,046 1,694 $ 24,968 $ 22,831 2,137 $ 24,968 $ 13,695 2,460 6,676 $ 22,831 $ 18,832 1,699 1,697 $ 22,228 $ 20,393 1,835 $ 22,228 $ 12,556 1,720 6,117 $ 20,393 & A N A L Y S I S D I S C U S S I O N M A N A G E M E N T ‘ S 13 2014 Annual Report Guardian’s total AUM was $25.0 billion at December 31, compared to $22.2 billion at the end of the prior year, a 12% increase. The increase in AUM was due to a combination of continued success in attracting new inflows of client assets and market appreciation. Management fees, net of referral fees paid, for the year 2014 were $61.3 million, 20% higher than the $50.9 million for 2013. Institutional management fees increased 22% to $49.0 million in 2014 from $40.3 million in 2013, as a result of increases in AUM and the continuing growth in higher-margin AUM. Private client management fees, net of referral fees paid, increased 20% during the year to $9.9 million from $8.2 million in 2013, reflecting the continuing increase in AUM in this area. Management fees earned from international private banking, were substantially unchanged at $2.4 million for the year. Financial Advisory Commission Revenues Net commission revenue earned from the financial advisory business is generated from the sale of life insurance products, mutual funds and other securities, as well as from continuing fees related to AUA and in force life insurance policies, net of commissions paid to advisors. Total AUA at Guardian at the end of 2014 amounted to $13.1 billion, 14% higher than the $11.6 billion at the end of 2013. The increase in AUA was due to net new sales, recruitment of new advisors, and the positive effects of market performance during the year. The Annual Premiums Sold in 2014 by the MGA subsidiary were $45.0 million, compared to $38.5 million in 2013 a 17% increase. The Annual Premiums Sold generate sales commissions in the year they are sold, and add continuing annual service fees in subsequent years. This continuing stream of service fee revenue was $6.4 million in 2014 and $5.2 million in 2013. Net commission revenue from the financial advisory business amounted to $28.0 million in 2014, 21% higher than the $23.1 million in 2013. This increase was due to the increase in continuing service fees as described above, successful sales and recruitment efforts and the positive market performance. Administrative Services Income Administrative services income in 2014 was composed of $6.2 million of registered plan and other fees earned in the financial advisory area, $3.4 million in fund administration revenue earned from Guardian’s proprietary mutual funds and other fees earned in the domestic investment management area and $1.6 million of trust, corporate administration and other fees earned mainly in the international private banking area, for a total of $11.2 million, compared with $9.7 million in 2013. The increase resulted from growth in the number of client accounts in both the financial advisory area and the international private banking areas, and in the AUM in our mutual funds. Dividend and Interest Income The following is a summary of Guardian’s dividend and interest income: For the years ended December 31 ($ in thousands) Dividend income Interest income Total dividend and interest income 2014 17,665 1,107 18,772 $ $ 2013 % change $ 16,720 840 $ 17,560 + + + 6 % 32 % 7 % Dividend and interest income increased by 7% in the year, largely due to the increased distribution income from the investment in the real estate fund. The largest component of the dividend income is from the Bank of Montreal shares, which was $14.6 million in 2014 (2013 – $14.5 million). Expenses Guardian’s operating expenses, excluding commissions, referral fees, amortization and interest, were $76.6 mil- lion in 2014, compared with $69.5 million in 2013, an increase of 10%. Included in the increased expenses for 2014 were $2.8 million of additional expenses due to the inclusion of GuardCap and the full year’s expenses related to the real estate investment management business in 2014. In addition to the expenses of the two new businesses, the increased operating expenses resulted largely from increased incentive compensation expenses and additions of new staff and other expenses to support the growing businesses. The decrease in amortization in 2014, from $3.7 million to $3.6 million, was largely as a result of a financial advi- sory intangible asset being fully amortized in Q2 of 2013, offset by the amortization of the intangible assets acquired as part of the GuardCap acquisition and the recruitment of advisors. Interest expense reduced to $1.0 million in 2014, compared to $1.1 million in 2013, as a result of lower bank loans and borrowings during 2014. 14 Guardian Capital Group Limited NET GAINS For the years ended December 31 ($ in thousands) Net gains in consolidated mutual funds Net gains on securities directly held Net gains on securities Net foreign exchange (losses) Net gains on disposal of intangible assets Net gains Net gains (losses) on securities held for sale 2014 36 7,548 7,584 (1,071) 262 6,775 360 $ $ $ 2013 $ 137 11,939 12,076 (751) 312 $ 11,637 $ (58) Net gains in 2014 decreased compared to 2013, largely due to the sale of 160,000 shares of the Bank of Montreal in 2013, compared to only 65,000 shares in 2014. The net losses on foreign exchange mainly relate to exchange losses on Canadian dollars held by an international subsidiary whose functional currency is the US dollar. On translation of this subsidiary’s results to Canadian dollars upon consolidation, Guardian recorded equal but offsetting gains in other comprehensive income. LIQUIDITY AND CAPITAL RESOURCES The strength of Guardian’s balance sheet has enabled Guardian to attract Associates, provide clients with a high comfort level, make appropriate use of borrowings, and develop its businesses. It has also allowed Guardian to maintain the appropriate levels of working capital in each of its areas of operation. The strong cash flow enables Guardian to meet all of its financial commitments, to finance the expansion of its businesses and to make the necessary capital expenditures for the development of those businesses. During 2014, Guardian made payments of $1.6 million on the acquisition of GuardCap, and $1.3 million on the purchase of the remaining shares of an MGA subsidiary, invested over $37 million in new investment funds and strategies, including those managed by GuardCap, and $9.4 million in a real estate fund managed by a subsidiary. In addition, Guardian returned $12.9 million to the shareholders in the form of dividends and share purchases. These payments were funded using a combination of cash flow from operations and redeployment of its holdings securities. Guardian’s total bank borrowings at December 31, 2014 amounted to $51.3 million, compared with $55.9 million at December 31, 2013. The total credit available, under various borrowing arrangements, amounts to $83 million. We are confident that the strength of Guardian’s balance sheet will continue to provide benefits in the future. Guardian’s shareholders’ equity as at December 31, 2014 amounted to $489 million, or $15.62 per share, diluted, compared to $415 million, or $13.17 per share, diluted, as at December 31, 2013. Guardian’s holdings of securities as at December 31, 2014 had a fair value of $525 million, or $16.78 per share, diluted, compared with $449 million, or $14.26 per share, diluted, as at December 31, 2013. SECURITIES HOLDINGS As at December 31 ($ in thousands, except per share amounts) 2014 2013 Securities at fair value: Short-term securities Bonds Mutual funds Bank of Montreal common shares Other equity securities Real estate funds Total securities holdings Securities held for sale Total securities Total securities per share, diluted $ 5,373 1,077 49,145 388,944 33,189 22,239 499,967 25,385 525,352 16.78 $ $ $ 1,850 1,030 34,441 339,754 54,187 12,492 443,754 5,425 $ 449,179 14.26 $ CONTRACTUAL OBLIGATIONS Guardian has contractual commitments for the payment of certain obligations over a period of time. A summary of those commitments, including a summary of the periods during which they are payable, is shown in the following table: & A N A L Y S I S D I S C U S S I O N M A N A G E M E N T ‘ S 15 2014 Annual Report As at December 31, 2014 ($ in thousands) Bank loans and borrowings Client deposits Accounts payable and other liabilities Payable to clients Investment commitment – real estate fund Operating lease obligations Total contractual obligations $ $ Total 51,312 61,747 35,061 46,160 3,512 16,770 214,562 Within one year 51,312 61,747 33,964 46,160 3,512 1,948 198,643 $ $ One to three years Three to five years After five years $ $ – – – – – 4,067 4,067 $ $ – – 1,097 – – 2,678 3,775 $ – – – – – 8,077 $ 8,077 Guardian’s contractual commitments are supported by its strong financial position, including its securities holdings, referred to above under the heading “Liquidity and Capital Resources”. The Payable to clients, in Guardian’s securities dealer subsidiary, which can fluctuate with client activities, is offset by the Receivable from clients and broker. Client deposits, in the offshore banking subsidiary, are supported by Interest-bearing deposits with banks. Guardian has committed to invest $25 million into a real estate limited partnership which is managed by a subsidiary, of which $21.5 million has been invested as at December 31, 2014. The balance is expected to be invested as appropriate real estate product becomes available to the limited partnership, at which time Guardian’s management will decide on the appropriate strategy for funding this commitment. SELECTED ANNUAL INFORMATION Years ended December 31 ($ in thousands, except per share amounts) Net revenue Net earnings available to shareholders Per share Net earnings Basic Diluted Dividends paid As at December 31 Total assets 2014 119,275 37,017 1.23 1.19 0.24 2014 736,757 $ $ $ 2013 2012 $ 101,278 $ 86,360 22,556 34,432 $ 1.13 $ 0.72 0.71 1.11 0.17 0.30 2012 2013 $ 645,060 $ 510,752 The increases in total assets over the past two years substantially reflect the changes in the value of the corporate holdings of securities, increases in interest-bearing deposits and receivables from clients and brokers. SUMMARY OF QUARTERLY RESULTS The following table summarizes Guardian’s financial results for the past eight quarters. Quarters ended ($ in thousands) Dec 31, 2014 Sep 30, 2014 Jun 30, 2014 Mar 31, 2014 Dec 31, 2013 Sep 30, 2013 Jun 30, Mar 31, 2013 2013 Net revenue Operating earnings Net gains (losses) Net earnings before net gains (losses) on securities held for sale Net gains (losses) on securities held for sale $ 31,490 $ 30,806 $ 29,257 $ 27,722 $ 27,907 $ 25,173 $ 25,041 $ 23,157 8,564 6,898 6,390 5,079 10,335 7,218 3,183 666 570 403 10,051 (12) 9,199 2,737 8,556 3,647 8,530 8,033 10,066 10,624 14,879 8,602 6,255 5,065 (92) (156) 222 386 238 432 (1,243) 515 Net earnings available to shareholders Shareholders’ equity (in dollars) Per average Class A and Common Share Net earnings before net gains 8,223 488,835 7,715 482,242 10,163 463,306 10,916 438,363 14,980 8,946 4,963 5,543 414,985 393,670 354,622 366,519 (losses) on securities held for sale: - Basic - Diluted $ 0.28 $ 0.26 $ 0.27 0.25 0.33 $ 0.32 0.35 $ 0.48 $ 0.28 $ 0.20 $ 0.16 0.47 0.27 0.20 0.16 0.34 16 Guardian Capital Group Limited SUMMARY OF QUARTERLY RESULTS (continued) Quarters ended ($ in thousands) Dec 31, 2014 Sep 30, 2014 Jun 30, 2014 Mar 31, 2014 Dec 31, 2013 Sep 30, 2013 Jun 30, Mar 31, 2013 2013 Net earnings available to shareholders: $ - Basic - Diluted Shareholders’ equity 0.27 $ 0.26 $ 0.27 0.25 0.34 $ 0.33 0.36 $ 0.49 $ 0.29 $ 0.16 $ 0.18 0.48 0.29 0.16 0.18 0.35 - Basic - Diluted $ 16.33 $ 16.08 $ 15.62 15.39 15.34 $ 14.72 14.49 $ 13.68 $ 12.94 $ 11.64 $ 11.97 13.17 12.51 11.27 11.59 13.93 Management fees earned in the investment management segment are highly correlated to the growth in AUM and generally not subject to seasonal fluctuations. Guardian may also earn performance management fees on certain accounts, which are determined on an annual and a quarterly basis, and these may be significant. The seasonality which in the past existed in the financial advisory segment, with some concentration of commissions in the traditional “RSP season” in the first quarter of each year, has now largely dissipated. This change is due to the overriding influence of worldwide market movements, which can affect client and advisor behavior throughout the year, and the continuing move toward “trailer” fees and away from “front-load” sales commissions and the increasing significance of commissions from the life insurance MGA, which are less influenced by the “RSP season” and the financial market movements. Some seasonality in the commission revenues is now beginning to occur in the MGA business, where the last quarter of the year sees an increase in revenues from “volume bonuses” earned from the life insurance companies. These volume bonuses are increasing each year and are becoming more significant as the business continues to grow. The steady increase in net revenue during the periods shown above have generally resulted from two influences. Firstly, reflecting the growth in AUM, management fees in the investment management business have increased steadily and substantially throughout 2013 and 2014. Secondly, there has been significant growth in commissions earned in the financial advisory business as a result of the continued business growth, organically and through recruitment of advisors. Since gains and losses are recorded on disposal of available for sale securities or other assets when realized, and on changes in the value of held for trading and held for sale securities, and such amounts can vary from quarter to quarter, the amounts included in “Net gains (losses)” and “Net gains (losses) on securities held for sale” each quarter have fluctuated, as shown in the quarterly results above. The significant net gains recorded in the third and fourth quarters of 2013, and the first and second quarters of 2014 contributed significantly to the increases in “Net earnings available to shareholders” in those quarters and the significant net loss on securities held for sale in the second quarter of 2013, contributed to the reduction in “Net earnings available to shareholders”. The quarterly fluctuations in shareholders’ equity shown above have largely been caused by the changes in the value of Guardian’s securities holdings, less the provision for deferred income taxes thereon. RISK FACTORS Guardian applies many of the same risk management principles to its business as a whole, as it does to the management of risks on behalf of its clients. One of the principles is that risk can pose challenges, as well as provide opportunities, depending upon the effectiveness of the way in which it is managed. Readers are encouraged to refer to note 21 to the Consolidated Financial Statements, contained in Guardian’s 2014 Annual Report, for additional information on financial risk management. Market Risk Market fluctuations can have a significant effect on the value of both clients’ portfolios and our earnings, since management fees are generally based on market values. Additionally, market fluctuations have a significant impact on the amounts being invested by the clients of our financial advisory businesses, increasing or reducing our commission revenues. We manage the risk of market fluctuations by having a diversified client base with different investment needs, and by having a variety of products and services, which may be attractive in different market environments and which have different correlations to equity and other financial markets and to each other. Guardian’s holdings of securities are managed independently of clients’ assets, except for those of our assets that are invested in Guardian’s investment funds. Portfolio Value and Concentration Risk Guardian’s corporate holdings of securities are subject to price fluctuation risk. Guardian manages this risk through professional in-house investment management expertise, which takes a disciplined approach to investment management. All securities are held by well-known independent custodians chosen by Guardian. & A N A L Y S I S D I S C U S S I O N M A N A G E M E N T ‘ S 17 2014 Annual Report With the exception of the investment of $388.9 (2013 – $339.8) million in the Bank of Montreal shares, which is a significant portion of Guardian’s securities holdings, the holdings are diversified, from both an asset class and a geographical perspective. Guardian has accepted the concentration risk associated with its holding of Bank of Montreal shares, as the bank is a diversified company, with a history of steady dividend payments. Foreign Currency Risk Guardian’s investments in its foreign subsidiaries are subject to the risk of foreign currency exchange rate fluctuations. The effects of changes in foreign currency exchange rates on the values of these investments are not included in Net earnings, but are recorded as changes in the “foreign currency translation adjustment” in Guardian’s Statements of Comprehensive Income, and the cumulative effect is included in Accumulated other comprehensive income in the Shareholders’ Equity section of the Consolidated Balance Sheets. This foreign currency exposure is not actively managed, due to the long-term nature of these investments, but is closely monitored by management. From time to time, the foreign subsidiaries hold unhedged Canadian dollars, which can result in foreign exchange gains or losses being recorded by the subsidiaries. Upon translation of their results on consolidation, Guardian recognizes equal and offsetting gains or losses in “Other comprehensive income”. This is not considered to be a currency risk as there is no economic risk to Guardian. Credit Risk Guardian’s credit risk is generally considered to be low. Because of the nature of Guardian’s business, its receivables are mainly from large institutions, which are considered to pose a relatively low credit risk, or from individuals, which are secured by marketable securities. Guardian periodically reviews the financial strength of all of its counterparties, and if the circumstances warrant it Guardian takes appropriate action to reduce its exposure to certain counterparties. The credit risk associated with Guardian’s investment in fixed-income mutual funds is managed by monitoring the activities of the portfolio manager who, through diversification and credit quality reviews of the funds’ investments, manage the funds’ credit risk. Interest Rate Risk Guardian manages interest rate risk in its international banking operations, through matching the interest rates and maturity dates of client deposit liabilities with the assets, interest-bearing deposits with banks. The interest rate risk associated with Guardian’s investment in fixed-income mutual funds is managed by monitoring the activities of the portfolio manager, who manages this risk by positioning the portfolio for various interest rate environments. Liquidity Risk Guardian manages liquidity risk through the monitoring and managing of cash flows from various segments of the business, and by establishing sufficient borrowing facilities with major Canadian banks, which currently total $83 million through three credit facilities. The maturities of Guardian’s contractual commitments are outlined under “Contractual Commitments” in this discussion and analysis. The combination of the cash flows from operations, borrowing facilities and the holding of securities provides sufficient resources to manage its liquidity risk. Regulatory Risk Compliance with and changes to government regulations, including those related to income and other taxes, can have an effect on Guardian’s business. Examples are the changes in future income tax rates, which have had significant effects on Guardian’s income tax expense, and net earnings, in 2006, 2007, 2009 and 2012. Because there had been a downward trend in income tax rates prior to 2012, the effects on earnings in earlier years had been positive, but they were negative in 2012, and further negative effects could result if tax rates increase again in the future. Another area in which regulation affects Guardian’s business is in the regulatory requirements of the government and self-regulatory agencies under which our regulated subsidiaries operate, including the new jurisdictions into which Guardian has expanded during 2014. Through a combination of in-house expertise and external advisors, when appropriate, Guardian and its subsidiaries are able to comply with these regulatory requirements and adapt to changes in them. Performance Risk Product performance presents another risk. It is a relative, as well as an absolute measure, because the risk is that we will not perform as well as the market, our peers, or in line with our clients’ expectations. We manage this risk by having a disciplined approach to investment management, and by ensuring that our compliance capabilities are strong. With respect to clients’ expectations, we also ensure that we are fully aware of all of those expectations, and that we properly communicate with our clients to develop, report on and comply with client mandates on a continuous basis. Financial Advisory Risk Because of the number of agents who publicly represent each of the Worldsource operating entities, there are risks associated in their dealings with their clients. These risks are mitigated by the strong compliance and product review capabilities of the Worldsource organization, significant management oversight and insurance coverage carried by both Worldsource and the agents. 18 Guardian Capital Group LimitedCompetition Risk Another risk is competition. Our ability to compete is enhanced by the high quality of our management team, substantial depth in personnel and resources and a strong balance sheet, which provides us with the flexibility to make the changes necessary to be competitive. In addition, we manage competition risk by tailoring our product and service offerings to market conditions and client needs. As a result of this risk related to its clients, Guardian has the risk of a reduction in its revenue due to the possible loss of clients, including the possible loss of Worldsource advisors, who could bring their clients to another mutual fund or securities dealer. This risk is managed by having strong marketing efforts to replace lost revenue with new client revenues, and by continuing to offer competitive benefits to advisors. CRITICAL ACCOUNTING ESTIMATES The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions which affect the reported amounts of assets, liabilities, contingencies, revenues and expenses. These estimates and assumptions are listed in note 2 (c) to Guardian’s 2014 Consolidated Financial Statements. The most significant accounting estimates are related to the impairment assessment of goodwill and the determination of fair value of securities classified as level 3 within the fair value hierarchy. The impairment assessment of goodwill includes a comparison of the carrying value and the recoverable amount of each business unit to verify that the recoverable amount of the business unit is greater than its carrying value. In 2014 and 2013, the recoverable amounts were estimated using the fair value less cost to sell method for each of the business units. Guardian used valuation approaches to determine fair value based on a multiple of AUM, AUA, annual service fee revenues and first year’s commissions. These multiples are developed by management based on recent transactions and research reports by independent research analysts. These valuation approaches are most sensitive to the levels of AUM, AUA and annual service fees. A financial instrument is classified as level 3 when the fair value of the instrument is determined using valuation techniques based on inputs which are not observable in the market. The fair values of securities classified as level 3 in note 4 (e) to Guardian’s 2014 Consolidated Financial Statements were based on a valuation approach using a multiple of AUM. The multiple was developed based on prior tender offers and recent research reports by independent research analysts for similar types of business. This valuation approach is most sensitive to the level of AUM. FUTURE CHANGES IN ACCOUNTING POLICIES A number of new standards, and amendments to existing standards, have been issued by the International Accounting Standards Board (“IASB”), which are effective for Guardian’s consolidated financial statements in future periods. The following is a description of these new standards and amendments. Financial Instruments On July 24, 2014, IASB issued its fourth and final version of IFRS 9 Financial Instruments (“IFRS 9”), which is to replace IAS 39 Financial Instruments: Recognition and Measurement with revised guidance on classification and measurement of financial instruments. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. Guardian is currently evaluating the impact IFRS 9 will have on its consolidated financial statements. Revenue On May 28, 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers (“IFRS 15”), which establishes a new framework for the recognition of revenue from contracts with customers and replaces several other standards and interpretations. The core principle of IFRS 15 is that an entity recognizes revenue upon the transfer of services to customers that reflects the payments to which it expects to be entitled. IFRS 15 is effective for annual periods beginning on or after January 1, 2017. Guardian is currently evaluating the impact IFRS 15 will have on its consolidated financial statements. INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROL Management is responsible for establishing and maintaining adequate internal controls over financial reporting, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. There have been no changes in Guardian’s internal control over financial reporting during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, Guardian’s internal control over financial reporting. Management of Guardian has evaluated the effectiveness of its disclosure controls and procedures and internal controls over financial reporting (as defined under National Instrument 52-109) as of December 31, 2014, under & A N A L Y S I S D I S C U S S I O N M A N A G E M E N T ‘ S 19 2014 Annual Report the supervision of the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the design and operation of those disclosure controls and procedures and internal controls over financial reporting were effective. OUTLOOK In last year’s annual report, we commented on our expectations that 2014 would be a year in which global monetary easing would continue, despite an improving economy in the US. We expected that the high levels of accommodating quantitative easing (QE) by the Fed would eventually lead to calls for a greater level of tightening by the Fed and, indeed, we witnessed in late 2014 the unwinding of their QE program. As global central banks were committed to coordinating further monetary easing in the near term, and any interest rate increases are likely to take longer to materialize, investors were likely to continue increasing their equity risk appetites, and thus we expected positive support for global equity markets in 2014. The results for large segments of the developed stock market didn’t disappoint. During the year, the S&P/TSX Composite returned 10.6% and the S&P 500 returned 13.7%, or 24% in Canadian dollars. Globally, stock markets largely lagged the North American markets for the year. The MSCI Europe Index declined -5.7%. The larger European countries saw modest positive returns: France (+2.6%), Germany (+2.1%), and the U.K. (+0.5%). Returns in the Eurozone peripheral countries were mixed with Ireland (+16.5%) and Spain (+8.6%) among the best performers. Returns in Italy (+3.0%) was modest, with the worst performance coming from Greece (-31.6%) and Portugal (-29.7%). In Asia, Japan (+9.5%) was the best performer. In the Emerging Markets, India (+26.4%) was the best performer amongst the BRIC countries, followed by China (+8.0%), Brazil (-3.2%), and Russia (-12.8%). As we look into 2015, we remain positive about the global equity markets as we have been throughout 2013 and 2014. Most recently, the Fed indicated that it will hold rates near zero at least through the first quarter of 2015, and would be “patient” in its approach to raising its benchmark lending rate from a range of zero to 0.25% (where it has been since December 2008). The U.S. dollar has been strong, based on the anticipated divergence in monetary policy between the Fed, the European Central Bank, and the Bank of Japan. As the Fed moves toward raising short rates, we expect a flow of funds out of the money market and bonds into stocks, supporting a P/E multiple revision upward. When short rates do begin to rise, this may cause another pull-back in the market, but history would suggest that if the rise is due to a strong economy, earnings growth will continue to drive stocks higher, until short rates have had several increases and the yield curve inverts. Heading into 2015, Canadian economic conditions leave plenty of room for debate and handwringing but, on a relative basis, things are still moving in a positive direction. The Canadian economy’s performance in 2014 may have disappointed some observers, given the tremendous growth and momentum south of the border, however, considering the persistent backdrop of predictions of a housing bubble, the imminent collapse of a highly indebted consumer and slumping commodity prices, the economy continues to be rather resilient. Recent reports suggest the economy is likely headed for even tougher sledding, as the headwinds from lower oil prices start to have a broader impact. Nevertheless, the Canadian economy will likely continue to muddle through, with modest and uneven growth that trails the U.S. economy. Given that oil is Canada’s largest export, the Bank of Canada expects that lower oil price will clearly have an impact on growth in 2015. The volatility in oil prices increases the volatility in the main Canadian equity market, the S&P/TSX composite. However, we expect the resource side of the market to improve from current depressed levels and, coupled with strong US economic recovery, the Canadian economy and equity markets should continue to produce positive returns in 2015. Guardian is highly geared toward the equity markets, across its main business segments and its corporate investment portfolio. An environment that continues the bull market in equities will be positive for Guardian’s overall performance, as our largest revenue sources, commission revenue and management fees, are aligned toward higher levels of AUM and AUA. Guardian’s AUM increased to $25.0 billion by year end, which is approximately $2.8 billion in growth from the prior year end. Growth in AUM was due to both positive Canadian and global equity markets and to growth from net additions from clients of more than $1 billion, making it the third consecutive year in which net additions from clients were greater than $1 billion. Looking to the year ahead, we feel that our strong retail intermediary flows from the broker dealer wrap programs, and our select retail mutual fund and exchange traded fund partners, will provide for continued strong net additions from clients. We do bear some degree of risk of loss of client assets due to re-balancing occurring at the client portfolio level, or internalization of mandates. However, the increased diversity of both our client base and the firm’s strategies allows for opportunities to mitigate such losses. In 2015, we see limited concern for loss of clients for performance reasons, as the relative performance of our strategies has on balance been good in delivering against our clients’ objectives. We believe growth in net additions from clients will continue to be led in the near term by our strength in the performance of the systematic suite of strategies and, more specifically, the strong relative results of the Global Dividend strategy. Although the systematic equity team had a challenging first half in 2013, which gave us some concern entering 20 Guardian Capital Group Limited2014, they have since rebounded strongly in their relative performance, including top quartile performance across several of their strategies in 2014. We also expect that, with strong relative returns from our newly created fundamental global equity team, we will begin to attract net additions from clients to this strategy by year end; however, significant growth is likely a couple of years away. Guardian’s financial advisory business, through its subsidiary Worldsource Wealth Management, reported significantly improved operating earnings in 2014 over the prior year with total operating earnings of $6.4 million, compared to $2.2 million in 2013. The operating improvement in this segment is even more significant when compared to a loss of $3 million in 2011. The improved operating earnings were due to continued strong commission growth from new life insurance sales in its Managing General Agency, and multi-year efforts to improve revenue and expense management in its Mutual Fund and Securities dealerships. The total assets under administration at Worldsource were $13.1 billion at 31 December 2014, compared to $11.6 billion at the end of 2013. In 2015, we expect improving operating earnings from our financial advisory business, with the continued delivery of strong life insurance sales and the recruitment of additional independent advisors across our Worldsource platform. Going forward, having achieved an efficient, stable base of profitable business across our independent advisor platform, we are focused on how best to leverage our relationships with advisors and related industry partners to deliver investment solutions managed by Guardian, in order to expand the Worldsource AUA into including some Guardian AUM on the same platform. Furthermore, we continue to look for consolidation opportunities for smaller competitors, to accelerate growth beyond organic recruitment and gain greater scale for all of our financial advisory segments. There is a greater degree of probability that we can continue such growth by acquisition in our MGA in 2015. We are pleased with the growth year over year in operating profits, while at the same time continuing to invest in new initiatives, which is a constant trade-off by management of some current earnings for expected greater future earnings. We plan to continue to invest in the development of several of our new initiatives commenced over the past couple of years, including our Real Estate investment team, the build out of our London, UK investment teams, and further expansion of our retail intermediary wholesaling footprint to leverage a growing distribution network of partners in Canada and the US. As such, some of these new initiatives will likely have expenses outpacing revenues in the near term, but we shall remain disciplined in managing the progress of these initiatives. It is important, with the stronger operating platform that Guardian has achieved over the past few years, that we leverage our positive momentum to attract new talent and capabilities where we expect client demand to be strong in the future. Finally, management continues to review opportunities to deploy capital into new and existing operating businesses, with a goal to diversify the current investment portfolio held by the Company. Part of the management team’s review in deploying capital will also include, if market conditions permit, active participation in our normal course issuer bid. & A N A L Y S I S D I S C U S S I O N M A N A G E M E N T ‘ S 21 2014 Annual Report Ten Year Review Notes (a), (g) ($ in millions) Assets under management Assets under administration ($ in thousands) Net revenue Operating expenses (b) Operating earnings Net gains (losses) Net gains (losses) on securities held for sale Net earnings available to shareholders Shareholders’ equity (e) Securities holdings (at fair value) 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 $ 24,968 $ 22,228 $ 18,832 $ 15,928 $ 16,266 $ 13,986 $ 11,764 $ 16,885 $ 17,305 $ 18,444 4,837 11,559 6,005 9,918 8,654 6,303 5,677 7,074 7,783 13,126 $ 119,275 $ 101,278 $ 86,360 $ 73,693 $ 64,928 $ 61,147 $ 66,918 $ 69,607 $ 66,247 $ 58,908 44,162 14,746 1,597 51,617 48,159 8,253 17,990 18,088 4,134 4,215 52,419 58,665 8,728 1,217 (4,484) 74,347 66,222 20,138 26,931 1,337 11,637 56,560 17,133 (131) 51,389 13,539 2,982 81,134 38,141 6,775 360 (58) 4,559 (5,493) 6,443 – – – – – 37,017 34,432 22,556(f) 12,821 7,299(d) 26,492(c) 23,015 14,274(c) 488,835 414,985 331,856 317,784 204,051 334,696 212,016 192,240 525,352 449,179 379,956 364,182 383,604 362,512 241,549 380,433 443,108 407,117 10,003 353,756 322,618 22,959(c) R E V I E W Y E A R T E N (In dollars) Per average common and Class A share Net earnings available to shareholders for the year Basic Diluted Per common and Class A share Dividends paid Shareholders’ equity(e) Basic Diluted Share prices Common high low high low Class A (In thousands) Year end common and Class A shares outstanding Basic Diluted $ 1.23 $ 1.13 $ 0.72(f) $ 0.31 $ 0.70 $ 0.41(c) $ 0.19(d) $ 0.69(c) $ 0.60(c) $ 0.33 0.32 0.68(c) 0.19(d) 0.41(c) 0.58(c) 0.71(f) 0.69 0.31 1.11 1.19 0.240 0.300 0.170 0.160 0.150 0.150 0.150 0.135 0.120 0.105 16.33 15.62 21.45 15.30 18.85 15.10 13.68 13.17 18.00 11.50 16.82 10.40 11.44 11.16 11.65 9.41 10.55 9.00 10.12 9.90 12.75 9.49 11.63 8.70 10.16 10.01 9.75 7.90 9.00 7.35 9.37 9.19 9.97 4.65 8.25 3.00 5.69 5.65 11.10 4.26 11.02 3.02 8.79 8.67 15.50 10.65 13.50 10.33 5.48 5.36 5.04 4.87 14.00 11.25 13.13 10.12 13.00 9.63 12.13 9.00 29,940 31,300 30,333 31,510 30,917 31,696 31,890 32,604 32,652 33,162 33,932 34,563 35,874 36,104 38,095 38,669 39,576 38,605 38,149 39,492 NOTES: (a) Comparative figures reflect the May, 2006 2-for-1 stock split. (b) Excluding commissions paid, referral fees and income taxes. (c) Net earnings available to shareholders reflect a reduction in future income taxes, resulting from the reduced income tax rates enacted during the year, as follows: 2009 - $2.0 million, $0.06 per share diluted; 2007 - $6.6 million, $0.16 per share diluted; 2006 - $3.3 million, $0.08 per share diluted. (d) Net earnings available to shareholders in 2008 reflect a $1.3 million ($0.03 per share) reduction in future income taxes, resulting from the reversal of future income taxes relating to Guardian’s foreign subsidiaries, as well as the recording of restructuring costs of $2.3 million ($0.06 per share). (e) Shareholders’ equity in 2007 and subsequent years reflects the recording of the corporate holdings of securities at fair value, in accordance with required new accounting policies adopted effective January 1, 2007. (f) Net earnings available to shareholders in 2012 reflect a $1.1 million ($0.03 per share) increase in future income taxes, resulting from increased income tax rates enacted during the year. (g) Results in 2010 to 2014 are in accordance with IFRS; 2009 and previous years are as reported under previous Canadian GAAP. 22 Guardian Capital Group Limited Management’s Statement on Financial Reporting The following financial statements, which consolidate the financial results of Guardian Capital Group Limited, its subsidiaries and other controlled entities, and the Company’s interest in a joint venture, and all other information in this annual report, are the responsibility of management. The financial statements have been prepared in accordance with International Financial Reporting Standards. Financial information presented elsewhere in this annual report is consistent with that in the financial statements. In management’s opinion, the financial statements have been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized on pages 30 to 34. Management maintains a system of internal controls over the financial reporting process designed to provide reasonable assurance that relevant and reliable financial information is produced. Management also administers a program of ethical business conduct compliance. KPMG LLP, the Company’s independent auditors, have audited the accompanying financial statements. Their report follows. The Audit Committee of the Board of Directors, composed of independent directors, meets regularly with management and KPMG LLP to review their activities and to discuss the external audit process, internal controls, accounting policies and financial reporting matters. KPMG LLP has unrestricted access to the Company, the Audit Committee and the Board of Directors. The Audit Committee has reviewed the financial statements and Management’s Discussion and Analysis and recommended their approval to the Board of Directors. Based on this recommendation, the financial statements and Management’s Discussion and Analysis have been approved by the Board of Directors. George Mavroudis, President and Chief Executive Officer Donald Yi, Chief Financial Officer February 26, 2015 S T A T E M E N T S F I N A N C I A L 23 2014 Annual Report Independent Auditors’ Report TO THE SHAREHOLDERS OF GUARDIAN CAPITAL GROUP LIMITED We have audited the accompanying consolidated financial statements of Guardian Capital Group Limited, which comprise the consolidated balance sheets as at December 31, 2014 and December 31, 2013, the consolidated statements of operations, comprehensive income, equity and cash flow for the years ended December 31, 2014 and December 31, 2013, and notes, comprising a summary of significant accounting policies and other explanatory information. MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. AUDITORS’ RESPONIBILITY Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Guardian Capital Group Limited as at December 31, 2014 and December 31, 2013, and its consolidated financial performance and its consolidated cash flow for the years ended December 31, 2014 and December 31, 2013 in accordance with International Financial Reporting Standards. Chartered Professional Accountants, Licensed Public Accountants, Toronto, Canada February 26, 2015 24 Guardian Capital Group Limited Consolidated Balance Sheets As at December 31 ($ in thousands) Assets Current assets Cash Interest-bearing deposits with banks Accounts receivable and other Receivables from clients and broker Prepaid expenses Securities (note 4) Securities holdings Securities held for sale Other assets Deferred tax assets (note 11c) Intangible assets (note 5) Equipment (note 6) Goodwill (note 7) Investment in associate (note 23d) Other (note 25) Total assets Liabilities Current liabilities Bank loans and borrowings (note 8) Client deposits Accounts payable and other Income taxes payable Payable to clients Other liabilities Deferred tax liabilities (note 11c) Total Liabilities Equity Shareholders’ equity Capital stock (note 12a and 12b) Treasury stock (note 13a) Contributed surplus Retained earnings Accumulated other comprehensive income Non-controlling interests Total equity Total liabilities and equity 2014 2013 $ $ $ $ 29,230 61,729 29,293 46,160 1,854 168,266 499,967 25,385 525,352 3,060 23,791 3,656 12,299 333 – 43,139 736,757 51,312 61,747 31,688 2,276 46,160 193,183 1,097 50,243 244,523 21,434 (19,890) 10,841 269,752 206,698 488,835 3,399 492,234 736,757 $ 28,446 57,285 25,986 42,215 1,577 155,509 443,754 5,425 449,179 3,757 20,611 3,674 11,111 333 886 40,372 $ 645,060 $ 55,929 57,312 27,408 1,092 42,215 183,956 – 43,316 227,272 21,679 (18,700) 9,583 245,961 156,462 414,985 2,803 417,788 $ 645,060 See accompanying notes to consolidated financial statements. On behalf of the Board: Barry J. Myers, Director George Mavroudis, Director S T A T E M E N T S F I N A N C I A L 25 2014 Annual Report Consolidated Statements of Operations For the years ended December 31 ($ in thousands, except per share amounts) 2014 2013 Revenue Gross commission revenue Commissions paid to advisors Management fee income, net (note 14) Administrative services income Dividend and interest income (note 15) Net revenue Expenses Employee compensation and benefits (note 16) Amortization Interest Other expenses Operating earnings Net gains (note 17a) Earnings before income taxes and net gains (losses) on securities held for sale Income tax expense (note 11a) Net earnings before net gains (losses) on securities held for sale Net gains (losses) on securities held for sale (note 17b) Net earnings Net earnings before net gains (losses) on securities held for sale, available to: Shareholders Non-controlling interest Net earnings before net gains (losses) on securities held for sale Net earnings before net gains (losses) on securities held for sale, available to shareholders per Class A and Common share (note 18): Basic Diluted Net earnings available to: Shareholders Non-controlling interest Net earnings Net earnings available to shareholders per Class A and Common share (note 18): Basic Diluted See accompanying notes to consolidated financial statements. $ 100,802 (72,780) 28,022 61,322 11,159 18,772 119,275 51,430 3,591 981 25,132 81,134 38,141 6,775 44,916 7,663 37,253 360 37,613 36,657 596 37,253 1.21 1.18 37,017 596 37,613 1.23 1.19 $ $ $ $ $ $ $ $ 84,824 (61,735) 23,089 50,940 9,689 17,560 101,278 46,758 3,706 1,130 22,753 74,347 26,931 11,637 38,568 3,767 34,801 (58) 34,743 $ $ 34,490 311 $ 34,801 $ $ $ $ 1.13 1.11 34,432 311 34,743 1.13 1.11 26 Guardian Capital Group Limited Consolidated Statements of Comprehensive Income For the years ended December 31 ($ in thousands) 2014 2013 Net earnings Other comprehensive income Available for sale securities: Net change in fair value Income tax provision Transfer to net earnings of unrealized (gains) upon disposal Reversal of income taxes Changes in foreign currency translation adjustment on foreign subsidiaries Other comprehensive income Comprehensive income Comprehensive income available to: Shareholders Non-controlling interests Comprehensive income See accompanying notes to consolidated financial statements. $ 37,613 $ 34,743 55,405 7,244 48,161 (7,208) 384 (6,824) 41,337 8,899 50,236 87,849 87,253 596 87,849 $ $ $ 57,660 6,478 51,182 (10,793) 150 (10,643) 40,539 6,206 46,745 $ 81,488 $ 81,177 311 $ 81,488 S T A T E M E N T S F I N A N C I A L 27 2014 Annual Report Consolidated Statements of Equity For the years ended December 31 ($ in thousands) Total equity, beginning of year Shareholders’ equity, beginning of year Capital stock Balance, beginning of year Acquired and cancelled (note 12c) Capital stock, end of year Treasury stock Balance, beginning of year Acquired (note 13a) Disposed (note 13a) Treasury stock, end of year Contributed surplus Balance, beginning of year Stock-based compensation expense Equity-based entitlements redeemed Contributed surplus, end of year Retained earnings Balance, beginning of year Net earnings available to shareholders Dividends declared and paid (note 12e) Capital stock acquired and cancelled (note 12c) Acquisition of non-controlling interests (note 25) Other Retained earnings, end of year Accumulated other comprehensive income Balance, beginning of year Unrealized gains on available for sale securities, net of income taxes Balance, beginning of year Net change during year Balance, end of year Foreign currency translation adjustment on foreign subsidiaries Balance, beginning of year Net change during year Balance, end of year Accumulated other comprehensive income, end of year Shareholders’ equity, end of year Non-controlling interests Balance, beginning of year Net earnings available to non-controlling interests Acquisition of non-controlling interests (note 25) Non-controlling interests, end of year Total equity, end of year See accompanying notes to consolidated financial statements. 2014 2013 $ 417,788 $ 357,750 414,985 353,756 21,679 (245) 21,434 (18,700) (1,285) 95 (19,890) 9,583 1,348 (90) 10,841 245,961 37,017 (7,246) (5,412) (640) 72 269,752 156,462 155,611 41,337 196,948 22,113 (434) 21,679 (17,750) (1,644) 694 (18,700) 8,636 1,247 (300) 9,583 231,040 34,432 (9,211) (7,464) (2,831) (5) 245,961 109,717 115,072 40,539 155,611 851 8,899 9,750 206,698 488,835 2,803 596 – 3,399 492,234 $ (5,355) 6,206 851 156,462 414,985 3,994 311 (1,502) 2,803 $ 417,788 28 Guardian Capital Group Limited Consolidated Statements of Cash Flow For the years ended December 31 ($ in thousands) 2014 2013 Operating activities Net earnings Adjustments for: Income taxes paid Income tax expense Net gains Net loss (gains) on securities held for sale Amortization of intangible assets Amortization of equipment Stock-based compensation Other non-cash expenses Net change in non-cash working capital items (note 20) Net cash from operating activities Investing activities Net disposition (acquisition) of securities Acquisition of securities held for sale Proceeds from sale of securities held for sale Acquisition of intangible assets Proceeds from disposition of intangible assets Acquisition of equipment Business acquisitions (note 24) Net cash (used in) investing activities Financing activities Dividends Acquisition of capital stock Acquisition of treasury stock Disposition of treasury stock Net (repayment) proceeds of bank loans and borrowings Acquisition of non-controlling interest (note 25) Net cash (used in) financing activities Foreign exchange Net effect of foreign exchange rate changes on cash balances Net change in net cash Net cash, beginning of year Net cash, end of year Net cash represented by: Cash Net bank indebtedness See accompanying notes to consolidated financial statements. $ 37,613 $ 34,743 (6,232) 7,663 (6,775) (106) 2,890 701 1,348 (23) 37,079 1,004 38,083 13,614 (26,811) – (3,684) 832 (556) (1,231) (17,836) (7,246) (5,657) (1,285) 95 (5,351) (1,271) (20,715) 518 51 27,717 27,768 29,230 (1,462) 27,768 $ $ $ (3,966) 3,767 (11,637) 178 2,819 887 1,247 – 28,038 2,631 30,669 (371) (9,970) 4,126 (4,378) 1,798 (2,109) (356) (11,260) (9,211) (7,898) (1,644) 760 11,737 (4,333) (10,589) 676 9,496 18,221 27,717 28,446 (729) 27,717 $ $ $ S T A T E M E N T S F I N A N C I A L 29 2014 Annual Report Notes to Consolidated Financial Statements 1. REPORTING ENTITY These consolidated financial statements include the accounts of Guardian Capital Group Limited and its subsidiaries (the “Company”). The Company is incorporated under the laws of the Province of Ontario, and its principal business office is located at Suite 3100, 199 Bay Street, Toronto, Ontario. The Company provides investment management and financial advisory services to a wide range of clients in Canada and abroad, and maintains and manages a proprietary investment portfolio. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), which comprises stan- dards and interpretations approved by either the International Accounting Standards Board (“IASB”), the IFRS Interpretations Committee or their predecessors. These financial statements were authorized for issuance by the Board of Directors of the Company on February 26, 2015. (b) Basis of presentation These consolidated financial statements have been prepared on a going concern basis and the historical cost basis, except for certain financial instru- ments that have been measured at fair value. These financial statements are presented in Canadian dollars, which is the Company’s functional currency. In these notes, all dollar amounts and num- bers of shares are stated in thousands. Per share amounts and option exercise prices are stated in dollars and cents. Certain reclassifications have been made to the 2013 comparative financial information in order to conform to the current year’s presentation. (c) Estimates and judgments The preparation of these consolidated financial statements necessitates the use of judgments, estimates and assumptions, which affect the reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from these estimates. Management believes that the significant areas where judgment is necessarily applied are those which relate to the: (i) Determination of when control of another entity exists; (ii) Valuation of certain securities that do not have quoted market prices; (iii) Assessment of goodwill and available for sale securities for impairments; (iv) Assessment of provisions; and (v) Measurement of share-based payments. (d) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies of the other entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial state- ments from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Company. The Company considers several factors in determining whether it has power over another entity which it will be able to use to obtain benefits. a. When voting rights are relevant in determining power over an entity, the Company considers its: existing voting rights; potential voting right that are currently exercisable and have no substantive barriers to exercise; agreements with other vote holders; rights from other con- tractual arrangements; economic interests; or a combination of the foregoing. Offsetting these factors, the Company considers matters which prevent it from the exercise of power. b. When voting rights are not relevant in determining power over an entity the Company considers: evidence of its practical ability to direct the activities of the entity for the Company’s benefit; indications of a special relationship between it and the entity; and whether it has a signifi- cant exposure to variability of returns. In evaluating these three factors, the Company gives greater weight to evidence of its ability to direct the activities of the entity. The Company, from time to time, has invested in a number of funds where it controls those funds. These funds are consolidated unless they meet the criteria set out in the accounting policy in respect of non-current assets held for sale to be categorized as being held for sale, in which case they are classified and accounted for in accordance with that policy. 30 Guardian Capital Group Limited (ii) Transactions eliminated on consolidation All inter-company transactions, balances, income and expenses between the consolidated entities are eliminated on consolidation. Non-controlling interests in the equity of subsidiaries are shown as a component of the equity section of the consolidated balance sheets. (e) Joint ventures Joint ventures are those entities over which the Company has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Joint ventures are accounted for using the equity method. The investments are carried in the balance sheets at cost as adjusted by post-acquisition changes in the Company’s share of the net assets of the joint venture. (f) Foreign currency translation Amounts denominated in foreign currencies included in these consolidated financial statements are translated into Canadian dollars as follows: (i) Foreign currency denominated monetary items and non-monetary items measured at fair value are translated at the reporting date exchange rates, and purchases and sales of securities and revenues and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Foreign exchange gains and losses, if any, resulting from the foregoing, are included in the statements of operations. (ii) The accounts of certain subsidiaries of the Company are maintained in foreign currencies. Assets and liabilities have been translated into Canadian dollars at exchange rates prevailing at the reporting date and revenues and expenses at average monthly rates. Adjustments resulting from the exchange gains and losses on the translation of balance sheets of the Company’s foreign operations are recorded as a foreign currency translation adjustment in the statements of comprehensive income, and the cumulative balance is included in accumulated other comprehensive income in the shareholders’ equity section of the consolidated balance sheets. (g) Financial instruments The Company’s financial assets may be classified as held-for-trading (“Held for Trading”), available for sale (“Available for Sale”) or loans and receiv- ables (“Loans & Receivables”). Financial liabilities are classified as either Held for Trading or other financial liabilities (“Other Financial Liabilities”). (i) Measurement of financial instruments All of the Company’s financial instruments are initially measured at fair value. Subsequent to initial recognition, financial instruments classified as Held for Trading or Available for Sale are measured: a. at fair value using quoted bid prices in an active market; b. where there is no active market, but the fair value can be reliably measured, the fair value is determined using valuation techniques; or c. otherwise, they are measured at cost. (ii) Changes in fair value During each reporting period, changes in the fair value of financial assets classified as Available for Sale are reflected in other comprehensive income, and changes in fair value of financial assets classified as Held for Trading are reflected in net earnings. All other financial instruments, which include Loans & Receivables and Other Financial Liabilities, are measured at amortized cost using the effective interest rate method. (iii) Classification of the Company’s financial instruments The Company’s financial instruments are classified as follows: a. Interest-bearing deposits with banks, accounts receivable and other, loans receivable, receivables from clients and broker and securities at amortized cost are classified as Loans & Receivables. b. Substantially all of the securities holdings are classified as Available for Sale. c. Cash, equity and debt securities held by mutual funds which are consolidated, due on securities sold short by consolidated mutual funds, securities meeting the criteria of non-current assets held for sale, and derivative contracts, if any, held directly by the Company, are classified as Held for Trading. d. Bank loans and borrowings, client deposits, accounts payable and other, and payable to clients are classified as Other Financial Liabilities. (iv) Fair value hierarchy Financial assets and liabilities measured at fair value are classified using a fair value hierarchy which reflects the significance of the inputs used in mak- ing the fair value measurements. The fair value hierarchy is as follows: a. Level 1 – Quoted market prices: financial instruments with quoted prices for identical instruments in active markets. b. Level 2 – Valuation technique using observable inputs: financial instruments with quoted prices of similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable. c. Level 3 – Valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable. (v) Offsetting financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount reported in the balance sheets when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. (h) Non-current assets held for sale Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale or deemed sale transaction, rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. The Company must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of the classification, except for circumstances beyond management’s control. Non-current assets are classified as held for sale and measured at the lower of their carrying value and fair value less costs to sell. (i) Impairment of securities and other financial assets For securities and other financial assets other than those classified as Held for Trading, an assessment is made each period by management as to whether S T A T E M E N T S F I N A N C I A L N O T E S T O 31 2014 Annual Report there is any objective evidence of impairment. Factors considered in determining whether an objective evidence of impairment exists include the length of time and the extent of unrealized loss, the financial condition and near-term prospects of the issuer and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. If it is determined that the security is impaired, the carrying value of the security is written down to its fair value, and any cumulative loss amount recognized in other comprehensive income is reclassified to net income. For securities and other financial assets carried at amortized cost, if, in subsequent periods, the amount of the loss decreases and the decrease can be objectively related to an event occurring after the impairment was recognized, the loss is reversed in the statement of operations. The reversal is lim- ited to what the amortized amount of the security or financial asset would have been if no impairment loss had been recognized in a prior period. (j) Intangible assets Intangible assets represent new business costs (costs substantially pertaining mainly to new advisors and branches joining the Company’s mutual fund dealer and securities dealer subsidiaries), computer software and the Company’s rights to future revenues (substantially in the Company’s life insurance managing general agency subsidiary). Intangible assets are carried at cost less accumulated amortization and accumulated impairment losses. They are amortized on a straight-line basis over their estimated useful lives, as outlined below: (i) New business costs – They are amortized over a number of years, ranging from three to fifteen years; (ii) Computer software – The initial cost of the main computer processing system used by the mutual fund dealer subsidiary is amortized over ten years, with subsequent improvements to this system being amortized over five years, and other computer software being amortized over three to five years; and (iii) Rights to future revenues – They are amortized over fifteen years. Amortization methods and useful lives of the intangible assets are reviewed annually and adjusted, if appropriate. Intangible assets are derecog- nized upon disposal or when they are fully amortized and no longer in use. (k) Equipment Equipment is carried at cost less accumulated amortization, and accumulated impairment losses, and is amortized over its expected useful life, as outlined below: (i) Computer hardware – The majority of computer hardware is amortized on a straight-line basis over three to five years; (ii) Furniture and equipment – The majority of furniture and equipment is amortized on a diminishing balance basis at a rate of 20% per annum, and works of art included within furniture and equipment are not amortized; and (iii) Leasehold improvements – Leasehold improvements are amortized on a straight-line basis over the remaining terms of the leases. Amortization rates and the useful life of equipment is reviewed annually and adjusted, if appropriate. Equipment is derecognized upon disposal or when it no longer has any residual value. (l) Goodwill Goodwill represents the excess of the cost of acquisition of a aquired business over the fair value of the net identifiable tangible and intangible assets of the subsidiary at the date of acquisition. Goodwill is not amortized, but is carried at cost less accumulated impairment losses. Goodwill is allocated to the appropriate cash-generating units for the purpose of impairment testing. (m) Impairment of non-financial assets The Company reviews annually non-financial assets, including intangible assets, equipment and goodwill, for impairment. If the net carrying amount of an asset which is considered impaired exceeds the estimated recoverable amount, the excess is charged to the statement of operations as an impairment loss. Except for goodwill, management also assesses annually whether there is any indication that an impairment loss recognized in a prior period may no longer exist or may have decreased. If such indication exists, the estimated recoverable amount is compared to the carrying amount and, if the recov- erable amount exceeds the carrying amount, the prior impairment loss is reversed, to bring the carrying amount to a maximum of the carrying amount that would have been determined (net of amortization) had no impairment loss been recognized in a prior period. (n) Bank loans and borrowings (i) Bank indebtedness – Bank indebtedness is a financial liability owed on lines of credit to banks. Bank indebtedness may also consist of bank indebtedness net of cash in bank, when the Company has a legal right of offset and intends to settle on a net basis or realize the asset and settle the liability simultaneously. (ii) Bank loan and bankers’ acceptances payable – Bank loan and bankers’ acceptances are financial liabilities and are initially recorded at fair value and subsequently at amortized cost, which approximates fair value. (o) Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event and it is probable that an out- flow of economic benefits will be required to settle the obligation. The amount recognized as a provision is the best estimate of the obligation at the reporting date. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Future events that may affect the amount required to settle an obligation are reflected in the amount of a provision where there is sufficient objective evidence that they will occur. Where some or all of the expenditure is expected to be reimbursed by insurance or some other party, and it is virtually certain, the reimbursement is recognized as a separate asset on the balance sheets, and the net amount is recorded in the statements of operations. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic benefits will be required to settle the obliga- tion, the provision is reversed. 32 Guardian Capital Group Limited (p) Treasury stock The Company provides stock-based entitlements to certain senior employees through an Employee Profit Sharing Plan Trust (the “EPSP Trust”). The EPSP Trust purchases shares of the Company, which are allocated to senior employees and are financed by a bank loan facility with a major chartered bank, which is secured by the shares held by the EPSP Trust and guaranteed by the Company. The Company consolidates the EPSP Trust in these financial statements, and accounts for the shares owned by the EPSP Trust as treasury stock. (q) Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The various types of revenues and the associated accounting policies adopted by the Company are as follows: (i) Gross commission revenue earned and commissions paid to advisors are recorded on a trade date basis. (ii) Management fees – The Company provides investment management and investment advisory services to clients, in consideration for manage- ment fees, which are generally calculated based on the fair value of the assets managed, in accordance with the agreements with the clients. The fees are earned over the time during which the assets are managed or advised on by the Company. Certain clients also pay performance fees, if the performance of such clients’ assets under management exceeds that of certain performance benchmarks by an agreed level over a stated time period. Such fees are recorded when the services have been provided, the amount of the fees can be reliably measured, and it is probable that the fees will be received. Management fees are presented net of referral fees paid to third party agents. (iii) Administrative services income – The Company earns income from certain clients and advisors, associated with the maintenance of accounts with the Company, and the provision of general corporate, trust or other services. Such income is recognized, on an accrual basis, as the services continue to be performed on an ongoing basis, as based on agreements with the clients or advisors. When the Company holds assets or liabili- ties on a fiduciary basis in providing these services, those assets and liabilities and the income and expenses associated with them are excluded from these consolidated financial statements. (iv) Dividend and interest income is recorded as follows: a. Dividends are recognized when the Company’s right to receive payment is established. b. Interest is recorded as earned over the period of time during which the interest-paying investment is held, on an effective yield basis. (r) Employee compensation and benefits Wages, salaries, profit sharing, bonuses, payroll taxes and levies and paid annual leaves are accrued in the year in which the associated services are rendered by employees and when a reliable estimate of the obligation can be made. (s) Stock-based compensation Stock-based compensation is accounted for under the fair value method, under which compensation cost is measured at the fair value of equity instruments granted and is expensed over the vesting period of the equity instruments. Fair value is determined on the grant date using appropriate valuation models, taking into account the terms and conditions upon which the equity instruments were granted. Vesting conditions are not taken into account in the initial estimate of the fair value at the grant date. They are taken into account by adjusting the number of equity instruments included in the measurement of the transaction, so that the amount recognized for services received as consideration for the equity instruments granted is based on the estimated number of equity instruments that eventually vest. Where a grant has been modified, as a minimum the expense of the original grant continues to be recognized as if it had not been modified. Where the effect of the modification is to increase the fair value of a grant or increase the number of equity instruments, the incremental fair value of the grant or incremental fair value of the additional equity instruments is recognized in addition to the value of the original grant, measured at the date of the modification, over the modified vesting period. (t) Interest expense Interest expense comprises interest payable on borrowings recognized using the effective interest rate method. (u) Pensions The Company operates a defined contribution pension plan and a group registered retirement savings plan. Payments to the plans are charged as expenses as they are incurred. The Company has no legal or constructive obligation to pay further contributions if the plans do not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. (v) Net gains or losses Gains or losses include any gains or losses related to changes in the fair value of Held for Trading securities, or on disposal of Available for Sale secu- rities or other assets, and adjustments to record any impairment in value, recognized on a trade date basis. (w) Income tax Income tax on net earnings for the year comprises current tax and deferred tax. Income tax is recognized in the statements of operations, except to the extent that it relates to items recognized in other comprehensive income or directly in equity, in which case it is also recognized in other comprehen- sive income or directly in equity. Current tax is the tax expected to be payable on the taxable net earnings for the year, calculated using tax rates enacted or substantively enacted by the reporting date, and any adjustment to tax payable in respect of previous years. Current tax assets and liabilities are offset when the Company intends to settle on a net basis and the legal right of offset exists. Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the balance sheets and the amount attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognized for all taxable temporary differences and S T A T E M E N T S F I N A N C I A L N O T E S T O 33 2014 Annual Report deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which deductible temporary dif- ferences can be utilized. Deferred tax is calculated using the tax rates expected to apply in the periods in which assets will be realized or the liabilities settled. Deferred tax assets and liabilities are offset when they arise in the same tax reporting entities, relate to income taxes levied by the same taxa- tion authority and a legal right to set off exists. (x) Earnings per share The calculation of basic earnings per share is based on the weighted average of Class A and common shares outstanding during the year and on earn- ings available to the holders of the Class A and common shares. Diluted earnings per share are calculated by adjusting for the effect of outstanding dilutive instruments, such as stock options or stock-based entitlements, using the treasury stock method. (y) Related parties For the purposes of these financial statements, a party is considered related to the Company if such party or the Company has the ability to, directly or indirectly, control or exercise significant influence over the other entity’s financial and operating decisions, or if the Company and such party are subject to common significant influence. Related parties may be individuals or other entities. All material transactions with related parties are recorded at fair value. 3. CHANGES IN ACCOUNTING POLICIES A number of new standards, and amendments to existing standards, have been issued by the IASB, which are effective for the Company’s consolidated financial statements in certain future periods. The following is a description of these new standards and amendments. (a) Financial Instruments On July 24, 2014, the IASB issued its fourth and final version of IFRS 9 Financial Instruments (“IFRS 9”), which is to replace IAS 39 Financial Instruments: Recognition and Measurement, with revised guidance on classification and measurement of financial instruments. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. The Company is currently evaluating the impact IFRS 9 will have on its consolidated financial statements. (b) Revenue On May 28, 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers (“IFRS 15”), which establishes a new framework for the recogni- tion of revenue from contracts with customers and replaces several other standards and interpretations. The core principle of IFRS 15 is that an entity recognizes revenue upon the transfer of services to customers that reflects the payments to which it expects to be entitled. IFRS 15 is effective for annual periods beginning on or after January 1, 2017. The Company is currently evaluating the impact IFRS 15 will have on its consolidated financial statements. 4. SECURITIES An analysis of the Company’s securities is as follows: As at December 31 Securities holdings Available for sale securities Short-term securities (a) Bonds Mutual funds Bank of Montreal common shares Other equity securities Real estate funds (b) Held for trading securities Equity securities (c) Total securities holdings Securities held for sale (d) Total securities (e) 2014 2013 $ $ 5,373 1,077 49,145 388,944 31,882 22,239 498,660 1,307 499,967 25,385 525,352 $ 1,850 1,030 34,441 339,754 52,931 12,492 442,498 1,256 443,754 5,425 $ 449,179 (a) Short-term securities shown above include securities of non-controlled mutual funds that hold short-term securities, as well as directly held short- term securities that are continually reinvested by the Company and therefore are included in securities holdings. (b) During the prior year, the Company made a commitment to invest $25,000 in real estate, through a real estate limited partnership managed by a subsidiary of the Company. As at December 31, 2014, the Company had invested $21,488 (2013 – $12,136). (c) Held for trading equity securities consist of securities held by consolidated mutual funds which meet the criteria for this classification. Changes in fair value are included in net gains. (d) Securities held for sale are the Company’s interest in mutual funds which the Company controls and intends to dispose of control through either sales or dilution within 12 months from the date of aquisition. These securities are carried at fair value, with subsequent changes in fair value recog- nized in the consolidated statements of operations. 34 Guardian Capital Group Limited (e) The Company’s securities have been categorized based upon a fair value hierarchy, as follows: As at December 31 Level 1 Level 2 Level 3 Total securities During 2014 and 2013, there have been no transfers of securities between Levels. An analysis of the movement in Level 3 securities is as follows: For the years ended December 31 Level 3 securities, beginning of year Increase in estimated fair value, recognized in other comprehensive income Disposals Level 3 securities, end of year 2014 2013 $ $ 497,140 22,239 5,973 525,352 $ 431,133 12,136 5,910 $ 449,179 $ 2014 5,910 368 (305) $ 2013 4,091 1,819 – $ 5,973 $ 5,910 The fair value of a security comprising substantially all of the Level 3 securities is based on a valuation approach using a multiple of assets under management. 5. INTANGIBLE ASSETS For the years ended December 31 Cost: Balance, beginning of year Purchases Arising on acquisition (note 24) Reclassification (note 25) Disposals Foreign exchange translation adjustments Balance, end of year Accumulated amortization: Balance, beginning of year Amortization expense Reclassification (note 25) Disposals Foreign exchange translation adjustments Balance, end of year 2014 2013 New business costs Computer software Rights to future revenue New business costs Computer software Rights to future revenue Total $ 10,549 263 1,159 – – 76 12,047 $ 3,659 38 – – – 5 3,702 $ 20,794 3,383 – 2,049 (689) – 25,537 $ 35,002 3,684 1,159 2,049 (689) 81 41,286 $ 8,064 1,740 863 – (158) 40 10,549 $ 3,351 304 – – – 4 3,659 $ 20,000 2,334 – – (1,540) – 20,794 Total $ 31,415 4,378 863 – (1,698) 44 35,002 7,383 948 _ _ 9 8,340 2,373 428 _ _ 5 2,806 4,635 1,515 318 (119) – 6,349 14,391 2,891 318 (119) 14 17,495 6,323 1,068 – (10) 2 7,383 1,899 470 – – 4 2,373 3,599 1,281 – (245) – 4,635 11,821 2,819 – (255) 6 14,391 Carrying value, end of year $ 3,707 $ 896 $ 19,188 $ 23,791 $ 3,166 $ 1,286 $ 16,159 $ 20,611 6. EQUIPMENT For the years ended December 31 Cost: Balance, beginning of year Purchases Reclassification (note 25) Disposals Foreign exchange translation adjustments Balance, end of year 2014 2013 Office equipment Leasehold improvements Total Office equipment Leasehold improvements Total $ 6,309 379 97 – 79 6,864 $ 3,083 177 15 – 7 3,282 $ 9,392 556 112 – 86 10,146 $ 5,847 548 – (143) 57 6,309 $ 1,827 1,561 – (310) 5 3,083 $ 7,647 2,109 – (453) 62 9,392 S T A T E M E N T S F I N A N C I A L N O T E S T O 35 2014 Annual Report EQUIPMENT (continued) For the years ended December 31 Accumulated amortization: Balance, beginning of year Amortization expense Reclassification (note 25) Disposals Foreign exchange translation adjustments Balance, end of year 2014 2013 Office equipment Leasehold improvements Total Office equipment Leasehold improvements 4,375 490 12 – 39 4,916 1,343 211 13 – 7 1,574 5,718 701 25 – 46 6,490 3,754 712 – (117) 26 4,375 1,456 175 – (293) 5 1,343 Total 5,210 887 – (410) 31 5,718 Carrying value, end of year $ 1,948 $ 1,708 $ 3,656 $ 1,934 $ 1,740 $ 3,674 7. GOODWILL For the years ended December 31 Balance, beginning Arising on acquisition (note 24) Balance, end of year 2014 11,111 1,188 12,299 $ $ 2013 11,111 – 11,111 $ $ Goodwill acquired in a business acquisition is allocated to the cash generating units (“CGUs”) that are expected to benefit from that business acquisition. The carrying amount of goodwill has been allocated to the relevant CGUs as follows: As at December 31 Financial advisory: Mutual fund distributor Life insurance managing general agency Investment management: Fundamental global and emerging markets Total goodwill 2014 2013 $ $ 4,227 6,884 1,188 12,299 $ $ 4,227 6,884 – 11,111 Goodwill is not amortized, but is subject to annual impairment testing, as described below. Impairment tests were performed upon the goodwill associated with each CGU in both 2014 and 2013, in each year based upon each of the CGU’s esti- mated fair value, less cost to sell. Management used a multi-factor model to determine fair value, with the principal assumptions being values assigned as multiples of key business analytics pertaining to each CGU. Management considers that the key business analytics are client assets under management in the investment management CGU, client assets under administration in both financial advisory CGUs and annual net service fees and net first year com- missions in the Life insurance managing general agency. It is management’s opinion that estimating fair value based on these analytics is in accordance with established industry practice, and that the multiples used are consistent with market transactions. Based on the results of this testing, there were no indications that the goodwill was impaired in 2014 or 2013. The most sensitive assumptions used in the above testing were: As at December 31 Mutual fund distributor: Multiple of assets under administration Life insurance managing general agency: Multiple of annual net service revenue Fundamental global and emerging markets: Multiple of assets under management 2014 2013 1.00% 1.00% 6 1.75% 6 – The following table shows for each CGU the amount by which the fair value less the costs to sell referred to above exceeds its carrying value. As at December 31 Mutual fund distributor Life insurance managing general agency Fundamental global and emerging markets $ 2014 74,462 27,254 119 $ 2013 63,445 23,727 – The fair value estimated above would be considered to be Level 3 under the fair value hierarchy as defined in accounting policy note 2 (g)(iv). 36 Guardian Capital Group Limited Management believes that a reasonable possible change in key assumptions would not cause the carrying value in either financial advisory CGUs to exceed its fair value less the costs to sell. A reduction of greater than 0.1% in the multiple used to value the investment management CGU would cause the carrying value of that CGU to exceed its fair value less the costs to sell. 8. BANK LOANS AND BORROWINGS As at December 31 Net bank indebtedness (a) Bankers’ acceptances payable (b) Bank loan (b) Total bank loans and borrowings 2014 1,462 49,600 250 51,312 $ $ 2013 729 55,100 100 55,929 $ $ S T A T E M E N T S F I N A N C I A L N O T E S T O (a) Net bank indebtedness Net bank indebtedness consists of net overdraft borrowing under a line of credit from a major Canadian chartered bank, which is available to a maxi- mum of $11,000 (2013 – $11,000), due on demand, secured by a general security agreement and securities valued at $65,712 (2013 – $56,624), and bearing interest at the bank prime rate plus 0.25%. Under this line of credit, the Company may offset certain overdraft positions against certain cash balances to establish a net position. As at December 31, 2014, the Company’s net bank indebtedness was comprised of overdraft positions of $23,909 (2013 – $32,578) and cash balances of $22,447 (2013 – $31,849). (b) Bankers’ acceptances payable and bank loan Under written loan agreements, the Company has $70,000 (2013 – $70,000) in lending facilities from a major Canadian chartered bank. Borrowings under these facilities may be in the form of either demand loans bearing a rate of bank prime (2013 – bank prime) or bankers’ acceptances for periods ranging from 30 to 270 days, at rates negotiated in the bankers’ acceptance market plus 0.50% (2013 – 0.50%). These facilities are secured by a general security agreement, the deposit of treasury stock held by the EPSP Trust valued at $39,229 at December 31, 2014 (2013 – $33,043), and other securities valued at $69,819 at December 31, 2014 (2013 –$90,174). Subsequent to year end, the lending facilities were increased to $90,000. During the year, the Company’s insurance managing general agency subsidiary secured a $2,000 loan facility with a Canadian chartered bank, bearing interest at prime, secured by a general security agreement. No amounts were drawn from this facility during the year. 9. PROVISIONS From time to time in connection with its operations, the Company is named as a defendant in actions for damages and costs allegedly sustained by the plaintiffs. While it is often not possible to estimate the outcome of the various proceedings at any time, the Company has made provisions, where possible, for the estimated outcome of such proceedings. As at December 31, 2014 and 2013, there were no material provisions recorded. Should any additional loss result from the resolution of such claims, such loss will be accounted for as a charge to income in the year in which it is identified. 10. OPERATING LEASES The Company has non-cancellable operating leases for premises and equipment with initial terms in excess of one year and which expire on various dates after year end. Future minimum payments required under these non-cancellable operating leases are as follows: As at December 31 Payable within one year Payable after one year and within five years Payable after five years Total lease obligations 2014 1,948 6,745 8,077 16,770 $ $ 2013 1,683 6,897 9,447 18,027 $ $ During the year ended December 31, 2014, the Company recognized $1,984 (2013 – $2,043) of base rental costs in respect of these non-cancellable leases. 11. INCOME TAXES (a) The components of the income tax expense are as follows: For the years ended December 31 Current tax expense Tax on profits for the current year Adjustments in respect of prior periods Deferred tax expense Origination and reversal of temporary differences Adjustments in respect of prior periods Change in future periods’ income tax rates Income tax expense 2014 2013 $ $ 7,109 122 7,231 432 – _ 432 7,663 $ $ 4,190 (28) 4,162 (370) (27) 2 (395) 3,767 37 2014 Annual Report (b) The income tax expense in the consolidated statements of operations is less than the tax computed using combined Federal and Provincial statu- tory income tax rates of 26.5% (2013 – 26.5%) of the current year for the following reasons: For the years ended December 31 Tax at the combined Federal and Provincial statutory income tax rate for the current year Increase (decrease) in the expense due to: Tax exempt income from securities Rate differential on earnings of foreign subsidiaries Adjustments to deferred tax assets and liabilities for changes in temporary differences Non-taxable portion of capital gains Non-deductible expenses Tax losses not recognized as deferred tax assets Other Income tax expense 2014 2013 $ 11,903 $ 10,221 (3,868) (661) 29 (585) 433 286 126 7,663 (3,880) (1,313) 2 (1,271) 254 – (246) 3,767 $ $ The combined statutory income tax rate is the aggregate of the Federal income tax rate of 15.0% (2013 – 15.0%) and the Provincial income tax rate of 11.5% (2013 – 11.5%). (c) Deferred tax assets and liabilities are recognized as follows: For the year ended December 31, 2014 Bank of Montreal shares Other securities Capital loss carryforwards Non-capital loss carryforwards Equipment and intangibles Other temporary differences Total $ $ – – – $ 42,669 – 7,024 – – $ 49,693 $ $ $ $ – – – 167 12 (164) – – 15 $ $ $ $ – – – $ 3,060 (905) 2,155 $ $ $ 507 (139) 368 (218) 171 – – – (47) $ $ (13) – – – – (13) $ 1,922 (162) – 232 116 $ 2,108 $ $ $ $ 190 347 537 $ 3,757 (697) $ 3,060 (1,211) (302) – – – (1,513) $ 43,316 (281) 6,860 232 116 $ 50,243 Deferred tax assets Balance at beginning of year Recognized in net earnings Balance at end of year Deferred tax liabilities Balance at beginning of year Recognized in net earnings Recognized in other comprehensive income Recognized in acquisition Reclassification (note 25) Balance at end of year For the year ended December 31, 2013 Bank of Montreal shares Other securities Capital loss carryforwards Non-capital loss carryforwards Equipment and intangibles Other temporary differences Total Deferred tax assets Balance at beginning of year Recognized in net earnings Balance at end of year Deferred tax liabilities Balance at beginning of year Recognized in net earnings Recognized in other comprehensive income Balance at end of year $ $ – – – $ 36,371 – 6,298 $ 42,669 $ $ $ $ – – – 187 (50) 30 167 $ $ $ $ – – – $ 2,968 92 $ 3,060 $ $ 491 16 507 $ $ 376 (186) 190 $ 3,835 (78) $ 3,757 (227) 9 – (218) $ $ (13) – – (13) $ 2,130 (208) – $ 1,922 $ (1,024) (187) – $ (1,211) $ 37,424 (436) 6,328 $ 43,316 The Company has tax losses available of $1,089 whose benefit has not been recognized in these financial statements as the Company does not expect the losses which arose in a foreign subsidiary to be utilized in the foreseeable future. These tax losses, which will be available to offset future taxable income, may be carried forward indefinitely. 38 Guardian Capital Group Limited (d) Analysis of tax recognized on securities held for sale: For the years ended December 31 Net gains (losses) on securities held for sale before tax Current tax expense Deferred tax expense (recovery) Net gains (losses) on securities held for sale after tax 2014 431 87 (16) 360 2013 28 49 37 (58) $ $ $ $ The difference between the Company’s statutory rate and the effective rate on securities held for sale in the current year is due to the non-taxable portion of capital losses and, in the prior year, it was due to the combination of non-taxable gains and the lower tax rates on earnings in foreign subsidiaries. e) The aggregate amount of temporary differences between costs for accounting purposes and costs for income tax purposes because of earnings accumulated in certain subsidiaries is $119,291 (2013 – $105,204), which amount may be subject to income tax if such subsidiaries are disposed of or the earnings are otherwise distributed. Deferred tax has not been provided on these temporary differences, as the Company does not intend to dispose of such subsidiaries or distribute such earnings. 12. CAPITAL STOCK (a) Authorized i) Unlimited preferred shares, without par value, may be issued in an unlimited number of series, the designation, rights, privileges, conditions and other provisions of which are to be determined by the Board of Directors. ii) Unlimited Class A non-voting shares without par value, convertible into common shares on a one-for-one basis, under certain terms and conditions, the highlights of which are as follows: if any person other than an insider of the Company acquires ownership, control or direction over in excess of 50% of the common shares, or makes an offer to all common shareholders to buy common shares, the Class A shares may be converted into common shares, unless holders of over 50% of the outstanding common shares do not accept the offer, or an equivalent offer is made to the holders of Class A shares. iii) Unlimited common shares, without par value, convertible on a one-for-one basis into Class A non-voting shares. (b) Issued and Outstanding For the years ended December 31 i) Class A shares Outstanding, beginning of year Acquired and cancelled Converted from Common Outstanding, end of year ii) Common shares Outstanding, beginning of year Converted from Common Outstanding, end of year Total outstanding, end of year (c) Issuer Bid A summary of the Company’s activity under its Normal Course Issuer Bid is as follows: For the years ended December 31 Class A shares purchased and cancelled Consideration paid Average issue price, charged to share capital Excess consideration charged to retained earnings 2014 2013 Shares Amount Shares Amount 27,534 (324) 158 27,368 $ 20,487 (245) 37 20,279 28,072 (574) 36 27,534 $ 20,913 (434) 8 20,487 4,935 (158) 4,777 1,192 (37) 1,155 4,971 (36) 4,935 1,200 (8) 1,192 32,145 $ 21,434 32,469 $ 21,679 2014 324 $ $ 5,657 245 5,412 2013 574 $ $ 7,898 434 7,464 (d) Stock Option Plan The Company maintains a Stock Option Plan for designated officers, directors and employees. Each stock option entitles the holder to purchase one class A share, subject to certain predetermined vesting arrangements and other conditions. During 2014 and 2013 there were no options outstanding. (e) Dividends During the year, dividends of $0.24 per share (2013 – $0.30 per share) were declared and paid on the common and class A shares outstanding. The Company also declared dividends of $0.065 and $0.075 per share payable on January 16, 2015 and April 17, 2015, respectively, on the common and class A shares outstanding. These dividends, which will be recognized on the record dates, have not been reflected in these financial statements. S T A T E M E N T S F I N A N C I A L N O T E S T O 39 2014 Annual Report 13. TREASURY STOCK The Company purchases and holds shares in its capital stock through the EPSP Trust, which are accounted for as treasury stock. These shares are deposited as collateral against a bank loan, which is used to finance the purchase of the shares. (a) A summary of the changes in the Company’s treasury stock is as follows: For the years ended December 31 Balance, beginning of year Acquired Disposed Balance, end of year 2014 2013 Shares Amount Shares Amount 2,136 84 (16) 2,204 $ 18,700 1,285 (95) $ 19,890 2,126 121 (111) 2,136 $ 17,750 1,644 (694) $ 18,700 During the year the Company disposed of 16 of its class A shares for an amount equal to their costs. During the prior year the Company disposed of 81 of its class A shares and 30 of its common shares, for net proceeds of $760. The shares disposed of in the prior year had a total cost of $694, and the excess was credited to retained earnings. As at December 31, 2014, the treasury stock was composed of 63 common shares (2013 – 63) and 2,141 class A shares (2013 – 2,073 shares). (b) EPSP Trust – Stock-based entitlements The stock-based entitlements provided by the Company to certain employees through the EPSP Trust are in the form of either an option-like entitle- ment or an equity-based entitlement, as described below. i) Option-like entitlements The option-like entitlements allow the employees to purchase shares from the EPSP Trust at prices equal to the amount of the bank loan per share pertaining to those shares, subject to predetermined vesting arrangements and other conditions. Due to the nature of these entitlements and the con- ditions attached to them, the contractual life of the entitlement is indeterminable. A summary of the changes in the option-like entitlements is as follows: For the years ended December 31 2014 2013 Option-like entitlements, beginning of year Entitlements exercised Option-like entitlements, end of year Weighted average exercise price $ $ 8.95 9.69 8.95 Number of shares 1,552 55 1,497 Weighted average exercise price $ 8.86 6.50 $ 8.95 Number of shares 1,497 (1) 1,496 As at December 31, 2014, there were outstanding option-like entitlements for 33 common shares (2013 – 33) and 1,463 class A shares (2013 – 1,464). Because these entitlements have option-like characteristics, they are accounted for as options and valued using the Black-Scholes option pricing model. The value of the entitlements provided is recorded as compensation cost over the vesting period of the entitlements, and is credited to contributed surplus. On exer- cise of an entitlement, treasury stock is reduced for the value of the entitlement exercised. No option-like entitlements were provided during 2014 or 2013: The following table summarizes information about option-like entitlements outstanding. As at December 31, 2014 $5.01 – $7.50 $7.51 – $10.00 $10.01 – $12.50 As at December 31, 2013 $5.01 – $7.50 $7.51 – $10.00 $10.01 – $12.50 Number of shares Weighted average exercise Number of price shares vested Weighted average exercise price 355 877 264 1,496 355 878 264 1,497 $ $ 6.15 9.35 11.36 8.95 $ 6.15 9.35 11.36 $ 8.95 350 610 264 1,224 $ $ 6.16 9.19 11.36 8.79 344 471 265 1,080 $ 6.17 9.10 11.36 $ 8.72 ii) Equity-based entitlements Equity-based entitlements allow the employees to purchase shares from the EPSP Trust at zero cost, subject to predetermined vesting arrangements and 40 Guardian Capital Group Limited other conditions. When such purchases by employees occur, the Company pays to the EPSP Trust the amount of the bank loan attributable to the shares purchased. Due to the nature of these entitlements and the conditions attached to them, the contractual life of the entitlement is indeterminable. A summary of the changes in the number of shares under equity-based entitlements is as follows: For the years ended December 31 Equity-based entitlements, beginning of year Entitlements provided Entitlements exercised Entitlements forfeited Equity-based entitlements, end of year 2014 639 84 (15) – 708 2013 574 121 (47) (9) 639 S T A T E M E N T S F I N A N C I A L N O T E S T O Equity-based entitlements are valued at the fair market value of the shares purchased by the EPSP Trust on the date of the provision of the entitlement. This value is recorded by the Company as compensation cost over the vesting period, and is credited to contributed surplus. On exercise of an entitle- ment, treasury stock and contributed surplus are reduced for the value of the entitlement exercised. Equity-based entitlements provided during the year ended December 31, 2014 had a fair value of $1,285 (2013 – $1,644). 14. MANAGEMENT FEE INCOME, NET Management fee income is presented net of referral fees which are paid to referring agents, amounting to $3,487 for the year ended December 31, 2014 (2013 – $2,549). 15. DIVIDEND AND INTEREST INCOME Dividend and interest income is composed of the following: For the years ended December 31 Dividend income Interest income Total dividend and interest income Included in the dividend income are dividends earned on the Bank of Montreal shares of $14,634 in 2014 (2013 – $14,483). 16. EMPLOYEE COMPENSATION AND BENEFITS Employee compensation and benefits are composed of the following: For the years ended December 31 Salaries and other compensation, payroll taxes and benefits Contributions to defined contribution pensions plans Stock-based compensation 17. NET GAINS AND NET GAINS ON SECURITIES HELD FOR SALE (a) Net gains Net gains are composed of the following: For the years ended December 31 Held for trading securities (i) Available for sale securities (ii) Net gains on securities Foreign exchange (iii) Gains on disposition of equipment and intangible assets Net gains 2014 17,665 1,107 18,772 2014 49,491 591 1,348 51,430 2014 36 7,548 7,584 (1,071) 262 6,775 $ $ $ $ $ $ 2013 16,720 840 17,560 2013 44,937 574 1,247 46,758 2013 137 11,939 12,076 (751) 312 11,637 $ $ $ $ $ $ (i) Net gains on held for trading securities include net gains on securities owned by consolidated mutual funds. (ii) Included in net gains on available for sale securities are gains of $2,447 (2013 – $5,049) from the sale of 65 (2013 – 160) shares of Bank of Montreal. A tax expense of $128 (2013 – $188) was recorded in income tax expenses in the consolidated statements of operations. (iii) Net losses on foreign exchange in the current year mainly relates to exchange losses on Canadian dollars held by the international private banking subsidiary which uses US dollars as its functional currency. On translation of this subsidiary results to Canadian dollars for the purpose of consolidat- ing it to the Company’s results an equal and offsetting gain is recorded in other comprehensive income. 41 2014 Annual Report (b) Net gains (losses) on securities held for sale Net gains (losses) on securities held for sale are composed of the following: For the years ended December 31 Net increase (decrease) in fair value Other income Income tax expense Net gains (losses) on securities held for sale 2014 177 254 71 360 2013 (178) 206 86 (58) $ $ $ $ Net gains (losses) on securities held for sale include the net change in fair value of those securities, income and expenses from the mutual funds held in this category. 18. NET EARNINGS PER SHARE The calculations of net earnings per share are based on the following number of shares and net earnings. For the years ended December 31 Weighted average number of class A and common shares outstanding Basic Effect of outstanding entitlements and options from stock based compensation plans Diluted Net earnings available to shareholders of class A and common shares Basic Effect of outstanding entitlements and options from stock based compensation plans Diluted 2014 2013 30,175 1,294 31,469 30,532 1,050 31,582 $ $ 37,017 413 37,430 $ $ 34,432 494 34,926 The effects of 900 (2013 – 1,111) entitlements from the Company’s stock-based compensation arrangements were excluded from the calculation of the diluted number of shares as those entitlements were anti-dilutive. 19. BUSINESS SEGMENTS The Company operates in the following three main business segments: a) the investment management segment, which involves the earning of management fees relating to investment management services provided to clients; b) the financial advisory segment which relates to the earning of sales commissions and administrative services revenue from assets under administration; and c) the corporate activities and investments segment, which relates substantially to the investment of the Company’s securities holdings, as well as corporate management and development activities. The allocation of costs to individual business segments is undertaken to provide management information on the cost of providing services and a tool to manage and control expenditures. The following table discloses certain information about these segments: For the years ended December 31 2014 2013 2014 2013 Investment management Financial advisory Corporate activities and investments 2013 2014 Inter-segment transactions 2014 2013 Consolidated 2014 2013 Revenue Gross commission revenue Commissions paid to advisors Management fee income, net Administrative services income Dividend and interest income Net revenue Expenses Employee compensation and benefits Amortization Interest Other expenses Operating earnings Net gains Earnings before income taxes and net gains (losses) on securities held for sale Income taxes 42 $ – $ – – 60,723 4,931 88 65,742 – $ 101,589 $ 85,302 $ – – 50,528 3,509 – 54,037 (61,735) 23,567 – 6,180 715 30,462 (72,780) 28,809 – 6,228 765 35,802 – $ – – – – 17,945 17,945 – $ – – – – 16,912 16,912 (787) $ – (787) 599 – (26) (214) (478) $ 100,802 $ 84,824 (61,735) (72,780) 23,089 28,022 50,940 61,322 9,689 11,159 17,560 18,772 101,278 119,275 – (478) 412 – (67) (133) 29,726 213 196 16,079 46,214 19,528 – 25,810 213 282 14,621 40,926 13,111 – 19,528 4,906 14,622 13,111 3,076 10,035 13,956 2,745 178 12,483 29,362 6,440 264 6,704 1,996 4,708 13,786 2,744 163 11,575 28,268 2,194 312 7,748 633 821 (3,430) 5,722 12,173 6,511 7,162 749 818 (3,443) 5,286 11,626 11,325 2,506 553 1,953 18,684 761 17,923 22,951 138 22,813 – – (214) – (214) – – – – – – – (133) – (133) – – 51,430 3,591 981 25,132 81,134 38,141 6,775 46,758 3,706 1,130 22,753 74,347 26,931 11,637 – – – 44,916 7,663 37,253 38,568 3,767 34,801 Guardian Capital Group Limited BUSINESS SEGMENTS (continued) For the years ended December 31 2014 2013 2014 2013 Investment management Financial advisory Corporate activities and investments 2013 2014 Inter-segment transactions 2014 2013 Consolidated 2014 2013 Net gains (losses) on securities held for sale Net earnings (loss) Net earnings available to: Shareholders Non-controlling interests – – $ 14,622 $ 10,035 $ – 4,708 $ – 1,953 $ 360 (58) 18,283 $ 22,755 $ $ 14,622 $ 10,035 $ – – $ 14,622 $ 10,035 $ 4,112 $ 596 4,708 $ 1,642 $ 311 1,953 $ 18,283 $ 22,755 $ – – 18,283 $ 22,755 $ – – $ – $ – – $ – – $ 360 (58) 37,613 $ 34,743 – $ 37,017 $ 34,432 – 311 596 37,613 $ 34,743 – $ S T A T E M E N T S F I N A N C I A L N O T E S T O Capital expenditure on segment assets Intangibles Equipment As at December 31 Segment assets and liabilities Assets Liabilities $ 1,184 $ 206 821 $ 18 3,659 $ 4,267 $ – $ 210 1,970 140 174 $ 121 – $ – – $ 4,843 $ 5,262 2,109 – 556 $ 130,626 $ 128,123 $ 105,154 $ 97,494 $ 587,100 $ 515,645 $ (86,123) $ (96,202) $ 736,757 $ 645,060 227,272 85,292 (96,202) 116,910 128,444 (86,123) 113,319 244,523 134,696 75,459 The following table discloses certain information about the Company’s activities, segmented geographically. For the years end December 31 Net revenue As at December 31 Segment non-current assets Intangible assets Equipment Goodwill Canada Rest of the world Inter-segment transactions 2014 2013 2014 2013 2014 2013 Consolidate 2014 2013 $ 113,734 $ 96,007 $ 6,869 $ 5,271 $ (1,328) $ (866) $ 119,275 $ 101,278 $ 21,879 $ 19,778 $ 3,165 11,111 3,219 11,111 1,912 $ 491 1,188 833 $ 455 – – $ – – – $ 23,791 $ 20,611 3,674 3,656 – 11,111 12,299 – 20. NET CHANGE IN NON-CASH WORKING CAPITAL ITEMS For the years ended December 31 Decrease (increase) in non-cash working capital assets Interest-bearing deposits with banks Accounts receivable and other Receivables from clients and broker Prepaid expenses Increase (decrease) in non-cash working capital liabilities Client deposits Accounts payable and other Payable to clients Net change 2014 2013 $ $ 291 (3,039) (3,945) 12 (148) 3,888 3,945 1,004 $ $ (51,311) (2,158) (5,395) (200) 51,344 4,956 5,395 2,631 21. FINANCIAL RISKS MANAGEMENT The Company’s goal in managing financial risk is to evaluate the risks being taken against the benefits that are targeted to be achieved and, where those risks are deemed acceptable, to mitigate those risks, where practicable. A discussion on the Company’s risk management practices is included under the heading “Risk Factors” in the Management’s Discussion and Analysis, on pages 17 to 19 of the Company’s 2014 Annual Report. The follow- ing are the more significant risks associated with financial instruments to which the Company is subject: (a) Concentration Risk The Company is exposed to concentration risk associated with the $388,944 (2013 – $339,754) investment in the Bank of Montreal shares, which is a significant portion of the Company’s securities holdings. The Company monitors the investment in the Bank of Montreal shares on a continuous basis. A change in the price of the Bank of Montreal shares by 10% would result in an unrealized gain or loss of $38,894 (2013 – $33,975) being recorded in other comprehensive income. (b) Market Risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: price risk, currency risk, and interest rate risk. 43 2014 Annual Report (i) Price Risk The Company is exposed to price risk with its securities. Unrealized changes in the values of its securities are recognized in net earnings (for held for trad- ing securities and securities held for sale) and in other comprehensive income (for available for sale securities). This risk is managed through the use of professional in-house portfolio management expertise, which takes a disciplined approach to investment management. The securities holdings, excluding the Bank of Montreal shares, are also diversified by asset class and, as shown in the chart below, by geographical region. The chart also indicates the gain or loss which would be recognized in net earnings and other comprehensive income as a result of a 10% change in the market prices: As at December 31, 2014 Canada United States Rest of the World As at December 31, 2013 Canada United States Rest of the World Fair value of held for trading securities and securities held for sale Unrealized gain or loss recognized in net earnings from 10% market change in region Fair value of available for sale securities, excluding Bank of Montreal shares, short-term securities and bonds Unrealized gain or loss recognized in other comprehensive income from 10% market change in region $ $ $ $ 1,307 – 25,385 26,692 6,682 – – 6,682 ±$ ±$ ±$ ±$ 131 – 2,539 2,670 668 – – 668 $ $ 43,298 11,514 48,454 103,266 $ 28,046 11,222 60,596 $ 99,864 ±$ ±$ 4,330 1,151 4,845 10,326 ±$ 2,805 1,122 6,059 ±$ 9,986 (ii) Currency Risk The Company’s main exposure to currency risk is on its investments in its foreign subsidiaries, amounting to $109,915 (2013 – $97,688). Changes in the value of these investments caused by changes in the US dollar and UK pounds exchange rates are reflected in other comprehensive income in the period in which the change occurs. This foreign currency exposure is not actively managed, due to the long-term nature of these investments, but is monitored by management. From time to time, a foreign subsidiary holds unhedged Canadian dollars, which can result in foreign exchange gains or losses being recorded by the subsidiary. Upon translation of their results on consolidation, the Company recognizes equal and offsetting gains or losses in other comprehensive income. This is not considered to be a currency risk as there is no economic risk to the Company. (iii) Interest Rate Risk The Company is exposed to interest rate risk through its bank loans and borrowings of $51,312 as at December 31, 2014 (2013 – $55,929). The inter- est rates on these borrowings are short-term and, if short-term rates increase, the Company’s interest expense will increase and net earnings will decrease. If interest rates had been 1% higher throughout 2014, with all other variables held constant, the Company’s interest expense would have been increased by approximately $560 (2013 – $541). The Company holds a $7,593 as at December 31, 2014 (2013 – $5,963) investment in fixed-income mutual funds managed by its subsidiaries. The interest rate risk associated with these securities is managed by monitoring the activities of the port- folio manager, who manages this risk by positioning the portfolio for various interest rate environments. The Company is also exposed to interest rate risk in its international banking operation, through the assets interest-bearing deposits with banks of $61,729 as at December 31, 2014 (2013 – $57,285), and the client deposits liability of $61,747 as at December 31, 2014 (2013 – $57,312). This risk is low, as it is managed through the matching of interest rates and maturities on these balances. (c) Credit Risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company’s total credit risk exposure, without consideration of any collateral or other credit enhancements, is as outlined below: As at December 31 Cash Interest-bearing deposits with banks Accounts receivable and other Receivable from clients and broker Fixed Income mutual funds Short-term securities Bonds 2014 29,230 61,729 29,293 46,160 7,735 5,373 1,077 180,597 $ $ 2013 28,446 57,285 25,986 42,215 5,963 1,850 1,030 162,775 $ $ The Company considers its exposure to credit risk to be low. The cash and interest-bearing deposits with banks and the majority of the accounts receiv- able are due from major institutions. The Company reviews the credit worthiness of any banks with which it places deposits, and does not deal with a bank if it is not satisfied with the bank’s financial strength. The credit exposure on receivables from clients is offset with securities, which are held in the client margin accounts of the securities dealer subsidiary. There are controls on the amounts that these clients may borrow, depending upon the securities that are pledged. The credit risk associated with the Company’s investment in a fixed-income mutual fund is managed by monitoring the activities of the portfolio manager who, through diversification and credit quality reviews of the fund’s investments, manage the fund’s credit risk. The short-term securities and bonds are short-duration, investment-quality securities. 44 Guardian Capital Group Limited (d) Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities, which are substantially all due within one year. The Company manages this financial risk by maintaining a portfolio of securities, and by arranging for significant borrowing facilities with major Canadian banks, at attractive rates. 22. CAPITAL MANAGEMENT The Company considers the following to be its capital: capital stock, contributed surplus, retained earnings, accumulated other comprehensive income and bank loans and borrowings. The Company’s objectives in managing its capital are to: (a) maintain a strong capital base to provide investor, creditor, regulator and client confidence; and (b) provide returns to shareholders by the payment of dividends, the repurchase of the Company’s shares, and the enhancement of long-term value. The allocation of capital to, and the return from, the Company’s businesses are monitored by senior management. Certain of the Company’s operat- ing subsidiaries are subject to various types of capital requirements imposed by the regulatory authorities to which they report. During the year, and at year end, the subsidiaries complied with those requirements. As at December 31, 2014, the Company’s regulated businesses had total regulatory capital amounting to $108,579 (2013 – $106,925). These amounts are, in all cases, in excess of the regulatory requirements, and are adjusted by the Company as necessary from time to time. The Company’s borrowing facility, through which bankers’ acceptances are issued, is subject to certain terms and conditions. During the year, and at year end, the Company complied with those terms and conditions. 23. RELATED PARTIES (a) Parent company Minic Investments Limited (“Minic”) is a corporation of which A. Michael Christodoulou, a director and officer of the Company, is currently President. Minic is owned by The Christodoulou 2004 Family Trust, a discretionary trust of which the children of the late John Christodoulou are possible ben- eficiaries. As at December 31, 2014, Minic beneficially owned 49.1% (2013 – 48.2%) of the Company’s outstanding common shares. In 2014 and 2013, there were no transactions between Minic and the Company. (b) Key management personnel Key management personnel are persons having authority and responsibility for planning, directing and controlling the activities of the Company, either directly or indirectly. The Company has determined that its key management personnel include the Board of Directors of the Company and certain senior executives of the Company. The following summarizes transactions with key management personnel: For the years ended December 31 Short-term employment benefits Post-employment benefits Stock-based compensation 2014 3,241 18 630 3,889 $ $ 2013 3,167 14 575 3,756 $ $ The Company provides investment management services to key management personnel at reduced fee rates, which are available to all employees of the Company. The following is a summary of the fees paid for these services. For the years ended December 31 Investment management services (c) The Company’s significant subsidiaries are as follows: As at December 31 Guardian Capital LP Guardian Capital Advisors LP Guardian Capital Enterprises Limited GuardCap Asset Management Limited Guardian Capital Real Estate Inc. Worldsource Wealth Management Inc. Worldsource Financial Management Inc. Worldsource Securities Inc. IDC Worldsource Insurance Network Inc.(i) Guardian Capital Holdings International Ltd. Alexandria Bancorp Limited Alexandria Global Investment Management Ltd. Alexandria Trust Corporation 2014 2013 $ 11 $ 35 Country of organization Voting ownership interest 2014 2013 Canada Canada Canada United Kingdom Canada Canada Canada Canada Canada Cayman Islands Cayman Islands Cayman Islands Barbados 100% 100% 100% 100% 100% 100% 100% 100% 79% 100% 100% 100% 100% 100% 100% 100% n/a 75% 100% 100% 100% 79% 100% 100% 100% 100% S T A T E M E N T S F I N A N C I A L N O T E S T O 45 2014 Annual Report As at December 31 Country of organization Voting ownership interest 2014 2013 Guardian Capital Group Limited Employee Profit Sharing Plan Trust (ii) Guardian Growth & Income Fund Guardian Strategic Income Fund (iii) Aston Guardian Capital Global Dividend Fund (iv) Guardian Emerging Markets Equity Fund (iv) Guardian UCITS Fund PLC (iv) Canada Canada Canada USA Canada Ireland 0% 97% 14% 73% 100% 100% 0% 97% 63% n/a n/a n/a (i) The principal place of business for IDC Worldsource Insurance Network Inc. (“IDC WIN”), the Company’s insurance managing general agency (“MGA”) subsidiary, is located at Suite 700, 625 Cochrane Drive, Markham, Ontario. The non-controlling interests have a 21% voting ownership interest in IDC WIN. The accumulated non-controlling interest in the Company’s accounts related to IDC WIN is as follows: For the years ended December 31 Non-controlling interest, beginning of year Acquisition of non-controlling interests Net earnings available to non-controlling interests Non-controlling interest, end of year The following is summarized financial information about IDC WIN before consolidation adjustments: As at December 31 Cash Other current assets Intangible assets Other non-current assets Current liabilities Non-current liabilities For the years ended December 31 Revenue Net earnings Comprehensive income $ $ $ $ $ $ $ 2014 2,803 – 596 3,399 2014 177 2,389 12,874 1,104 16,544 6,095 198 6,293 2014 17,424 3,698 3,698 $ $ $ $ $ $ $ 2013 3,994 (1,502) 311 2,803 2013 1,623 2,775 9,590 1,726 15,714 7,500 144 7,644 2013 14,104 2,309 2,309 (ii) The Company does not hold any ownership interest in the EPSP Trust. However, the EPSP Trust is consolidated because the Company has power over the activities of the EPSP Trust, which are conducted on behalf of the Company, and the Company remains exposed to the risks of the EPSP Trust, which are described in note 8, Bank Loans and Borrowing, and note 13, Treasury Stock. (iii) The Company disposed of control of the Guardian Strategic Income Fund during the year through a deemed sale transaction. As at December 31, 2014, the Company’s holdings in the fund was valued at $5,929 and the fund’s total net asset value was $41,217. (iv) The Company does not control Aston Guardian Capital Global Dividend Fund, Guardian Emerging Markets Equity Fund, or GuardCap UCITS Funds PLC (the “Funds”), as the Company intends to dispose of control of the Funds either through a sale or deemed sale transaction, which meets the criteria as established under its policy for non-current assets held for sale. The Company’s holdings in the Funds and the Funds’ total net asset values are summarized below: As at December 31, 2014 Aston Guardian Capital Global Dividend Fund Guardian Emerging Markets Equity Fund GuardCap UCITS Funds PLC (d) The Company’s significant joint venture is as follows: As at December 31 Guardian Ethical Management Inc. Company’s holdings Total net asset value $ $ 3,661 4,285 17,429 5,020 4,298 17,429 Country of organization Canada 2014 Voting ownership interest 2013 50% 50% 46 Guardian Capital Group Limited Guardian Ethical Management Inc. (“GEM”) is an investment fund manager specializing in socially responsible investing mandates, which comple- ments the Company’s existing investment management businesses. Management of GEM is shared equally with the other partner in the joint venture. The Company accounts for its investment in GEM using the equity method. The following is summarized financial information about GEM: As at December 31 Cash Other current assets Current liabilities For the years ended December 31 Net revenue Net earnings Comprehensive income $ $ $ $ 2014 1,359 286 1,645 982 2014 1,644 – – $ $ $ $ 2013 1,123 526 1,649 983 2013 1,819 – – S T A T E M E N T S F I N A N C I A L N O T E S T O (e) Interest in unconsolidated structured entities The Company sponsors and manages a number of collective investment vehicles for the purpose of efficiently investing monies on behalf of the Company’s clients, who are the primary investors in these vehicles. These collective investment vehicles, which are separate legal entities, are financed by investments made by clients and, to a limited extent, the Company. The Company is paid for the investment management services it provides to the vehicles either directly from the vehicles or from the investors. The following tables summarize the size of the unconsolidated collective invest- ment vehicles managed by the Company, and the Company’s interests in and transactions with those collective investment vehicles: As at December 31 Net assets of unconsolidated collective investment vehicles Company’s interests in unconsolidated investment vehicles Securities holdings Securities held for sale For the years ended December 31 Net revenues earned directly from unconsolidated collective investment vehicles 2014 2013 $ 2,174,143 $ 1,578,474 $ $ $ 64,677 25,385 90,062 2014 5,411 $ $ 45,521 5,425 50,946 2013 $ 3,215 The Company’s maximum exposure to loss from its interest in these collective investment vehicles is limited to the amount of its investment. 24. ACQUISITIONS (a) GuardCap Asset Management Limited On April 14, 2014, the Company acquired all of the shares of an emerging markets equity investment management firm, based in London, UK. This transaction added $114,077 in additional assets under management (“AUM”). After the acquisition, the firm has been renamed GuardCap Asset Management Limited (“GuardCap”). The accounting for the consideration paid for the acquisition is as follows: Fair value of consideration paid: Cash Deferred payment Total consideration Fair value of identifiable net assets acquired: Intangible assets Deferred tax liabilities Net non-cash working capital Cash Net value of net assets acquired Goodwill $ $ 1,597 1,007 2,604 1,159 (232) 123 366 1,416 1,188 The net cash paid for the acquisition was $1,231, which is comprised of the cash consideration paid of $1,597, less cash acquired of $366. The deferred payment is the present value of an estimated payment which is expected to be made on or about April 14, 2018, calculated based on the level of AUM then achieved in certain investment strategies to a maximum of $2,750 US. This payable is recorded under other liabilities on the consolidated balance sheet, based on the current exchange rate. Intangible assets are investment management contracts which have an expected life of 15 years. The goodwill recognized on the acquisition represents the value of the acquired business arising from key employees, potential synergies, and a broader platform for business growth. 47 2014 Annual Report Since its acquisition, GuardCap has contributed net revenue of $1,298 and a net loss of $1,508 to the Company’s 2014 results. If the acquisition had occurred on January 1, 2014, management estimates that GuardCap would have earned net revenue of $1,818 and a net loss of $1,571, and as a result, the Company’s reported net revenue and net earnings for the year end December 31, 2014 would have been approximately $119,795 and $37,550, respectively. In determining these amounts, management has assumed that the fair value adjustments determined above, which arose on the date of acquisition, would have been the same if the acquisition had occurred on January 1, 2014. In conjunction with this acquisition, the Company entered into employment agreements with the key employees of GuardCap. (b) Purchase of corporate management services business On March 31, 2013, the Company, through its Barbados subsidiary Alexandria Trust Corporation (“ATC”), acquired the net operating assets and client relationships of a corporate management services business (the “Acquiree”) located in Barbados. This acquisition provides greater scale to ATC’s existing business and strengthens ATC’s presence as a provider of corporate and trust management services to international clients in Barbados. The consideration paid by the Company for the acquisition was $884, consisting of a cash payment of $356 on closing, with the balance due over a period of five years. The future payments may be reduced based on revenues earned from the client relationships acquired. The Company has determined, based on the nature of the relationships acquired, that the maximum payment will be made. The accounting for the consideration paid for the acquisition is as follows: Fair value of consideration paid: Cash on closing Payment to be made over a period of five years after closing Total consideration paid Fair value of identifiable net assets acquired: Intangible assets Accounts receivable and other Accounts payable and other Net value of net assets acquired Goodwill $ $ 356 528 884 863 29 (8) 884 Nil Subsequent to its acquisition, the Acquiree has contributed net revenue of $310 and net earnings of $125 to the Company’s 2013 results. If the acquisition had occurred on January 1, 2013, management estimates that the Acquiree would have earned net revenue of $407 and net earnings of $160 and, as a result, the Company’s reported net revenue and net earnings for the year ended December 31, 2013 would have been approximately $101,375 and $34,778, respectively. In determining these amounts, management has assumed that the fair value adjustments determined above, which arose on the date of acquisition, would have been the same if the acquisition had occurred on January 1, 2013. Management has also assumed the amortization of intangible assets of $66 and a provision for income taxes of $nil for the year 2013. 25. ACQUISITION OF NON-CONTROLLING INTERESTS On July 1, 2014, the Company’s insurance managing general agency (“MGA”)subsidiary acquired the remaining shares of another partially-owned insur- ance MGA subsidiary for cash consideration of $1,271. The consideration paid in excess of the carrying value was charged to shareholders’ equity, as follows: Consideration paid Carrying value of non-controlling interests Excess consideration charged to retained earnings $ $ 1,271 631 640 Due to its immaterial size, the Company had not previously consolidated its interest in the acquired subsidiary, but had recorded it under other assets. On April 1, 2013, the Company purchased, for cash consideration of $4,333, a portion of the non-controlling interest in its MGA subsidiary, thereby increasing the Company’s interest from 67% to 79.3%. As this transaction is between owners, this payment has been recognized in the equity accounts as follows: Consideration paid Carrying value of non-controlling interests Excess consideration charged to retained earnings $ $ 4,333 1,502 2,831 48 Guardian Capital Group Limited Directors Principal Executives BOARD OF DIRECTORS GUARDIAN CAPITAL GROUP LIMITED GUARDIAN CAPITAL LP James S. Anas •* A. Michael Christodoulou Harold W. Hillier • George Mavroudis Edward T. McDermott • Barry J. Myers • Hans-Georg Rudloff • Committees Governance A. Michael Christodoulou Edward T. McDermott •* Barry J. Myers • Compensation James S. Anas • Harold W. Hillier •* Edward T. McDermott • Audit James S. Anas • Harold W. Hillier • Barry J. Myers •* * Chairman • Unrelated Directors George Mavroudis President and Chief Executive Officer C. Verner Christensen Senior Vice-President and Secretary A. Michael Christodoulou Senior Vice-President, Strategic Planning and Development Matthew D. Turner Senior Vice-President and Chief Compliance Officer Donald Yi Chief Financial Officer Ernest B. Dunphy Vice -President and Controller Leslie Lee Vice-President, Human Resources Angela Shim Vice-President, Corporate Initiatives George Mavroudis Chief Executive Officer Robert G. Broley Senior Vice-President, Investment Services C. Verner Christensen Senior Vice-President and Secretary Brian P. Holland Senior Vice-President, Client Service Hugh M. MacFarlane Senior Vice-President, Investment Services Darryl M. Workman Vice-President, Operations and Administration Matthew D. Turner Chief Compliance Officer Donald Yi Chief Financial Officer Ernest B. Dunphy Controller Portfolio Managers: Denis Larose Chief Investment Officer Gary M. Chapman Managing Director Kevin R. Hall Managing Director Robert K. Hammill Managing Director Peter A. Hargrove Managing Director Srikanth G. Iyer Managing Director Stephen D. Kearns Managing Director D. Edward Macklin Managing Director John G. Priestman Managing Director Michele J. Robitaille Managing Director Michael P. Weir Managing Director E X E C U T I V E S P R I N C I P A L D I R E C T O R S A N D 49 2014 Annual Report Principal Executives continued WORLDSOURCE WEALTH MANAGEMENT INC. GUARDCAP ASSET MANAGEMENT LIMITED GUARDIAN CAPITAL ADVISORS LP A. Michael Christodoulou Managing Director C. Verner Christensen Vice-President and Secretary Simon Bowers Vice-President, Private Client Trading Darryl M. Workman Vice-President, Operations and Administration Private Client Portfolio Managers: Paul Brown Managing Director Denis Larose Chief Investment Officer John T. Hunt Managing Director Michael E. Barkley Senior Vice-President Linda Kenny Chief Financial Officer George E. Crowder Senior Vice-President Paige Wadden Head of Compliance Douglas G. Farley Senior Vice-President Michael G. Frisby Senior Vice-President Katharine Baran Vice-President, Head of Operations and Technology Areef Samji Controller Ronald Madzia President, IDC Worldsource Insurance Network Inc. Portfolio Managers: Steve Bates Chief Investment Officer Michael Boyd Portfolio Manager Clive Lloyd Portfolio Manager Giles Warren Portfolio Manager Michael Hughes Senior Vice-President, Client Portfolio Manager ALEXANDRIA BANCORP LIMITED Robert F. Madden General Manager ALEXANDRIA TRUST CORPORATION Robert F. Madden Director Matthew D. Turner Chief Compliance Officer Donald Yi Chief Financial Officer Ernest B. Dunphy Controller J. Matthew Baker Vice-President Thierry Di Nallo Vice-President Christie F. Rose Vice-President 50 Guardian Capital Group Limited Corporate Offices Commerce Court West Suite 3100, P.O. Box 201 Toronto, Ontario M5L 1E8 Telephone: (416) 364-8341 Fax: (416) 364-2067 Website: www.guardiancapital.com Investor Relations George Mavroudis email: info@guardiancapital.com Auditors KPMG LLP Principal Bankers Canadian Imperial Bank of Commerce Bank of Montreal Toronto Stock Exchange Listing Shares Common GCG Class A GCG.A Symbol Annual Meeting May 21, 2015 11:00 a.m. King Gallery The Suites at One King West 1 King Street West Toronto, Ontario Custodian and Fund Administrator RBC Investor Services Trust Registrar and Transfer Agent Computershare Investor Services Inc. Telephone: 1-800-564-6253 Website: www.investorcentre.com/service I N F O R M A T I O N C O R P O R A T E 51 2014 Annual Report 

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