Fellow shareholders,
I am pleased to report that we delivered a significantly stronger result for our 2017 fiscal year. Canaccord Genuity Group earned total revenue of $879.5 million for the fiscal year. Excluding significant items, the Company recorded annual net income of $49.2 million and diluted earnings per common share of $0.32.
Headwinds due to reduced global trade, subdued business investments and policy uncertainty hindered global economic performance early in the year, but activity levels in our core focus sectors began to improve as investors put more money to work in the growth sectors of the global economy. Our capital raising and advisory activities increased steadily over the course of the 12-month period and, while still below historic levels, the year-over-year rebound has been dramatic when compared to the trough in the market cycle one year ago.
Additionally, investments we have made to strengthen our global wealth management operations over the course of the fiscal year have enabled us to advance our strategy of growing revenue and net income contributions from this segment, an important driver of long term stability for our business. Approximately 40% of pre-tax income from our operating businesses was contributed by our wealth management operations, providing a stable earnings foundation which we will continue to strengthen as we move forward with our strategy of increasing scale in this segment.
Delivering on our commitment to lower fixed costs sustainably
While our performance in the second half of the fiscal year – particularly in our fourth fiscal quarter – reflects accommodative market conditions, our result is also attributable to the steady progress we have made to better align our businesses and rationalize our global infrastructure over the last 18 months. I am pleased to report that we have exceeded many of our fixed cost reduction objectives, with an additional benefit from foreign exchange rates. Excluding significant items, total expenses as a percentage of revenue were 7.7 percentage points lower than last year. While certain expenses increased in connection with higher revenue generation, fiscal 2017 general and administrative expenses were 9.2% lower than in the previous year, a testament to our commitment to cost containment, an integral element of our partnership culture.
Positioned for increased profitability as we increase scale in our global wealth management operations
In order to increase earnings stability and our overall profitability, we have continued to make disciplined investments in our global wealth management operations. Throughout the year, we took steps to grow our operations in Canada and the UK & Europe, both organically and through strategic acquisitions of Advisory Teams and books of business. Investments to improve our staffing and product mix across our operations have helped to attract new assets and increase share of wallet from existing clients.
At the end of fiscal 2017, total assets under administration and management reached $38.6 billion, a year-over-year improvement of 18%. Globally, Canaccord Genuity Wealth Management generated $272.3 million in revenue, a year-over-year increase of 7.8%.
Our wealth management operation in the UK & Europe is an excellent model for the growth and business mix that we strive to achieve in other geographies. With almost 70% of revenue from recurring, fee-based business, this segment is less susceptible to market fluctuations and capable of delivering steady net income growth and stable profit margins throughout the cycle. Despite a currency headwind resulting from declines in the pound sterling, this business produced a record net income result of $27.6 million excluding significant items and before taxes for the fiscal year. When measured in local currency, assets under management in this business increased by 19.9% compared to the same period last year.
Our modern and highly scalable platform has delivered additional advantages for this business by enabling our teams to successfully manage elevated trading volumes during periods of market volatility, while also supporting our growth initiatives through the seamless integration of new clients and portfolios acquired throughout the year.
We also continued to advance our strategy of adding new investment Advisory Teams in our Canadian wealth management operations. Our independent platform provides an important advantage in attracting seasoned professionals who want to continue delivering highly personalized advice for their clients. The teams that have joined since we announced our private placement in October have contributed new assets of $1.7 billion. At the end of the fiscal year, total assets under administration and management in this business have grown to $13.2 billion, an improvement of 43.9% from a year ago.
Importantly, the average book size per Advisory Team in this business increased to almost $100 million at the end of fiscal 2017, a year-over-year improvement of 42%. While we have continued to increase revenue from fee-based activities, revenue generated from transactional activities has also strengthened, as clients more actively accessed the markets through our leadership in early-stage financing activities for key growth sectors of the economy.
Aligning our capital markets business for excellence in all market cycles
We have maintained a strong focus on positioning our business for long term success as global growth visibility improves. Last year, we made the decision to exit non-performing operations in our capital markets business and focus on serving key growth sectors of the economy. This disciplined approach allows us to provide globally integrated services which foster the development of long term client partnerships and provide superior revenue opportunities over an extended market cycle.
We have also made careful investments to recruit talented professionals to enhance our capabilities across our investment banking, advisory, and debt finance and restructuring businesses. Over the course of the year, we improved coordination across businesses and regions and added specialty sales and trading teams, initiatives which have helped us to expand client relationships and extract greater value from our existing operations. While we have reduced the size of our global capital markets workforce by 11% year over year, I am very pleased to report a 27.6% improvement in revenue per employee within this segment.
Our diversification efforts have also helped to insulate our business from the impact of a depressed commodity pricing environment. Over the course of the fiscal year, 74% of our total capital markets revenues were generated outside of Canada. While we are pleased to see increased activity in mining and energy and we have strong teams in place to service growing demand, our reliance on these sectors has also been greatly reduced. In fiscal 2017, 74% of total investment banking and advisory revenues were generated from non-resource sectors. While the energy sector remains an important focus for our firm, when measured against total firm-wide revenue, our exposure to the energy sector was less than 5%.
Achieving dominance as a focused and agile independent investment bank
Our global capital markets division generated revenue of $598.4 million in fiscal 2017. Revenue increased across all our geographies and we were profitable in each jurisdiction. While the year started slowly, momentum in new issue and advisory activity gradually improved over the course of the 12-month period, with the most significant improvement taking place during our fourth fiscal quarter.
Our Australian capital markets team has firmly established Canaccord Genuity as the dominant mid-market competitor in the region and delivered a record performance in fiscal 2017, with a year-over-year revenue increase of 91.7%. Our US operation also delivered a record performance, led by our expanded trading operation which generated a revenue increase of 21.3% compared to the previous fiscal year, a new high for this business. Activity levels in our Canadian capital markets operations continued to be softer than historic levels, but this group achieved a year-over-year improvement in investment banking of 131.5%. The collaboration between our origination group and our wealth management teams has allowed us to complete a number of early-stage financings as we deliver results for entrepreneurial clients.
Performance in our UK, Europe & Dubai business was impacted by a scarcity of equity issuance in the UK – driven by uncertainty following the Brexit referendum outcome – which began to reverse during the second half of the year. A dramatic improvement in performance culminated in the fourth fiscal quarter, primarily attributable to several significant advisory mandates led by our teams in the UK and Dubai.
The improving economic backdrop, coupled with the advancements we have made in our business, gives us reason to be optimistic about our future performance. However, we also remain prepared for the potential of increased volatility or a market downturn. While we have enjoyed steady gains in our advisory business, we also recognize that results can be variable depending on the timing of transactions closing.
In the UK, the recent outcome of the general election will undoubtedly lead to some uncertainty with respect to capital raising and advisory activity, but in the event that we experience increased volatility, we expect that trading operations in our capital markets and wealth management businesses in the region will benefit from increased trading activity, just as they did in the months following the Brexit referendum result. We have also proactively positioned this business for MiFID II, by focusing our equity research investment in key areas where we can lead by leveraging the benefits of our unique global perspective and improving our execution capabilities. Our proprietary stock screening and idea generation tool, Quest®, provides an additional competitive advantage in the UK and globally, both as a stand-alone offering and as a strong complement to our existing research offering.
Additionally, the reality of slower than anticipated change in Washington has brought a return of caution to equity capital markets in the US. However, we believe that the combination of higher earnings levels, an improving global economic backdrop and relatively available capital for growth sectors will support an operating environment that is constructive for our businesses.
Strategy at work: aligned, agile and focused on long term stability
With a lean and agile team and a disciplined focus on driving efficiencies throughout our business, we are fortunate to have a culture of professionals who operate with high integrity and a stronger net income focus.
I have said before that the outcome of any event is manageable for our business. While we continue to anticipate periodic increases in volatility levels as the markets react to the specifics of regulatory and policy changes, we continue to have a strong balance sheet to execute on our business plan, and our independence affords us the ability to harness opportunities and make adjustments as market conditions evolve.
Across our capital markets and wealth management operations, we will continue to compete on our ability to offer our clients highly relevant services and access to deep global expertise, which gives us a tremendous opportunity to lead the market in each of our businesses and geographies.
I would like to thank all of our employees, partners and directors for your ongoing efforts in delivering on our strategy through this transformational period for our business. While we still have some work to do, I am confident that our renewed partnership culture and our relentless commitment to improving stability across our operations will position us to deliver excellent results in the future.
Kind regards,
Dan Daviau
President & CEO
Canaccord Genuity Group Inc.
