Canaccord Genuity Group Inc.

David J. Kassie - Chairman and CEO Brad Kotush - EVP and CFO

Graham Ryding - TD Newcrest Paul Holden - CIBC Peter Lenardos - RBC Capital Sumit Malhotra - Scotia Capital

Thank you, operator, and thank you everyone for participating in our fourth quarter and fiscal 2015 year-end conference call. With me on the line is Brad Kotush, Chief Financial Officer of Canaccord Genuity Group Inc.

A reminder that our remarks and responses during today's call may contain forward-looking statements that involve risks and uncertainties related to the financial and operating results of Canaccord Genuity Group. The Company's actual results may differ materially from management's expectations for various reasons that are outlined in our cautionary statement and the discussions of risks in our MD&A and supplementary financial information, all of which were made available yesterday evening.

These documents can be found in the Investor Relations section of our Web-site at canaccordgenuitygroup.com and on SEDAR. During today's call, I will provide an overview of our fiscal fourth quarter and year-end results for the period ended March 31, 2015.

Afterwards, both Brad and I will be pleased to answer questions from institutional investors and analysts. Fiscal 2015 was a year where we saw our top line revenue grow to C$881 million while our net income excluding significant items declined by 43%.

This disappointing result was driven by significant macroeconomic events which began after a solid start to our fiscal year. While it was a year our clients were able to successfully leverage the strengths of our global platform, it was also a volatile year for global equity and commodity markets.

Activity levels in our core markets were impacted by the Scottish referendum, a sharp market correction during the fall, followed by dramatic drop in energy prices and a static business environment in the U.K. which was driven by the recent national elections and limited our activities in [midmarket] [ph] equities.

For the fiscal year, our U.K. capital markets business saw a year-over-year revenue decrease of 27%.

In the U.S., revenues decreased by 6% for the year. On a positive note, our Canadian capital markets business saw a year-over-year revenue increase of 38%.

I will discuss the performance of our various businesses later in my remarks but these are the predominant measures that drove our relative performance during fiscal 2015. The impact of foreign exchange rates and the declining Canadian dollar further magnified our losses outside of Canada which resulted in a greater impact on our overall performance.

During the second half of our fiscal year, we took steps to reduce fixed costs across our global business which led to the restructuring charge in our fourth quarter. We are committed to aggressively managing our costs against our revenue expectations in the current market environment.

Looking at our results for the fourth quarter of fiscal 2015, Canaccord Genuity Group earned C$233 million in revenue. Revenues for the quarter improved by 40% compared to the previous three-month period reflecting strengthening global market conditions.

Our total expenses for the year excluding significant items amounted to C$828 million and 94% of revenue, compared to 90% of total revenue in fiscal 2014. Excluding significant items, the Company recorded annual net income of C$39.3 million and diluted earnings per share of C$0.25.

In February, we took steps to streamline the leadership in operating structure of our global capital markets businesses in the U.K. and Europe and in North America.

As a result of these changes, the Company incurred a one-time restructuring charge of C$22 million during our fourth fiscal quarter which impacted our profitability for the year. Looking ahead, we expect this initiative will deliver approximately C$25 million in sustainable savings on an annual basis in a normalized market environment.

Despite the reduction in staffing levels, our compensation ratio for the fourth quarter was higher than previous periods at 64%, primarily due to the impact of the significant decrease in revenues for our capital markets business in the U.K. and Europe.

This is a temporary increase and reflects our commitment to retaining the people that we expect to deliver the strongest benefit as market conditions improve. As a result of reduced revenue forecast related to changes in the economic conditions in Singapore, the Company recorded a C$10 million impairment charge to the goodwill allocated to this business.

We note that this business has been consistently profitable since we acquired it as part of the Collins Stewart Hawkpoint transaction and we continue to be confident in its ability to generate long-term value for our firm. Against the challenging backdrop, we have maintained a solid capital position.

At the end of the fiscal year, our Company had C$427 million in working capital and C$322 million in cash and cash equivalents. In any market, we remain committed to returning capital to our shareholders.

During the fiscal year, the Company purchased 1,197,649 shares for cancellation under our normal course issuer bid buyback program. I'm also pleased to confirm that the Board of Directors has approved the dividend payment of C$0.05 for the fourth quarter bringing our total dividend distribution to C$0.25 for the year, reflecting our confidence in delivering on our business plan while continuing to maintain financial flexibility.

And now turning to the performance of our capital markets business, a welcome recovery in Canadian capital markets activity, which in combination with improved financing activity across all of our regions, provided a very strong start to our fiscal year. However, the heightened volatility that began late in our second quarter continued to impact our business during the third and fourth quarters which led to a postponement of transaction activity in all regions and decelerated the midmarket M&A cycle during the latter half of the year.

During the fiscal year, Canaccord Genuity led 85 transactions raising a total of C$4.6 billion. Our capital markets team participated in 340 transactions raising a total of over C$39 billion for global growth [indiscernible].

Our revenue streams continue to stabilize highlighting the value of the investments we have made to diversify our global platform. In fact, during fiscal 2015, only 4% of our total investment banking revenue was earned in the energy sector while 43% of our total investment banking revenues were earned in the technology and healthcare sectors.

For the fourth quarter, our global capital markets division generated revenue of C$159 million contributing to total revenue of C$613 million for fiscal 2015 and a decrease of 0.4% compared to the previous fiscal year. Despite a challenging global operating environment during fiscal 2015, we were able to increase our global investment banking revenues by 6% and global advisory revenues by 9% compared to the previous fiscal year.

Reflecting the broader trend of an improving M&A environment, fourth quarter revenues earned in our global advisory business improved by 20% to C$40 million compared to the same period last year. Our North American operations contributed C$22 million in advisory fees during the quarter, mostly attributed to our role as lead advisor in two significant transactions for The Intertain Group.

Our Canadian capital markets business earned revenues of C$48 million during the fourth quarter, a year-over-year increase of 12%, and total annual revenues of C$205 million. In the U.S., our capital markets operations earned C$57 million during the fourth quarter for a total of C$203 million for the fiscal year, a decrease of 6% compared to fiscal 2014 which was a record year for this business.

In the U.K. and Europe, geopolitical uncertainty led to a substantial decrease in transaction and advisory business in the region.

For the fiscal year, this business generated revenues of C$156 million, down 27% compared to the previous fiscal year. While it was a difficult period for capital raising activities, I am pleased to say that fourth quarter revenues from advisory fees in the U.K.

and Europe increased to C$16 million, a 93% improvement from the third fiscal quarter. Markets are responding positively to the recent election outcome and we expect that improving fundamentals for key sectors of the economy will reinvigorate our investment banking and advisory activity in the region.

For the fourth quarter, our Asia-Pacific operations increased capital markets revenues by 88% compared to the same period last year. For the fiscal year, this region generated revenues of C$50 million, a year-over-year improvement of 29%, driven primarily by the continued growth of our Australian business.

I am also pleased to say that our Australian business is ranked the number one independent investment bank and third overall by number of equity offerings in that market. During the fiscal year, we also announced the establishment of a dedicated investment banking and advisory practice in Dubai.

We expect this practice to be fully operational by the end of our second fiscal quarter which strongly positions Canaccord Genuity to service the increasing demand for global midmarket investment opportunities in the MENASA region. While we continue to uphold the commitment of cost containment across our capital markets business excluding significant items, our expenses as a percentage of revenue were 91% for the fiscal year, largely attributable to the softer operating conditions during the second half of our fiscal year and the geographic shift in our revenue composition which was led by our Canadian operation.

Although we expect some volatility to continue throughout fiscal 2016, I am optimistic about the outlook for worldwide equity markets and foreign capital markets business. We have a strong and diverse pipeline and an operating structure that has been carefully adjusted to deliver the strongest benefit for our clients and our shareholders in an evolving market environment.

In all our regions, we are delivering a consistent client experience and our uniquely global perspective has made Canaccord Genuity the partner of choice for companies focused on growth. Turning to the performance of our global wealth management operations, we continue to focus on improving the level of recurring revenues from our wealth management businesses to help offset the inherent earnings volatility of our capital markets business.

Our global wealth management business generated fourth quarter revenues of C$71 million contributing to total fiscal 2015 revenues of C$257 million, an improvement of 12% over the previous fiscal year. At the end of the fiscal year, Canaccord Genuity Wealth Management managed and administered just over C$33 billion in client assets, approximately 65% of which was through our U.K.

and European operations. We have made significant improvements to the infrastructure, advisor and product mix across our wealth management businesses, initiatives we expect will further contribute to increasing assets under management and ultimately delivering stable and consistent revenue growth for our business.

For our fourth quarter, our U.K. wealth management business generated C$36 million in revenue, contributing to fiscal 2015 revenue of C$126 million, an improvement of 11% compared to the last fiscal year.

We continue to aggressively pursue opportunities to increase the size and scale of this business with a goal of doubling our assets under management in the coming years. To support this growth, general and administrative expenses for the U.K.

wealth management business increased by C$1.2 million year-over-year, partially as a result of higher systems consulting expenses related to improving our back-office infrastructure. Our Canadian wealth management operations earned revenues of C$33 million during the fiscal fourth quarter.

For the fiscal year, revenues for this business totaled C$125 million, an increase of 13% compared to fiscal 2014. Over the past year we have made great strides in reducing losses and bringing this business closer to profitability.

Throughout the year, we made strategic investments to improve our Canadian wealth management offering and attract advisors with established books of business to our improved platform. We also launched our proprietary asset management product, Canaccord Genuity Global Portfolio Solutions which has been well received by existing and new clients.

Over time, we expect that growing investor participation in this offering will directly contribute to improving margins in our Canadian wealth management business. As a result of these initiatives, I am pleased to report that discretionary and fee-based assets under management in Canadian wealth management have reached C$1.6 billion, an improvement of 30% from the previous fiscal year.

Additionally, a disciplined focus on cost containment led to a year-over-year decrease of 10% in total expenses as a percentage of revenues for Canadian wealth management during fiscal 2015. Looking ahead, we will actively pursue strategic opportunities to increase our scale in our U.K.

wealth management business to generate a higher contribution of consistent stable revenue stream. For our Canadian wealth management business, we will continue to focus on growing our share of fee-based assets under management as we improve the quality and efficiency of this business and strive for long-term profitability.

We begin the fiscal year on solid footing and with a strong pipeline and a capable committed leadership team in place. Our priorities for the coming year will center on generating sustainable long-term profitability across all of our businesses.

We will strive to increase revenue per employee while safeguarding the depth and quality of service our clients expect. In the U.K.

and Europe, we look forward to restoring profitability and further establishing our position as a leading independent investment bank for the midmarket as geopolitical conditions improve. We will continue to invest in our global capabilities with a focus on improving client coverage in the areas where we can improve market share.

An example of this investing discipline is the recent addition of a U.S.-based REIT team which complements our existing real estate platform in Canada and the U.K. and Europe and allows us to deliver truly global sector expertise for our clients.

For our global wealth management business, we will strive to deliver a product mix which supports steady recurring revenue growth. In the U.K.

and Europe we will pursue increased scale in a prudent and disciplined manner with a focus on near-term earnings accretion. We expect volatile market conditions to persist through the year ahead.

That said, our initiatives to integrate our global businesses in combination with our ongoing commitment to cost containment will support improving margins over the near and long term. In closing, I would like to take a moment to say how much we appreciate so many of you reaching out to us following the tragic loss of our chief executive partner and friend Paul Reynolds.

I would like to thank all of our shareholders, our clients and our employees for your loyalty, trust and support through a period of continuous adjustment. It was around this time last year that Paul Reynolds highlighted our high employee ownership and unique entrepreneurial culture as factors which enabled us to successfully grow all of our businesses during a sustained period of change.

In recent months our resilience has been tested in many ways and I am proud of the people in this great firm. I would also like to thank our executive leadership team and my fellow Board members for their commitment to effective succession planning, past and future.

Leadership development has been an integral part of our talent management process from the time we began to combine our global businesses. In a business that continues to evolve, we have made it a priority to identify talent and building a strong pipeline of capable professionals who are prepared to step into critical leadership roles when needed.

The Board is committed to appointing a successor who possesses the necessary capabilities to advance the best interest of our business and our shareholders over the long term. We are engaged in a diligent selection process and we expect to appoint a new Chief Executive Officer during the first half of fiscal 2016.

I am personally committed to supporting this transition as we position the candidate and the firm for long-term success. Looking ahead, I am confident that we have an agile mix of global capabilities to continue to advance our core strengths and strengthen our profitability as we continue to differentiate ourselves as a leading global and independent investment bank focused on midmarket growth companies.

With that, Brad and I will be pleased to take questions from institutional investors and analysts. Operator, could you please open the line?

Thank you.

I'm just wondering, in the U.K. market on the M&A side, it was obviously a quiet year in fiscal 2015 for the overall market including yourselves, was there anything structural in there that led to the soft year or should we be looking at this as simply a lumpy area of capital markets and it was just particularly a quiet year that could rebound?

I think it's the latter, I think it was a quiet year, and as you're probably aware in the M&A cycle, particularly when there are macro events like the ones that occurred in the U.K., decision-makers tend to seize up and wait in terms of principal transactions, and I think that was the number one factor and hopefully with the election outcome activity will be restored both next year and going forward or the year we're in I should say.

Okay, great. And just following on that, on the actual or on your equity underwriting side, you're obviously more diversified than you have been in years past but is it fair to say that weak energy and material prices are still a material overhang on that part of your business in the U.K.?

It has not been a large part of our business in recent years. Historically it was.

But I think in all of our markets, a much better commodity cycle would clearly give us a lot of torque on our revenues and earnings, and as you heard I think in our percentage of investment banking revenue was something like less than 5%, so there's a lot of upside if we get into the good part of the commodity cycle no question.

Great. And then maybe just jumping to the U.S., the overall market there, equity underwriting looks fairly solid, how are you thinking about – are you disappointed at all with the quarter or the year or do you feel like this is a reasonable run rate for this platform?

From a revenue perspective, not bad. It was obviously down, not quite as good as the year before.

I think we can do better. We've added some additional talent as I mentioned on the REIT team and recently we've added some more talent as well.

So I think we're trying to move north in terms of revenue production, which obviously gives us a lot more torque on our earnings in the U.S. market but we're pretty pleased with the franchise that we have now, the scale that we have, we just like to keep increasing it.

Want to ask you a question on Canadian wealth management to start. I guess the question relates to the objective of achieving breakeven.

Did see an improvement on the net loss this quarter but not quite at breakeven yet. Is that something we should expect next quarter?

We're hoping that – obviously it depends on markets and revenues, et cetera, but certainly our goal for this year is to be breakeven or better and we're very committed to doing that. Obviously we need the cooperation of the market.

I don't think we need a big roaring bull market but we need activity obviously.

I believe that was an objective for the end of fiscal 2015, so I was just – market conditions didn't really cooperate, is that the barrier to achieving that target?

Yes, I think that's fair. We're pretty close but not quite there.

Okay. And then going back to the U.K.

capital markets, you've obviously highlighted a number of macro impediments consistently. How do you feel about where you're stacking up in the league table, or you can start by sort of reminding us of where you would stack up in the league table in terms of equity underwriting and if you're satisfied with where you were over the last year?

I think some of it has to do with was it your clients or the ones financing in a given year, and not this past year but the year before we happened to do quite a bit better in league tables, this year not quite as well. So obviously I'm not as happy with that.

I think again in our U.K. wholesale business, we have a lot of talented people, we'd like to add a few more people again to move the revenue bar north so that we can be consistently profitable in that business.

Having said that, this past year, it was disappointing because a combination of both market activity and the clients we happen to be serving out of the deals we were working on just didn't happen in this fiscal year.

Okay. And then in terms of the deals that you're working on but maybe haven't closed yet, i.e., the pipeline and specific to U.K., sounds like you're starting to feel better about the business, is that correct?

Somewhat, yes, [indiscernible].

Okay. In terms of compensation expense, so total comp I believe the previous target was something less than 60%, sort of a little bit above that this current year.

Is that still the target?

Yes, it is. We are very committed to getting our compensation ratio back under 60%.

There was a top decision to make it year-end and try to balance that objective with retaining our most talented people, in particular in the U.K. and U.S.

where the bonus pools were not material or not material enough and that's the balance I chose and recommended to the Board, the various boards and our Board of Directors to hit, but we are absolutely committed to getting back under 60% in the current fiscal year.

Okay. And then final question is with respect to the use of the NCIB and share repurchases.

Fiscal Q4 was a little bit of a [indiscernible] lower quarter for repurchases despite where the stock was trading, so wondering if there would be any change with respect to the pace of share repurchases going forward.

So I'll let Brad make a comment on that as well but we're going to continue to monitor that obviously in the context of the fiscal year we just completed in our commitment to return capital to shareholders whether through share buybacks or dividends. We had obviously as it turns out a pretty healthy dividend payout ratio.

So when you combine all that with the NCIB, we probably did that. Now we're in the new fiscal year, so we'll see how that goes.

Brad, do you want to make a comment?

Yes, I'll just add a little bit to that, Paul. If we take the common dividends and the NCIB taking our adjusted earnings, we returned close to 140% to shareholders.

So we're continuing to look at what the ratio would be and our current earnings profile and we'll act accordingly, but we are – we still have an active NCIB and we'll participate as appropriate in relation to what we're paying out in common dividends and our expected revenue.

Understood.

It's Peter Lenardos from RBC in London. A few questions please.

First of all, in the capital markets, we've noticed that non-comp expenses down quite a bit quarter on quarter. Could you maybe comment on why that is and if we should assume that this is the new run rate going forward?

I think, Peter, in a number of cases we [indiscernible] on the capital market side we had Q3 was a particularly disappointing quarter for us in expense increases. We talked a lot about it in that quarter.

Particularly there were some broken deal fees in the U.S. and other items that we had.

So those haven't recurred, and in addition with that revenue drop [this year] [ph] where sometimes there's a lag in expense reduction. So we dropped sequentially in our G&A in the order of C$5 million and we also had some reductions in what were put through our development cost.

So I would say that that's a run rate that we would aspire to.

Okay, thank you very much. And then second of all, on the pipeline in terms of conversion of the pipeline, I guess how does it compare now versus three months ago, would you say you are in a better position or the same position?

In all markets or any particular market?

I guess the main markets, U.S., U.K. and Canada?

I would say, it's nick better but not demonstrably at this point.

Okay. And then just any – I know the U.K.

election was just four weeks ago but have you seen any improvement [indiscernible] successful outcome of the election?

I think the cessation of seizing up on consideration of things and decision making has abated but I can't say there's buoyant activity one month later.

My first question is around capital and capital deployment opportunities. Maybe to start, David, when I look at net working capital position for the Company in and around C$430 million, where do you or how do you view the capitalization of the Company at that level and how much excess capital do you think you're operating with at this point?

I'll let Brad add to this but my view is that we are adequately capitalized but given our various businesses which include obviously bought deals and other positive capital events, I feel that we're operating at the right capital level right now. I would not describe us as in a huge surplus capital where we don't need that capital occasionally.

It is often we don't for many, many months during the year, but there's lots of times we do. Brad, do you want to add to that?

I think, David, that's a great description, I think it's consistent with things that we have said and we have sufficient capital for significantly increased earning capabilities, so we maintain that productive capacity in terms of our capital base and I think where we will stay and consistently that we have about C$100 million there that's available as I'll call it dry powder for enhanced business activity.

And to go back to that, I think you were clear on where buybacks fit into the pecking order and it would obviously depend on the earnings power of the Company being significantly higher than the regular dividend, but from an acquisition perspective certainly in the past six months to a year we've talked more about the possibility of adding scale to the U.K. and Europe wealth management franchise, maybe David if you could give us your viewpoint on what exactly the Company is looking to add there in terms of capability, number one?

And number two, from a sizing perspective, is there limits to how big you would want to go into that business on an acquisition specifically?

We're actively looking at alternatives and they range from smaller to bigger. I'll define bigger at the high-end is around our size.

If it's around our size, clearly we're going to have to contemplate different type of structure than an outright purchase.

And just to be clear, around your size in U.K. wealth?

That's correct, around our size in U.K. wealth in terms of assets under management.

Interestingly most of the people that we're talking to that are, call it, bigger than the small ones, that would be more tuck-ins, aren't all that interested in getting out of that business. So there might be a combination, et cetera.

It's really early days on all of that, so I don't want to get anybody too excited, but there is an opportunity we think obviously to scale the business and get our fair share of the synergies in doing so, but I'd say it's unlikely we're going to require to do certainly an equity financing for something very large if that was the concern certainly where our stock price is today. So I wouldn't contemplate that.

Thank you for that. So moving over to the operations side and focusing on we'll call it the adjusted numbers, so when I look at the full-year at about just over C$880 million of revenue, yet the expense metrics step back a little bit.

Even if I look at this quarter which I think featured a solid rebound in revenue, just comparing two quarters ago you had very similar revenue level yet the earnings power was materially higher than the C$0.05 you printed last night. So when you think about the expense base post the restructuring, are you confident that this result today truly featured what you would consider to be one timers and at this level of revenue, which again is pretty good, the profitability could be much better going forward?

I mean your comments and insights are good ones. It's exactly the conversation we've been having and we need to get a lot more profitability out of those types of revenue levels.

So as a senior management team we are very focused on doing that. That's easier said than done but we are very committed to doing that.

At these types of revenue levels, we should earn more money. Part of why we didn't obviously is the mix in particular to do with U.K.

And then lastly, and again as a new CEO for us to discuss this stuff with, just to go into the strategic positioning, a couple of years back between Collins Stewart and some of the Asia expansion, there was a really concerted effort to diversify geographically away from the reliance on Canada. Now the last couple of quarters we have seen some goodwill write-offs in Asia, we haven't heard as much about that business or Australia as we did a few years ago, when you look at the platform that Canaccord Genuity is now operating with globally, do you think it's more likely to see some scaling back or more likely to see further expansion?

If we're talking geographically, I think we're comfortable with where we are. We're doing, notwithstanding the impairment charge in Singapore, which I think has more to do with what it got allocated into the transaction, it's actually been consistently profitable, albeit it is a relatively small percentage of our profit.

Australia has done extremely well and has been growing with very, very strong leadership. I think what you'll see is more depth in the markets that we're in, that would be my observation.

I mean we opened a Dubai office but its primary purpose is to interact with our European and North American businesses.

And I said that was the last one but I can't resist one more here, and maybe just to go back to what the earnings power and profitability of the Company could look like in a respectable [tape] [ph] and the conversations I've had with investors, we look back not too long ago and between September 2013 or October 2013-September 2014, you had just under C$1 billion of revenue and about C$0.80 of earnings power over a full-year span, when you think about that level of C$1 billion in revenue and taking into account some of the repositioning/restructuring you've undertaken, do you have a view on where EPS should be or earnings should be based on that kind of top line environment?

I do. I'm not sure I should share it.

I would say what you said. It's been well noted and well analyzed by our senior management group and we would like to be able to do at least that what you identified with that type of revenue level.

I could just follow-up, Brad, on the C$25 million in savings, maybe just some color around how you see that being spread out across your different regions and the different expense lines?

Principally that's going to come from our U.K. operation and from U.S.

The reductions are going to show in terms of communications, technology, premise and equipment and it should be an overall reduction in some of the incentive compensation.

Great. And should I think, just given I think your headcount reductions were more weighted to the U.K., so should I think accordingly as far as a bit more of the expense reductions coming from the U.K.

versus U.S.?

I think that would be a good way of approximating it, Graham.

Okay, thank you very much everyone for being on with us, and if you have any follow-up questions, we are always available and I'd be delighted to have any follow-up interactions. So thanks very much for joining us.