Fiscal 2020 Annual Report

Letter from the President & CEO

Fellow Shareholders,

At the time of this report, the world is working together to fight a healthcare crisis that has had an unprecedented impact on businesses and economies across the globe. It has also had a profound impact on our daily lives, both personally and professionally, and we are adapting to new ways of fostering our connections as we support our employees and clients.

Although we could not have predicted the dramatic change in our operating environment, the strategies that we have implemented in recent years have served us well through the crisis and will continue to enhance value for our business and our shareholders well into the future.

Our firm-wide business continuity plan is designed to ensure that we can provide uninterrupted service for CG clients in all our businesses and geographies, while managing our exposure to risk and maintaining compliance with best practices and regulatory requirements.

In recent years, we’ve made significant investments to advance the infrastructure, technology and trading platforms across our organization, and we rigorously stress-test our protocols, capacity and capabilities. These critical investments have provided resilience and flexibility for today and will continue to support our ambitions for the future.

Within a matter of days, our teams in all geographies transitioned to a remote work setting, with all businesses collaborating seamlessly in a secure environment. Our trading and specialty desks managed through heightened volatility with no technology interruptions, and we have since been able to create thousands of virtual touchpoints for our clients across our wealth management and capital markets businesses.

Our commitment to investing in our people and strengthening our firm-wide culture has enhanced our operational resilience and made us an increasingly stronger firm.

Our first priority was, and continues to be, protecting the health and safety of our employees and clients. We established dedicated response teams in each business and geography, and engaged in frequent and transparent communications with our employees.

The response from employees across the organization has been extraordinary, and it has been incredible to see our core values represented so strongly. The commitment from our IT and operations teams has exceeded all expectations. In the days and weeks following the historic market rout, our wealth management and capital markets teams mobilized quickly to identify the clients that needed us most, and put forth remarkable efforts to support them.

We are fortunate to have entered this environment with a solid financial position, and the agility to support our business through unprecedented market turmoil.

Our financial performance for fiscal 2020 reflects the underlying strength and stability that we have achieved across all our businesses and geographies.

The operating backdrop during the first half of our fiscal year was impacted by an uncertain interest rate environment, trade wars, and ongoing confusion surrounding Brexit. While some of this uncertainty was alleviated mid-year, the onset of the Covid-19 pandemic led to an abrupt market downturn late in our fourth quarter.

There was a time when such events would have had a more profound impact on our profitability, but I am pleased to report that we delivered a solid financial result. Canaccord Genuity Group Inc. earned firm-wide revenue of $1.2 billion, making fiscal 2020 the third consecutive year that our revenues have surpassed $1 billion. Excluding significant items(1), diluted earnings per share amounted to $0.81, a modest improvement from $0.80 in the prior year, notwithstanding the significantly higher market volatility.

Our performance is a testament to our efforts to increase net income contributions from our global wealth management businesses, while intensifying our focus on growing our share of higher margin capital markets activities, with a particular emphasis on advisory. As you will see in the pages of this report, we have made excellent progress against both objectives.

Despite the impact of the abrupt market downturn in March, which impacted the value of our client assets and the revenue and net income associated with them, our global wealth management businesses contributed 57% of the diluted earnings per share(1) from our combined operating businesses for the fiscal year. While the value of our client assets naturally declined from their peak of $73 billion, in line with the broader market, the responsiveness of our investment professionals in all regions helped us to attract new client assets while limiting outflows. We anticipate further benefits from these efforts into the coming fiscal year.

During the fiscal year, we made additional progress to support the growth of our wealth management businesses in all regions. Our acquisition of the private client businesses of Thomas Miller in the UK and the Isle of Man further expands our regional footprint, while enhancing our financial planning capability. In Canada, we continued to experience steady recruiting momentum throughout the fiscal year as we focused on attracting high quality advisors with stable and scalable books of business. We have been purposeful about driving collaboration between our wealth and capital markets teams in this region, which has contributed to improved financial stability in both segments. Expanding upon this strategy, we welcomed Patersons Securities in October, adding significant scale to our Australian wealth management business and expanding our national footprint in this very important geography.

Healthy levels of client engagement and increased cross-border collaboration supported a productive year for our global capital markets businesses, and our efforts to diversify our revenue mix have further enhanced stability in this segment. In the context of lower overall industry volumes for capital raising, full-year advisory revenue improved by 46% year over year, reflecting our organic growth initiatives and the contributions from our expanded US business. Fiscal 2020 revenue earned by our global capital markets businesses amounted to $689 million and the adjusted(1) pre-tax net income for the fiscal year was a healthy $60 million, both very solid results by historical standards.

Our expanded US capital markets business contributed more than 50% of global capital markets revenue, and this business has become an increasingly stronger competitor in the technology and life sciences sectors, which are positioned to benefit from the changes in our operating environment. Although revenue in our Canadian capital markets business decreased when compared to an exceptionally strong prior fiscal year, we continue to be a top-ranked domestic underwriter in the country. For fiscal 2020, this team ranked #1 for IPOs and was the #1 equities underwriter by number of deals, based on league table data provided by FP Infomart. Looking outside of North America, the revenue contribution from our Australian capital markets business improved markedly in the second half of the fiscal year, attributable to increased small- and mid-cap financing activities, with particularly strong growth in the mining sector. By refocusing our UK & Europe capital markets operations, this business achieved profitability for the full fiscal year and we were also able to unlock capital for deployment into our firm-wide strengths.

All markets present challenges and opportunities, and we recognize that it is our responsibility to navigate the challenges and find the right opportunities.

We know that this prolonged period of uncertainty and volatility requires everyone in our organization to be nimble and adaptable. More than ever, we are focused on leveraging our scale and resources to provide our clients with innovative products, advice and solutions as we navigate new market realities together.

Knowing that our response in a crisis shapes our future relationships, we are using this period of dislocation productively to advance our collaboration and client engagement practices, while expanding our digital capabilities to deliver excellent experiences for our employees and clients.

I am confident that we have the foundation to make fiscal 2021 incredibly productive.

Our diversified global platform has proven its strength in prior cycles, and our independence affords us a level of agility that allows us to meet the evolving needs of our clients in any market.

Although we anticipate continued fluctuations as we progress through the Covid-19 environment, we are pleased to be reporting positive inflows across our wealth management businesses, reflecting demand for advice-based solutions. Subsequent to the end of the fiscal year, we announced that Canaccord Genuity was selected as the platform provider for the launch of Morgan Stanley’s wealth management business in Canada. This development speaks to the breadth and quality of our capabilities and provides the impetus to further develop our discount brokerage, robo-advisory and advice-based offerings, in addition to our custody and clearing services.

In our capital markets businesses, secondary and follow-on offerings in healthcare, technology, cannabis and mining have been increasing, as issuers prepare for new challenges and opportunities. Our restructuring and fixed income practices have won several new mandates, and we expect that strategic activity will increase over the coming year. Unbiased advice is critical in markets like this, and we are not conflicted by the balance sheet, in contrast to many bank and bulge firms.

Having said that, we are navigating an unprecedented and evolving situation, and we are acutely aware of the impact that another market downturn could have on the value of our client assets, and the financial performance associated with those assets. A prolonged environment of low to negative interest rates will negatively impact the profitability connected with lending activities in our wealth management business. Additionally, despite a healthy pipeline of advisory activity in our capital markets businesses, persistent volatility will impact the timing of completions, which will reduce near-term contributions from this segment.

We do not see these as long-term threats, and we will remain focused on our strategic priorities and committed to operating our business for long-term value.

We continue to be very disciplined in managing our exposure to risk, with prudent oversight to ensure compliance with best practices and regulatory requirements.

We will protect the strength of our balance sheet and manage our capital prudently, just as we would in any market backdrop. In February, we announced our intention to reduce our annual cost base by approximately $20 million over the course of fiscal 2021. Given the change in our operating environment, we expect to be able to accelerate this strategy and achieve substantial cost savings within the first half of the fiscal year. This initiative will help us to achieve our sustainable margin growth objectives as conditions improve.

All our decisions will be guided by our long-term values, and we will continue to manage our business for stability and predictability. No matter what the environment presents, we are driven to aggressively add value for our clients and create long- term shareholder value as we strive to emerge from this crisis as a stronger company.

I would like to thank 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.

Wishing you safety and health,

Dan Daviau
President & CEO
Canaccord Genuity Group Inc.

We know that this prolonged period of uncertainty and volatility requires everyone in our organization to be nimble and adaptable. More than ever, we are focused on leveraging our scale and resources to provide our clients with innovative products, advice and solutions as we navigate new market realities together.

Dan Daviau
President & CEO
Canaccord Genuity Group Inc.

  • (1) These figures exclude significant items. Figures excluding significant items are non-IFRS measures. See Non-IFRS Measures on page 14 of our MD&A.