Fellow Shareholders:

Canaccord's expansion during fiscal 2012 has positioned our company as a leading, growth-focused independent investment bank – one that is global in its scope and service offering, but focused in client attention. Today, we provide our growing client base with opportunities from a broader range of sectors and geographies than ever before. And we're combining the core strengths, expertise and business relationships our professionals have developed in each of our markets to generate real value for our clients and shareholders.

During fiscal 2012, we significantly expanded our global reach and service offering through acquisitions in Europe and Australia. We achieved record advisory revenue, for the second consecutive year, underscoring the value of the investments we've made to build out our M&A and advisory capabilities. And we strengthened our wealth management division, growing our fee-based revenue and adding a strong, profitable wealth management business based in the UK. Most importantly, we accomplished all of this with a disciplined approach and a firm commitment to adhering to our stated acquisition criteria.

Building a foundation for long term success

Our expansion activities during fiscal 2012 centred around the acquisition of Collins Stewart Hawkpoint plc (CSHP) – a transformative transaction that closed at the end of our fiscal year. Through it, we grew Canaccord Genuity's global platform substantially, added important operational scale to our UK and US capital markets operations, and gained a profitable on-and-offshore UK-based wealth management business.

As contributions from the now integrated operations of CSHP were recorded in only the last seven days of our fiscal year, our 2012 results are not a true reflection of the capabilities our much larger firm now has. We expect the full potential of our improved earnings power will become evident over the next several years, as cost and revenue synergies of this powerful business combination converge with healthier market conditions to generate meaningful long term value for our shareholders.

Solid financial performance

On a global basis, Canaccord generated $605 million in revenue during fiscal 2012, a respectable achievement considering the precarious economic backdrop and market volatility that existed during much of the year, but a 25% decrease from the record revenue we generated during last year's much stronger market environment. Advisory revenue contributed more to our global revenue than ever before, with 18% of fiscal 2012 revenues coming from M&A and advisory activity – primarily generated by our Canadian investment banking team. In fact, 2012 was our second consecutive record year for advisory revenue. And we believe this exceptional performance is a precursor to what our expanded advisory team can generate in the years ahead with the addition of the strong European advisory franchise we gained through CSHP.

Acquisition-related activities and associated restructuring led to $57 million of significant expense items during the fiscal year. Including these expense items, Canaccord recorded a net loss of $21 million during fiscal 2012, or $(0.33) per common share. On a normalized basis, excluding all acquisition-related and restructuring expenses, Canaccord generated $25 million in net income during the year, or $0.25 per diluted common share.

Strong Balance Sheet

Canaccord's balance sheet remains strong and liquid. The corporate development initiatives we undertook during fiscal 2012 were financed largely through the issuance of cumulative, non-convertible preferred shares – a financing opportunity that allowed us to deploy low-cost capital to significantly strengthen our business. Approximately 18 million common shares were also issued to complete the transaction of CSHP on March 21. The value we received from this share issuance cannot be underestimated. By issuing 20% more common shares, we essentially doubled the earnings potential of our global business through the acquisition.

As at March 31, 2012, Canaccord had shareholders' equity of $992 million – a 31% increase compared to the same time last year – working capital of $331 million, and book value per share of $8.26.

Global capital markets capabilities

The capabilities of our global capital markets team were significantly bolstered this year through our expansion efforts. During fiscal 2012, we gained capabilities to operate on the Australian, Hong Kong, Singapore and Singapore Catalist stock exchanges. We now have investment banking teams in four more countries than last year. And we added five trading desks in four new financial centres.

The strength of our Canadian capital markets business was evident again this year. Generating 62% of Canaccord Genuity's global revenue, it continues to provide a solid foundation as we develop the strength of our operations in other geographies. In the US, in particular, we see opportunities to meaningfully increase margins and enhance revenue potential with the expanded team we gained from CSHP. As the strength of the US economy continues to improve, we believe the investments we're making to develop our business in this market will generate long term value.

In the UK, our focus is progressing away from initial integration activities to initiatives aimed at further capturing cost and revenue synergies. Our teams have come together successfully, and we're already seeing positive early results from our combined UK business. In fact, two new corporate clients have retained Canaccord Genuity as their broker in the weeks since the integration, firmly positioning us as a leading investment bank in the UK, with the second most retained corporate clients in this market(1).

During fiscal 2012, we also expanded our Asia-Pacific operations with the acquisition of a 50% interest in BGF Equities, now named Canaccord BGF. Our new partnership in Australia provides us with increased access to Australia's robust resource sector, and expanded our operations into Hong Kong. The acquisition was a major component of our unfolding Asia-Pacific strategy, and combined with our established investment banking business in mainland China and new operations in Singapore, we now provide our clients in the region with a full-service offering unmatched by other mid-market focused investment banks.

Advancing our wealth management platform

The growth of Canaccord's wealth management platform into the UK and European markets not only enhances the size and stability of this division's revenue streams, it positions us well to leverage the changing market dynamics in the UK wealth management industry. We believe opportunities to grow our client asset base will emerge as smaller industry participants face uneconomical operating costs due to increasing regulatory requirements. As a result, we are proactively investing in our IT infrastructure within our wealth management division, in anticipation of increased client activity.

Our Canadian wealth management operations continued to make meaningful progress in growing its fee-based revenue. At 18.5%, the division is now generating more revenue from recurring sources than at any other point in its history, and is growing its fee-based assets faster than any other Canadian investment dealer(2). Combined with the strong recurring revenue from Collins Stewart Wealth Management (CSWM), the division is now much better positioned to withstand fluctuating market conditions, while still providing enough leverage to capitalize on traditional trading activity in better market environments.

The view ahead

During fiscal 2012, we accomplished many important initiatives to build a strong foundation for Canaccord's long term success. It was a pivotal year for our firm, and one that will forever shape our company's future. In the year ahead, our priorities will be focused on leveraging the inherent value of the investments we made during 2012 – ensuring we best position and support our expanded team to generate the revenue and earnings power we know exists in our firm today.

Our commitment to generating long term shareholder value remains the basis of all our strategic decisions – especially as we navigate the Company in today's dynamic global economic environment. We're building a business that can better withstand market fluctuations, and is best positioned to serve the broader needs of our growing global client base. We're building a business our clients are loyal to, our employees are proud of, and our shareholders are rewarded by.


Paul D. Reynolds

President & Chief Executive Officer
May 2012

(1)Source: Hemscott. As of May 17, 2012
(2)Source: Investor Economics