Letter from the President & CEO

Over the course of our 2023 fiscal year, an extraordinary confluence of events impacted the global capital markets in ways not experienced in decades. Against a backdrop of significant geopolitical turmoil, high inflation and rapid interest rate increases, the S&P 500, the S&P/TSX and the MSCI World indices posted negative returns of -7.7%, -5.2% and -7.0% respectively over the 12-month period.

When confronted with persistent headwinds, the business mix that helped us deliver record performances in prior years performed in line with our expectations, with contributions from wealth management and M&A advisory helping to offset the dramatic reduction in capital raising activity.

While our financial performance for the fiscal year fell below our targets, our multi-year strategy to diversify our business mix and reduce our reliance on underwriting activities contributed to our resilience, protecting our capacity to deliver differentiated services for our wealth management and capital markets clients in all our geographies.

Firm-wide revenue for the fiscal year amounted to $1.5 billion, a decrease of 26% when compared to the record achieved in the prior fiscal year. Excluding significant items⁽¹⁾, pre-tax net income amounted to $125.9 million, which translated to diluted earnings per share⁽¹⁾ of $0.59.

Several factors impacted our profitability over the fiscal year. Shortly after the onset of the global market downturn, we experienced sharp declines in the value of certain inventory and warrant positions earned in respect of our investment banking activities, which primarily impacted first quarter results in our Australian capital markets business, and, to a lesser degree, our Canadian business. Beginning in the third fiscal quarter, our quarterly interest expense increased as we continued our strategic activities, and our cost of financing increased.

We also recorded increased provisions and professional fees in our fourth quarter.

In prolonged difficult markets, our wealth management division is an important source of earnings power and stability.

All CG wealth businesses contributed to our firm-wide profitability, and together contributed adjusted pre-tax net income⁽¹⁾ of $126 million in fiscal 2023. We ended the fiscal year with client assets of $96 billion. Despite the impact of reduced asset values, we continued to experience positive inflows – bolstered by our acquisition and recruiting efforts – and we are attracting a greater share of wallet from our existing clients, reflecting increased demand for advice in challenging markets.

We also continued to invest in the growth of all our wealth businesses. Early in the fiscal year, we completed our acquisition of Punter Southall Wealth, which added scale to our financial planning and investment management business in the UK & Crown Dependencies. The impact of our integration efforts is reflected in the record commissions and fees revenue and the substantial increase in interest income in this business. Client assets in our Australian business increased by 2% year over year in connection with our recruiting activities in the region, and subsequent to the end of the fiscal year, we completed our acquisition of Mercer’s Canadian Private Wealth business.

Transaction volumes in our global capital markets businesses continued to be impacted by the challenging backdrop, consistent with industry trends.

On a consolidated basis, our capital markets division was modestly profitable in fiscal 2023. Historically, underwriting revenue has represented more than one-third of our total capital markets revenue, whereas it accounted for just 16% of fiscal 2023 revenue in this division. The metals and mining sector was most active throughout the fiscal year, comprising 51% of our new issue investment banking revenue.

Notwithstanding the substantially lower transaction volume, we continue to defend our strong market position among the league table leaders in each of our geographies. Industry data shows that CG continues to hold the distinction of being the most active mid-market dealer globally. With an unwavering commitment to supporting key growth sectors, we are differentiated by our ability to get things done in difficult markets, and driven by our commitment to helping entrepreneurs and innovators to advance their strategic and financial objectives.

While M&A activity in our core focus sectors remained comfortably above fiscal 2021 levels for the first half of the fiscal year, advisory revenue for the 12-month period declined by 26% when compared to the record achieved in fiscal 2022. The technology and consumer sectors were most active in this segment, reflecting our investments in expanding our US and European capabilities and the benefit of increasing collaboration between these teams.

And finally, our sales, trading and specialty desks remained steady, providing liquidity for our clients and supporting increased volumes during bouts of market volatility. Ongoing investments in our technology and infrastructure position us well to scale when volumes return.

We remain steadfastly committed to ensuring that Canaccord Genuity continues to exceed our clients’ expectations while we strive to achieve the best possible results for our shareholders.

In February, a management-led group including myself and our Chairman, David Kassie, along with officers and employees – together holding approximately 21.3% of the issued and outstanding shares of Canaccord Genuity Group Inc. – formally launched a bid to acquire all outstanding common shares of the Company at a price of $11.25 per share, which represented a substantial premium and certainty of value for our shareholders in a volatile market. We entered this process with a clear understanding of the opportunity, but also of the risks. Unfortunately, certain conditions to the offer, including regulatory approvals for change of control, were not received in time to permit completion of the offer prior to its expiry. With support from our Board of Directors, we continue to explore a range of opportunities to enhance value for our shareholders. I assure you that we will not entertain or commit to any option that would jeopardize the stability or competitive positioning of our business or our workforce.

To ensure that our decisions and actions are always in alignment with shareholders, we have long-standing programs in place to increase equity participation at all levels of our business. We estimate that almost 40% of our common shares are held by CG employees.

I continue to have great confidence in our future. We have come through an incredibly challenging period with our core strategy intact, and we are more committed to it than ever.

Although we are still navigating turbulent markets, our wealth management businesses are performing well, and we’re also seeing modest signs of improving activity levels in several of our key capital markets verticals. Our core business segments are well positioned to benefit from an upturn in investor sentiment and increasing risk tolerance. Capital raising activities remain low, but demand for capital among small and growth-oriented companies remains high, and we expect that our investing clients will inevitably become more active in supporting higher quality new issues in time. A solid pipeline of M&A engagements should support stronger performance in the coming year, provided markets are supportive for completions.

To ensure that our decisions and actions are always in alignment with shareholders, we have long-standing programs in place to increase equity participation at all levels of our business.

A strong culture of cost control has been integral to our long-term strategy, but in a lower revenue environment we incurred higher non-compensation expenses in connection with our ongoing development efforts and targeted investments in business development and talent retention efforts following two years of pandemic-related restrictions. Our fiscal 2023 compensation ratio was 62%, reflecting the softer revenue environment and the impact of a higher share price on our stock-based compensation. Looking forward, and absent a particularly poor performance in any of our businesses, we expect to be able to manage within our overall historical consolidated compensation ratios and achieve our firm-wide expense targets.

We have proven that we can be incredibly agile and productive in a broad range of challenging environments, and this one is no exception.

Each of our businesses, and all the disciplines that support them, have navigated persistently difficult markets in a much more constructive and positive way than in past downturns. Our strategy is supported by more than 2,800 CG colleagues spanning four continents who live up to our shared values in every interaction. I am grateful to all of them for their relentless hard work and commitment throughout this truly memorable year.

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 and a reconciliation of non-IFRS measures that exclude significant items to the applicable IFRS measures on page 24.