2016
Annual
Report
GUARDIAN CAPITAL
GROUP LIMITED
Financial
Highlights
“I am pleased to report... that Guardian once again delivered increased
earnings in 2016...”
James Anas, Chairman of the Board
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Assets Under
Management
As at December 31
($ in millions)
Assets Under
Administration
As at December 31
($ in millions)
Shareholders’
Equity
(per share, diluted)
As at December 31 (in $)
Securities
(per share, diluted)
As at December 31 (in $)
Assets Under Manage-
ment increased by 12%
in 2016, as a result of a
combination of the
overall positive market
performance and net
inflow of client assets.
Assets Under Administra-
tion increased 10%
in 2016, as a result of
the recruitment of new
advisors, additional net
assets contributed by
clients, and positive
market performance.
The Securities per share
increased 18% in 2016,
reflecting the significant
increase in the value of
the Company’s
investments.
The Company’s Share-
holders’ Equity per share
increased 19% in 2016,
reflecting the growth in
the Company’s net assets,
including the significant
increase in the value of its
Securities, the profit-
able operations, net of
amounts returned to
shareholders during
the year.
2
Guardian Capital Group Limited “The financial results for 2016 reflect a multi-year effort, in line with our
focused strategy, to build a diversified and sustainable financial services
company...”
George Mavroudis, President and Chief Executive Officer
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Operating
Earnings
For the years ended
December 31
($ in thousands)
Operating Earnings
increased 4% in 2016,
reflecting the significant
growth in net revenue,
offset by increased
expenses from strategic
investments to build
improved earnings in
the future.
Net Earnings Available
to Shareholders
(per share, diluted)
For the years ended
December 31 (in $)
Adjusted Cash Flow
from Operations1
(per share, diluted)
For the years ended
December 31 (in $)
Net Earnings Available
to Shareholders, per
share increased 61%
in 2016, reflecting the
improved Operating
Earnings, and the sig-
nificant increase in Net
Gains on the sale
of securities.
Adjusted Cash flow
from Operations, per
share increased 4%
in 2016, reflecting the
growth in Operating
Earnings and the effects
of share repurchases.
EBITDA1
(per share, diluted)
For the years ended
December 31 (in $)
EBITDA, per share
increased 6% in 2016,
reflecting the growth
in Operating Earnings
and the effects of share
repurchases.
(1) Adjusted cash flow from operations and EBITDA are not standardized measures under IFRS. Description of these non-IFRS measures, as well as reconciliations
to IFRS measures are provided in Use of Non-IFRS Measures section in the Management’s Discussion and Analysis.
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3
2016 Annual Report
From the
Chairman
of the Board
Dear Fellow Shareholders,
I am pleased to report, on behalf of your Board of Directors, that Guardian once again delivered increased earnings
in 2016 and continued to deliver increased dividends and returns to our shareholders. Our confidence is sustained
that Guardian has the correct strategy to drive continued success, and the right team in place to build a strong and
innovative company, underpinned by Guardian’s values and culture.
Your board is pleased with the tremendous progress the management team has made in 2016, in delivering on the
pillars of our strategy. This momentum has contributed to consistent earnings growth, and positions your company for
sustained growth in shareholder value over the long term.
Following on the continued growth in earnings in 2016, your Board has declared a quarterly dividend of $0.10 per
share, an increase of 18%, payable on April 18, 2017, to the shareholders of record on April 11, 2017.
I would like to acknowledge our President and Chief Executive Officer, George Mavroudis, and his leadership team
for the strong performance in all of our businesses. I also wish to congratulate Guardian’s associates, across all of our
businesses, who daily contribute to our successes. We congratulate all of them for their passion, tireless efforts and
commitment.
Throughout the year, the members of your Board of Directors continued to provide their wise counsel, insight and
sound business judgement in support of our management team, and for that I thank each of them. During fiscal
2016, we welcomed Petros Christodoulou to your Board. Mr. Christodoulou brings almost 30 years of experience in
international finance and banking activities.
I also want to thank our shareholders for their ongoing support and our clients and customers for the opportunity to
serve them every day. We look forward to reviewing our progress with you at the Annual Meeting.
Respectfully,
James Anas,
Chairman of the Board
February 22, 2017
4
Guardian Capital Group Limited
From the
President and
Chief Executive
Officer
Dear Shareholders,
The financial results for fiscal year 2016 reflect a multi-year effort, in line with our focused strategy, to build a diversified
and sustainable financial services company. Across our investment portfolio management teams, a common principle,
core to our philosophy, is a desire to identify companies that exhibit “Quality” attributes for our clients. These Quality
attributes are a combination of both quantitative financial metrics and qualitative assessments of their business model
and its management. Quality companies exhibit persistency, leading to sustained growth for long periods and superior
results to the benefit of shareholders. Similarly our balance between the long term delivery of excellence in the core
business while also investing for future growth is what has allowed Guardian to deliver sustainable and growing financial
results and value. Guardian is constantly aspiring to improve the Quality of all its key metrics. In 2016, Guardian delivered
historic new 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 for
our various business segments while offering commentary in areas where we are making significant investments to drive
a desired growth and sustainability of operating earnings and free cash flow for the long term.
Guardian invests with the widely accepted investment principle that over the long term financial markets will exhibit
growth. However in the short term we are not immune to the volatility that macro sentiment or events may bestow
upon us. At the end of 2015 and in the first few weeks of 2016, a combination of declining commodities, expectations for
further tightening by the US Federal Reserve and fears of economic slowdown in China and other emerging markets had
market participants running for the exits in fear of an oncoming collapse. As is often the case, the markets rebounded
quite strongly after these fears were assuaged, with several major markets approaching or exceeding previous highs by
the end of the year. Canadian equity markets were particularly strong after a relatively weak eighteen month period.
Equity market returns were a major stimulant to Guardian’s year over year growth in assets under management and
assets under administration. Strong equity market returns also contributed to a substantial increase in Guardian’s
corporate investment portfolio in 2016 which ended the year at a record fair value of $620 million.
Stability at Guardian continues to be a major driver of our overall success. In 2016, we continued to service a stable client
base, while retaining and adding to our exceptionally talented teams which are now positioned to deliver even greater
successes in the years ahead. Several of our client relationships have evolved into long term trusted advisor relationships,
which offers us the privileged opportunity to expand our services with these clients and, more importantly, gives the
client the confidence and trust to work with us through full economic cycles.
Growth in operating earnings in 2016 was the result of continued improvements in both our investment management
and financial advisory business segments. Investment income from our corporate securities portfolio was relatively
flat, as we continue to recalibrate our investment portfolio from a significant tax-efficient dividend-paying holding in
common shares of Bank of Montreal (BMO) into a globally diversified growth equity portfolio. In 2016, during various
stages of price appreciation in BMO, we sold a little over 11% of our holding, 531,120 shares, and reinvested the proceeds
largely across our two global equity team strategies to provide meaningful track records and scale to the investment
vehicles they manage. Global equity markets were significantly behind in performance relative to Canadian equities in
2016, generating low single digit returns. However, we feel that over the long term, having a proportion of our corporate
investment portfolio with exposure to quality large-cap global companies is a more prudent management of risk,
by diversifying both the concentration risk and currency exposure of the portfolio. This diversification is even more
compelling as we use our corporate investment portfolio to strategically invest in new asset management capabilities,
from which we expect to grow meaningful assets under management generating fees from new clients.
Improvements in profitability from our investment management operations were largely attributed to the relative growth
in our Private Wealth Management division, which was successful in adding new client assets under management. The
top line growth in the Private Wealth business unit occurred at a time when we were making additional investments in
human capital, including the successful recruitment of an experienced executive as Managing Director and head of our
division in the first half of 2016. Year over year profitability from our core institutional investment management operations
was largely flat, despite strong growth in assets under management from a rising Canadian equity market. Growth in
operating earnings was dampened by the increase in expenditures related to our strategic priority of investment in human
capital that are expected to facilitate successes beyond our core Canadian capabilities. The increased expenditures were
largely related to the hiring of a US-based sales team and expanding our UK-based fundamental investment team. Our
continued 4
5
2016 Annual Report US-based sales team is a new initiative which is focused on adding new client assets under management within the retail
intermediary segment of the market, particularly independent and national brokers and their respective managed money
platforms. With a growing suite of global systematic and fundamental investment strategies we believe the decision
to invest in additional sales resources is strategically important to leverage these best in class investment capabilities.
GuardCap, our UK-based investment team, is focused on delivering concentrated, fundamental emerging market and
global equity solutions. Over the course of time, we expect this initiative to deliver strong growth in earnings, much
like the success we are witnessing through the organic building of a Systematic Global Equity team, which has grown
its assets under management to $3.3 billion in global equities and is a positive contributor to operating earnings. The
Systematic Global Equity team and GuardCap complement each other and provide an expanded competitive suite of
global equity solutions and a growing geographic reach of new clients. We believe both teams offer the opportunity to be
major growth drivers in operating earnings for the investment management segment for years to come, and will meet our
stated objective of diversifying from our concentrated exposure to Canadian equities.
Worldsource, our financial advisory business segment, which serves independent financial advisors across Canada, had
another successful year of growth in operating earnings. The growth in this business segment was primarily attributable to
our Managing General Agency (MGA), which supports independent life insurance agents’ production in life insurance and
related sales. The financial advisory business segment contributed $11 million in operating earnings, representing roughly
a quarter of Guardian’s total operating earnings. The improvement in earnings from our MGA business was slightly offset
by increased costs in our investment dealerships over the prior year as we added staff to serve the growing demands of
managing these regulated entities and to begin the strategic plan of undertaking a major technological re-development
of our core platforms over the next few years. Our independent advisor distribution platforms are much sought after
in an environment of a decreasing number of independent providers and, as such, we believe that our scale presents a
competitive advantage in future growth in the recruitment and retention of advisors. Similarly, we continue to identify
acquisition opportunities with smaller regional MGA’s as we have had solid success in consolidating a number of smaller
firms in the past few years, and believe we can selectively add to our platform through targeted tuck-in acquisitions.
Guardian is well positioned to fund strategic opportunities to diversify our capabilities, while continuing to invest in
maintaining and strengthening our existing core competencies. As a management team, we are constantly on the lookout
for high quality individuals, teams and ideas that can help us achieve our goals of meeting our clients’ objectives, providing
best in class solutions, and ultimately our desire to be viewed as a highly respected independent investment and wealth
management firm. We will continue to search for and hire bright, talented, dedicated people in all of our lines of business,
who are given the opportunity to learn new skills with us and vitally, create new ideas, and new ways to bring success to our
firm, our people and our clients. Over the last few years, we have explored the possibility of complementing our traditional
organic growth approach by taking advantage of our strong financial position and good reputation to acquire businesses
in the financial services industry. We are cautious and disciplined in our search to acquire businesses and will continue to
seek potential partners who can deliver on one or more of our three key strategic objectives: 1) providing an opportunity
to develop a sustainable, profitable business; 2) diversifying from our concentrated exposure to Canadian equities; and
3) contribute to building our global footprint. We have reviewed several interesting opportunities in recent years, and
while we have not completed any significant deals outside our MGA business, we remain optimistic that there is the
potential to find financial businesses to be acquired that can help accelerate the achievement of our goals. Whether or not
we acquire a business, Guardian will continue to invest in organic growth opportunities, particularly ones that solidifies
and improves our existing capabilities, or meet our strategic objectives discussed above.
Quality companies often generate strong free cash flows and as we grow this financial metric, Guardian is committed
to returning an ever increasing amount of cash to its shareholders. In 2016 Guardian paid out more than $9.7 million
in dividends, increasing our quarterly dividend from $0.075 a share to $0.085 cents a share, an increase of 13%.
Furthermore, Guardian returned nearly $24 million to shareholders by repurchasing and cancelling almost 1.2 million
shares in 2016. Through a combination of dividends and share repurchases, Guardian returned to its shareholders more
than 55% of the free cash flow it generated and provides sufficient capacity to maintain and grow these distributions.
Our core values at Guardian are to be Trustworthy, to act with Integrity and to ensure Stability throughout the organization.
Clients, Shareholders, Employees, Partners and other Stakeholders of Guardian should be assured that from top to
bottom, our organization embraces the responsibilities we are entrusted with very seriously, and is continuously striving
to make improvements to all aspects of how we do business. As long as we continue to live up to our expectations all of
our stakeholders should expect to benefit from our success.
Warmest regards,
George Mavroudis,
President and Chief Executive Officer
February 22, 2017
6
Guardian Capital Group Limited Review of
Operations
INSTITUTIONAL INVESTMENT MANAGEMENT
Guardian’s Institutional investment management services are provided by Guardian Capital LP (“GCLP”), GuardCap
Asset Management Limited (“GuardCap”) and Guardian Capital Real Estate Inc. (“GCREI”), with GCLP being, by
far, the largest. GCLP serves pension plan sponsors, broker dealer third-party platforms, closed-end funds, exchange
traded funds and mutual funds, endowment funds, and foundations. GCLP’s capabilities span a range of asset classes,
geographic regions, and specialty mandates. One of the largest independent investment management firms in Canada,
GCLP is the successor to our investment management business, which was founded in 1962.
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Private Wealth Assets
Under Management
as at Dec. 31 ($ mil)
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1
Guardian’s institutional assets under management (“AUM”) were $24.4 billion at the end of 2016, up 10.9% from $22.0
billion at the end of 2015. A major tailwind in asset growth in 2016 was the overall return of the S&P/TSX Composite
benchmark at 21.1%. Over half of our AUM is invested in Canadian equity mandates and benefited from these returns.
Nevertheless, the headwinds we witnessed in 2015 from retail investors reducing their Canadian equity allocations, in
reaction to significant drops in the prices of key commodities and broad concerns about deterioration of the economic
landscape in Canada, continued in 2016, especially in the fourth quarter, in spite of a strong market recovery. In addition,
we started to see some institutional investors rebalancing their portfolios and reducing their allocation to Canadian
equities in the fourth quarter of 2016. Through it all we retained all our clients, but this held back growth in Canadian
equity strategies to an AUM of $13.3 billion at the end of 2016, compared to $11.7 billion at the end of 2015. Our AUM
in foreign equity strategies were $3.3 billion at the end of the year accounting for approximately 15% of our total AUM
and representing our fastest area of growth over the last few years. Fixed income strategies also benefited from investors
Operating Earnings
Annual Premiums on
reducing their Canadian equity allocations, both at the retail level and at the institutional level, where defined benefit
for the years
Insurance Policies Sold
plans continue to de-risk. The fixed income AUM at the end of 2016 was $7.8 billion, compared to $6.9 billion at the end
ended Dec. 31 ($ mil)
for the years ended
of 2015, an increase of over 13%. As always, continued stability in the investment team and organization, and strong client
Dec. 31 ($ mil)
service and business development efforts, supported the business effectively in 2016.
Insurance Assets
Under Administration
as at Dec. 31 ($ mil)
Total Assets
Under Administration
as at Dec. 31 ($ mil)
Wrap Assets
Under Management
as at Dec. 31 ($ mil)
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Canadian Equity
After being one of the weakest equity markets in the world in 2015, Canadian equities rebounded aggressively in 2016
and returned 21.1%. The recovery was due largely to significant improvements in the prices of commodities (especially
oil) and strong performance in financials, which benefited the most in the post-Trump equity rally. Our strategies
generally perform well in down markets due to their conservative bias, and often tend to lag in strong up markets.
2016 was no exception, as the majority of our Canadian equity strategies lagged their respective benchmarks. Despite
that, they all ended the year in either first or second quartile in industry surveys, as most of our competitors were also
challenged in trying to beat the market. Strategies with a bias toward income generation (a hallmark of Guardian’s
competencies) experienced strongest returns, due to their emphasis on financial and energy stocks. Dividend yields in
these strategies continue to significantly exceed bond yields, and we expect that they will likely continue to do so for
a few more years. The Canadian Focused strategy launched in 2015 continued to experience strong relative returns
in 2016, finishing in first quartile, and remains our strongest performer since its inception. This approach aligns with
the concentrated strategies managed by GuardCap, our London, UK-based investment management firm, to meet the
increased demand for such products from large institutional investors worldwide. Finally, two of our longest-serving
portfolio managers ended their tenures at Guardian in 2016, after more than 25 years in each case. In both instances,
succession had been put in place several years ago and clients transitioned in a seamless fashion. Guardian has one of
the most-experienced Canadian Equity investment teams in the industry, with nine investment professionals who have
an average of 23 years of experience overseeing a total of approximately $13.3 billion in AUM.
Global Equity
Guardian has two non-domestic equity strategy teams. The Toronto-based team follows mainly a systematic approach,
while our London-based team follows a fundamental approach, and offers highly concentrated strategies. We believe
these strategies complement each other and provide a broader set of choices to investors.
The Systematic Global Equity team experienced solid performance in 2016 in their growth strategies, but faced weaker
results in the family of dividend-biased strategies which accounts for the majority of that team’s AUM, because 2016 was
another challenging year for dividend payers. The Fed now appears to have embarked on a tightening cycle, which will
pose additional challenges in stock performance for dividend payers in 2017. Nevertheless, we expect that our relative
performance will improve, as we continue to build our portfolios emphasizing firms that grow both their earnings and
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Institutional Assets
Under Management
as at Dec. 31 ($ mil)
7
2016 Annual Report
dividends rather than those which pay high dividends, but with limited potential for earnings growth. We anticipate
that those stocks will be more challenged in 2017, in a rising rate environment. The longer-term performance history
of the Global Dividend Equity strategy has been instrumental in placing us on several key retail intermediary platforms
in Canada and the U.S. over the past few years. This acquired shelf space, along with an anticipated continued demand
by retail investors for strategies with a bias toward income generation and lower volatility, is expected to provide us
with strong asset inflow momentum in 2017.
GuardCap, our UK subsidiary acquired in 2014, which manages Fundamental Emerging Markets and Fundamental
Global Equities strategies, experienced strong relative performance in 2016, continuing a long history of success
for these professionals, dating back beyond their short tenure at Guardian. We believe that our highly experienced
investment team with a long history of solid performance will be increasingly successful with institutional investors. In
2016, we gained a number of international clients for the Fundamental Global Equities strategy and hope to continue
building on this momentum in 2017. Investor interest in concentrated strategies, especially by large institutional
investors, appears to be growing. We are hopeful that we will continue to experience growth, and that 2017 will bring
a number of new appointments. We have been adding professionals every year to build the team in London, and will
continue doing so in 2017 to complement the current team of nine investment professionals.
Fixed Income
Our fixed income mandates cover a broad range of profiles (addressing various combinations of parameters such
as duration, types of issuers, currencies and risk profiles), and a large number of portfolios are highly customized
to meet specific client needs. 2016 was generally rewarding for our mandates with a higher allocation to corporate
credits and/or shorter durations, while generally less so for those with heavier government allocations and/or longer
durations. 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 structures 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 2016 may very well turn out to have witnessed the
bottom), 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 and sustained income
stream, 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 generated aggregate returns well in excess of its target payout through some difficult
bond markets. We intend to be well-prepared to meet investor needs in a changing fixed income landscape.
Balanced
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. In 2015, we refined our tactical asset allocation capabilities and combined
them with our full suite of mutual funds, resulting in a comprehensive retail offering. Performance since inception
of these strategies has been very strong. These are distributed as standalone portfolios as well as under an insurance
umbrella, in the form of sub-advised segregated funds. The retail industry has witnessed a strong trend toward multi-
asset solutions in recent years and we believe our offering is very competitive in that space.
Real Estate
In recent years, Guardian has created a new line of business, direct investment in real estate properties. GCREI, our
real estate subsidiary, currently manages one fund, the Guardian Capital Real Estate Fund LP, which is primarily
intended to focus on yield-generating real estate assets for institutional and private investors. To date, the fund has
raised just under $140 million of capital commitments from investors, including $40 million in 2016, and has deployed
approximately $100 million to purchase approximately $170 million of real estate assets. The intent of the fund is to
provide gross yields between 6% and 8% by investing in well-located, functional assets below their replacement cost
with rents at or below market. While GCREI currently does not meaningfully contribute to Guardian’s results, it is an
important asset class for our clients, and we plan to continue to expand our capabilities and grow our assets under
management in the real estate space.
8
Guardian Capital Group Limited 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, exchange traded 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 growth in net new assets in 2016, as we finished the year with $7 billion in
AUM in this channel. This is commendable, when faced with a continued shift away from Canadian equity exposure
by the retail client segment. In 2016, Guardian also expanded into the US market. A team of seasoned marketing
professionals was recruited, with the goal of earning the respect of advisors from national US broker-dealers, that they
will trust us with providing them with investment solutions for their clients.
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, our strong investment team continuity, and 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.
,
0
6
8
2
Over the past few years, we have received fewer requests for proposals from institutional investors or their advisors,
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 investments in private equity and infrastructure.
Although we have retained substantially all our institutional clients, we witnessed some net outflow of assets in 2016,
as those invested in Canadian equities rebalanced their portfolios and reduced their holdings of Canadian equities,
after strong returns. We expect, this may continue into early 2017 and partially dampen our growth in AUM. 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 be respected as a
top manager, for consideration by the consultant community. Global equity searches continue to be an area where we
can see overall market demand and growth. The recent strong performances of our concentrated fundamental equity
strategies offered by GuardCap positions us well to take advantage of this trend.
Private Wealth Assets
Under Management
as at Dec. 31 ($ mil)
Total Assets
Under Administration
as at Dec. 31 ($ mil)
9
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1
PRIVATE WEALTH MANAGEMENT
Guardian Capital Advisors LP (“GCA”) provides investment management services to private wealth clients, foundations
and endowments primarily in Canada, with cross border United States and international business. As the trusted
advisor to our private clients, we tailor tax-efficient, fully-discretionary segregated or investment fund portfolios
consistent with their long term investment objectives. Our investment service combines the depth of proprietary
research from Guardian’s institutional investment management teams with the experience of dedicated private wealth
client portfolio managers. Our collaborative work with our clients’ financial, legal, accounting, insurance and other
advisors, ensures a holistic and integrated approach to wealth management. Through offices in Vancouver, Calgary
and Toronto, clients and their advisors have local direct access to experienced investment professionals, supported by
the 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.
Equity markets were strongest in Canada, and positive globally, impacting the growth in AUM. AUM grew to $2.9
billion at the end of 2016, compared to $2.2 billion at the end of 2015. The most significant factor in this growth was
the addition of net new assets. We believe that a focus on risk management, as well as enhanced returns over the long
term, will continue to provide our clients with long-term growth, tax-efficient cash flows and protection against short-
term volatility. GCA continues to attract new clients, both directly and through referrals from financial advisors. The
majority of our client base is domestic, and AUM are evenly split between Eastern and Western Canada. Our business
development efforts will continue to focus on promoting awareness in the legal, accounting, family office and financial
advisory communities.
INTERNATIONAL PRIVATE BANKING
As an extension of our Private Wealth Management business, our International Private Banking subsidiaries service
the wealth management needs of our international clients.
Alexandria Bancorp Limited (“ABL”) is a private bank based in the Cayman Islands, which was established in 1990.
ABL is licensed and regulated by the Cayman Islands Monetary Authority to provide investment management,
fiduciary and banking services to international clients. ABL offers investment management capabilities through, both
its own Alexandria Fund and its managed segregated account platform.
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Wrap Assets
Under Management
as at Dec. 31 ($ mil)
Operating Earnings
for the years
ended Dec. 31 ($ mil)
Annual Premiums on
Insurance Policies Sold
for the years ended
Dec. 31 ($ mil)
Insurance Assets
Under Administration
as at Dec. 31 ($ mil)
Institutional Assets
Under Management
as at Dec. 31 ($ mil)
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Private Wealth Assets
Under Management
as at Dec. 31 ($ mil)
Total Assets
Under Administration
as at Dec. 31 ($ mil)
Wrap Assets
Under Management
as at Dec. 31 ($ mil)
Operating Earnings
for the years
ended Dec. 31 ($ mil)
Annual Premiums on
Insurance Policies Sold
for the years ended
Dec. 31 ($ mil)
Insurance Assets
Under Administration
as at Dec. 31 ($ mil)
Institutional Assets
Under Management
as at Dec. 31 ($ mil)
9
2016 Annual Report
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.
In 2016, this division delivered a particularly strong performance from its banking business, driven primarily by
volatility in the currency markets and a high deposit base, while revenue from its fiduciary business increased over
20% compared to the prior year. Our capital adequacy is well above regulatory minimums, which continues to provide
significant comfort to our existing and potential clients, and we are continuing to see a notable increase in requests for
proposals for banking and fiduciary services.
FINANCIAL ADVISORY
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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 $16.5 billion at December 31, 2016, compared to $14.9
billion at the end of 2015. This segment had another successful year, delivering net commission revenue of $39.2
million and operating earnings of $11.0 million in 2016, compared to $34.5 million and $10.1 million, respectively, in
2015. Worldsource operates two businesses within the Financial Advisory segment. Insurance advisory services are
provided through IDC Worldsource Insurance Network Inc. (“IDC WIN”) and the financial planning and advisory
services are provided to retail clients through Worldsource Financial Management Inc., the mutual fund dealer, and
Worldsource Securities Inc., the securities dealer (together the “Dealers”). Worldsource promotes an open architecture,
Wrap Assets
and thus provides advisors with the independence to choose the best available solutions for their clients. The advisors
Under Management
are further supported with quality reporting and administration, and a professional approach to sales compliance and
as at Dec. 31 ($ mil)
product suitability.
Annual Premiums on
Insurance Policies Sold
for the years ended
Dec. 31 ($ mil)
Operating Earnings
for the years
ended Dec. 31 ($ mil)
Insurance Assets
Under Administration
as at Dec. 31 ($ mil)
Institutional Assets
Under Management
as at Dec. 31 ($ mil)
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IDC WIN is a national insurance Managing General Agency (“MGA”), which is 79.7% owned by Worldsource and
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. IDC WIN had a very successful year, with strong growth in many key metrics in
2016, as the annual premiums on insurance policies sold (“Annual Premiums Sold”) were $90 million, compared to
$56 million in 2015, a 61% increase. Segregated fund and accumulation annuity AUA was $4.5 billion as at December
31, 2016, up from $4.0 billion as at the end of 2015, an 11% increase. Led by the growth in these metrics, successful
recruitment of top-producing advisors and the full year’s contribution from the business of First Prairie Financial
(“First Prairie”) acquired in 2015, IDC WIN grew its net commission revenue to $25.2 million, from $22.1 million in
2015, a 15% increase. Included in the 2016 net commission revenue are annual service commissions of $9.8 million,
which grew by $1.5 million from 2015. Each dollar of Annual Premiums Sold generates sales commission at the
time of the sale and adds continuing annual service commission revenue beginning 12 months after the sale, for the
duration of the policies. Based on the growth in Annual Premiums Sold in 2016, we expect 2017 to be a strong year for
annual service commission revenue.
Insurance Assets
Under Administration
as at Dec. 31 ($ mil)
Institutional Assets
Under Management
as at Dec. 31 ($ mil)
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The Dealers completed another successful year in 2016, ending the year with $12.0 billion in AUA, a 10% increase
from $10.9 billion in 2015. The increases in AUA and net commission revenue were attributable to the growth in AUA
through organic sales and a successful recruiting program. The Dealers spent much of 2016 focusing on operational
and technological improvements, by investing in the business in the form of additional resources and increased
operational and technology expenditures. These increased expenditures are expected to have a dampening effect on
operating earnings in the near term, but are necessary to better position the business for future growth.
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The Dealers continued to work closely with Guardian’s Investment Management division in 2016 to create
investment solutions tailored for their advisors and branches. We continued to see some success in the advisors
choosing to invest their client assets in Guardian solutions. At the end of 2016, the AUA in Guardian solutions
were $564 million, compared to $453 million in 2015, with Guardian’s Private Wealth business being the main
beneficiary of these assets.
Institutional Assets
Under Management
as at Dec. 31 ($ mil)
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Private Wealth Assets
Under Management
as at Dec. 31 ($ mil)
Total Assets
Under Administration
as at Dec. 31 ($ mil)
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Private Wealth Assets
Under Management
as at Dec. 31 ($ mil)
Total Assets
Under Administration
as at Dec. 31 ($ mil)
Wrap Assets
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as at Dec. 31 ($ mil)
Operating Earnings
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Annual Premiums on
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for the years ended
Dec. 31 ($ mil)
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Private Wealth Assets
Under Management
as at Dec. 31 ($ mil)
Total Assets
Under Administration
as at Dec. 31 ($ mil)
Wrap Assets
Under Management
as at Dec. 31 ($ mil)
Operating Earnings
for the years
ended Dec. 31 ($ mil)
Annual Premiums on
Insurance Policies Sold
for the years ended
Dec. 31 ($ mil)
Insurance Assets
Under Administration
as at 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, 2016, with comparatives for the year ended
December 31, 2015. Readers are encouraged to refer to the discussions and analyses contained in the 2015 Annual
Report and the First, Second and Third Quarter 2016 Reports. This discussion and analysis has been prepared as of
February 22, 2017.
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.
&
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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 wealth
investment management; financial advisory, which includes an insurance managing general agency (“MGA”), a mutual
fund dealer, and a securities dealer (together, the “Dealers”); and corporate activities and investments. Guardian is
headquartered in Canada and operates in Canada, the United Kingdom (“UK”), the United States (“US”) and the
Caribbean. During the second quarter of 2016, Guardian formed a subsidiary, Guardian Capital LLC (“Guardian
LLC”), in the US to operate as a marketing agent for the investment management business. As at December 31, 2016,
Guardian had $27.3 billion of assets under management (“AUM”) and $16.5 billion of assets under administration
(“AUA”). In addition, Guardian has a diversified portfolio of securities which, together with its investment in Bank of
Montreal (“BMO”) shares, had a fair value of approximately $620 million at the end of the year.
2016 HIGHLIGHTS
Guardian spent much of 2016 investing in the business, to build the necessary infrastructure for future growth. In
line with its strategic plan, Guardian continued its efforts to grow its non-domestic AUM, to invest in operational and
technological improvements and to more actively manage its securities portfolio.
In efforts to grow its non-domestic AUM, Guardian completed its initial buildout of the Fundamental Global and
Emerging Markets Equities investment management teams in the UK, to complement its more mature Systematic
Global Equities team in Canada, and increased its marketing and sales efforts of these strategies in key targeted
markets, including the US where a new team of marketing professionals were hired. Guardian also reallocated capital
to increase its seeding of investment vehicles managed by these teams, to provide them with better scale to attract third
party investors. This reallocation occurred as part of the active management of Guardian’s securities portfolio, with
the sale in 2016 of 531,120 BMO shares, for proceeds of $43.3 million, resulting in a reduction in the concentration
of the portfolio in Canadian equities, including the BMO shares. As at December 31, 2016, the investment in BMO
shares represented 62% of the portfolio, and all Canadian equities represented 68%, reduced from 66% and 72%,
respectively, in 2015.
Guardian also made investments in additional expenditures and resources, on technology and other operational
improvements, to prepare it for its next phase of growth. These investments, together with those in support of the non-
domestic strategies referred to above, will continue to have a dampening effect on our earnings in the near term, but
are expected to lead to improved earnings in the future.
11
2016 Annual Report
Despite investing in its business in 2016, as stated above, Guardian delivered another historic high in its operating
earnings. The 2016 operating earnings were $44.7 million, a 4% increase from $43.0 million in 2015. Included in the
operating earnings were $4.8 million in operating losses to support the buildout of the UK and the real estate investment
management capabilities and the enhancement of the marketing and distribution capabilities in key markets. In 2015,
the operating losses related to the buildout of the UK and the real estate team amounted to $3.5 million.
In addition to operating earnings, Guardian reached new highs in net revenue, value of Securities, Shareholders’ Equity,
Adjusted Cash Flow from Operations, EBITDA, AUM and AUA.
With the improved earnings and cash flow, Guardian returned to shareholders $33.6 million in the form of repurchases of
shares and dividend payments during the year, another historic high. In 2015, $23.0 million was returned to shareholders.
USE OF NON-IFRS MEASURES
Guardian’s management uses certain measures to evaluate and assess the performance of its business. Two of the
measures that Guardian uses, EBITDA and adjusted cash flow from operations, are not defined within International
Financial Reporting Standards (“IFRS”). Non-IFRS measures do not have standardized meanings prescribed by IFRS,
and are therefore unlikely to be strictly comparable to similar measures presented by other companies.
However, Guardian’s management believes that most shareholders, creditors, other stakeholders and investment
analysts prefer to include the use of these measures in analyzing Guardian’s results.
EBITDA
Guardian defines EBITDA as net earnings before interest, income tax, amortization, stock-based compensation, and
any net gains or losses, less amounts attributable to non-controlling interests. Guardian believes this is an important
measure, as it allows management to assess the operating profitability of our business and to compare it with other
investment management companies, without the distortion caused by the impact of non-core business items, different
financing methods, levels of income taxes, the amounts of net earnings available to non-controlling interests and the
level of capital expenditures. The most comparable IFRS measure is “Net earnings”, which is disclosed in Guardian’s
Consolidated Statements of Operations.
The following is a reconciliation of the IFRS measure to this non-IFRS measure:
For the years ended December 31 ($ in thousands)
Net earnings, as reported
Add (deduct):
Income tax expense
Net gains
Stock-based compensation
Interest expense
Amortization
Non-controlling interests
EBITDA
2016
2015
$
70,575
$
44,977
12,709
(38,617)
1,731
837
4,185
(1,871)
49,549
$
9,061
(11,040)
1,506
868
4,063
(1,609)
47,826
$
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 available to shareholders, without the distortions caused by fluctuations in its working
capital. 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 the IFRS measure to this non-IFRS measure:
For the years ended December 31 ($ in thousands)
Net cash from operating activities, as reported
Add (deduct):
Net change in non-cash working capital items
Non-controlling interests
Adjusted cash flow from operations
2016
2015
$
42,515
$
33,777
(2,454)
(1,402)
38,659
$
5,679
(1,109)
38,347
$
12
Guardian Capital Group Limited
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)
Net revenue
Expenses
Operating earnings
Net gains
Earnings before income taxes
Income tax expense
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
As at December 31 ($ in millions, except per share amounts)
Assets under management
Assets under administration
Shareholders’ equity
Securities
Per share, diluted
Shareholders’ equity
Securities
$
$
$
$
$
$
2016
142,686
98,019
44,667
38,617
83,284
12,709
70,575
69,475
49,549
38,659
2.32
1.66
1.30
2016
27,280
16,489
580
620
2015
$ 132,911
89,913
42,998
11,040
54,038
9,061
44,977
$
% change
7%
9%
4%
250%
54%
40%
57%
44,105
47,826
38,347
1.44
1.56
1.25
58%
4%
1%
61%
6%
4%
2015
% change
&
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S
S
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E
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’
$
$
$
24,278
14,943
504
540
12%
10%
15%
15%
19%
18%
19.62
20.97
$
16.55
17.72
For the years ended December 31 ($ in millions)
Annual premiums on insurance policies sold
2016
2015
% change
$
90
$
56
61%
Guardian’s operating earnings in 2016 were $44.7 million, a historic high, compared to $43.0 million in 2015, a 4%
increase. The growth in operating earnings was achieved while continuing to invest in the business, as indicated under
“2016 Highlights”, above. These investments will continue to have a dampening effect on operating earnings in the
near term, but are expected to lead to improved operating earnings in the future.
The operating earnings from the Investment Management segment were $20.2 million in 2016, a 9% increase from
$18.4 million in 2015. The biggest contributors to this increase were the Private Wealth and International Private
Banking businesses, benefiting from a very large net inflow of Private Wealth client assets and an increased level
of banking transaction fee income in 2016. We continued to absorb the operating losses in the UK and real estate
operations and added new costs associated with building a distribution team in the US. The operating losses associated
with these operations in 2016 were $4.8 million, compared to $3.5 million associated with the UK and the real estate
investment management business.
In the Financial Advisory segment, the operating earnings increased to $11.0 million compared to $10.1 million in
2015, an 8% increase. The growth was largely driven by the successes in the MGA business, while the Dealers focused
on operational improvements of their business.
The operating earnings in the Corporate Activities and Investments segment decreased to $13.5 million in 2016, from
$14.5 million in 2015. The decrease in operating earnings in this segment resulted largely from the strategic decision to
reallocate a portion of the investment in BMO shares into proprietary investment funds, which generally provide lower
operating earnings compared to the dividends paid on the BMO shares.
The net gains in 2016 were $38.6 million, an increase of $27.6 million from 2015. The largest contributor to the increase
was the increased gains recognized on the disposal of 531,120 BMO shares in 2016, compared to 204,000 shares in 2015.
13
2016 Annual Report
Higher income tax expense in 2016 was the result of higher operating earnings and higher net gains realized during
the year, compared to 2015.
Net earnings available to shareholders for 2016 were $69.5 million, compared to $44.1 million in 2015, a 58% increase.
The increase was the result of improved operating earnings and the significant increase in net gains in 2016.
EBITDA for 2016 was $49.5 million, compared to $47.8 million in 2015, a 4% increase. Adjusted cash flow from
operations for the year amounted to $38.7 million, compared to $38.3 million in 2015, a 1% increase. The increases in
both of these measures were caused by the improvements in operating results, as described above.
The per share amounts in net earnings, EBITDA, and adjusted cash flow from operations, increased as a result of the
continued improvements in operations, and the benefits of the repurchase of 1.2 million shares in 2016.
REVENUES AND EXPENSES
Investment Management Revenues
The largest source of revenue at Guardian are management fees received from clients, which vary as a result of changes
in the amounts of client assets managed, and variations in the rates of management fees charged.
The following is a summary of the assets under management:
Years ended December 31 ($ in millions)
Assets under management, beginning of year
Net additions (reductions) from clients during year
Market appreciation
Assets under management, end of year
Composed of:
Institutional
Private wealth and international private banking
Total
Institutional AUM is composed of:
Canadian equities
Global equities
Fixed Income
Total institutional AUM
2016
24,278
282
2,720
27,280
24,380
2,900
27,280
13,294
3,306
7,780
24,380
2015
24,968
(775)
85
24,278
21,994
2,284
24,278
11,715
3,389
6,890
21,994
$
$
$
$
$
$
$
$
$
$
$
$
Guardian’s total AUM were $27.3 billion at December 31, 2016, compared to $24.3 billion at the end of the prior year, a
12% increase. The strong positive performance in the Canadian equity market provided a tailwind to Guardian’s AUM,
composed largely of Canadian equities. This positive effect was partially offset by the retail investor segment, which
continued to reduce allocations to Canadian equities, and by the rebalancing of portfolios out of Canadian equities by
institutional investors, after strong returns. Although the allocations were reduced, we retained substantially all our
institutional clients, witnessed a strong net inflow of assets into the Private Wealth business and experienced some
moderate successes in gathering third-party assets in the Undertakings for Collective Investments in Transferable
Securities (“UCITS”), managed by our UK subsidiary.
Management fees, net of referral fees paid, for the year 2016 were $68.2 million, 5% higher than the $65.3 million for
2015. Institutional management fees increased 3% to $52.4 million in 2016 from $51.5 million in 2015, as a result of
higher average AUM in 2016. Private Wealth and International Private Banking management fees, net of referral fees
paid, increased 10% during the year to $15.8 million from $13.8 million in 2015, reflecting the large increase in AUM in
this business.
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 2016 amounted to $16.5 billion, 10% higher than the $14.9 billion at the end of 2015.
The increase in AUA was due to successful recruitment efforts, net new sales, and the market performance during the year.
The Annual Premiums on Life Insurance Policies Sold (“Annual Premiums Sold”) in 2016 by the MGA subsidiary
were $90.4 million, compared to $56.0 million in 2015, a 61% increase. The Annual Premiums Sold generate sales
commissions in the year they are sold, and add continuing annual service commission revenue in subsequent years.
This continuing stream of service fee revenue was $9.8 million in 2016 and $8.3 million in 2015.
14
Guardian Capital Group Limited
Net commission revenue from the Financial Advisory business amounted to $38.4 million in 2016, 13% higher
than the $33.9 million in 2015. The MGA net commission revenue increased to $25.2 million from $21.5 million in
2015. The increase was due largely to the increase in Annual Premiums Sold, as described above, and the increase in
continuing annual service commission revenue, resulting from prior years’ Annual Premiums Sold. Included in the
increase is $1.0 million in additional revenue earned from the First Prairie business acquired on June 1, 2015. The
Dealers net commission revenue increased to $13.2 million from $12.4 million in 2015. The increase was largely the
result of higher average AUA in the Dealers business in 2016.
Administrative Services Income
Administrative services income in 2016 was comprised of $7.7 million of registered plan and other fees earned in the
Financial Advisory area, $3.5 million in fund administration revenue earned from Guardian’s proprietary mutual funds
and other fees earned in the domestic investment management area and $3.4 million of trust, corporate administration
and other fees earned mainly in the International Private Banking area, for a total of $14.6 million, compared with
$12.7 million in 2015. The increase is largely as a result of the significant increase in banking transaction fees earned
in the International Private Banking business.
Dividend and Interest Income
The following is a summary of Guardian’s dividend and interest income:
For the years ended December 31 ($ in thousands)
Dividend on Bank of Montreal shares
Other dividends
Dividend income
Interest income
Total dividend and interest income
2016
14,442
5,383
19,825
1,706
21,531
2015
15,175
4,667
19,842
1,257
21,099
$
$
$
$
&
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S
’
Dividend and interest income increased by 2% in the year, largely due to the increased interest income earned in the
International Private Banking business and to a lesser extent from fixed income investments held by the Corporate
Activities and Investments segment. The total dividend income was substantially unchanged from the prior year. The
reallocation of a portion of the securities portfolio from BMO shares to proprietary investments resulted in a reduction
of dividend income from BMO shares, offset by an increase in other dividend income. As Guardian continues to
strategically reallocate its securities portfolio to support the growth of its operating businesses, this source of income
is expected to fluctuate.
Expenses
Guardian’s operating expenses, excluding commissions, referral fees, amortization and interest, were $93.1 million
in 2016, compared with $85.0 million in 2015, an increase of 10%. The increase in expenses is largely related to
expenditures to support the strategic investments in the business. The increase in employee compensation and benefits
expenses are due to the hiring of additional investment professionals in the UK, the new distribution and marketing
capabilities in the US, the new head of the Private Wealth business and additional resources to support continued
operational and technology improvements. The increase in other expenses is largely the result of increased marketing
expenses, increased technology expenditures and other operational expenses to support the growth of the business.
Included in the increased expenses for 2016 were $0.4 million of additional expenses due to the full year inclusion of
First Prairie’s expenses.
NET GAINS
For the years ended December 31 ($ in thousands)
Net gains in consolidated investment funds
Net gains on securities directly held
Net gains on securities
Net foreign exchange (losses)
Net gains on disposal of intangible assets
Impairment of intangible assets
Gain on other liability
Net gains
2016
13,080
25,161
38,241
(644)
1,020
–
–
38,617
2015
2,823
8,709
11,532
(1,223)
731
(695)
695
11,040
$
$
$
$
Net gains in 2016 increased compared to 2015, largely due to the increased gains recognized on the sale of 531,120
shares of BMO for proceeds of $43.3 million in 2016, compared to 204,020 shares sold for proceeds of $15.4 million in
15
2016 Annual Report
2015. Guardian used the proceeds of disposition of BMO shares to invest in proprietary funds, which are consolidated
into Guardian’s results. The increased investment in these funds resulted in increased amount of net gains, which are
recorded within these funds, being consolidated into Guardian’s results.
LIQUIDITY AND CAPITAL RESOURCES
The strength of Guardian’s balance sheet has enabled Guardian to attract associates, provide clients with a high comfort
level, maintain the appropriate levels of working capital in each of its areas of operation, make the necessary capital
expenditures to develop and support its businesses and make appropriate use of borrowings, including financing the
expansion of its businesses. The hallmark of Guardian’s balance sheet is the significant securities portfolio as presented
below.
As at December 31 ($ in thousands, except per share amounts)
2016
2015
Securities at fair value:
Short-term securities
Bonds
Fixed income mutual funds
Equity investment funds
Bank of Montreal common shares
Other equity securities
Real estate funds
Total securities
Total securities per share, diluted
$
$
$
12,567
1,147
9,449
27,599
386,240
159,457
23,759
620,218
20.97
$
$
$
2,058
1,102
8,139
47,949
353,790
104,598
22,284
539,920
17.72
Guardian’s securities as at December 31, 2016 had a fair value of $620 million, or $20.97 per share, diluted, compared
with $540 million, or $17.72 per share, diluted, as at December 31, 2015, as shown above. In addition, Guardian’s
shareholders’ equity as at December 31, 2016 amounted to $580 million, or $19.62 per share, diluted, compared to
$504 million, or $16.55 per share, diluted, as at December 31, 2015.
Guardian has available, under various borrowing arrangements, total credit of $103 million. At December 31, 2016,
the total bank borrowing amounted to $62.7 million, compared with $54.8 million at December 31, 2015.
Guardian generated adjusted cash flow from operations of $38.7 million in 2016, an increase of $0.4 million from $38.3
million in 2015. At current levels of cash flow and anticipated dividend payout rates, Guardian generates sufficient cash
flow to meet its obligations, make capital expenditures and repurchase its shares under Normal Course Issuer Bid.
In 2016, using its strong balance sheet, its borrowing capacity and its strong cash flow, Guardian returned $33.6
million to the shareholders in the form of dividends and share repurchases, increased its investments into two key
investment funds by approximately $53.0 million and invested approximately $3.4 million in recruitment of top
producing advisors in the Financial Advisory businesses.
CONTRACTUAL OBLIGATIONS
Guardian has contractual commitments for the payment of certain obligations over a period of time. A summary of those
commitments, including a summary of the periods during which they are payable, is shown in the following table:
As at December 31, 2016 ($ in thousands)
Bank loans and borrowings
Third party investor liabilities
Client deposits
Accounts payable and other liabilities
Payable to clients
Investment commitment – real estate fund
Operating lease obligations
Total contractual obligations
$
$
Total
62,664
99,452
77,364
44,828
60,672
11,834
15,658
372,472
Within
one year
62,664
99,452
77,364
44,129
60,672
11,834
2,069
358,184
$
$
$
$
$
One to
three years
–
–
–
699
–
–
3,484
4,183
Three to
five years
–
–
–
–
–
–
3,709
3,709
After
five years
–
–
–
–
–
–
6,396
6,396
$
$
$
Guardian’s contractual obligations are supported by its strong financial position, including its securities, referred to above
under “Liquidity and Capital Resources”. Client deposits, in the offshore banking subsidiary, are supported by interest-
bearing deposits with banks. The third party investor liabilities are offset by securities backing third party investor
liabilities. 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. Guardian has committed to invest $35.0 million into a real estate limited
16
Guardian Capital Group Limited
partnership which is managed by a subsidiary, of which $23.2 million has been invested as at December 31, 2016. The
balance is expected to be invested as appropriate real estate product becomes available to the limited partnership, at
which time Guardian’s management will decide on the appropriate strategy for funding this commitment.
SELECTED ANNUAL INFORMATION
Years ended December 31 ($ in thousands, except per share amounts)
Net revenue
Net earnings available to shareholders
Per share
Net earnings available to shareholders
Basic
Diluted
Dividends paid
As at December 31
Total assets
$
$
2016
142,686
69,475
2.44
2.32
0.33
2016
$
$
2015
132,911
44,105
1.50
1.44
0.29
2015
$
$
2014
119,275
37,017
1.23
1.19
0.24
2014
$
982,262
$
810,249
$
736,757
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.
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E
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S
’
Quarters ended
($ in thousands)
Net revenue
Operating earnings
Net gains (losses)
Net earnings
Net earnings available to
shareholders
Shareholders’ equity
Dec 31
Sept 30
Jun 30
2016
Mar 31
Dec 31
Sept 30
Jun 30
Mar 31
2015
$ 38,240 $ 35,185 $ 34,191 $ 35,070 $ 34,353 $ 33,188 $ 33,066 $ 32,304
10,476
3,187
11,551
10,300
1,028
9,169
10,256
9,658
17,362
12,371
10,754
19,859
10,876
(2,407)
6,278
11,390
602
9,786
11,350
16,778
24,072
10,646
10,057
17,475
19,417
580,177
17,353
545,339
8,887
513,939
23,818
497,656
17,138
504,255
6,053
470,533
9,604
473,944
11,310
477,901
Per Class A and Common share:
Net earnings available to
shareholders
Basic
Diluted
Shareholders’ equity
Basic
Diluted
$
$
0.69 $
0.65
0.61 $
0.58
0.31 $
0.30
0.83 $
0.79
0.59 $
0.56
0.21 $
0.20
0.33 $
0.31
0.38
0.37
20.75 $
19.62
19.11 $
18.07
18.08 $
17.10
17.51 $
16.63
17.37 $
16.55
15.96 $
15.23
16.08 $
15.32
16.15
15.42
Dividends paid
$
0.085 $
0.085 $
0.085 $
0.075 $
0.075 $
0.075 $
0.075 $
0.065
Management fees earned in the Investment Management segment and trailer commissions earned on mutual funds and
segregated funds in the Financial Advisory segment are highly correlated to the change in AUM and AUA. 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 continuing move toward “trailer” commissions 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 now occurs 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. We are also now starting to see a trend developing in the dividend income, with the second quarter
and the fourth quarter of each year seeing increases in revenue, due largely to dividends from foreign equities which pay
semi-annual dividends during those periods.
17
2016 Annual Report
The steady increase in net revenue during the periods shown above have generally resulted from two influences. Firstly,
reflecting the growth in average AUM, management fees in the investment management business have increased
steadily throughout 2016 and 2015. Secondly, there has been significant growth in commissions earned in the financial
advisory business as a result of the continued business growth, organically, through recruitment of advisors, and
through acquisitions.
Since gains and losses are recorded on disposal of available for sale securities or other assets, on changes in the value
of held for trading and held for sale securities, and on changes in the value of foreign currency balances held, and such
amounts can vary from quarter to quarter, the amounts included in “Net gains” each quarter have fluctuated, as shown
in the quarterly results above.
The quarterly fluctuations in shareholders’ equity shown above have been caused largely 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 the notes to
the Consolidated Financial Statements, contained in Guardian’s 2016 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 can impact 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 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 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. With the exception of the investment of $386 (2015
– $354) million in the Bank of Montreal shares, which represents 62% (December 31, 2015 - 66%) of Guardian’s
securities, they are diversified, from both an asset class and a geographical perspective. At the end of 2016, the securities
were made up of 68% (2015 – 72%) Canadian equities, consisting mainly of the Bank of Montreal shares, 28% (2015
– 26%) non-Canadian equities and 4% (2015 – 2%) fixed income securities.
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. In addition, the operating results of these
subsidiaries can fluctuate with the change in the foreign currency exchange rates against the Canadian dollars. These
foreign currency exposures are 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 the monitoring of
the activities of the portfolio manager who, through diversification and credit quality reviews of the funds’ investments,
manage the funds’ credit risk. From time to time, advisors in the Financial Advisory segment may owe to the Dealers or
the MGA, advances received or amounts resulting from reversal of commissions. The credit risk associated with these
18
Guardian Capital Group Limited amounts are mitigated by management’s review of the advisors’ ability to repay the advances or the potential commission
reversals, particularly in the MGA business, before amounts are paid to the advisors.
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 operations by establishing
sufficient borrowing facilities with major Canadian banks, which currently total $103 million through three credit
facilities, and the support of its significant security portfolio. 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 and Legal Risk
Guardian and its subsidiaries operate in an environment subject to various laws and regulations. Given the nature
of certain of Guardian’s subsidiaries, they may, from time to time, be subject to changes in regulations, claims or
complaints from investment clients and sanctions from governing bodies. These risks are mitigated by maintaining
relevant in-house competence in laws and regulations, compliance and product review oversight, adequate insurance
coverage and, where appropriate, utilizing assistance from external advisors.
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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 advisors 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 advisors.
Competition Risk
Guardian operates in a highly competitive environment, with competition based on a variety of factors including
investment performance, the type and quality of products offered, business reputation and financial strength. Loss of
client assets to competition will result in losses of revenue and earnings to Guardian. Guardian attempts to mitigate this
risk by developing and maintaining a competitive product line and competitive relative performance of its products,
through the recruitment and retention of high quality investment professionals and a high quality management team.
Our ability to compete is also enhanced by our large capital base, which provides Guardian with the financial strength
to invest in the development or acquisition of businesses. It also provides existing and future clients with comfort
which allows Guardian to better compete in winning and retaining these clients.
Information Technology and Cybersecurity Risk
Guardian uses information technology and the internet to streamline business operations and to improve client and
advisor experience. However, with the use of information technology, including the use of mobile devices, and the use of
internet, such as emails and other online capabilities, Guardian is exposed to information security and other technology
disruptions risks that could potentially have an adverse impact on its business. Guardian actively monitors this risk and
continues to develop controls to protect against such threats that are becoming more sophisticated and pervasive.
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 2016 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.
19
2016 Annual Report
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 2016 and 2015, 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 3(b) to Guardian’s 2016 Consolidated Financial Statements were based on a valuation approach using a multiple of
AUM and further corroborated by a multiple of EBITDA observed in market transactions. 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 and the EBITDA generated by these entities.
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.
Readers are encouraged to refer to note 2 to the Consolidated Financial Statements contained in Guardian’s 2016
Annual Report, for Guardian’s initial assessment of the potential impact of these new standards. Guardian continues
to evaluate the impact these new standards will have on its consolidated financial statements. 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.
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, 2018.
Leases
On January 13, 2016, the IASB issued IFRS 16 Leases (“IFRS 16”), which is to replace IAS 17 Leases. The standard
provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the term
is 12 months or less or the underlying asset has a low value. IFRS 16 is effective for annual periods beginning on or after
January 1, 2019.
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, 2016 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, 2016, under 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
2016 was an eventful year that began in tumultuous fashion, with stock markets posting one of their worst starts to a
year, due to fears about lack of growth in China. As the year progressed, global growth improved, resulting in improved
equity market returns. In November, there was a positive response to Donald Trump’s Presidential election victory,
and some markets closed the year at all-time highs, such as the S&P 500, which posted a return of 12.0%, and the
S&P/TSX, with a return of 21.1% in 2016. Globally, most markets in the developed world and the emerging markets
20
Guardian Capital Group Limited underperformed Canada and the U.S. Relative to the S&P 500, Japan and two of the three largest European markets,
France and Germany, underperformed. Somewhat surprisingly, the U.K. (+19.2%) posted a solid gain, despite the
potential for economic disruption related to Brexit.
In prior years, our bullish expectations were based on our belief that stocks were inexpensive relative to interest rates,
and would benefit from P/E multiple expansion, as the memory of the financial crisis faded into the background and
investors recognized that the U.S. economy was healing. From this point forward, the dynamics behind our bullishness
are changing. Our bullishness for 2017 rests on two factors: first, the U.S. economy is accelerating sufficiently, even
before a Trump tax cut or infrastructure spending. As such, we expect earnings to accelerate after a sluggish few years.
This will benefit Canadian companies selling into, operating in, or benefiting from U.S. dollar-denominated commodity
prices, even if the Canadian economy remains tepid as we anticipate. Second, we believe that low- and medium-priced
stocks can still benefit from a P/E multiple expansion, either as headwinds to growth in earnings recede or as earnings
growth accelerates. Globally, despite some long-term structural challenges arising from overcapacity and deteriorating
demographics, we expect China and Asia, as a whole, will continue to grow, albeit at a rate slower than that to which
we have become accustomed. With respect to Europe, the Brexit vote, and potential uncertainty from elections in the
Netherlands, Italy and France, likely create headwinds for growth and inflation in the EU. The region has recently
experienced a slight improvement in growth and an uptick in inflation. Sustained monetary stimulus by the ECB
should lend support to keep the recovery going forward.
Guardian is highly levered to equity markets, in particular Canadian equities, across its main business segments as
well as its corporate investment portfolio. Guardian’s AUM increased to $27.3 billion at the end of 2016, which is
approximately $3.0 billion more than at the end of the prior year. The increase in AUM was due largely to the positive
market performance of the Canadian equity market. This is in stark contrast to 2015, when Canadian markets, affected
by oil and commodity price declines, were among the few negative performers in the developed world. In 2017, it is
likely that retail intermediary flows from the broker dealer wrap programs, and our retail mutual fund and exchange
traded fund partners, will continue to provide us with net inflow of assets from their clients. However, we have seen
in the past, and are seeing some signs now, that institutional, and to a lesser extent, retail clients have a tendency to
reduce their exposure to Canadian equities, especially after a period of strong outperformance in Canadian markets.
For the last few years, Guardian has been building highly-skilled portfolio management teams in the UK, who use a
fundamental approach to investing in global and emerging market equities. The AUM of these teams is still relatively
small, but we believe we have proven our competence in managing these strategies, and that the products we offer are in
demand. During 2017, we expect to see increasing sales in our fundamental offering, particularly in the Global product.
We also expect to see some sales momentum from third party investment programs, as well as some institutional
traction initiated by our US-based sales team. These US sales will initially benefit mainly our Global Dividend strategy,
which is managed by our systematic team in Toronto. While we do expect increasing AUM from these channels, we still
expect to generate operating losses from these initiatives for the next few years.
Guardian’s management will continue to use its strong balance sheet to assist in our growth plans, by seeding new
strategies to gain a track record of performance and test our theories on optimizing our investment management
processes. We have found that substantial investments in newly-offered products can help us to gain clients in the early
stages of our product development. Two recent examples of this are in our Real Estate and our Global Fundamental
Equity strategies, where substantial commitments of our own capital accelerated attracting third party investors.
Investing in our own products also serves the purpose of slowly and methodically diversifying from our core holding of
shares in the Bank of Montreal, as well as reducing our large exposure to Canadian equities in general.
Another benefit of our balance sheet is to enable us to consider mergers and acquisition activity. While the lion’s share
of our recent acquisitions have been focused on growing our life insurance MGA business, we continue to explore and
evaluate opportunities in a range of investments related financial service businesses.
Guardian’s Financial Advisory business, through its subsidiary Worldsource Wealth Management (“WWM”), has
continued on its growth path in 2016. Our patient building of these businesses has resulted in improved operating
earnings from continued strong commission growth from new life insurance sales in the MGA business, and multi-year
efforts to improve revenue growth and expense management in the Dealers business. 2016 marked the introduction
of CRM II, which is a mandate by regulators to improve reporting of performance and disclosure of the fees and
expenses involved in investing in mutual funds. Many people in the industry are worried that these disclosures will lead
to disruptions in the advisors’ businesses and downward pressures on their compensation as investors may become
disenchanted with their advisors. While it is too early to be certain of the impact, Guardian expects that any adverse
effects will also result in new opportunities. Guardian is already a reasonably low cost provider of mutual fund solutions
to our advisors, and it is possible our strategies stand to benefit from the new disclosures. In the MGA industry, there
are rumblings of new advisor supervision duties being imposed on the MGAs by regulators. If such requirements are
imposed, we believe our MGA will have competitive advantages from having scale, and an existing comprehensive and
sophisticated compliance regime within WWM.
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2016 Annual Report
While we do expect revenue and earnings in the Financial Advisory segment to continue to increase in 2017, we also
acknowledge that some investment in technology and people will be necessary over the medium term, and we have
plans to bring this about.
Over the past several years, Guardian has had a great deal of success in growing and improving the profitability of
its businesses in Canada. Going forward, while we feel that there are still opportunities to succeed in the Canadian
market, it is becoming a mature market for us. In order to accelerate our growth in the long term, Guardian plans
to continue to invest in our global portfolio management capabilities and, equally important, to continue to invest
in expanding our distribution capabilities, in order to seek new clients in Canada, and worldwide. We believe that
investing in distribution and continuing to diversify our offering will give guardian an additional opportunity to grow
over the longer term.
22
Guardian Capital Group Limited Ten Year
Review
Notes (e)
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
($ in millions)
Assets under management
Assets under administration
($ in thousands)
Net revenue
Expenses(a)
Operating earnings
Net gains (losses)
Net gains (losses) on securities
held for sale
Net earnings available to
shareholders
Shareholders’ equity
Securities
(In dollars)
Per common and Class A share:
Net earnings available to
Shareholders
Basic
Diluted
Shareholders’ equity
$ 27,280 $ 24,278 $ 24,968 $ 22,228 $ 18,832 $ 15,928 $ 16,266 $ 13,986 $ 11,764 $ 16,885
6,303
14,943
13,126
11,559
16,489
8,654
9,918
7,074
7,783
6,005
$142,686 $132,911 $119,275 $101,278 $ 86,360 $ 73,693 $ 64,928 $ 61,147 $ 66,918 $ 69,607
51,617
17,990
4,215
58,665
8,253
(4,484)
56,560
17,133
(131)
89,913
42,998
11,040
66,222
20,138
1,337
81,134
38,141
6,700
51,389
13,539
2,982
74,347
26,931
11,637
98,019
44,667
38,617
52,419
8,728
1,217
–
–
386
(58)
4,559
(5,493)
6,443
–
–
–
44,105
22,556(d)
37,017
69,475
580,177 504,255 488,835 414,985 353,756
620,218 539,920 525,352 449,179 379,956
34,432
14,274(b)
10,003
23,015
322,618 331,856 317,784
364,182 383,604 362,512
7,299(c)
204,051
241,549
26,492(b)
334,696
380,433
R
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$
2.44 $
2.32
1.50 $
1.44
1.23 $
1.19
1.13 $
1.11
0.72(d) $
0.71(d)
0.31 $
0.31
0.70 $
0.69
0.41(b) $
0.41(b)
0.19(c) $
0.19(c)
0.69(b)
0.68(b)
Basic
Diluted
20.75
19.62
17.37
16.55
16.33
15.62
13.68
13.17
11.44
11.16
10.12
9.90
10.16
10.01
9.37
9.19
5.69
5.65
8.79
8.67
Dividends paid
Share prices:
Common
Class A
high
low
high
low
(In thousands)
Year end common and Class A
shares outstanding
Basic
Diluted
0.330
0.290
0.240
0.300
0.170
0.160
0.150
0.150
0.150
0.135
25.98
16.20
25.10
15.58
24.61
16.55
19.25
15.50
21.45
15.30
18.85
15.10
18.00
11.50
16.82
10.40
11.65
9.41
10.55
9.00
12.75
9.49
11.63
8.70
9.75
7.90
9.00
7.35
9.97
4.65
8.25
3.00
11.10
4.26
11.02
3.02
15.50
10.65
13.50
10.33
27,963
29,576
29,029
30,472
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
38,605
NOTES
(a) Excluding commissions paid, referral fees and income taxes.
(b) 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.
(c) 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).
(d) 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.
(e) Results in 2010 and subsequent years are in accordance with IFRS; 2009 and previous years are as reported under previous Canadian GAAP.
23
2016 Annual Report
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 31 to 35. 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 22, 2017
24
Guardian Capital Group Limited
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, 2016 and December 31, 2015, the consolidated statements
of operations, comprehensive income, equity and cash flow for the years then ended, 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’ RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on 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, 2016 and December 31, 2015, and its consolidated
financial performance and its consolidated cash flow for the years then ended in accordance with International
Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
February 22, 2017
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2016 Annual Report
Consolidated
Balance Sheets
As at December 31 ($ in thousands)
2016
2015
Assets
Current assets
Cash
Interest-bearing deposits with banks
Accounts receivable and other
Receivables from clients and broker
Securities backing third party investor liabilities (note 3)
Securities (note 4)
Other assets
Deferred tax assets (note 11c)
Intangible assets (note 5)
Equipment (note 6)
Goodwill (note 7)
Investment in associate
Total assets
Liabilities
Current liabilities
Bank loans and borrowings (note 8)
Third party investor liabilities (note 3)
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 (notes 12a and 12b)
Treasury stock (note 13a)
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
$
$
$
$
37,974
77,268
36,370
60,672
99,452
311,736
620,218
1,618
29,386
3,957
15,014
333
50,308
982,262
62,664
99,452
77,364
37,829
6,300
60,672
344,281
699
51,812
396,792
20,268
(22,342)
13,972
327,669
240,610
580,177
5,293
585,470
982,262
$
$
$
$
22,276
112,636
31,005
49,125
5,651
220,693
539,920
1,854
28,376
4,059
15,014
333
49,636
810,249
54,755
5,651
112,687
30,251
868
49,125
253,337
666
47,720
301,723
20,929
(21,563)
12,280
291,317
201,292
504,255
4,271
508,526
810,249
On behalf of the Board:
Barry J. Myers,
Director
George Mavroudis,
Director
26
Guardian Capital Group Limited
Consolidated
Statements of
Operations
For the years ended December 31 ($ in thousands, except per share amounts)
2016
2015
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 17)
Earnings before income taxes
Income tax expense (notes 11a and 11b)
Net earnings
Net earnings available to:
Shareholders
Non-controlling interests
Net earnings
Net earnings available to shareholders per Class A and Common share (note 18):
Basic
Diluted
See accompanying notes to consolidated financial statements.
$
$
$
$
$
123,584
(85,163)
38,421
68,181
14,553
21,531
142,686
61,093
4,185
837
31,904
98,019
44,667
38,617
83,284
12,709
70,575
69,475
1,100
70,575
2.44
2.32
$
$
$
$
$
115,015
(81,153)
33,862
65,273
12,677
21,099
132,911
56,291
4,063
868
28,691
89,913
42,998
11,040
54,038
9,061
44,977
44,105
872
44,977
1.50
1.44
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2016 Annual Report
Consolidated
Statements of
Comprehensive
Income
For the years ended December 31 ($ in thousands)
2016
2015
Net earnings
$
70,575
$
44,977
Other comprehensive income (loss)
Available for sale securities, net of taxes:
Net change in fair value
Income tax provision (recovery)
Transfer to net earnings of unrealized gains upon disposal
Reversal of income taxes
Net change in available for sale securities, net of taxes
Net change in foreign currency translation adjustment on foreign subsidiaries
Other comprehensive income (loss)
Comprehensive income
Comprehensive income available to:
Shareholders
Non-controlling interests
Comprehensive income
See accompanying notes to consolidated financial statements.
81,249
10,241
71,008
(25,341)
3,177
(22,164)
48,844
(9,526)
39,318
109,893
108,793
1,100
109,893
$
$
$
(22,391)
(2,866)
(19,525)
(8,063)
386
(7,677)
(27,202)
21,796
(5,406)
39,571
38,699
872
39,571
$
$
$
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Guardian Capital Group Limited
Consolidated
Statements of
Equity
For the years ended December 31 ($ in thousands)
2016
2015
Total equity, beginning of year
$
508,526
$
492,234
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 of (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 12d)
Capital stock acquired and cancelled (note 12c)
Acquisition of non-controlling interests (note 25)
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.
504,255
488,835
20,929
(661)
20,268
(21,563)
(2,200)
1,421
(22,342)
12,280
1,731
(39)
13,972
291,317
69,475
(9,736)
(23,204)
(183)
327,669
201,292
169,746
48,844
218,590
31,546
(9,526)
22,020
240,610
580,177
4,271
1,100
(78)
5,293
585,470
$
21,434
(505)
20,929
(19,890)
(1,740)
67
(21,563)
10,841
1,506
(67)
12,280
269,752
44,105
(8,648)
(13,892)
–
291,317
206,698
196,948
(27,202)
169,746
9,750
21,796
31,546
201,292
504,255
3,399
872
–
4,271
508,526
$
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Consolidated
Statements of
Cash Flow
For the years ended December 31 ($ in thousands)
2016
2015
Operating activities
Net earnings
Adjustments for:
Income taxes paid
Income tax expense
Net gains
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
Net acquisition of securities backing third party investor liabilities
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 proceeds from bank loans and borrowings
Acquisition of non-controlling interest (note 25)
Net funds from third party investors in consolidated mutual funds
Net cash (used in) from 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.
$
70,575
$
44,977
(10,624)
12,709
(38,617)
3,428
757
1,731
102
40,061
2,454
42,515
4,661
(88,821)
(5,422)
1,973
(723)
–
(88,332)
(9,736)
(23,865)
(2,200)
1,421
9,511
(261)
88,821
63,691
(574)
17,300
20,674
37,974
37,974
–
37,974
$
$
$
(9,855)
9,061
(11,040)
3,336
727
1,506
744
39,456
(5,679)
33,777
(15,273)
(4,077)
(3,126)
1,502
(901)
(3,548)
(25,423)
(8,648)
(14,397)
(1,740)
67
3,303
–
4,077
(17,338)
1,890
(7,094)
27,768
20,674
22,276
(1,602)
20,674
$
$
$
30
Guardian Capital Group Limited
Notes to
Consolidated
Financial
Statements
1. REPORTING ENTITY
Guardian Capital Group Limited (“Guardian”) is a publicly traded company with its common and class A shares listed on the Toronto Stock Exchange.
Guardian 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. Guardian, through its subsidiaries, 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 include the accounts of Guardian, its subsidiaries, and its interest in joint ventures (together, the “Company”)
and have been prepared under International Financial Reporting Standards (“IFRS”). These consolidated financial statements have been prepared on
a going concern basis and the historical cost basis, except for certain financial instruments that have been measured at fair value.
These consolidated financial statements were authorized for issuance by the Board of Directors of Guardian on February 22, 2017
(b) Basis of presentation
These consolidated financial statements are presented in Canadian dollars, which is Guardian’s functional currency. In these notes, all dollar
amounts and numbers 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 2015 comparative financial information in order to conform to the current period’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, intangible assets 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 statements 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 rights
that are currently exercisable and have no substantive barriers to exercise; agreements with other vote holders; rights from other contractual
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
significant 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.
(ii) Transactions eliminated on consolidation
All inter-company transactions, balances, income and expenses between the consolidated entities are eliminated on consolidation.
(iii) Non-controlling interests
Non-controlling interests in the equity of subsidiaries are shown as a component of the equity section of the consolidated balance sheet, to the
extent that they represent a residual interest in the Company’s assets.
(iv) Consolidated funds
When the Company consolidates an investment fund in which it invests, it records its proportionate share of the securities held by the fund as
Securities and the proportionate share of the securities attributable to third party investors as Securities backing third party investor liabilities.
The ownership interest in the fund attributable to third party investors is classified as a liability and recorded as Third party investor liabilities.
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(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 are translated at the reporting date exchange rates. 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 net gains 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, available for sale or loans and receivables. Financial liabilities are classified
as either held for trading or 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. all other financial instruments, which include loans & receivables and other financial liabilities, are measured at amortized cost using the
effective interest rate method.
(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.
(iii) Classification of the Company’s financial instruments
The Company’s financial instruments are classified as follows:
a. Loans & receivables are comprised of interest-bearing deposits with banks, accounts receivable and other, loans receivable, receivables
from clients and broker and securities at amortized cost.
b. Available for sale is comprised of securities, that are not classified in another category.
c. Held for trading is comprised of cash, the Company’s proportionate share of the securities held by consolidated investment funds, due on
securities sold short, derivative contracts and third party investor liabilities.
d. Other financial liabilities is comprised of bank loans and borrowings, client deposits, accounts payable and other, and payable to clients
(iv) Fair value hierarchy
Financial assets and liabilities measured at fair value are categorized using a fair value hierarchy which reflects the significance of the inputs
used in making 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) 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 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
limited 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.
(i) Intangible assets
Intangible assets represent new business costs (costs 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
32
Guardian Capital Group Limited
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
derecognized upon disposal or when they are fully amortized and no longer in use.
(j) 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.
(k) Goodwill
Goodwill represents the excess of the cost of acquisition of an acquired business over the fair value of the net identifiable tangible and intangible
assets of the acquired business 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.
(l) Impairment of non-financial assets
The Company annually reviews its indefinite-life, non-financial assets, which includes goodwill, for impairment. If the net carrying amount of an asset
exceeds its estimated recoverable amount, the asset is considered impaired and the excess amount is charged to Statement of Operations as an
impairment loss.
The Company annually reviews its finite-life, non-financial assets, including intangible assets and equipment, whether there are any indications
an asset may be impaired. If such indication exists, its carrying amount is compared to the estimated recoverable amount and any excess of the
carrying amount over recoverable amount is charged to net gains as an impairment loss.
Recoverable amount is considered to be the higher of the estimated fair value of asset, less the estimated cost to sell and the net present value
of future cash flow expected from the use of the asset.
(m) 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
outflow 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. Provi-
sions 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 obligation, the provision is reversed.
(n) Treasury stock
The Company accounts for its shares purchased and held by its subsidiary, the Guardian Capital Group Employee Profit Sharing Plan Trust (the
“EPSP Trust”), as treasury stock.
(o) 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 mea-
sured. 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
management 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, based on agreements with the clients or advisors. When the Company holds assets
or liabilities 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.
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(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 interest rate method.
(p) 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.
(q) Stock-based compensation
Stock-based compensation is accounted for under the fair value method, under which the compensation cost is measured at the fair value of the
equity instruments issued (“Stock-based entitlement”) and is expensed over the vesting period of the Stock-based entitlement.
Fair value of a Stock-based entitlement is determined on the issuance date and is the product of the fair value of the equity instrument and the
number of those instruments that are ultimately expected to vest.
Where a Stock-based entitlement has been modified, the incremental change in fair value of the Stock-based entitlement is expensed over the
remaining vesting period.
(r) Interest expense
Interest expense comprises interest payable on borrowings recognized using the effective interest rate method.
(s) Pensions
The Company operates a defined contribution pension plan, payments to the plan are charged as expenses as they are incurred. The Company
has no legal or constructive obligation to pay further contributions if the plan does not hold sufficient assets to pay all employees the benefits
relating to employee service in the current and prior periods.
(t) Net gains or losses
Net 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 securities or other assets recognized on a trade date basis, and adjustments to record any impairment in value.
(u) 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
comprehensive 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
deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which deductible temporary
differences 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 taxation authority and a legal right to set off exists.
(v) 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 earnings 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.
(w) 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.
(x) 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 the Company’s consolidated financial statements in certain future periods. The following is a description of these new
standards and amendments:
(i) 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. Based on the Company’s initial assessment, the implementation of IFRS 9 could result in reclassification of the
Company’s significant holdings in securities. The potential changes to the classification of these securities could have the effect of more net gains and
losses being recorded in Net Earnings rather than in Other Comprehensive Income. The Company continues to evaluate the impact IFRS 9 will have on
its consolidated financial statements.
34
Guardian Capital Group Limited
(ii) 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, 2018. Based on the Company’s initial assessment of IFRS 15, it is anticipated there will be no significant impact
to the manner in which the Company recognizes revenues. However, there may be some changes to how certain expenses associated with securing
those revenues are recognized. IFRS 15 requires the capitalization and amortization of certain incremental costs associated with the securing of new
revenue streams. The Company continues to evaluate the impact IFRS 15 will have on its consolidated financial statements
(iii) Leases
On January 13, 2016, the IASB issued IFRS 16 Leases (“IFRS 16”), which is to replace IAS 17 Leases. The standard provides a single lessee
accounting model, requiring lessees to recognize assets and liabilities for all leases unless the term is 12 months or less or the underlying
asset has a low value. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. The Company continues to evaluate the
impact IFRS 16 will have on its consolidated financial statements.
3. SECURITIES BACKING THIRD PARTY INVESTOR LIABILITIES and THIRD PARTY INVESTOR LIABILITIES
Securities backing third party investor liabilities represent third party investors’ proportionate interest in the assets of the consolidated investment
funds. They are classified as held for trading and are categorized as level 1, based upon the fair value hierarchy.
Third party investor liabilities represents third party investors’ proportionate ownership interest in the consolidated funds. The liabilities are
payable on redemption of the units of the funds by the third party investors and will be settled with the proceeds from disposition of securities
backing third party investor liabilities. The value of the liabilities is equal to and varies with the value of the securities backing third party investor
liabilities. The liabilities are classified as held for trading and are categorized as level 1, based upon the fair value hierarchy.
4. SECURITIES
(a) Classification of securities
An analysis of the Company’s securities by available for sale and held for trading classifications and by the type of security is as follows:
As at December 31
Available for sale securities:
Short-term securities (i)
Bonds
Fixed income funds
Equity investment funds
Bank of Montreal common shares (ii)
Other equity securities
Real estate fund (iii)
Held for trading securities (iv):
Equity securities
Securities
2016
2015
$
12,567
1,147
9,449
27,599
386,240
15,647
23,759
476,408
$
2,058
1,102
8,139
47,949
353,790
20,949
22,284
456,271
143,810
620,218
$
83,649
539,920
$
(i) Short-term securities shown above include non-controlled investment funds that hold short-term securities, as well as directly held short-term
securities.
(ii) During the year, the Company sold a total of 531 (2015 – 204) of the Bank of Montreal common shares. The gains on these sales are disclosed
in note 17.
(iii) As at December 31, 2016, the Company had a commitment to invest $35,000 (2015 -$25,000) in a real estate limited partnership managed
by a subsidiary of the Company. As at December 31, 2016, the Company had invested $23,166 (2015 - $21,488) in this fund.
(iv) Held for trading securities consist of the Company’s proportionate share of the securities held by investment funds which the Company
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controls and consolidates.
(b) Fair value hierarchy
The Company’s securities have been categorized based upon a fair value hierarchy as follows:
As at December 31
Level 1
Level 2(i)
Level 3(ii)
Securities
2016
548,424
59,427
12,367
620,218
$
$
2015
449,953
77,049
12,918
539,920
$
$
(i) Level 2 securities include investments in certain funds, and are valued using the net asset value of each fund.
(ii) Level 3 securities are substantially comprised of an investment in one entity which is valued based on a multiple of 4% (2015 – 4%) of the
assets managed by it. All level 3 securities are classified as available for sale.
(iii) During 2016 and 2015, there have been no transfers between Levels.
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2016 Annual Report
(c) Changes in Level 3
An analysis of the changes in securities categorized as Level 3 is as follows:
For the years ended December 31
Balance, beginning of year
Increase (decrease) in estimated fair value, recognized in other comprehensive income
Balance, end of year
5. INTANGIBLE ASSETS
A summary of the composition of and changes in the Company’s intangible assets is as follows:
2016
12,918
(551)
12,367
$
$
2015
5,973
6,945
12,918
$
$
For the years ended December 31
2016
2015
New
business
costs
Computer
software
Rights to
future
revenue
New
business
costs
Computer
software
Rights to
future
revenue
Total
Total
Cost:
Balance, beginning of year
Purchases
Arising on acquisition
Disposals
Foreign exchange translation adjustments
Balance, end of year
Accumulated amortization:
Balance, beginning of year
Amortization expense
Disposals
Impairment
Foreign exchange translation adjustments
Balance, end of year
$ 12,800 $ 3,911 $ 33,114 $ 49,825 $ 12,047
564
–
–
189
12,800
342
–
(116)
(37)
12,989
5,422
–
(1,345)
(39)
53,863
4,706
–
(1,176)
–
36,644
374
–
(53)
(2)
4,230
$ 3,702
196
–
–
13
3,911
$ 25,537
2,366
6,113
(902)
–
33,114
$ 41,286
3,126
6,113
(902)
202
49,825
10,055
850
(95)
–
(6)
10,804
3,227
423
(53)
–
(2)
3,595
8,167
2,155
(244)
–
–
10,078
21,449
3,428
(392)
–
(8)
24,477
8,340
978
–
695
42
10,055
2,806
409
–
–
12
3,227
6,349
1,949
(131)
–
–
8,167
17,495
3,336
( 131)
695
54
21,449
Carrying value, end of year
$ 2,185
$
635 $ 26,566 $ 29,386 $ 2,745
$
684
$ 24,947
$ 28,376
6. EQUIPMENT
A summary of the composition of and changes in the Company’s equipment is as follows:
For the years ended December 31
2016
2015
Office
equipment
Leasehold
improvements
Total
Office
equipment
Leasehold
improvements
Cost:
$
Balance, beginning of year
Purchases
Arising on acquisition
Disposals
Foreign exchange translation adjustments
Balance, end of year
8,059 $
366
–
(20)
(101)
8,304
3,328 $
357
–
–
(3)
3,682
11,387 $
723
–
(20)
(104)
11,986
Accumulated amortization:
Balance, beginning of year
Amortization expense
Reclassification
Disposals
Foreign exchange translation adjustments
Balance, end of year
5,530
539
–
(20)
(33)
6,016
1,798
218
–
–
(3)
2,013
7,328
757
–
(20)
(36)
8,029
$
6,864
871
28
–
296
8,059
4,916
520
28
–
66
5,530
$
3,282
30
–
–
16
3,328
1,574
207
–
–
17
1,798
Total
10,146
901
28
–
312
11,387
6,490
727
28
–
83
7,328
Carrying value, end of year
$
2,288 $
1,669 $
3,957 $
2,529
$
1,530
$
4,059
36
Guardian Capital Group Limited
7. GOODWILL
A summary of the changes in the Company’s goodwill is as follows:
For the years ended December 31
Balance, beginning of year
Arising on acquisition (note 24)
Balance, end of year
2016
15,014
–
15,014
$
$
2015
12,299
2,715
15,014
$
$
Goodwill acquired in business acquisitions is allocated to the cash generating units (“CGUs”) that are expected to benefit from the business
acquisitions. 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
2016
4,227
9,599
1,188
15,014
$
$
2015
4,227
9,599
1,188
15,014
$
$
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 2016 and 2015, based upon each CGU’s estimated fair
value, less costs 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 service fees
and first year commissions 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 2016 or 2015.
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
2016
1.00%
6
2015
1.00%
6
1.75%
1.75%
The following table shows for each CGU the amount by which the estimated 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
$
2016
89,256
42,424
–
$
2015
79,857
31,502
–
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).
Management believes that a possible reasonable change in key assumptions would not cause the carrying value in either financial advisory CGU
to exceed its fair value less the costs to sell. A reduction of the multiple used to value the investment management CGU to 1.65% from 1.75%
would reduce the estimated fair value less costs to sell of this CGU by $52 (2015 – $85).
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8. BANK LOANS AND BORROWINGS
Bank loans and borrowings are comprised of the following:
As at December 31
Net bank indebtedness (a)
Bankers’ acceptances payable (b)
Bank loan (b)
Bank loans and borrowings
2016
–
62,400
264
62,664
$
$
2015
1,602
53,100
53
54,755
$
$
37
2016 Annual Report
(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
maximum of $11,000 (2015 – $11,000), due on demand, secured by a general security agreement and securities valued at $77,248 (2015 –
$62,464), 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, 2016, the Company had no overdraft position. As at December 31,
2015 net bank indebtedness was comprised of overdraft positions of $43,256 and cash balances of $41,654.
On February 3, 2017, this facility was amended to increase the borrowing limit to $45,000 and eliminate the offsetting of overdraft positions
against cash balances, except for the calculation of interest.
(b) Bankers’ acceptances payable and bank loan
Under written loan agreements, the Company has $90,000 (2015 – $90,000) in borrowing 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 or bankers’ acceptances for periods
ranging from 30 to 270 days, at rates negotiated in the bankers’ acceptance market, plus 0.50%. These facilities are secured by the deposit
of treasury stock valued at $54,917 at December 31, 2016 (2015 – $41,521), and other securities valued at $111,044 at December 31, 2016
(2015 – $89,792).
The Company has, through its life insurance managing general agency subsidiary, a $2,000 (2015 - $2,000) loan facility with a Canadian
chartered bank, bearing interest at bank prime (2015 – bank prime), secured by a general security agreement on the subsidiary’s assets. No
amounts were drawn on the facility during 2016 or 2015.
9. PROVISIONS
From time to time, the Company is named as a party to claims, proceedings and investigations, including legal, regulatory and taxes, in the ordinary
course of its business. While it is often not possible to estimate the outcome of the various proceedings at any time, the Company makes provisions,
where possible, for the estimated outcome of such proceedings. Should any loss resulting from the resolution of any claims differ from these estimates,
the difference will be accounted for as a charge to income in that year. As at December 31, 2016 and 2015, there were no material provisions recorded.
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
2016
2,069
7,193
6,396
15,658
$
$
2015
2,077
7,684
8,615
18,376
$
$
During the year ended December 31, 2016, the Company recognized $2,539 (2015 – $2,443) of base rental costs in respect of these non-
cancellable leases.
11. INCOME TAXES
(a) Income tax expenses
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
Benefits from previously unrecognized tax losses or temporary differences
Income tax expense
2016
15,256
189
15,445
(1,637)
–
(1,099)
(2,736)
12,709
$
$
$
$
2015
8,769
(24)
8,745
311
5
–
316
9,061
38
Guardian Capital Group Limited
(b) Reconciliation of income tax expense to statutory rates
The income tax expense in the consolidated statements of operations is less than the tax computed using combined Federal and Provincial
statutory income tax rates of 26.5% (2015 – 26.5%) in 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
Benefits from previously unrecognized tax loss or temporary difference
Tax losses not recognized as deferred tax assets
Other
Income tax expense
2016
2015
$
22,070
$
14,320
(3,937)
(2,060)
866
(3,518)
313
(1,099)
–
74
12,709
$
(3,881)
(531)
(210)
(1,494)
318
–
565
(26)
9,061
$
The combined statutory income tax rate is the aggregate of the Federal income tax rate of 15.0% (2015 – 15.0%) and the Provincial income tax
rate of 11.5% (2015 – 11.5%).
(c) Deferred tax assets and liabilities
A summary of the composition of and changes in the Company’s deferred tax assets and liabilities is as follows:
For the year ended December 31, 2016
Deferred tax assets:
Balance, beginning of year
Recognized in net earnings
Balance, end of year
Deferred tax liabilities:
Balance, beginning of year
Recognized in net earnings
Recognized in other comprehensive income
Balance, end of year
For the year ended December 31, 2015
Deferred tax assets:
Balance, beginning of year
Recognized in net earnings
Balance, end of year
Deferred tax liabilities:
Balance, beginning of year
Recognized in net earnings
Recognized in other comprehensive income
Arising on acquisition (note 24)
Balance, end of year
$
$
$
$
$
$
$
$
Bank of
Montreal
shares
Other
securities
Capital loss
carry
forwards
Non-capital
loss carry
forwards
Equipment
and
intangibles
Other
temporary
differences
–
–
–
$
$
–
–
–
$
$
–
–
–
$
$
1,041 $
(214)
827
$
372 $
28
400
$
441 $
(50)
391
$
Total
1,854
(236)
1,618
46,624 $
(2,525)
6,855
50,954 $
(69) $
1,704
209
1,844 $
(46) $
38
–
(8) $
(13) $
(1,099)
–
(1,112) $
3,318 $
(162)
–
3,156 $
(2,094) $
(928)
–
(3,022) $
47,720
(2,972)
7,064
51,812
Bank of
Montreal
shares
Other
securities
Capital loss
carry
forwards
Non-capital
loss carry
forwards
Equipment
and
intangibles
Other
temporary
differences
Total
– $
–
– $
– $
–
– $
– $
–
– $
2,155 $
(1,114)
1,041 $
368 $
4
372 $
537 $
(96)
441 $
3,060
(1,206)
1,854
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49,693 $
–
(3,069)
–
46,624 $
15 $
100
(184)
–
(69) $
(47) $
1
–
–
(46) $
(13) $
–
–
–
(13) $
2,108 $
(410)
–
1,620
3,318 $
(1,513) $
(581)
–
–
(2,094) $
50,243
(890)
(3,253)
1,620
47,720
The Company has tax losses available of $1,011 (2015 – $4,092) whose benefit has not been recognized in these financial statements, as the
Company does not expect these losses, which have arisen 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.
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2016 Annual Report
(d) Other temporary differences
The aggregate amount of temporary differences between costs for accounting purposes and costs for income tax purposes arising from the
earnings accumulated in certain subsidiaries is $168,305 (2015 – $134,482), 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
2016
2015
Shares
Amount
Shares
Amount
Class A shares
Outstanding, beginning of year
Acquired and cancelled
Converted from common
Outstanding, end of year
Common shares
Outstanding, beginning of year
Acquired and cancelled
Converted to Class A
Outstanding, end of year
Total outstanding, end of year
26,979
(766)
473
26,686
4,349
(407)
(473)
3,469
30,155
$
$
19,878
(562)
114
19,430
1,051
(99)
(114)
838
20,268
(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
Purchased and cancelled
Class A
Common
Consideration paid
Less average issue price, charged to share capital
Excess consideration charged to retained earnings
(d) Dividends on common and Class A shares
For the years ended December 31
Dividends declared and paid, per share
27,368
(599)
210
26,979
4,777
(218)
(210)
4,349
31,328
2016
766
407
23,865
661
23,204
2016
0.33
$
$
$
$
$
$
$
$
20,279
(452)
51
19,878
1,155
(53)
(51)
1,051
20,929
2015
599
218
14,397
505
13,892
2015
0.29
The Company also declared dividends of $0.085 and $0.10 per share payable on January 18, 2017 and April 18, 2017, respectively, on the com-
mon and Class A shares outstanding.
40
Guardian Capital Group Limited
13. TREASURY STOCK
The Company provides Stock-based entitlements to certain senior employees of the Company through the EPSP Trust. The EPSP Trust purchases
shares of the Company that are related to these Stock-based entitlements, which are in the form of either equity-based entitlements or option-
like entitlements. The purchases are financed by a bank loan facility that is with a major chartered bank, which is secured by the shares held by
the EPSP Trust and a guarantee issued by the Company.
(a) Changes in treasury stock
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
2016
Shares
2,299
130
(237)
2,192
Amount
21,563
2,200
(1,421)
22,342
$
$
2015
$
$
Shares
2,204
101
(6)
2,299
Amount
19,890
1,740
(67)
21,563
During the year, the Company disposed of 206 (2015 – 6) of its class A shares and 31 (2015 – nil) of its common shares for amounts equal to
their costs.
As at December 31, 2016, the treasury stock was composed of 32 common shares (2015 – 63) and 2,160 class A shares (2015 – 2,236 shares).
(b) Equity-based entitlements
Equity-based entitlements allow the employees to acquire shares of the Company from the EPSP Trust at zero cost, subject to predetermined
vesting arrangements and other conditions. 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
Balance, beginning of year
Entitlements provided
Entitlements exercised
Balance, end of year
2016
803
130
(5)
928
2015
708
101
(6)
803
Equity-based entitlements provided during the year ended December 31, 2016 had a fair value of $2,200 (2015 – $1,740).
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 entitlement, treasury stock and contributed surplus are reduced for the value of the entitlement exercised.
(c) Option-like entitlements
The option-like entitlements allow the employees to purchase shares of the Company from the EPSP Trust at prices equal to the amount of the
borrowings per share pertaining to those shares, subject to predetermined vesting arrangements and other conditions. 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 option-like entitlements is as follows:
For the years ended December 31
2016
2015
Balance, beginning of year
Entitlements exercised
Balance, end of year
Weighted
average
exercise
price
8.95
5.97
9.49
$
$
Number of
shares
1,496
(232)
1,264
Number of
shares
1,496
–
1,496
$
$
Weighted
average
exercise
price
8.95
–
8.95
No option-like entitlements were provided during 2016 or 2015.
As at December 31, 2016, there were option-like entitlements outstanding for 2 common shares (2015 – 33) and 1,262 class A shares (2015 – 1,463).
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 exercise of an entitlement, treasury stock is reduced for the value of the entitlement exercised.
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2016 Annual Report
The following table summarizes information about option-like entitlements outstanding:
Number of
shares
Weighted
average
exercise
price
Vested
number of
shares
Weighted
average
exercise
price
As at December 31, 2016
$5.01 – $7.50
$7.51 – $10.00
$10.01 – $12.50
As at December 31, 2015
$5.01 – $7.50
$7.51 – $10.00
$10.01 – $12.50
14. MANAGEMENT FEE INCOME, NET
Management fee income, net is comprised of the following:
For the years ended December 31
Management fee income, gross
Less: fees paid to referring agents
Management fee income, net
15. DIVIDEND AND INTEREST INCOME
Dividend and interest income is composed of the following:
For the years ended December 31
Dividends on Bank of Montreal shares
Other dividends
Dividend income
Interest income
Dividend and interest income
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 pension plans
Stock-based compensation
Employee compensation and benefits
17. NET GAINS
Net gains are composed of the following:
For the years ended December 31
Held for trading securities, net (i)
Available for sale securities (ii)
Net gains on securities
Foreign exchange (losses) (iii)
Gains on disposition of intangible assets
Impairment of intangible assets (iv)
Gain on other liability (iv)
Net gains
42
124
876
264
1,264
355
877
264
1,496
$
$
$
$
6.51
9.35
11.36
9.49
6.15
9.35
11.36
8.95
124
846
264
1,234
355
729
264
1,348
2016
72,177
(3,996)
68,181
2016
14,442
5,383
19,825
1,706
21,531
2016
58,531
831
1,731
61,093
2016
13,080
25,161
38,241
(644)
1,020
–
–
38,617
$
$
$
$
$
$
$
$
$
$
$
$
6.51
9.34
11.36
9.49
6.15
9.28
11.36
8.86
2015
68,698
(3,264)
65,434
2015
15,175
4,667
19,842
1,257
21,099
2015
54,037
748
1,506
56,291
2015
2,823
8,709
11,532
(1,223)
731
(695)
695
11,040
$
$
$
$
$
$
$
$
Guardian Capital Group Limited
(i) Net gains on held for trading securities include net gains on Company’s proportionate share of the securities held by consolidated investment
funds, the securities backing third party investor liabilities and the appreciation or depreciation in third party investor liabilities.
(ii) Included in net gains on available for sale securities are gains on the sale of Bank of Montreal commons shares. Information pertaining to these
sales is as follows:
For the years ended December 31
Shares sold
Proceeds of sales
Gains
Income tax expense
$
2016
531
43,279
23,995
3,179
$
2015
204
15,412
8,047
453
(iii) Net losses on foreign exchange in the current year relate mainly 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’s results to Canadian dollars for the purpose of
consolidating into the Company’s results, an equal and offsetting gain is recorded in other comprehensive income.
(iv) In 2015, the Company evaluated for impairment the intangible assets acquired as part of the 2014 acquisition of GuardCap Asset Management Limited
(“GuardCap”). The Company determined the intangible assets were impaired and, as a result, they were written down by $695 and a loss was
recorded in net gains. In addition, the Company revised its best estimate of the present value of the deferred payment related to the GuardCap
acquisition and wrote down the liability by the same offsetting amount.
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
2016
2015
28,476
1,548
30,024
29,456
1,409
30,865
$
$
69,475
232
69,707
$
$
44,105
386
44,491
The effects of 775 (2015 – 877) 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.
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2016 Annual Report
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 involves the earning
of commissions from the sale of life insurance products, mutual funds and other securities, and the continuing service commissions related
to these products; 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.
(a) Business segments
The following table discloses certain information about these segments:
For the years ended December 31
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Investment
management
Financial
advisory
Corporate activities
and investments
Inter-segment
transactions
Consolidated
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 (losses)
Net earnings before income taxes
Income tax expense
Net earnings
Net earnings available to:
Shareholders
Non-controlling interests
$
– $
–
–
68,125
6,870
380
(85,163)
39,154
– $124,317 $115,676 $
–
–
64,773
5,320
118
(81,153)
34,523
–
7,357
679
42,559
–
7,683
678
– $
–
–
–
–
20,482
20,482
– $
–
–
–
–
20,301
20,301
75,375
70,211
47,515
35,127
344
215
32,555
360
213
17,328
3,376
190
15,567
3,168
177
8,638
465
592
19,500
55,186
18,727
51,855
15,666
36,560
13,544
32,456
(2,736)
6,959
8,169
535
638
(3,580)
5,762
10,955
20,189
(1,036)
19,153
5,288
14,539
11,087
25,626
902
$ 13,865 $ 12,524 $ 8,559 $ 7,729 $ 48,151 $ 24,724 $
13,523
38,639
52,162
4,011
18,356
(791)
17,565
5,041
10,103
744
10,847
3,118
11,969
3,410
1,014
$ 13,865 $ 12,524 $ 7,459 $ 6,857 $ 48,151 $ 24,724 $
–
$ 13,865 $ 12,524 $ 8,559 $ 7,729 $ 48,151 $ 24,724 $
872
–
1,100
–
–
(733) $
–
(733)
56
–
(9)
(686)
–
–
(160)
(526)
(686)
–
–
–
–
– $
–
(661)
500
–
1
(661) $123,584 $115,015
(81,153)
33,862
65,273
12,677
21,099
132,911
(85,163)
38,421
68,181
14,553
21,531
(160) 142,686
–
–
(160)
–
(160)
61,093
4,185
837
31,904
98,019
56,291
4,063
868
28,691
89,913
42,998
–
44,667
11,040
–
38,617
54,038
–
83,284
–
9,061
12,709
– $ 70,575 $ 44,977
– $
–
– $
– $ 69,475 $ 44,105
–
872
1,100
– $ 70,575 $ 44,977
Capital expenditure on segment assets
$
Intangible assets
Equipment
Segment assets and liabilities:
25 $
349
56 $ 5,235 $ 9,157 $
115
9
169
162 $
365
26 $
617
– $
–
– $ 5,422 $ 9,239
901
–
723
Assets
Liabilities
$109,371 $167,614 $ 132,095 $115,906 $ 795,683 $619,835 $ (54,887) $ (93,106) $982,262 $810,249
301,723
94,991 127,609 127,826 119,935 228,862 147,285
(93,106) 396,792
(54,887)
(b) Geographic segments
The Company also operates in various geographic regions. The following table discloses certain information about the Company’s activities by geography:
For the years end December 31
2016
2015
2016
2015
2016
2015
2016
2015
Canada
Rest of the world
Inter-segment transactions
Consolidated
Net revenue
$ 130,925
$ 125,827
$ 12,574
$
7,582
$
(813)
$
(498)
$ 142,686
$ 132,911
44
Guardian Capital Group Limited
As at December 31
2016
2015
2016
2015
2016
2015
2016
2015
Canada
Rest of the world
Inter-segment transactions
Consolidated
Segment non-current assets
Intangible assets
Equipment
Goodwill
$ 28,268
3,184
13,826
$ 27,186
3,174
13,826
$
$
1,118
773
1,188
1,190
885
1,188
$
$
–
–
–
–
–
–
$ 29,386
3,957
15,014
$ 28,376
4,059
15,014
20. NET CHANGE IN NON-CASH WORKING CAPITAL ITEMS
Net change in non-cash working capital items is comprised of the following:
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
Increase (decrease) in non-cash working capital liabilities
Client deposits
Accounts payable and other
Payable to clients
Net change in non-cash working capital items
2016
2015
$
$
38,082
(5,459)
(11,547)
(38,046)
7,877
11,547
2,454
$
$
(37,737)
425
(2,965)
37,768
(6,135)
2,965
(5,679)
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 of the Company’s 2016 Annual Report. The following
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 $386,240 (2015 – $353,790) 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 $38,624 (2015 –
$35,379) 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.
(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 trading securities, 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, 2016
Canada
United States
Rest of the World
As at December 31, 2015
Canada
United States
Rest of the World
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 comprehen-
sive income from
10% market change
in region
Fair value of held
for trading
securities
$
2,752
–
141,058
$ 143,810
±$
275
–
14,106
±$ 14,381
$ 34,898
12,007
20,100
$ 67,005
$
2,263
–
81,386
$ 83,649
±$
±$
226
–
8,139
8,365
$ 41,037
19,057
39,228
$ 99,322
±$
±$
±$
±$
3,490
1,201
2,010
6,701
4,104
1,906
3,923
9,933
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2016 Annual Report
The price risk associated with Securities backing third party investor liabilities are equal and off-setting by the appreciation or depreciation in
Third party liabilities. As a result, they have not been included in the above risk analysis.
(ii) Currency Risk
The Company’s main exposure to currency risk is on its investments in its foreign subsidiaries, amounting to $158,503 (2015 – $132,560).
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 $62,664 as at December 31, 2016 (2015 – $54,755).
The interest 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 the year, with all other variables held constant, the Company’s interest
expense would have been increased by approximately $565 (2015 – $569). The Company holds, $9,449 investment in fixed-income funds
managed by its subsidiaries as at December 31, 2016 (2015 – $8,139). The interest rate risk associated with these securities is managed by
monitoring the activities of the portfolio 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
$77,268 as at December 31, 2016 (2015 – $112,636), and the client deposits liability of $77,364 as at December 31, 2016 (2015 – $112,687).
This risk 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
Short-term securities
Bonds
Fixed income funds
2016
37,974
77,268
34,236
60,672
12,567
1,147
9,449
233,313
$
$
2015
22,276
112,636
28,961
49,125
2,058
1,102
8,139
224,297
$
$
The cash and interest-bearing deposits with banks and the majority of the accounts receivable 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 funds is managed by the periodic monitoring of 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. From time to time, advisors in the financial advisory segment may
owe advances received or amounts resulting from reversal of commissions. The credit risk associated with these amounts are mitigated by
management’s review of the advisors’ ability to repay the advances or the potential commission reversals, particularly in the MGA subsidiary,
before amounts are paid to the advisors.
(d) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities, which are sub-
stantially 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: shareholders’ equity 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
operating 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, 2016, the Company’s regulated businesses had
total regulatory capital amounting to $157,259 (2015 – $179,659). 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.
46
Guardian Capital Group Limited
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 beneficiaries. As at December 31, 2016, Minic beneficially owned 49.4% (2015 – 49.1%) of the Company’s outstanding common shares.
In 2016 and 2015, 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
2016
4,349
18
761
5,128
$
$
2015
3,769
18
642
4,429
$
$
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) Subsidiaries
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.
Guardian Capital LLC
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
Guardian Capital Group Limited Employee Profit Sharing Plan (ii)
Guardian Growth & Income Fund
AMG Guardian Capital Global Dividend Fund (iii)
Guardian Emerging Markets Equity Fund
Guardcap UCITS Funds PLC, Global Equity Fund
Guardcap UCITS Funds PLC, Emerging Markets Fund
Guardian Canadian Focused Equity Fund
2016
36
$
2015
11
$
Country of organization
Voting ownership interest
2016
2015
Canada
Canada
Canada
United Kingdom
Canada
United States
Canada
Canada
Canada
Canada
Cayman Islands
Cayman Islands
Cayman Islands
Barbados
Canada
Canada
United States
Canada
Ireland
Ireland
Canada
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
100%
100%
100%
100%
0%
77%
96%
57%
51%
100%
37%
100%
100%
100%
100%
100%
NA
100%
100%
100%
79%
100%
100%
100%
100%
0%
79%
73%
98%
95%
NA
100%
(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 life interests have a 20% (2015 – 21%)
voting ownership interest in IDC WIN.
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2016 Annual Report
The accumulated non-controlling interest in the Company’s accounts related to IDC WIN is as follows:
For the years ended December 31
Balance, beginning of year
Net earnings available to non-controlling interests
Acquisition of non-controlling interests (note 24)
Balance, 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
$
$
$
$
$
$
$
2016
4,271
1,100
(78)
5,293
2016
804
3,577
16,671
738
21,790
6,688
476
7,164
2016
25,832
6,452
6,452
$
$
$
$
$
$
$
2015
3,399
872
–
4,271
2015
672
2,760
13,756
943
18,131
9,658
297
9,955
2015
20,490
4,278
4,278
(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 7, Bank Loans and Borrowings, and note 12, Treasury Stock.
(iii) Formerly known as Aston Guardian Capital Global Dividend Fund.
(d) Joint venture
The Company’s joint venture is as follows:
As at December 31
Guardian Ethical Management Inc.
2016
2015
Country of organization
Voting ownership interest
Canada
50%
50%
Guardian Ethical Management Inc. (“GEM”) is an investment fund manager specializing in socially responsible investing mandates, which com-
plements 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
48
2016
758
241
999
$
$
2015
965
197
1,162
$
$
$
339
$
498
$
2016
498
–
–
$
2015
935
–
–
Guardian Capital Group Limited
On January 1, 2017, the Company acquired the remaining 50% of the voting interest of GEM from its joint venture party.
(e) Interest in unconsolidated structured entities
The Company sponsors and manages a number of investment funds for the purpose of efficiently investing monies on behalf of the Company’s
clients, who are the primary investors in these funds. These investment funds, 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 funds
either directly by the funds or by the investors. The following tables summarize the size of the unconsolidated investment funds managed by the
Company, and the Company’s interests in and transactions with those investment funds:
As at December 31
Net assets of unconsolidated investment funds
Company’s interests in unconsolidated investment funds
For the years ended December 31
Net revenues earned directly from unconsolidated investment funds
2016
$ 2,656,569
2015
$ 2,394,252
59,860
77,454
2016
8,807
2015
8,426
$
$
The Company’s maximum exposure to loss from its interest in these investment funds is limited to the amount of its investment.
24. ACQUISITIONS
(a) First Prairie Financial Inc.
On June 1, 2015, IDC WIN acquired First Prairie Financial Inc. (“First Prairie”), a leading regional MGA in Alberta. The key employees of First Prairie
entered into employment agreements with IDC WIN as part of the transaction. The acquisition further strengthens IDC WIN’s operations and its
presence in the Prairie region.
The accounting for the acquisition is as follows:
Fair value of consideration:
Cash on closing
Payments to be made over a period of 12 months
Total fair value of consideration
Fair value of identifiable net assets acquired:
Intangibles
Deferred tax liabilities
Net non-cash working capital
Other assets
Cash
Total fair value of identifiable net assets acquired
Goodwill
Net cash paid on closing is as follows:
Cash paid to vendors
Less cash acquired
Total fair value of consideration
$
$
$
$
3,625
3,625
7,250
6,113
(1,620)
(76)
41
77
4,535
2,715
3,625
(77)
3,548
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Goodwill, which is not deductible for income tax purposes, represents expectations that the Company will be able to maximize the value of the
contracts with major insurance carriers and that synergies will be realized to maximize the profitability of the combined business.
In 2015, the acquired business has contributed net revenue of $1,739 and net earnings of $612 to the Company’s results. If the acquisition had
occurred on January 1, 2015, management estimates that First Prairie would have earned net revenue of $2,981 and net earnings of $1,049
and, as a result, the Company’s reported net revenue and net earnings would have been approximately $134,153 and $45,414, 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 on January 1, 2015. Management has also assumed amortization of the intangible assets of $405 and a provision
for income taxes of $378.
49
2016 Annual Report
25. ACQUISITION OF NON-CONTROLLING INTERESTS
During 2016, the Company purchased for cash consideration of $261 a portion of the non-controlling interest in IDC WIN, thereby increasing the
Company’s ownership interest to 79.7% from 79.3%. The transaction was recorded in the equity accounts as follows:
Consideration paid
Carrying value of non-controlling interests
Excess consideration charged to retained earnings
$
$
261
78
183
50
Guardian Capital Group Limited
Directors
Principal Executives
BOARD OF
DIRECTORS
GUARDIAN CAPITAL
GROUP LIMITED
GUARDIAN
CAPITAL LP
James S. Anas •*
A. Michael Christodoulou
Petros 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 •
Hans-Georg Rudloff •
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
Portfolio Managers:
Denis Larose
Chief Investment Officer
Gary M. Chapman
Managing Director
Kevin R. Hall
Managing Director
Peter A. Hargrove
Managing Director
Srikanth G. Iyer
Managing Director
Stephen D. Kearns
Managing Director
Matthew D. Turner
Chief Compliance Officer
D. Edward Macklin
Managing Director
Michele J. Robitaille
Managing Director
Michael P. Weir
Managing Director
Darryl M. Workman
Vice-President,
Operations and
Administration
Donald Yi
Chief Financial Officer
Ernest B. Dunphy
Controller
E
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S
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2016 Annual Report
Principal Executives
GUARDIAN CAPITAL
ADVISORS LP
Anthony Messina
Managing Director,
Head of Private Wealth
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:
Denis Larose
Chief Investment Officer
Michael E. Barkley
Senior Vice-President
George E. Crowder
Senior Vice-President
Douglas G. Farley
Senior Vice-President
Michael G. Frisby
Senior Vice-President
Matthew D. Turner
Chief Compliance Officer
J. Matthew Baker
Vice-President
Donald Yi
Chief Financial Officer
Ernest B. Dunphy
Controller
Thierry Di Nallo
Vice-President
Christie F. Rose
Vice-President
GUARDCAP ASSET
MANAGEMENT LIMITED
WORLDSOURCE WEALTH
MANAGEMENT INC.
Paul Brown
Managing Director
John T. Hunt
Managing Director
Linda Kenny
Chief Financial Officer
Paige Wadden
Head of Compliance
Katharine Baran
Vice-President, Head of
Operations and Technology
Portfolio Managers:
Steve Bates
Chief Investment Officer
Michael Boyd
Investment Manager
Bojana Bidovec Kumar
Investment Manager
Clive Lloyd
Investment Manager
Joris Nathanson
Investment Manager
Orlaith O’Connor
Investment Manager
Edward R. Wallace
Investment Manager
Giles Warren
Investment Manager
Michael Hughes
Senior Vice-President
Arieta Koshutova
Chief Operating Officer
ALEXANDRIA TRUST
CORPORATION
ALEXANDRIA BANCORP
LIMITED
Robert F. Madden
Director
Robert F. Madden
General Manager
Derrick Harper
Chief Financial Officer
Investment Committee:
Andrew Barnicke
A. Michael Christodoulou
Kevin Hall
George Mavroudis
GUARDIAN CAPITAL
REAL ESTATE INC.
A. Michael Christodoulou
Managing Director
Frank Bartello
Senior Vice-President of
Acquisitions and Asset
Management
Joshua Hamer
Vice-President of
Acquisitions and Asset
Management
52
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 12, 2017
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
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53
2016 Annual Report
2016
Annual
Report
GUARDIAN CAPITAL
GROUP LIMITED