Letter from the President & CEO

Fellow Shareholders,

Revenue for the full fiscal year was a record $1.2 billion, reflecting higher contributions from our global wealth management operations and increased capital raising and advisory activity in our core focus sectors, primarily in our North American capital markets business. On an adjusted⁽¹⁾ basis, Canaccord Genuity Group Inc. earned pre-tax net income of $135.6 million and diluted earnings per share of $0.80 for the fiscal year, a year-over-year improvement of 36%. We estimate that roughly half of this amount was contributed by our global wealth management operations and half from our global capital markets business.

During this period, we doubled client assets in our global wealth management businesses and increased contributions from higher margin businesses, with an emphasis on increasing our advisory activities. In the second half of fiscal 2019, we announced two acquisitions where we saw opportunities to add complementary growth in these areas:

The addition of Thomas Miller’s private client business in the UK and the Isle of Man contributes further growth in our client assets and expands our UK business. It also enhances our financial planning capabilities, as we look to expand our wealth management offering to meet the future planning needs of our growing client base. This transaction closed in May 2019.

In our capital markets business, the acquisition of mid-market advisory firm Petsky Prunier adds scale in our US business and creates an exceptional opportunity to diversify our revenue streams and improve earnings power through market cycles. The revenue growth and profitability impact of these developments will be more wholly reflected as we progress through the coming fiscal year.

We remain balanced in our capital allocation by maintaining capital to support the long-term growth of our business and returning excess capital to our shareholders. During the year we committed capital to grow our wealth management operations and to invest in complementary growth strategies that will make us a stronger capital markets competitor. We also repurchased and cancelled a total of 1,379,200 shares and we expect to increase our activity around our share repurchase program into fiscal 2020. In addition, I am pleased to announce that our Board of Directors has approved a supplemental dividend of $0.16, bringing our full fiscal year dividend payment to $0.20, an increase of 33% from a year ago.

Excluding significant items, our combined wealth management businesses contributed record pre-tax net income of $75.4 million for the fiscal year, up 31% from a year ago. This was achieved on revenue of $461.8 million, a year-over-year increase of 25%. We are entrusted with client assets of $65.7 billion globally.

With 73% of revenue derived from recurring, fee-based activities, our UK & European wealth management business is an important driver of our firm-wide stability. Despite increased development costs in connection with our growth initiatives, the adjusted pre-tax profit margin in this business was 19% for the fiscal year. We anticipate greater margin improvement over the coming years, as we unlock synergies and expand our financial planning capability to simultaneously deliver greater value for our clients and shareholders.

In Canada, our wealth management business delivered another year of impressive growth, with revenue of $206.8 million, of which 38% was from fee-based assets. Stabilizing market conditions, improved transaction activity and meaningful growth in managed assets supported an increase of client assets to $20.7 billion, while the average book size per IA team improved by 23% over the year, to $135.1 million. The adjusted pre-tax profit margin in this business continued to improve on a year-over-year basis, despite increased costs to support the growth of this segment. Recruiting momentum has remained strong and we have continued to solidify our position as a leading independent wealth management business in Canada, as our investment and improved reputation in recent years is making our platform increasingly attractive to established advisors.

Looking ahead, we anticipate that Australia will contribute a greater share of growth for our wealth management operations. Our increased investment in our Australian operation early in the fiscal year has given us a greater foothold in the region, from which we have been actively exploring opportunities to increase contributions from this segment.

Although we have placed a strong focus on adding scale in our wealth management businesses through acquisitions and recruiting, a key element of our strategy also involves organic growth through technological innovation, product development and the expansion of our client relationships to increase allocations toward advice-based services. Looking forward, we will continue to focus on asset and revenue growth with a greater emphasis on margin improvement.

While we better leverage our scale to generate efficiencies and drive organic growth, we are steadily improving our pre-tax profit margin as we move toward our goal of 20% for our combined global wealth management businesses by fiscal 2022, a material increase from 16% this year.

Without question, our industry was impacted by significant market headwinds during the fiscal year, largely driven by ongoing political uncertainty in the UK, a US federal government shutdown during our second half, and a rotation away from small-cap equities in Australia. Despite these challenges, our global capital markets operations earned annual revenue of $704.3 million and adjusted pre-tax net income of $80.4 million, year-over-year increases of 11% and 29%, respectively. Proficient integration of our sales, trading, research, investment banking and advisory efforts in all regions has helped drive incremental revenue growth and deeper relationships with our clients.

On a regional basis, our US operation was the most significant contributor of revenue for this segment and we expect that profitability in this business will continue to strengthen as we realize the benefits of the expanded advisory capability that has been driven both organically and through our acquisition of mid-market advisory firm Petsky Prunier. Our Canadian business was the strongest contributor to profitability, delivering adjusted pre-tax net income of $63.0 million, reflecting increased activity levels and our active involvement with numerous transactions in the cannabis sector. Commissions and fees revenue in this business also increased each quarter since we completed our acquisition of Jitneytrade in the first fiscal quarter.

Market uncertainty in Australia led to a difficult period for small-cap equities, but capital raising activities have recently reaccelerated, and the outcome of the recent federal election gives us optimism that this business will recover as activity levels improve.

And finally, despite a strong third quarter in the UK, the three-month period from January to March 2019 experienced an eight-year low for listings on both the LSE and AIM markets, a result of prolonged Brexit uncertainty, further compounded by fears of a global economic slowdown. We took steps to restructure this operation in our fourth quarter and a restructuring charge of $11.8 million has been recorded as a significant item for that period. A substantial headcount reduction will be reflected in our results for the first quarter of fiscal 2020 and we have also taken steps to rationalize our fixed costs, the impact of which will also be seen in the coming fiscal year.

As an independent investment bank, Canaccord Genuity occupies an increasingly vital role in supporting healthy economies in the regions where we live and work. By upholding a disciplined focus in the areas where we know we can add the most value, we protect our ability to form lasting partnerships with our clients and provide market-leading services at every stage of the business cycle.

We are excited about the opportunities ahead – and perhaps more importantly, we are advantageously positioned to manage through the inevitable challenges that this dynamic industry and its ever-changing operating environment present us. We continue to watch our expenses closely, and despite higher costs associated with increased activity levels and investments to support growth, we have modestly reduced our total expenses as a percentage of revenue on a year-over-year basis.

While we can’t predict changes in the market environment or regulatory or political challenges, we can ensure that we have a deep bench of talented and committed colleagues working together every day to deliver the very best outcomes for our clients and our shareholders.

We have continued to advance our employee development and diversity initiatives, as we endeavour to make Canaccord Genuity the employer of choice for talented professionals who want to build a rewarding career. And finally, the launch of our new CG brand identity in December marked a pivotal moment in our history, firmly establishing that we have become the better, stronger company that we have all worked so hard to build.

I would like to thank all our employees and directors for their ongoing commitment to our long-term strategy. And to my fellow shareholders, I thank you for your continued support and remind you that in everything we do, we are driven to increase the long-term value of our business for our clients and our valued investors.

Kind regards,

Dan Daviau
President & CEO
Canaccord Genuity Group Inc.